Hello, I would like to know if the increase in 5-year bond rates in the United States can influence 5-year fixed mortgage rates in Canada. Thank you.– Maia
The 5-year fixed mortgage rate is mainly influenced by the rate of Canada bonds of the same maturity, according to Hendrix Vachon, senior economist at Desjardins Group.
At the margin, he says, U.S. 5-year bond rates can influence Canadian rates and, by extension, mortgage rates.
Let’s go quietly.
“Canadian mortgage rates will depend more on Canadian bond rates,” says the economist. We take the rate of a 5-year federal government bond to which we add a risk premium that will fluctuate over time depending on the mood of the markets. »
In this regard, we have recently witnessed an increase in risk taking with the banking tensions observed in regional banks in the United States.
A mortgage rate is a retail rate. “There’s a pricing strategy behind it. At certain times of the year, the competition is higher. There will be promotions. It plays in the balance,” continues Mr. Vachon.
“Where American rates can have an influence, underlines Hendrix Vachon, is that there is still a limit to what Canadian and American rates diverge. There may be fluctuations, but if the general trend in rates is up, there is a good chance that Canadian rates will also follow and, therefore, that Canadian mortgage rates will eventually adjust upwards. We can have this transmission effect from American rates to Canadian rates. »
According to the Desjardins economist, the transmission effect is particularly true for long-term maturities, 10 years and more.
“The shorter the maturities, the more influence the Bank of Canada’s monetary policy has on rates,” he points out.
The difference can be explained by expectations on the evolution of the key rate between the two countries. In addition, the US rate may be incorporating a premium of a few points due to the uncertainty surrounding the raising of the US federal government debt ceiling.
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