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  • Writer's pictureJose Gustavo Salcedo

Mortgage Rates Expected to Drop Amidst Plunging Bond Yields

Updated: Dec 11, 2023

Introduction: In exciting news for mortgage shoppers and those with upcoming renewals, experts predict a decline in mortgage rates next week. This anticipated relief is attributed to a significant drop in bond yields, particularly the 5-year Government of Canada bond yield, which slid over 30 basis points in just one week.

Key Points:

1. Bond Yield Plummet:

  1.  The 5-year Government of Canada bond yield experienced a substantial decline of over 30 basis points in a week.

  2.  Currently, it is down more than 60 basis points from its recent high of 4.42% in early October.

2. Rate Relief Expectations:

  1. Industry experts suggest that lower bond yields usually precede a decrease in fixed mortgage rates.

  2. Ron Butler of Butler Mortgage predicts a potential drop of 20 to 40 basis points in fixed rates over the next two weeks.

3. Slow Rate Adjustments:

  1. Despite the significant drop in bond yields, experts caution that rate adjustments may not mirror the decline.

  2. Ryan Sims from TMG The Mortgage Group emphasizes the slow descent of rates, comparing it to the saying: “elevator on the way up, stairs on the way down.”

4. Risk Premiums and Economic Concerns:

  1.  Lenders and mortgage providers may retain risk premiums in their pricing due to concerns about a potential economic downturn.

  2.  Historical instances, such as March 2020 and the 2008 Financial Crisis, highlight how institutions tend to adjust rates cautiously in response to market uncertainties.

5. Market Signals and Rate Cut Predictions:

  1.  Economic data releases indicating a weakening economy have led to a decline in bond yields.

  2. Market expectations for rate cuts have increased, with bond markets pricing in 83% odds of a quarter-point rate cut by March 2024 and 81% odds of 50 basis points worth of cuts by June.

  3. The Bank of Canada could potentially cut rates earlier than initially anticipated, as signaled by Deputy BoC Governor Carolyn Rogers.

Conclusion: In summary, the mortgage landscape is poised for positive changes with the expected decline in rates following the plunge in bond yields. While the drop may not be as steep as some hope, it presents a welcomed opportunity for those navigating the mortgage market. Keep an eye on economic indicators and central bank decisions for further insights into the evolving mortgage rate landscape.

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