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Originally Posted by PaperBagger'14
Can someone explain this to me. When the BoC raises the interest rate mortgage renewal rates go up immediately but when rates are slashed by the BoC mortgage rates are tied to bond yields. Why are rate rises / falls dependent on 2 separate metrics? Is it a risk management strategy from the banks?
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They're not. Variable rate mortgages generally move in lockstep with the BoC rate both up and down. Fixed rates move with bond yields, again both up and down. Two different types of mortgages with each having their own thing driving the rates.
But bond yields are primarily based on the market's prediction of future rate trajectories, so fixed rates will normally move before variables do. So they went up significantly before the first interest rate increase in 2022 and started dropping 6-7 months before the first rate cut.