Bond yields surged ~10% last week, pushing fixed rates to the brink of an increase. But as oil prices fell on Monday, so did bond yields and rate pressure accordingly.
The prospects for the Iran situation, and more specifically for the Straight of Hormuz, continue to have a decisive impact on fixed rates in the near term, and Bank of Canada decisions in the medium term. And we’re currently at the precipice: Any sustained rise in yields from here will likely result in a fixed rate increase.
If your mortgage is coming up for renewal, and you have not yet done so, it’s worth reserving a fixed mortgage rate. There is no downside risk to doing this, and you can decide to commit to it if the Iran situation re-escalates and rates increase.
On the variable rate front, financial markets project 0.75% BoC hikes within a year – again pending oil prices. Even a sustained drop in oil prices to the $70 range could still involve at least one hike within the next year. On the other hand, if the Canadian economy suffers a blow from recent US tariff threats, the BoC is likely to hold off on hikes altogether, allowing the dollar to devalue further.
Bank of Canada/OIS probabilities
