This morning, the 5-year bond yield fell to 2%—a key psychological level.
It was also the lowest 5-year yield since last November, and 90 basis points below the recent peak on April 8. (Bond yields lead fixed mortgage rates.)
Deeply discounted fixed rates are now 156 basis points above the 5-year bond. Roughly 125 bps is more typical for aggressive lenders.
What’s more, the 5-year “posted – bond yield” spread is now the widest its been since October.* At 336 bps, it’s also well above the 10-year average of 282 bps.
This all portends lower fixed rates in the near term.
So far, most lenders have been content to merely trim rates behind the scenes. Banks have refrained from moving their advertised pricing (partly to keep spreads wide as long as they can).
That can’t last forever. Banks will likely have to adjust advertised mortgage rates soon, barring a sharp rebound in yields this week.
* The posted – bond yield spread is the difference between posted 5-year fixed mortgage rates and 5-year government bond yields. The 5-year yield is a rough approximation for the “base cost of funding” for 5-year fixed mortgages. On top of that, lenders incur a host of other costs related to underwriting, overhead, marketing, compensation, administration, securitization, hedging, etc.
Rob McLister, CMT
Interesting – 90 bps lower than we were at in April, and yet posted rates have only come down 30 bps!
It’s starting to happen now. Just saw a local credit union offer 3.5% on a 5 year. Very cheap lending..
We’ve already been at around 3.5% for the past couple of weeks … waiting to see if we go the next leg down to the 3.3% level.
The yield is lower for a while. Didn’t see the discount yet.
My bank, CIBC is offering me 2.4% 5 year open on my renewal. Should I ask for another 10 pts? Thanks.
Why would you want an open? Are you flipping the property or converting to a fixed soon? If so, when?
HI Grant. I suggest you take a closer look at that. No way are they offering you a 5 year fixed 2.4% open or closed. That is a variable. As per D reply why do you want an open? If that is a varaible then the rate really is not that great and the “open” option is costing you in a higher rate
Thanks, I should have said a 2.4% closed variable 5 year term.
there is no reason u should get an open
In that case just tell them to trim by another .25% or you take your business elsewhere. Prime – .85% is readily available out there.
Grant – talk to Rob about this. He can get you P-0.85 or P-0.90% (National Bank) and will likely give you better service than your bank ;)
hey rob…my lender is throwing 3.84 at me for five year fixed…but in reading your site today sounds like rates gonna take one more drop perhaps in the coming weeks or so ..any thoughts? thanx..much appreciated…luv the site….
Hi NP,
Thanks for the post. Depending on the type of mortgage you need, your qualifications, and your closing date, you can potentially find much lower than 3.84% on a five-year fixed. Any mortgage planner will be able to help you in this regard. Here’s a list of brokers in your area or feel free to email us with additional questions.
With respect to rates going forward, 5-year yields have rebounded an unusual 17 bps from yesterday’s low. That may prevent additional fixed rate drops—for the time being at least. We’ll have to wait and see what happens with bonds in the next few days…
Cheers,
Rob
thanx rob…much appreciated