🇨🇦 Bond yields surged ~10% last week, but as oil prices fell on Monday, fixed rates pulled back from the brink of🔼

Any sustained rise in yields from here will likely result in fixed rate increases

Markets project 0.75% BoC hikes within a year - pending oil prices

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Investors search tirelessly for market beating returns. Most never find them

But when some of the world’s most capable and informed CEOs confidently bet their companies on the future, investors run for the hills

Makes sense…

🇨🇦 Inflation slowed from 3.2% in May to 2.8% in June on lower gas prices

Excluding gas prices, inflation held steady at 2.2% month over month

However financial markets are currently pricing higher inflation, with 40% odds of a BoC hike in Oct, ~60% in Dec, 99% in 2027

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The BoC meets on Wed, with market odds at 10% for a cut

Last weeks jobs report surprised with unemployment declining to 6.5% -the lowest since Jan- giving the BoC no reason to move

Market odds remain undecided at 50% for a Dec hike, with economist consensus projecting a hold

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🇨🇦 Real GDP stabilized in April (0.5% growth vs 0.4% est.), preventing bond yields/fixed mortgage rates from dropping quickly

But the rate trend is your friend

Oil in the $60 range + CUSMA uncertainty should keep downward pressure on inflation and fixed rates through July

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Fixed mortgage rates have begun dropping, given lower oil prices and bond yields

If yields remain at current levels we’ll see 5 yr fixed rates in the 3.89% - 4.04% range, slightly less for 3 yr

However, stickier 🇺🇸 inflation will keep a near term floor on 🇨🇦 bonds/rates

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5 Year government of Canada bond yields break below 3%

~ flat since the beginning of 2026, before the Iran war broke out

If this holds, we'll see fixed mortgage rates drop 0.10 - 0.20% within 1-2 weeks

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🇨🇦's headline inflation in May surged to 3.2%, a 29 month high, due to higher energy prices

However, core inflation excluding energy was flat at 2.05%

With lower oil prices, the BoC is likely to hold, alongside downward pressure on bond yields/fixed rates

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Oil prices in the mid $70's is only moderately inflationary

This means a much lower likelihood of rate hikes, and adds buoyancy to stock markets

The big question now is whether these prices sustain

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