{"id":26241,"date":"2025-08-07T11:11:23","date_gmt":"2025-08-07T18:11:23","guid":{"rendered":"https:\/\/www.roryc.ca\/blog\/?p=26241"},"modified":"2025-08-06T13:24:51","modified_gmt":"2025-08-06T20:24:51","slug":"bank-of-canada-faces-big-decisions-in-the-months-ahead-a-dip-in-bond-yields-is-pressuring-fixed-rates","status":"publish","type":"post","link":"https:\/\/www.roryc.ca\/blog\/2025\/08\/bank-of-canada-faces-big-decisions-in-the-months-ahead-a-dip-in-bond-yields-is-pressuring-fixed-rates\/","title":{"rendered":"Bank of Canada Faces Big Decisions in The Months Ahead &#038; A Dip in Bond Yields is Pressuring Fixed Rates"},"content":{"rendered":"<p style=\"text-align: justify;\">Jitters spread through financial markets at the end of last week and signs emerged of a weakening US economy, sending five-year Government of Canada bond yields lower and raising fresh questions about when the Bank of Canada will begin cutting interest rates again.<\/p>\n<p style=\"text-align: justify;\">An escalation in Donald Trump\u2019s global trade war and a labour market report that showed US employers added fewer jobs than expected in July pointed to a darkening economic outlook south of the border.<\/p>\n<p style=\"text-align: justify;\">Odds of a September interest rate cut by the Federal Reserve jumped after that jobs data, potentially also signalling that more downward pressure on Canadian bond yields is ahead.<\/p>\n<p style=\"text-align: justify;\">\u201cThis is where the prospect of Fed rate cuts really does help,\u201d Bank of Montreal (BMO) chief economist Doug Porter (pictured top) told Canadian Mortgage Professional. \u201cFor weeks now, the longer-term yields were going the wrong way, partly on concerns about the broader fiscal landscape but also because the market was slowly but surely taking out rate cuts by a lot of central banks.<\/p>\n<p style=\"text-align: justify;\">\u201cNow, with a very real possibility that the Fed could start cutting interest rates, I think that\u2019s put a better shine on bond markets almost everywhere, including here in Canada \u2013 and that could help fixed rates start moving in the right direction.\u201d<\/p>\n<p style=\"text-align: justify;\"><strong>Expect Some fixed-Rate Mortgage Relief &#8211; but Not Much<\/strong><\/p>\n<p style=\"text-align: justify;\">Canadian mortgage holders and homebuyers have seen little cause for celebration on the rate front in recent months. The Bank of Canada kept its benchmark rate unchanged once again on Wednesday, meaning variable rates are staying where they are, while that recent runup in fixed rates also squeezed budgets and complicated the picture for homeowners renewing their mortgage.<\/p>\n<p style=\"text-align: justify;\">But while a trend toward lower fixed rates would be welcome, Porter cautioned against assuming they\u2019re about to nosedive. \u201cI wouldn\u2019t look for a whole lot [of movement] there,\u201d he said. \u201cI don\u2019t think there\u2019s a lot of room for longer-term yields to really plunge. But even a quarter-point would help that a great deal.\u201d<\/p>\n<p style=\"text-align: justify;\">The Bank of Canada signalled on Wednesday that it could be open to rate cuts in its remaining decisions this year, although Porter said the central bank \u201cset the bar pretty high\u201d: the economy needs to weaken further without a further surge in inflation from the trade war.<\/p>\n<p style=\"text-align: justify;\">\u201cThat\u2019s a lot to go right for rate cuts,\u201d he said. \u201cThe market is still leaning to one more cut by the Bank. But the market needs convincing. We definitely need a friendly CPI [consumer price index] report before the Bank will consider cutting rates.\u201d<\/p>\n<p style=\"text-align: justify;\"><strong>Trade War Escalation Likely to Weigh Against Economic Growth<\/strong><\/p>\n<p style=\"text-align: justify;\">Trump\u2019s decision to slap higher levies on certain Canadian imports than originally announced struck a blow to hopes of a trade deal and raised the chance of a further deterioration in relations between the two powers.<\/p>\n<p style=\"text-align: justify;\">While plenty of cross-border trade will remain unaffected because it\u2019s compliant with CUSMA [the Canada-US-Mexico Agreement], Trump said he was hiking tariffs on specific other Canadian products to 35%, up from the originally threatened 25%.<\/p>\n<p style=\"text-align: justify;\">That trade uncertainty is likely to represent \u201ca pretty serious drag\u201d on the economy in the coming years, Porter said, because prospects of negotiating broader agreements with the US appear bleak after the latest escalation.<\/p>\n<p style=\"text-align: justify;\">But Canada looks unlikely \u2013 for now, at least \u2013 to retaliate against Trump\u2019s latest tariff wave, meaning the national economy may be spared an inflation upsurge.<\/p>\n<p style=\"text-align: justify;\">\u201cThis is a bigger story for weaker growth rather than higher inflation,\u201d Porter said. \u201cAnd I think on balance, that means the Bank is ultimately going to have to cut interest rates a bit further. That might take time, because they\u2019ll have to be convinced that inflation is not doing that much.<\/p>\n<p style=\"text-align: justify;\">\u201cBut I just think the ongoing trade uncertainty is a killer for growth and it does ultimately require some offset from an easier monetary policy.\u201d<\/p>\n<p style=\"text-align: justify;\"><a href=\"https:\/\/www.mpamag.com\/ca\/mortgage-industry\/industry-trends\/whats-in-store-for-canadian-mortgage-rates\/544817\" target=\"_blank\" rel=\"noopener\">What&#8217;s In Store for Canadian Mortgage Rates?<\/a> by Fergal McAlinden | CMP<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Jitters spread through financial markets at the end of last week and signs emerged of a weakening US economy, sending five-year Government of Canada bond yields lower and raising fresh &hellip; [<a href=\"https:\/\/www.roryc.ca\/blog\/2025\/08\/bank-of-canada-faces-big-decisions-in-the-months-ahead-a-dip-in-bond-yields-is-pressuring-fixed-rates\/\">read more<\/a>]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9,13],"tags":[],"class_list":["post-26241","post","type-post","status-publish","format-standard","hentry","category-mortgage","category-real-estate"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Bank of Canada Faces Big Decisions in The Months Ahead &amp; 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