The 5-year bond yield shows how much the government pays to borrow money for five years. It’s an important number because lenders use it to help set mortgage rates, especially for fixed mortgage rates.
A 3 basis point (bps) drop means that the bond yield fell by 0.03%. The bond yield decreased from 3.98% to 3.95% between July 24 and July 25, 2025. Although minor, the change in this financial context holds significant importance in the world of finance.
While small in size, it is already influencing Canadian mortgage rate trends. Fixed mortgage rates are also affected. For Ontario homebuyers and investors, understanding what triggered this movement and what could follow is important. So, what comes next? Let’s unpack it.
What sparked the 3 bps drop in the 5-year bond yield?
There have been major triggers of the 5-year bond yield. In late May, a U.S. court temporarily blocked tariffs that had been planned on some imported goods. Markets reacted quickly, thinking this would ease trade tensions.
The next day, however, the government reversed the decisions and said the tariffs would go ahead after all. Not long after, reports showed that the U.S. economy might be slowing down. Job growth was weaker than expected, and people were spending less.
Meanwhile, news of fresh U.S. trade agreements with the European Union (EU) and Japan helped reduce global trade uncertainty. This has prompted traders to reduce the risk premium priced into dollar and bond markets. As a result, medium-term yields, including the 5-year note, edged down by 3 basis points.
Implications for Canadians: Mortgage Rate Trends and Forecast
When the U.S. 5-year bond yield moves lower, Canadian bond yields follow due to the close link between the two markets. Lenders in Canada use the 5-year Government of Canada bond yield as a reference point for pricing fixed mortgage rates.
As the U.S. yields decline, this benchmark tends to ease as well, opening the door to slightly lower borrowing costs.
However, short-term yields in Canada may remain stable. Global uncertainty and fiscal pressures could prevent a broader decline across the curve. At the same time, longer-term spreads may start to widen if market volatility increases or if investors demand higher returns on extended debt.
For borrowers, the outlook remains fluid. Keeping a close watch on changes to fixed mortgage rates will be key in the weeks ahead.
Outlook and Interest Rate Forecast
The interest rate forecast shows that longer-term yields may drift slightly lower. This could happen if the economy stays soft and more investors move their money into safer assets.
Still, nothing is certain. If U.S. inflation figures rise quickly or the Bank of Canada changes its policy, rates could start going up again.
How Northwood Mortgage Brokers Can Help
Similar to how a seasoned guide helps navigate shifting terrains, Northwood Mortgage has been helping Ontarians find their best path through changing mortgage rate trends since 1990.
We have access to a wide range of lenders, including banks, credit unions, and private lenders. This enables us to secure competitive fixed mortgage rates structured to your unique situation.
Our expert brokers handle negotiations on your behalf, explain complex policies, trends, and market shifts like the 5-year bond yield. Our team watches out for market opportunities to jump on based on the latest interest rate forecast.
If you are buying, renewing, or refinancing, Northwood Mortgage makes the process clear and stress-free. Reach out to us today at 888-495-4825 or contact us online to move forward with confidence.
