Here's a quick take on what moved Canada's 5-year yield on Monday, and in which direction:

For decades now, CREA has cranked out its hotly-awaited monthly real estate report. Economists, journalists, and talking heads swarm these stats like seagulls to a chip truck, each squawking their own quick take.

MLN's monthly ritual is to take enough time to scan the full horizon; spotting trends that aren't obvious on the surface. The goal is to distill it all down into bite-sized clues for the market's next moves.

That leads us to the latest May and June figures, still fresh from the oven and steaming with implications. On a macro basis, Canada's housing numbers have less upward momentum than a vegan restaurant in Alberta — but at least they're stable.

Sales and prices are hanging in there, a small wonder given 2025's sentiment deterioration. But we can't relax yet—the forecast calls for choppy seas ahead.

New MLN members frequently hear us comment on Canada's 4-year swap rate and wonder, "Why is it so important for mortgages?"

Here's a chart that shines a spotlight on why.
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Swap rates and fixed rates move like train tracks for a reason. Most importantly, it's because banks price fixed mortgages using swap rates as a benchmark.

The main reason they do this is that swaps help banks manage interest rate risk in their mortgage portfolios.

How it works

When funding mortgages, banks often borrow at variable (floating) rates and lend at fixed rates (e.g., fixed-rate mortgages). This creates a mismatch. If floating rates rise, the cost of borrowing increases, yet the mortgage income remains fixed, squeezing profitability.

To avoid getting wedgied by rising rates, banks reach for their favourite derivative: the interest rate swap. Here's an oversimplified example of what happens when banks use an interest rate swap.

With fixed mortgages, think of the swap rate as a fixed interest rate that the lender must pay to turn borrowers' fixed-mortgage payments into a stream of floating-rate payments.

The capital markets crowd calls this a "pay-fixed, receive-floating swap," and it's a very common way to hedge in the mortgage market.

So, why would a bank bother with this financial contortion?

Well, what swaps effectively do is let the bank profit from the spread between the yield it earns on the mortgage and its net cost after the hedge, all with significantly reduced interest rate risk. It's bank alchemy at its best, and it works to the tune of billions in earnings annually.

New at MLN

Since swaps play a starring role in fixed mortgage pricing, MLN now updates the 4-year swap rate twice daily in the Mortgage Command Centre.

You can monitor the chart below either daily or weekly, but if you’re a serious mortgage pro, make it part of your regular diet. We'll explain why in a moment.
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Bonds: the imperfect indicator

Most Canadian mortgage advisors track fixed-rate funding costs by following the 5-year government bond yield. Two factors explain why:

1. Bond data is way easier to find than 4-year swap data.
2. Most folks don't understand how swaps work or why they're essential.

Bond yields are easier to grasp, but they can be misleading.

Swap rates provide a cleaner read on funding cost pressure, for three reasons:

U.S. inflation flew in under expectations this week, but that relief is being steamrolled by a new cost-of-living threat: surging oil prices from the latest Israel-Iranian conflict.

Here’s a quick rundown of what’s steering the yield wagon today, and in which direction:

U.S. rate moves dragged our 5-year yield down on Thursday. Here's a brisk rundown on that and the other forces tugging at Canada’s borrowing costs.

Pine announced yesterday that it joined the billion-dollar club—$1 billion in mortgages under administration (MUA) that is. We caught up with CEO Justin Herlick last week to find out why this particular milestone deserves more than a polite golf clap from the fintech peanut gallery.

He explained that Pine, which has received $50 million in venture funding, is vertically integrating its mortgage business with home shopping, using the properly.ca real estate platform it bought in 2023.

The company has since rebranded Properly to Pine Homes and says its 1% cash-back real estate and mortgage platform helps homebuyers save an average of:

Wednesday brought gentler U.S. inflation than expected, as well as more signs of trade war de-escalation.

U.S. inflation came in cooler than expected, much to the delight of those who worship at the altar of cheap borrowing. Nonetheless, some economists are reminding everyone that this might be the part in the horror movie where the lights come back on—right before the axe drops.

Here's the breakdown of this morning's numbers: