It’s not getting any cheaper for banks to fund a fixed-rate mortgage. In fact, Canada’s 5-year swap rate, a common measure of 5-year funding costs at the big banks, is running at a 10-month high.
Yet, still we’re seeing lenders trim 5-year fixed rates as the cut-throat spring market approaches. RBC chopped its 5-year fixed by 18 bps last week. And on Wednesday, CIBC trimmed its advertised uninsured 5-year fixed to 1.99%, tying TD for the lowest of the major banks.
How much longer banks are willing to accept shrinking spreads (profit margins) is anyone’s guess. They still have billions in government-backed liquidity that they have to put to work, and mortgages are a nice, safe asset class. Moreover, “We are basically in a recession,” CIBC economist Ben Tal told the Post on Tuesday. Given that, and relentless competition, banks can barely afford to raise their asking prices on mortgages.
Meanwhile, 5-year forward rates are now over one percentage point above 5-year bond yields. That’s the biggest gap since May 2017, and confirmation that rates are likely headed higher, so thinks the market.
All that is to say, while this may not be the last hurrah for 5-year fixed rates, there are fewer and fewer hurrahs left.
This & That
CIBC dropped its 5-year variable rate by 19 bps on Wednesday to 1.69%, the lowest advertised floating rate of any Big 6 bank. The move follows a similar 15-bps RBC cut last week. Expect banks to push variable rates hard, right before 5-year fixed rates lift off.