Fixed mortgage rates are tied to long-term Canadian government bond yields, which in turn are tied to U.S. bond yields. Those have risen since September as investors have increasingly come to expect Fed Chair Janet Yellen to boost rates before the end of the year. The Canadian and U.S. bond markets are tightly linked as investors generally expect the Canadian economy to be affected by changes in the U.S. economy.
For Canadians, the most pressing issue is whether financial or economic linkages will dominate in the wake of a hike from the Federal Reserve. The yield on Canadian sovereign debt isn’t determined in a vacuum and, depending on its maturity, can be heavily influenced by international forces — chiefly, those emanating from the U.S.
With the U.S. Federal Reserve widely expected to raise interest rates, Canada’s fixed-mortgage rates could rise by another 60 to 70 basis points, estimates Toronto-Dominion Bank economist Diana Petramala.
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