Fixed Mortgage Rates: Why They Move With Bond Yields

Toronto | Oct 2, 2025 — Canada’s fixed-rate mortgages continue to track the movement of Government of Canada bond yields, with today’s 5-year fixed conventional average holding around 4.68%. Unlike variable mortgages, which move in step with the Bank of Canada’s prime-linked rate, fixed mortgage pricing is set largely by bond markets.

Bond yields set the tone

Mortgage lenders typically peg their 3- to 5-year fixed offers to the 5-year Government of Canada bond yield plus a spread. When yields dip on weaker economic data or expectations of future BoC cuts, fixed mortgage rates often follow. This September’s manufacturing PMI at 47.7 highlighted contraction in factory activity, reinforcing bets for more easing and nudging yields lower.

Spreads matter too

It’s not a perfect one-to-one move. Lenders adjust spreads based on funding costs and competition, which means fixed rates may lag bond moves or move less sharply. A 10–15 bps fall in the 5-year yield might translate into just 5–10 bps lower mortgage quotes depending on liquidity conditions.

Borrower implications

• Renewals due in 3–6 months: Locking a rate hold now could capture any dip if yields continue to soften.
• Choosing terms: Shorter fixed terms (2–3 years) allow borrowers to re-align if the BoC cuts further into 2026, while 5-year terms provide stability in payments.
• Market watch: Keep an eye on inflation releases and BoC commentary—the biggest drivers of bond direction through year-end.

By the numbers (Oct 1)

• BoC policy rate: 2.50% (cut on Sept 17).
• 5-year fixed conventional average: 4.68%.
• Canadian Manufacturing PMI: 47.7 (Sept).