Four-Year Swap

If you read a lot of mortgage rate commentary, you'll see Canada's 5-year yield continuously cited as a fixed-rate indicator. It's a handy rough guide to the direction of 5-year fixed funding costs—most of the time.

Practically speaking, insured 5-year fixed rates approach 100% correlation with the 5-year government bond over the long run, says Home Trust SVP and Treasurer, Krishna Gadhraju.

But the 5-year GoC is not the absolute best proxy for uninsured loans. It's widely cited by commentators—mainly because it's a foundational interest rate (i.e., a rate that other borrowing rates are linked to) and partly because it's easy to find free access to it.

In reality, there are better measures of funding costs for big banks—one being the 4-year swap rate, which closely matches the average 3.8-year duration of a 5-year fixed.

As a result, Canada's 4-year swap rate is MLN's preferred proxy for base fixed-mortgage funding costs.

Swap data is not easy to find online. MLN generally pulls its swap data from professional trading terminals, like Refinitiv Eikon.

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