The global bond meltdown that has dominated the headlines in recent weeks is finally hitting home in Canada, literally.
This past week, the selloff pushed a key U.S. Treasury yield to the cusp of 5 per cent, which analysts say is an important psychological level for markets.
This recent surge in bond yields has been driven by the rise of oil prices in the Iran war, leading investors to anticipate higher monetary policy than expected.
Concerns about the United States’ fiscal health are also contributing. U.S. President Donald Trump’s promise last week to send a US$5,000 cheque to every American if the Republicans win the mid-term elections just fuelled worries about the country’s growing debt.
National Bank of Canada economists Daren King and Kyle Dahms said Canada has not been spared the surge in yields. The Canadian 5-year rate rose by 16 basis points last week to a two-year high of 3.65 per cent.
The problem for Canadians is that this bond yield serves a benchmark for 5-year fixed mortgage rates and last week these too started to rise.
“We’ve seen increases anywhere from like 20 basis points to almost 100 basis points with some lenders,” Clinton Wilkins of Clinton Wilkins Mortgage Team told Canadian Mortgage Trends . “The pricing seems to be all over the place.”
The rise in mortgage rates will erode the improvement in affordability in Canada’s housing market in recent years, say economists.
National Bank of Canada estimates that its Affordability Index that measures mortgage payments as a percentage of income will stay flat in the third quarter before rising 1.1 percentage points in the fourth, the first deterioration in affordability in three years.
As for higher borrowing rates, Canadians may just have to get used to it.
Vikram Rai, senior economist at Toronto Dominion Bank, argues that bond yields are likely to stay higher for longer.
Heavy government and corporate borrowing, reduced demand from traditional bond buyers and higher term premium are structural pressures that are not going away anytime soon, he said.
The U.S. Federal Reserve decides on interest rates Wednesday and markets odds of a hike are above 85 per cent.
So what’s this mean for the Bank of Canada?
According to markets, there is a 50/50 chance of a hike at the bank’s next meeting in October and more than 100 bps of hikes by the end of 2027, said BMO Capital Markets chief economist Douglas Porter.
Much will depend on how high and for how long energy prices go, and what happens in the trade dispute between Canada and the United States.
“Even this space would readily admit that any bad news on the first item (oil), or good news on the second (trade) will tip the bank into hiking,” he said in a note Friday.
With that in mind, keep an eye on Canada’s inflation numbers out today.
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Canadian household wealth eclipsed the $19 trillion mark for the first time in the second quarter, “a blow-away quarter” driven by the rally in stock markets.
Canadian households added $550 billion to their collective wealth, a 2.9 per cent jump from the quarter before, according to Statistics Canada’s latest national balance sheet, released Friday.
Household financial assets, which include stocks, underwent their strongest quarterly gain since the fourth quarter of 2020. Non-financial assets, which include residential real estate, edged upwards by just 0.5 per cent compared with the previous quarter.
Read the whole story here.
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- Today’s Data: Canada’s inflation numbers for August and factory sales for July
- Mark Carney wants the world’s biggest funds to invest billions in Canada. Will they buy in?
- Why America’s bond problem could become your mortgage problem
- Jean Charest: Canada will one day thank Donald Trump
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McLister on mortgages
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Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff and Bloomberg.
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Posthaste: The global bond blowup is starting to hit home — literally
2026-09-14 12:01:52
