The 5-year government bond yield is up 30 basis points this month, based on yesterday’s close. That’s a fair-sized jump in eight days.
When yields do that and remain elevated, lenders usually raise fixed rates. That started to happen on Monday and Tuesday. We saw five non-bank lenders lift 5-year fixed rates and/or eliminate their “quick-close specials.”
BMO & RBC had a different idea. They flipped their playbooks upside down, did the opposite of what you might expect, and actually cut fixed rates. (BMO Link, RBC didn’t issue a release)
BMO & RBC’s 5-year posted rates have been cut to 5.25% (from 5.39%). Their “special offer” 5-year rates are down 0.14 pp to 3.95%.
BMO & RBC’s advertised 5-year fixed mortgages now have a spread of 116 bps above GoCs (again, based on yesterday’s close). That’s slim compared to the normal 125-135+ bps. We hear BMO’s discretionary rates are as low as 85 bps above Canada’s.
Competitors are likely looking at these numbers and shaking their heads. For a major bank like BMO to flaunt rates is quite rare—refreshing, but rare.
While terrific for consumers, from a business standpoint, you have to wonder if BMO, for one, is overly anxious to regain lost market share. They will get some marketing traction out of this, no doubt. The questions are, how long will it last, what is the benefit if the other Big 5 match, and will the short-term volume gains offset the serious margin compression.
Update: There’s a bit of uncertainty as to which lender lowered first (BMO or RBC) so we’ve updated the story to reflect both lenders.
In addition to the fixed-rate cuts, both banks have lowered their variable rates to prime – 0.15%.
So far we’ve seen no match to the posted rate reductions from the other Big 6 banks.
Update 2: The spreads tighten further…The 5-year yield is up to 2.83% as of lunch ET.
Update 3: RBC’s rate change was effective March 9 at 12:00am–i.e., before BMO’s. They chose not to issue a press release. Sometimes they want people to know about their rate changes and sometimes they don’t.