Mortgage rates were a hot topic throughout 2013. Governments intervened in money markets to manipulate mortgage rates in both Canada and the US. While the US’ quantative easing (QE) program was focused on keeping rates low, Canadian policy makers were busy threatening rate increases and chiding banks for low mortgage rates. Looking back at 2013 we can see that the US won the rate manipulation game.
Quantative easing used the laws of supply and demand to drop bond yields and mortgage rates to record lows through the early summer of 2013. Knowing that QE is not a sustainable program bond traders began pricing in the end of the program by late summer. The effect was a modest rise in 5 year mortgage rates that remained for the balance of the year.
Government of Canada benchmark bond yields – 5 Year
Mortgage rates don’t move as erratically as bond yields as can be seen from the graphs. Although the posted mortgage rate graph is a poor depiction of what’s available in the market, it’s a common measure for the banks its trends are representative of rate changes.
Conventional Mortgage – 5 Year
The direct correlation of mortgage rates to bond yields is also evident from the graphs. The only drop in posted 5 year fixed mortgage rates happened just 2 weeks after the first significant drop in bond yields during the end of February. Likewise, the only increase in posted 5 year fixed mortgage rates happened just a week after bond yields hit 1.9% for the first time in 2013.
The evidence is clear. The United States Federal Reserve (the Fed) influences bond yields and bond yields have a direct impact on Canadian fixed mortgage rates. As always, I’ll be monitoring news coming out of the Fed closely to keep a pulse on Canadian fixed mortgage rates. Please contact me if I can be of an assistance with your 2014 mortgage planning.