Mortgage Forecast: What Rising Oil Prices and Bond Yields Could Mean for Borrowers

By Dave Oliver, AMP
Mortgage Broker, TMG The Mortgage Group

“Closing Time” may be an appropriate theme for financial markets lately. Each time one period of geopolitical tension appears to settle down, another begins—often while the markets are closed for a weekend or holiday.

Renewed hostilities involving the United States and Iran, along with attacks on Saudi energy infrastructure, have pushed Brent crude oil close to US$100 per barrel. At the same time, government bond yields remain elevated:

• Canada’s five-year bond yield is approximately 3.42%, near levels last seen in July 2024.
• The U.S. 10-year Treasury yield is approximately 4.78%, near levels last seen in January 2025.

These developments matter because oil prices, inflation expectations and bond yields can all influence the direction of Canadian mortgage rates.

Why higher oil prices matter

Oil affects the cost of transportation, manufacturing, agriculture and many everyday goods. When oil approaches US$100 per barrel, gasoline and shipping costs can rise, eventually working their way into consumer prices.

Canada is an energy-producing country, so higher oil prices can benefit certain sectors of our economy. However, the Bank of Canada must also consider whether higher energy costs could cause inflation to accelerate.

If inflation remains above target—or markets believe it may rise again—the Bank of Canada may have less room to reduce its overnight rate. That could keep variable mortgage rates higher for longer.

Why bond yields matter to fixed mortgage rates

Fixed mortgage rates are influenced primarily by Government of Canada bond yields rather than directly by the Bank of Canada’s overnight rate.

When the five-year bond yield rises, lenders generally face higher funding costs. If yields remain elevated, lenders may increase fixed mortgage rates or withdraw their lowest rate specials. If bond yields decline, fixed rates may eventually follow, although lenders do not always make changes immediately.

With the five-year bond yield around 3.42%, there is currently more upward pressure on fixed rates than many borrowers experienced earlier in the year.

What about variable rates?

Variable-rate mortgages are based on lender prime rates, which generally move when the Bank of Canada changes its overnight rate.

Variable rates can still be attractive for borrowers who:

• Are comfortable with changing payments or interest costs;
• Want greater flexibility;
• Believe rates may decline over the next several years; or
• May sell, refinance or pay out their mortgage before the end of the term.

Some lenders are presently offering competitive variable-rate discounts, particularly on insured and insurable mortgages. However, the lowest advertised rate is not automatically the best mortgage. Prepayment privileges, penalties, portability and qualification requirements are also important.

Important inflation reports are coming

The United States will release producer price index data on Thursday, followed by consumer price index inflation data on Friday.

These reports will be closely watched by bond markets. Stronger-than-expected inflation could push yields higher, while softer inflation could provide some relief. Canada has a quieter economic calendar this week, but Canadian bond yields and mortgage pricing can still react to developments in the United States and global energy markets.

Should you choose a fixed or variable mortgage?

There is no single answer that works for everyone.

A fixed-rate mortgage provides payment certainty and protection if rates rise. A variable rate may provide a lower starting rate and the potential to benefit if the Bank of Canada reduces rates, but it comes with additional uncertainty.

Your decision should consider:

• How long you expect to own the property;
• Whether you may move or refinance;
• Your tolerance for changing payments;
• Your monthly cash flow;
• The mortgage penalty calculation; and
• The difference between the fixed and variable rates available to you.

Trying to predict the exact top or bottom of the market is extremely difficult. A better approach is to select a mortgage that fits your finances and remains manageable under several possible rate scenarios.

What borrowers should do now

If you are purchasing, renewing or refinancing within the next four to six months, it may be worthwhile to secure a rate hold. A rate hold can protect you if rates increase while still allowing us to review improved options if rates fall before closing.

Existing homeowners should also begin reviewing renewal options well before receiving their lender’s renewal offer. Accepting the first offer may be convenient, but it may not provide the most competitive rate, features or flexibility.

Markets can change quickly—sometimes over a weekend. Being prepared gives you more choices and reduces the pressure of making a last-minute decision.

For a personalized review of your mortgage options, contact:

Dave Oliver, AMP
Mortgage Broker
TMG The Mortgage Group
Phone: 306-227-7367

Thinking outside the branch.