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After a short-lived upswing in bond yields last month that nudged some fixed mortgage rates higher, lenders are once again bringing them back down.

As we reported previously, a more than 40-basis-point (bps) surge in the Government of Canada bond yields in January caused some mortgage providers to pause their rate drops, and in some cases raise them slightly.

But as of this week, most providers were back to trimming their rate offerings. That included rate cuts by Scotiabank, TD and CIBC, which lowered select rates by 10-20 bps.

The average nationally available deep-discount 5-year fixed rate available right now is 5.07%, according to rate site That’s down from 5.82% in October.

Interest rates to continue trending lower

While rate-shoppers should expect some some fluctuation in rates going forward, the overall trend should continue to be downward, experts say.

“These movements in rates are not linear. There will be lots of bumps along the way, but the general trend will be down,” Ron Butler of Butler Mortgage told CMT.

“The ongoing consensus is that hikes are over for the major central banks, and now the focus is on the timing and velocity of cuts,” he added.

Mortgage broker and former investment banker Ryan Sims attributes the resumption of fixed rate reductions to lenders playing catch up with the sharp drop in yields seen in the last few months.

“Banks are taking a slow, methodical approach to lowering rates off of the yields, and so we are seeing some tweaking here and there,” he said. “I think there is so much bad news baked into yields right now, and as we get data out that suggest things may not be as bad as we think, it will lead to some yield ebbs and flows.”

As a result, expect continued volatility in both yields and fixed mortgage rates in the near term as more economic data is released, he says.

Canadians yields influenced heavily by the U.S.

Despite generally weak economic data in Canada, bond yields were pulled upward last month largely due to a rise in U.S. Treasuries.

“The Government of Canada 5-year bond is influenced by the U.S.,” Bruno Valko, Vice President of National Sales at RMG, pointed out in a recent note to subscribers. “And the direction the 10-year Treasury yields goes, so goes the 5-year bond in Canada.”

But recent moves in yields have been choppy given volatile and sometimes contradictory economic data in both countries.

In the U.S., initial jobless claims came in above consensus on Thursday, ADP payroll numbers were lower than expected and regional banks reported some “painful losses” in commercial lending.

But on Friday, U.S. employment figures for January “blew past expectations,” rising 353k positions against expectations of a 185k rise. December results were also revised sharply higher to 333k.

“And voila, bond yields are back on the rise again,” Valko said. “It’s a rollercoaster ride, difficult to predict [the future] as volatility is huge.”

Rate-cut expectations being reeled in

Even though the consensus is for a decline in interest rates over the course of the year, last week’s U.S. employment figures in particular caused markets to scale back their rate-cut expectations.

“The most interesting part to me was the almost instant revision to the Fed schedule for the remainder of 2024,” Sims noted.

Markets had gone from expecting six quarter-point Fed rate cuts in 2024 to four following the release of the employment figures. They also revised their timing for the first rate reduction from March to June.

“Since Canada follows the US, look for revisions to the BOC schedule as well,” Sims said.

Central bankers push back against rate-cut expectations

Central bankers on both sides of the border have been pushing back against markets’ increasingly aggressive rate-cut forecasts.

Following last week’s decision by the Federal Reserve to leave rates on hold, chair Jerome Powell said the the central bank is unlikely to start cutting rates by March as it awaits more signs that inflation is returning to its target.

Likewise, Bank of Canada governor Tiff Macklem last week told the House of Commons finance committee that even though monetary policy deliberations have shifted from “whether monetary policy is restrictive enough, to how long to maintain the current restrictive stance,” he said the Bank is also cautious to not start cutting rates prematurely.

“We’ve made a lot of progress [on getting inflation down] and we need to finish the job,” he said.

Before starting to think about rate cuts, Macklem said the Bank’s Governing Council wants to see further sustained easing of core inflation and be assured that inflation is on its way to the neutral target of 2%.

“You don’t want to lower [rates] until you’re convinced…that you’re really on a path to get [to 2% inflation], and that’s really where we are right now,” he said.

Forecasts from Canada’s Big 6 banks still see the Bank of Canada’s overnight target rate returning to at least 4.00% by the end of this year, a full percentage point below where it is now. TD and CIBC see the Bank lowering rates even further, to 3.50% by year-end.

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