An interesting difference of opinion has developed between the economists and the people who deal in the bond markets. The economists do not expect to see any rate cuts by the Bank of Canada until the middle of next year. But the markets see things changing sooner. And there may be benefits for mortgage shoppers.
The Bank of Canada has been trying to wrestle inflation back to its 2.0% target by raising interest rates to slow the economy. There have been 10 hikes since March of 2022 and they appear to be delivering the desired results. Inflation is down. Household spending is down. Employment is down and GDP growth is down. For two settings in a row, the Bank of Canada has held its trendsetting rate at 5.0% and there is little indication that any further increases are coming.
Even though the BoC does not expect to see inflation back at 2.0% until mid-2025, some recent comments by the Bank's bosses have the bond markets looking for rate cuts. Both Governor Tiff Macklem, and Deputy Governor Carolyn Rogers, told the federal finance committee cuts could start before the 2.0% target is hit.
Since then, yields on 5-year, Government of Canada bonds -- which are the basis of fixed-rate mortgage interest -- have dropped more than 30 basis points (0.3%) to 3.79%. Yields are down more than 60 bps (0.6%) from highs reached in early October. That has some market watchers forecasting declines in fixed mortgage rates of 20 to 40 bps over the very near term.