Canadian fixed mortgages set to rise as bond yields surge

OTTAWA — National Bank senior economists Daren King and Kyle Dahms warn Canadian fixed mortgage rates are likely to climb in coming weeks after the five-year Government of Canada bond yield jumped to 3.65% — its highest since May 2024 — and lenders’ margins look stretched thin.

The five-year GoC yield has risen about 92 basis points since February lows, while fixed mortgages have tracked only about 40 bps of that move. The rest was swallowed as lenders compressed spreads from a post-2023 average near 135 bps to roughly 75 bps. “Such a narrow spread puts pressure on lenders’ margins and is likely unsustainable in the long run,” King and Dahms wrote, forecasting mortgage rates higher and the first deterioration in housing affordability in three years — ending an 11-quarter streak as soon as Q3, with a further 1.1-point hit by Q4.

The Bank of Canada’s Housing Affordability Index still improved to 41.3% of disposable income in Q2 2026 — down 0.8 points on the quarter and 2.4 over the year — on falling prices, cheaper financing and rising incomes. It remains nearly five points worse than late-2019. BMO chief economist Douglas Porter says incomes take time, further rate cuts “do not seem to be in the cards,” so “the burden still seems to be on prices.”

For households, the inflation read is blunt: sticky goods and trade shocks already pinch budgets, and a rebuild in mortgage spreads will lift the monthly carrying cost of the same house even before prices finish correcting.