Shopping for mortgage rates? Keep an eye on the U.S. election

globalnews.ca:

Despite an oversized interest rate cut from the Bank of Canada last week, experts who spoke to Global News say Canadians shouldn’t be expecting much more discounting on fixed mortgage rates.

In fact, movements south of the border — a solid United States economy and the looming presidential election — could have more of an impact on the rates Canadian homeowners and would-be buyers can secure in the market.

The Bank of Canada picked up the pace in its rate-easing cycle last week with a half-percentage point cut, lowering the policy rate to 3.75 per cent.

But cuts of that magnitude haven’t been reflected in the bond market as of late, which is an important proxy for fixed-rate mortgages. Yields are instead higher on the five-year Government of Canada (GoC) bond, which lenders use to price the rates they offer on the popular five-year fixed mortgage.

The five-year GoC bond yield hit 2.65 per cent in mid-September, its lowest level in more than two years, but has since risen back above three per cent.

Bond market pricing is meant to reflect expectations for the Bank of Canada’s rate path, not necessarily responding directly to hikes or cuts from the central bank itself. That means communications from the Bank of Canada as well as data on inflation and the Canadian economy can shift bond yields, and by extension, mortgage rates.

Fixed mortgage rates have largely driven lower in the Canadian market over the past six months as the Bank of Canada lowered interest rates and signalled more cuts were coming, according to Penelope Graham, mortgage expert at comparator site Ratehub.ca.

Graham says recent data showing inflation had returned back to the central bank’s two per cent target, and dipped even lower in September, gave bond