The current decline in the bonds market is good news for Canadian fixed-rate mortgage borrowers with rates heading lower.
As the bond market yields invert – as they did Monday in Canada – the cost to banks of borrowing in the market declines, meaning they are able to finance mortgages at a lower rate and pass savings on to customers.
It’s not all good news though because the inverted yield, also seen in US bonds, is often a foreteller of weakening economic conditions and potentially recession.
However, this risk is likely to mean that the BoC will remain highly cautious of increasing interest rates.
An outlook from TD Economics’ Beata Caranci and James Orlando suggests that Canada may need “the real interest rate to remain close to or below zero for a long period” with the deleveraging process only just starting.
There is a growing cohort of investors and analysts that believe the BoC’s next move on rates will be a cut and that is proving good news for variable rate mortgage borrowers too.
Janine White, vice-president of Ratesupermarket.ca told CBC News that rates will climb in the next couple of years but “for the rest of 2019 the prediction is that the variable rate is going to be stable and maybe has a chance of coming down."