The bond didn't move much. Fixed rates did anyway.

Two posts, same bond, and this time it's not the bond

In August I wrote about the five-year Government of Canada bond sitting at 3.36 percent, three points under its twelve month high, and said the number to watch was whether it broke through. It did, hard: 3.65 percent by September 11, twenty-one basis points in four trading sessions. I checked back in mid-September and said I'd keep re-pulling the bond series and the live rate spread whenever this came up again. Here's the update, and the bond isn't actually where the story is this time.

The bond barely moved. The mortgage rate did.

The Bank of Canada's own benchmark series puts the five-year yield at 3.65 percent on September 11 and 3.69 percent on September 24, the most recent trading day it has published. Four basis points in two weeks.

Ratehub's live board, meanwhile, had the best five-year fixed rate at 4.09 percent on September 15 and 4.34 percent as of yesterday afternoon. Twenty-five basis points, on a rate that's supposed to track a bond that barely twitched.

The gap between the fixed rate and the bond that's supposed to price it, what a lender is actually charging above its own cost of funds, widened from 44 basis points to 65 in under two weeks. That's not a bond story. That's lenders repricing on their own terms.

What that costs on Ottawa's own numbers

Ottawa's composite benchmark sat at $637,700 in the August OREB release, still the most current figure available. Twenty percent down puts the mortgage at $510,160. At 4.09 percent that payment was $2,708 a month. At 4.34 percent it's $2,778. Seventy dollars a month and roughly $4,200 over a five year term, for a bond move measured in single digits.

The payment isn't the number that actually bites. Run the same mortgage through the stress test, contract rate plus two, the same mechanism I worked through in August, and holding a buyer's qualifying payment constant while the qualifying rate moves from 6.09 to 6.34 percent shrinks what they approve for by about $11,600 of mortgage. At 20 percent down that's roughly $14,500 of purchase price gone, for the same four basis points of bond.

The variable gap grew, and so did what it takes to lose that trade

Mid-September I logged the fixed-variable gap at 79 basis points, with the Bank of Canada's prime rate unchanged since its September 2 hold. Today it's 94. Fixed is 4.34 percent, variable is 3.40, prime minus 1.05, down from prime minus 1.15 two weeks ago. Lenders shaved the variable discount too, not just the fixed rate. On that same $510,160 mortgage, fixed costs $2,778 a month and variable costs $2,520, a $258 gap, up from $215 in mid-September.

Ron Butler told Canadian Mortgage Trends that once that gap clears a full percentage point, "you just have to tell your clients, if you've got the stomach for it, you should consider variable." We're six basis points short of that line. Here's the part worth noticing: in mid-September it took just over three Bank of Canada hikes to erase the old gap. On today's wider gap it takes closer to three and three quarters. The spread grew, but so did the distance between here and the point where the variable borrower is actually worse off.

Why the spread moved and the bond didn't

Clinton Wilkins told CMT in mid-September that some lenders had been advancing mortgages at a loss to hold market share while rising yields squeezed their margins, and called it not a sustainable game. A widening lender spread over a flat bond is what that catch up looks like from the buyer's side of the desk. Whether the repricing is finished or whether there's more margin repair still coming is the open question now, more than where the bond itself goes next.

What I'd actually do

None of this is urgent on the Ottawa side of the ledger. Active listings just posted a ten-year record for the month and price hasn't followed supply down yet, so there's no scramble building under this. Get the pre-approval and take the rate hold regardless of which way you lean, it costs nothing and protects you either direction. If you've got the income buffer for a payment that can move and the temperament for it, the math still favours variable through about three and a half Bank of Canada hikes on today's numbers. If certainty matters more, ask what the two or three year fixed costs before defaulting straight to five, shorter terms have been pricing better than the headline number most of this year.

One line I'll keep repeating here: I sell houses, not mortgages. Every figure above is public and checkable, but what you personally qualify for depends on your file, your lender and your down payment. Take this to a mortgage broker before you act on any of it.

If the five-year bond breaks back above 3.69 or the fixed-variable gap actually clears 100 points, both change this math, and I'll come back and run it again either way.

Want the real numbers run against a specific property before you commit to a rate hold or an offer? Call 613-262-6545 or email fil@613realtor.ca, or see what's actually on the market right now.