Why fixed mortgage rates move (it's the bond market, not the Bank of Canada)
New fixed mortgage rates follow Government of Canada bond yields of a similar term, plus a spread for the lender's costs. The 5-year yield was 3.58% on Oct 29, 2026, and the average new insured 5-year fixed mortgage was 4.12% in Aug 2026, about 0.79 points above that month's yield.
Why do fixed mortgage rates follow bond yields?
A lender that promises you a rate for five years needs money that costs it a predictable amount for five years. The benchmark for that cost in Canada is the yield on 5-year Government of Canada bonds: the return investors demand to lend to the federal government for the same length of time. Banks raise much of their fixed-rate funding through deposits, GICs and their own bonds, and mortgages insured against default are often packaged into Canada Mortgage Bonds, whose yields sit just above Government of Canada bonds. When those yields rise, a lender's cost of funding a new 5-year mortgage rises with them, and its advertised rates follow, usually within days or a few weeks.
Yields move on expectations. If investors expect inflation to stay high, or the Bank of Canada to keep rates up for longer, they demand more to lock their money away, and 5-year yields climb. If they expect a slowdown and rate cuts, yields fall. That's why fixed rates can rise even while the Bank of Canada is holding, and fall even before it cuts: the bond market moves first, on what it thinks will happen.
How closely have fixed rates tracked bond yields since 2020?
| Month | 5-yr GoC yield | Avg new insured 5-yr+ fixed | Spread |
|---|---|---|---|
| Jun 2020 | 0.36% | 2.50% | 2.14 pts |
| Jun 2021 | 0.97% | 2.06% | 1.09 pts |
| Jun 2022 | 3.10% | 3.56% | 0.46 pts |
| Jun 2023 | 3.68% | 4.83% | 1.15 pts |
| Jun 2024 | 3.51% | 4.86% | 1.35 pts |
| Jun 2025 | 2.83% | 3.92% | 1.09 pts |
| Jun 2026 | 3.01% | 4.01% | 1.00 pts |
The two lines move together. In 2022, as the 5-year yield roughly tripled within a year, the average insured 5-year rate went from the 2s into the 5s. Since then both have come down part of the way. The chart of every month since 2015 is on the rate history page.
What is the spread lenders add on top of the bond yield?
The gap between the bond yield and your rate pays for the lender's funding beyond government bonds, the capital it must hold against the loan, servicing, the risk you prepay or default, and profit. In the June readings above it ranged from 0.46 to 2.14 points. It widens when lenders are nervous or competition is thin, and narrows in busy spring markets when lenders fight for volume.
Insured mortgages (under 20% down) carry less risk for the lender because the borrower pays for default insurance, and they cost less capital to hold, so their spread is usually smaller. In Aug 2026 the average new uninsured 5-year+ rate was 4.58% against 4.12% insured, a 0.46-point gap. See insured vs uninsured rates.
How much does a half-point move in bond yields cost a borrower?
| Mortgage | $400,00025-year amortization, monthly payments |
|---|---|
| Rate before | 4.12%Bank of Canada average new insured 5-yr+ fixed, Aug 2026 |
| Rate after | 4.62%the same rate plus 0.50 points |
| Monthly payment before | $2,130.18semi-annual compounding |
| Monthly payment after | $2,240.65 |
| Interest over 5 years before → after | $76,751 → $86,319 |
| Extra interest over the term | $9,568$110.47 a month more |
Open this example in the calculator →Computed Nov 2, 2026.
Where does the Bank of Canada fit in?
The Bank sets the policy rate, which drives prime and therefore variable rates directly, usually the day after an announcement. It affects fixed rates only indirectly, through what bond investors expect it to do over the next few years. Its Oct 28, 2026 increase to 2.50%, and its statement that there could be a need to increase the policy rate further, matter to fixed rates mainly because they shift those expectations. A decision the market already expected can leave fixed rates unchanged; a surprise can move them within hours. Track every decision on the Bank of Canada page.
What should you watch if you're shopping for a fixed rate?
- The 5-year Government of Canada yield, published daily by the Bank of Canada. A sustained rise usually shows up in advertised 5-year fixed rates within weeks.
- Inflation releases and Bank of Canada announcements, which move yields. The next announcement is Dec 9, 2026.
- The lenders' own pages, because spreads differ: our rate board shows the lowest rate we collected for each term with its source and date.
What this means for you
- Buying or renewing soon: get a rate hold now if bond yields are climbing; it costs nothing to ask and you can still take a lower rate if one appears.
- Comparing offers: compare the rate with the lowest collected rate for the same term and insured status, not with a headline rate for a different product.
- Choosing fixed or variable: fixed locks in today's bond-market price for the term; variable follows the Bank of Canada. The break-even calculator shows what it would take for variable to cost more.
- Waiting for the Bank to cut: fixed rates may already price in expected cuts. Watch the bond yield, not just the headlines.
Frequently asked questions
Do fixed mortgage rates follow the Bank of Canada?
Not directly. Fixed rates follow Government of Canada bond yields for a similar term; the Bank of Canada influences them through what investors expect it to do.
What bond yield do 5-year fixed rates follow?
The 5-year Government of Canada benchmark bond yield, which was 3.58% on Oct 29, 2026 (Bank of Canada).
How fast do fixed rates react to bond yields?
Lenders usually reprice advertised fixed rates within days to a few weeks of a sustained move in yields; rises tend to pass through faster than falls.
Primary sources
- Bank of Canada — Government of Canada benchmark bond yield, 5-year (series BD.CDN.5YR.DQ.YLD) (effective October 29, 2026). Checked .
- Bank of Canada — Effective rate on new insured fixed mortgages, 5 years and over (series V122667780) (effective August 1, 2026). Checked .
- Bank of Canada — Effective rate on new uninsured fixed mortgages, 5 years and over (series V122667786) (effective August 1, 2026). Checked .
- Bank of Canada — Canadian bond yields. Checked .
- Bank of Canada — Press release: policy rate raised to 2.5% (October 28, 2026) (effective October 28, 2026). Checked .