Bank of Canada Holds at 2.25%, But Fixed Mortgage Rates Keep Climbing — What Bond Yields Are Telling Us

If you have been watching mortgage rates lately, you might be confused. The Bank of Canada held its overnight rate at 2.25 percent on June 10, keeping the prime rate at 4.45 percent. But fixed mortgage rates are still going up. Why?

The answer lies in government bond yields. The five-year fixed mortgage rate is not directly tied to the Bank of Canada’s overnight rate. Instead, it tracks the Government of Canada five-year bond yield plus a small spread — typically 1 to 2 percent.

Bond yields have been climbing because bond traders are pricing in the possibility of a rate hike later this year. Even though the Bank says it is holding steady now, the bond market is looking ahead and saying “maybe not for long.”

WOWA’s latest forecast shows fixed mortgage rates continuing to rise slowly through the end of 2026. This is not a dramatic spike — it’s more like a slow creep upward.

For variable rate borrowers, there is some potential savings right now since the Bank has not moved. But if the Bank does hike again — which traders are pricing in — variable rates could become more expensive than they are today.

For people planning to buy a home or renew their mortgage, the key takeaway is this: fixed rates are climbing even though the Bank’s rate hasn’t moved. If you need a fixed mortgage, it might make sense to lock in sooner rather than later. But if you can handle the risk, variable rates might still offer some advantage for now.

The bottom line is that the mortgage market and the Bank of Canada are not perfectly synchronized. The bond market has its own mind, and right now it is telling us to expect higher fixed rates ahead.