The Canadian economy is facing a potential increase in government bond yields, with the five-year government bond yield hitting its peak for the year. There is a risk of reaching new cycle highs if the upcoming economic data does not provide some relief.
Despite the surge in bond yields and significant government stimulus, the Canadian economy remains vulnerable to multi-decade highs in policy rates. Forward rate markets are predicting two Bank of Canada rate cuts this year, starting as early as this summer. This is in contrast to the U.S., where rate cuts may take longer to materialize.
On the mortgage front, there was minimal activity this week, except for a slight increase in four-year fixed rates. However, this calm may be short-lived as the rising bond yields are expected to push up competitive fixed rates, especially for default-insured mortgages.
Bond markets are closely watching upcoming employment, inflation, and GDP reports in May, which could influence the Bank of Canada’s decision to cut rates in June or July. However, the U.S. economic situation may also impact Canada’s rate trajectory, leading to potential rate fluctuations before borrowing costs improve.
Overall, the Canadian economy is navigating through uncertain waters, with various factors influencing the direction of interest rates and mortgage rates. Stay tuned for updates on the evolving economic landscape.