What drives fixed rates

1. Bond Yields:
* Fixed rates follow 5-year bond yields closely.
* If yields drop, lenders lower fixed rates. If yields rise, fixed rates climb.

2. Bank of Canada Policy:
* The BoC doesn’t set fixed rates, but its tone on inflation and growth influences bond yields.
* A bigger-than-expected rate cut → yields fall → fixed rates likely drop.
* If BoC signals slower easing (worried about inflation) → yields steady or rise → fixed rates could hold or climb.

3. Inflation Data (CPI mid-September):
* A softer CPI = more confidence in cuts → fixed rates come down.
* A surprise rebound = yields up → fixed rates rise.


September 2025 Outlook
* GDP is weak (1.6%) and unemployment is higher (≈7%), which leans toward lower yields.
* Inflation is still above target, so BoC may not rush into aggressive cuts.
* Bond market is already pricing in at least one rate cut this fall.

Most likely:
* Fixed rates could edge down slightly in September if bond yields ease further on weak data.
* If inflation comes in hot mid-month, expect a temporary bump up in fixed rates.

Quick Scenarios
* BoC cuts 0.25% in Sept + soft inflation → 5-yr fixed rates fall ~0.10–0.25%.
* No cut in Sept, inflation sticky → fixed rates hold steady or creep up.
* Surprise 0.50% cut (unlikely, but possible if economy weakens fast) → fixed rates drop more aggressively.