canada latest news: Election spending and global jitters push Canadian mortgage rates upward

Canadian homebuyers who hesitated on locking in fixed mortgage rates are now facing a less favourable landscape as a confluence of factors, including domestic fiscal policy and global economic unease, are pushing borrowing costs higher. While international trade tensions contribute to market volatility, a closer look reveals a more complex interplay influencing bond yields and, consequently, fixed mortgage rates.

Earlier in April, Canadian mortgage shoppers saw enticing five-year fixed rates dip into the 3.7-per cent range, fueled partly by a flight to safety in bonds amidst global economic anxieties. However, this window of opportunity is closing as investor sentiment shifts.

Beyond the ebb and flow of tariff speculation, bond investors are increasingly concerned about the domestic political scene.

The substantial deficit pledges unveiled by the two leading political parties in the lead-up to next week’s federal election are raising concerns about future government borrowing and inflationary pressures.

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This anticipation of increased government debt is contributing to a gradual ascent in Canadian bond yields.Furthermore, global economic jitters, partly stemming from uncertainty surrounding U.S. monetary policy and geopolitical tensions, are also impacting investor confidence in haven assets. While U.S. events undoubtedly have a spillover effect, the Canadian market is also reacting to its own set of domestic economic signals and political promises.

The Government of Canada five-year bond yield, a key benchmark for fixed mortgage pricing, has steadily climbed from a low of 2.46 per cent on April 4 to the 2.8-per cent range.

This upward trend, influenced by both international and domestic factors, is prompting Canadian lenders to reassess their mortgage rate offerings.

Since the start of the week, discounted five-year fixed mortgage rates have risen by 10 basis points, and three-year terms have seen a 15-basis-point increase.

This pullback in discounts underscores the sensitivity of mortgage rates to movements in the bond market, driven by a broader range of economic and political uncertainties.

While current mortgage rates remain significantly higher than pre-pandemic levels, even these small increases add to the financial burden of homebuyers.

The lowest advertised five-year fixed rate of 3.79 per cent is often limited to insured mortgages, leaving a significant portion of the market facing higher borrowing costs, with uninsured rates now exceeding the 4 per cent threshold.

Looking ahead, predicting the short-term trajectory of fixed rates remains challenging. However, the influence of domestic fiscal policy and ongoing global economic unease suggest that bond yields are unlikely to return to their early April lows anytime soon.

In this environment of rate volatility, mortgage professionals advise borrowers to consider a rate hold, offering protection against potential increases while allowing them to benefit from any downward movements.

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