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If you’ve been shopping recently for a fixed mortgage rate, it’s likely been a frustrating exercise. While confidence is growing that interest rates will soon decrease, the ride down has been turbulent so far – and anyone expecting it to calm in the near future will be disappointed.

Those keen to lock in can thank the bond market for the continuing volatility. Lenders use bond yields as the basis for fixed-rate mortgage pricing, so any movement among bonds directly affects fixed-rate mortgage shoppers. Unlike variable mortgage rates, which won’t ease until we see a concrete rate cut from the Bank of Canada, fixed mortgage rates can shift on a dime, based on bond yield sentiment.

This has been especially apparent as central banks prepare to unwind some of their pandemic-era policies – such as today’s higher interest rate environment. As a result, bond markets are on edge, and that’s made them hyperreactive.

Even the faintest suggestion that rates could remain higher for longer has the power to put yields on a new trajectory. Economic data, a speech by the head of a central bank, even geopolitical events – all have the ability to pile on, or shave off, the basis points.

The last 24 months are chock-full of yield-related whiplash. Back in the prehike heydays of early 2022, an uninsured five-year fixed rate could be had for as low as 2.44 per cent, while bond yields hovered in the 1.5-per-cent range. But markets reacted sharply to the rapid rate hikes. By the end of 2022, yields had soared by nearly two percentage points.

Things got even bumpier throughout 2023, as the central bank waffled on when its cycle of rate hikes could indeed end. Early-year sentiment that the hiking cycle was done saw yields dip below the 3-per-cent range – but the party was short-lived as the BoC increased rates again in January, March and July. Rate shoppers did enjoy a moment of reprieve in mid-March of last year when several regional U.S. and European banks defaulted. Yields slid roughly 50 basis points – or half a percentage point – on the news, resulting in fixed rates around 4.6 per cent, but few borrowers likely felt great about taking out their mortgage amid a black swan market event.

And to see how sensitive rates are to small shifts in economic outlooks, just look to the past two weeks for proof. After starting the year in the 3.2 to 3.4-per-cent range, five-year Government of Canada yields suddenly ticked up with force around mid-February, peaking at 3.8 per cent on the 13th. The culprit turned out to be a stronger-than-anticipated inflation report from the U.S., which saw a 0.4-per-cent increase to core prices.

The overall message to markets was that inflation pressures are broadening south of the border. Hot on the tail of strong employment and wage growth reports, it suddenly appeared all the more likely that the Fed will take longer with their pivot to rate cuts. This didn’t raise the possibility of an actual hike, mind you. But when it comes to yields, a suggestion is all it takes.

It was enough to move the dial for some Canadian mortgage lenders, as rates inched up by roughly 10 to 20 basis points. Fast forward to this week, with markets cheered by Canada’s own promising CPI reading of 2.9 per cent, and here we go again: The lowest discounted five-year fixed rate has settled back down to the 4.89-per-cent range, compared with around 5.1 per cent prior to the inflation report’s release. If you’re a fixed-rate borrower who locked in last week, are you lamenting that move today? Here we are, 10 rate hikes later, and a new fixed-rate normal roughly 250 basis points higher than where we started.

So, what options do mortgage shoppers have? While it’s natural to want to be strategic, timing the market can be a fool’s errand. But when is the right time to pull the trigger? The reality is, rarely will the mortgage market look perfect when you’re ready to buy a home – and rates can head in the wrong direction unexpectedly.

The best approach is always to choose a mortgage rate that is appropriate for your own personal situation. Fixed rates are a fit for those who are more risk-averse, and who are unlikely to break their mortgage in the near term. Variable rates can provide good value for borrowers who need the flexibility to change their mortgage term and are comfortable with more risk. For those seeking a compromise, a shorter-term mortgage can be the solution, on the assumption rates will be lower by renewal time.

James Laird is the co-founder of and president of CanWise Financial mortgage lender. Penelope Graham is the Director of Content at

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