Canada’s 5-Year Bond Yield Is Falling – What It Means for Mortgage Rates and the Economy

In recent weeks, we’ve seen a noticeable decline in Canada’s 5-year bond yield — a key benchmark that heavily influences fixed mortgage rates across the country.

This downward movement signals a shift in investor sentiment and opens the door to lower borrowing costs, especially for Canadians considering fixed-rate mortgages.

Why Is the 5-Year Bond Yield Dropping?

Several factors are contributing to the decline:

Cooling inflation data – Recent CPI reports show inflation slowing down, giving the Bank of Canada more flexibility.
Global economic concerns – Weak global growth forecasts and geopolitical uncertainty are driving investors toward safer assets like government bonds.

Rate cut expectations – With rate hike cycles likely behind us, markets are starting to price in potential Bank of Canada rate cuts in late 2025 or early 2026.

What Does This Mean for Homebuyers and Homeowners?

The 5-year bond yield directly impacts 5-year fixed mortgage rates. As bond yields come down:

Lenders may lower fixed mortgage rates, making homeownership more affordable.
Buyers who were previously priced out may re-enter the market.
Existing homeowners looking to refinance could lock in lower rates.

What Should You Do Now?

Considering a purchase or refinance? Now may be the time to get pre-approved or explore rate options.

On a variable rate? Keep an eye on fixed options in case the spread narrows and locking in makes more sense.

While bond yields fluctuate daily, this downward trend may continue if inflation remains in check and the economic outlook stays soft.