Five-year bond yield hits a 52-week high, keeping pressure on fixed mortgage rates

Borrowing costs for Canadian homeowners kept climbing on Monday, with no help from the Bank of Canada. The five-year Government of Canada bond yield, the main benchmark lenders use to price fixed-rate mortgages, reached a new 52-week high of 3.729%, according to Canadian Mortgage Trends.

That leaves the yield roughly 28 basis points above its September 8 close of 3.448%. The move is part of a broader global bond selloff driven by fears that high energy prices will keep inflation elevated.

How we got here

• September 2: the Bank of Canada holds its policy rate at 2.25%
• September 8: the five-year yield closes at 3.448%
• September 10: the yield jumps 16 basis points in a day to 3.64%, its highest since May 2024, the Globe and Mail reported
• September: BMO, National Bank, RBC and Scotiabank raise select fixed mortgage rates; increases across lenders range from 5 to 40 basis points, mostly 15 to 30, concentrated in three- and five-year terms
• September 28: the yield reaches 3.729%, a new 52-week high

Why yields are rising

In a September 21 speech, Bank of Canada Governor Tiff Macklem laid out the forces at work. Governments and businesses have increased borrowing, which pushes up longer-term yields, while higher oil prices and inflation have led markets to expect major central banks to raise policy rates, which lifts short-term yields. Canadian yields remain below U.S. levels, he noted, but they have risen here too.

Bond markets are already pricing tighter policy. On September 10, the Globe reported that swaps markets had priced in a 25-basis-point Bank of Canada hike by year-end and a second one in early 2027. Macklem said the Bank does not want to be too slow to respond if inflation pressures become more persistent.

How much room lenders have

Fixed rates had been unusually competitive. Calgary mortgage broker Joe Jacobs told the Globe that five-year fixed rates usually sit 1.2 to 1.6 percentage points above the bond yield, but some of the lowest available rates had been little more than 0.5 points above it. With rates then in the low-4% range, he expected them to move toward the mid- or high-4% range. That thin spread means further yield increases are likely to be passed through quickly.

The counter-argument

Yields can fall as fast as they rise. If the conflict in the Middle East eases and oil retreats, inflation fears could fade and bond prices recover. Macklem has also warned that new U.S. tariffs could roughly halve growth in the fourth quarter, to below 1%, and a weaker economy would argue against rate hikes, which would weigh on yields.

What it means for households

Fixed mortgage rates follow bond yields, not the Bank of Canada's policy rate, so they can rise even when the Bank holds. Buyers seeking pre-approval and homeowners renewing in the next few months may benefit from asking for a rate hold, which typically lasts several months and protects against further increases. Comparing offers from more than one lender, and checking whether a payment still fits the budget at a higher rate, remains prudent. This is general information, not personalized advice.

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