TD Canada Trust is the latest bank to increase their fixed mortgage rate offerings, following yesterday’s rate hike from RBC.

The changes affect TD’s discounted four-year fixed, which increased 10 basis points to 3.09%, and five-year fixed, which bumped 20 basis points to 3.29%, to go into effect today. As of press time, that leaves a spread of 61 basis points between TD’s discounted five-year, and the lowest (2.68%) offered by True North Mortgage in British Columbia.

Laurentian Bank is the latest lender to increase rates, effective June 12. The changes are as follows: One-year fixed closed: 3.14% (+ 0.05) 18-month fixed closed: 3.14 (+ 0.05) three-year fixed closed: 3.55 ( + .10)

Will more banks raise their rates?

Lenders are taking their cues from Government of Canada bond yields, which have seen an increase as of late, closing yesterday at 1.63%, compared to a 52-week low of 1.10. As long as yields are high, banks will raise their rates to cover these increased costs, as is the case with the TD fixed mortgage rates.

However, there’s no cause for panic. According to Mary Zenar, mortgage broker and managing director of Zenar Financial, indicates the banks’ desire to increase rates will be countered by the competitive nature that has led to the “mortgage” wars in previous months.

“Continued volatility among some of Canada's trade market partners have some investors shying from our once "safe haven" status bonds, pushing yields higher, and, as a result, fixed mortgage rates,” she states. “However, while I think lenders will take their cues from yields, any fixed mortgage rate increase will be modest.”

Banks and bond yields

Fixed mortgage rates correspond directly with bond yields, based on the costs and security they pose to the banks.

Investing in a government bond is akin to lending the government your money for a period of time: you’re guaranteed to get it back, with interest referred to as the yield. When investor interest in bonds is high, yields shrink. When investors shy from bonds, yields increase, delivering a one-two punch to banks; not only are they on the hook for a larger yield payout, but receive less funds from investor dollars. In turn, they pass these costs down to borrowers, resulting in a rate increase.