Yesterday was a perfect example of how sensitive markets are right now.
Iran came out and denied any real progress in negotiations with the U.S… and boom, oil had spiked nearly 5% in a single day.
That kind of move matters because higher oil = higher inflation expectations = upward pressure on bond yields (and fixed mortgage rates).
But then today?
The market basically erased the entire move.
Oil is already dropping again as traders start betting that this conflict eventually cools off.
Rate Hike Expectations Are Quietly Falling
Not long ago, markets were pricing in:
- 3+ rate hikes this year
Now?
That’s dropped to barely 2 hikes
That’s a pretty big shift in a short period of time.
Translation:
- The market thinks growth is slowing
- The war is creating uncertainty
- Central banks might not be able to stay aggressive
Normally, that would be good news for mortgage rates. Even with fewer expected rate hike, bond yields (which drive fixed rates) aren’t dropping meaningfully. That’s the disconnect right now, and it comes down to one thing:
Inflation risk isn’t going away.
Let’s Break Down What Moved Yields
A few key things pushed rates around this week:
Upward Pressure on Rates
- Oil jumped hard after Iran headlines (inflation risk)
- Canadian manufacturing surprised to the upside (+3.8%)
Strong data = economy holding up = less urgency to cut rates
Downward Pressure on Rates
- U.S. business activity slowed to an 11-month low
- Productivity dropped, while labour costs jumped
That combo is not great:
- Slower growth
- Higher costs
Mixed Signals (Why Rates Feel “Stuck”)
- Businesses are becoming less efficient
- But still absorbing higher costs (for now)
If labour costs keep rising like this, it becomes very hard to get inflation back to 2%.
Oil Is the Key Variable Now
This entire rate story comes back to oil.
Right now:
- Oil spiked → now dropping → likely stabilizing soon
Most forecasts are calling for Mid-to-high $70s oil after the war
But even if oil drops, inflation doesnt go away immediately. There are two layers to inflation from oil:
1. Immediate Impact
- Gas prices
- Heating costs
This hits CPI quickly (you’ll likely see it in the next inflation report).
2. Delayed “Second-Order” Effects
This is the bigger issue:
- Shipping costs
- Airline costs
- Manufacturing inputs
- Plastics, chemicals, packaging
These take months to fully work through the economy. So even if oil falls… inflation can stay sticky.
What This Means for Fixed Mortgage Rates
Here’s the takeaway when it comes to fixed rates:
Even if:
- The war cools off
- Oil drops
- Rate hikes get priced out
Fixed mortgage rates might not fall much in the short term because bond markets are looking ahead and saying, “Inflation is still going to linger.”
Where Rates Are Likely Headed
If oil stabilizes around the low $80s:
- Inflation could stay 0.6%–0.8% higher than normal
- That keeps pressure on bond yields
- That keeps fixed rates elevated
So instead of a clean drop in rates… We’re probably looking at choppy, sideways movement with a slight upward bias for a while.
Quick Market Snapshot
As of this morning:
- Canada 5-year bond yield: down ~7 bps today
- But still hovering above recent averages
And expectations:
- First real rate hike priced around September
- Very low odds of movement in April
What I’m Watching (And What You Should Care About)
If you’re a borrower, here are the real triggers:
- Oil prices → biggest driver right now
- Inflation data (next CPI release)
- Bond yield trend (not overnight moves)
My Take (For Clients)
Right now is a classic “looks calm on the surface, chaotic underneath” market.
- Rates aren’t crashing
- But they’re not stable either
- And they can move quickly on headlines
If you’re waiting for a big drop in fixed rates in the next couple months… You might be waiting longer than expected. For this reason, if you can secure a rate hold now then I would recommend doing so immediately. Waiting to see what your lender will offer you on a renewal, or to see if rates drop later, is the riskiest possible option you can take when it comes to how much interest you could potentially be paying the lender.
Even if your renewal is as much as 10 months out, a rate hold is a solid strategy. While you can only hold a rate for 120 days, when rates start going up, you can secure a rate hold, and then revisit where they are at closer to the end of the rate hold. If rates have gone up significantly more than what you had a rate hold for, so much that it offsets your penalty to break and still leaves you with some interest savings to switch to the lower rate, then you can just pursue the rate hold application and pay the penalty. If the rates are not high enough to warrant paying a penalty and switching, then you can do a new rate hold. The new rate would would have to be a new application, but that’s not a problem with the lender.
To give you an example, on a 245k mortgage, between 3.94% and 4.05% 5 year fixed, the difference is around $1200 in savings. If rates go up more than 4.05% and it seems like they’ll continue to rise closer to your renewal date, and say your penalty is also $1200 to break, you can pay that $1200 penalty because you’ll be saving money compared to whatever is available at that time.
You’ll want to double check your penalty when breaking of course, but most lenders at the 9 months less 1 day mark trigger a 3 months interest for fixed rates, if they have a 6 month term to compare to.
Bottom Line
Yes, oil spiked and dropped.
Yes, rate hike expectations are falling.
But the bond market is telling us something different:
👉 Inflation is still the problem
👉 And fixed-rate relief won’t come quickly
