TD Ups 5-year Rate, Cuts 2- & 3-Year Rates

TD-Canada-Trust-BankTD Canada Trust is raising its posted 5-year fixed rate by 10 basis points to 5.29%.

Meanwhile, its 2- and 3-year rates are dropping 3/10ths of a percentage point. (See: TD’s Release)

TD last changed its 5-year rate two weeks ago when it dropped to 5.19%. Since then, the 5-year bond yield — which guides fixed rates most of the time—has been flat. As a result, today’s increase may surprise some.

Unfortunately, credit spreads have inflated a bit with the bond market pricing in a near-term default by Greece. In addition, investors have been demanding slightly higher returns to buy Canadian mortgage-backed securities. These realities and the related market volatility are raising lenders’ funding costs. That may be at least partly responsible for TD’s move today.

We’ll keep an eye out to see if the other Big 6 follow TD’s lead.

In the meantime, as always, don’t procrastinate if you need a new mortgage in the next 180 days. The unexpected can happen so get rate hold to minimize rate risk.


Rob McLister, CMT

  1. As Rob indicated there are underlying reasons behind the increase. The bond markets have been quite volatile over the past six months because of concerns are about the US economy and the bond crisis in Europe. If you look at Greece’s yield curve, it is sharply inverted which means the bond markets are predicting an almost certain default by Greece in the near future.
    Greece defaulting on its debt obligations may actually be the best course of action under the circumstances. But as Greece is part of the Eurozone, someone else is pulling the strings. What *could* happen is that if Greece defaults and the contagion continues to spread to larger countries such as Italy (and some have argued that the crisis already spread there), investors may shun sovereign debt altogether except ultra-safe U.S. treasury notes.
    A more likely scenario, in my view, is that should the crisis in Europe continue to escalate, investors will pile their cash into U.S. treasury notes (as they have already done) which would ultimately push yields down even further, and this may create a spill-over effect in Canada and push yields and mortgage rates down.
    It’s hard to make a call on this but it’s fascinating how everything is related… and the average person doesn’t even understand how a small country like Greece defaulting on its debt can impact mortgage rates right here at home.

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