Canadian Mortgage Rates Jumped This Week, Pushed Up by US Yields

Canadian mortgage rates surged this week, and it wasn’t due to anything happening inside our own borders. The real culprit? Rising bond yields in the United States, where the economy remains red-hot despite aggressive rate hikes. That strength is fueling inflation fears, which in turn are spilling into Canada’s mortgage market.

Why Canadian Mortgage Rates Jumped This Week The US Federal Reserve’s benchmark interest rate is at a 16-year high, and yet the American economy shows few signs of slowing. This has sent US bond yields climbing, and thanks to our intertwined financial systems, Canadian bond yields followed suit. Since fixed mortgage rates in Canada are priced off government bond yields, the result was predictable: they jumped.

Even though the Bank of Canada hasn’t moved rates recently, mortgage borrowers are now paying more—proving once again how global markets dictate local realities. It’s a painful reminder that strong US economic momentum can send ripple effects across the border, pushing Canadian mortgage costs higher.

US Mortgages Are More Insulated From Short-Term Bond Volatility One reason Americans aren’t feeling the same kind of pinch is their longer mortgage terms. With most home loans locked in for 25 or 30 years, US borrowers aren’t forced to refinance or renew during rate spikes. In contrast, most Canadian mortgages reset every five years or sooner, making us more exposed to rate fluctuations in the bond market.

Canada’s Higher Debt Load Makes Rate Hikes Hit Harder Since 2008, US households have reduced debt substantially. But in Canada, household debt has continued to rise—largely due to housing. That leaves our economy far more sensitive to interest rate changes. When the Bank of Canada raises rates, Canadian households feel the impact quickly, making rate decisions here far more powerful.

US Productivity Is Up, While Canada Struggles Another key difference? Where the US is investing in business productivity, Canada’s borrowing has been funneled mostly into real estate. With the US investing in technology and infrastructure, their economy is growing in a way that’s more sustainable. Canada, on the other hand, is dealing with lower productivity and little return from our debt-heavy housing investments.

US Fiscal Policy Is Stimulating Growth Despite a ballooning fiscal deficit, the US government is pumping money into sectors like technology through the Chips and Science Act. That’s sparking innovation and attracting capital—boosting economic activity despite high rates. Meanwhile, Canada’s pandemic-era stimulus focused more on relief than growth, limiting long-term economic momentum.

The Bigger Picture: US Yields Are in the Driver’s Seat In normal times, Canadian mortgage rates are guided by our own central bank. But these days, rising US yields are pushing our rates higher regardless of the Bank of Canada’s stance. That’s a challenge, especially given Canada’s more fragile economy and elevated debt burden.

What’s Next? Rate Cuts Are Still Expected—Eventually Despite recent jumps, markets are still pricing in rate cuts. Bond markets expect the US Fed to reduce rates by 1% by the end of 2024. In Canada, expectations are even more aggressive, with forecasts calling for a 1.5% drop in the second half of the year.

BoC Governor Tiff Macklem has acknowledged that high mortgage rates are feeding into CPI inflation via shelter costs—meaning rate cuts may be needed not just to support the economy, but to bring inflation under control.

What It Means for You If you’re house hunting or renewing your mortgage in the next few months, don’t leave it to chance. Locking in a pre-approval can protect you from sudden rate hikes. With so many moving parts in the global economy, flexibility and preparation are your best tools.

Even if rates start to fall later this year, the path won’t be a straight line. US yields will continue to sway Canadian mortgage markets. And as long as US inflation remains a threat, don’t count on deep cuts—or quick ones—from the Fed or the BoC.

Fixed mortgage rates follow the 5-year Government of Canada bond yield closely — so if you’re wondering what’s behind this week’s increase.

Final Thoughts The US and Canadian economies may share a border, but they’re moving at different speeds. With US bond yields in the driver’s seat and Canada’s economy showing signs of stress, our mortgage rates are getting whiplashed from forces far beyond our control.