Markets are in turmoil. US President Donald Trump’s sweeping tariff hikes have pushed the global economy into unfamiliar territory. The Trump Administration continues to impose ever-increasing tariffs on Chinese goods, leaving existing duties on Canadian exports untouched. Canada now finds itself in a precarious position. Financial markets are convulsing, bond yields are surging, and inflation risks are mounting. While Trump eases pressure on some nations, Canada remains in the crosshairs.

• Global uncertainty could delay the Bank of Canada’s next 25 bps rate cut, expected on April 16.
• Bond yields spiked to multi-decade highs, lifting mortgage rates in Canada.
• Canada is excluded from tariff relief, leaving exporters and consumers facing higher costs.

Bond Market Turmoil: What Just Happened?

The US Treasury market, long viewed as the world’s safest investment, no longer acts like one. A steep overnight selloff in US government bonds has alarmed global investors. Yields on 30-year Treasuries briefly shot above 5%, and 10-year yields jumped to 4.51% before settling back to 4.37%. This wasn’t a one-off blip — it marked a potentially serious re-pricing of risk.

Many analysts suspect China may be dumping US bonds in retaliation for Trump’s aggressive trade moves. Even without definitive data, the fear alone is enough to spook markets. As Deutsche Bank strategist Henry Allen wrote, this selloff is “alarming” and signals that US Treasuries may be losing their safe-haven status.

This matters because rising bond yields increase borrowing costs — not only for Washington but also for mortgage holders and homebuyers across North America. If US yields stay high, Canadian bond yields and fixed mortgage rates will likely follow.

Why This Isn’t “Normal” Bond Market Behaviour

Usually, when equities drop, bonds rally. But not this time. Here’s why:

• Forced Selling: Hedge funds using leverage have been forced to dump bond positions, especially in what’s known as the “price discovery,” causing price dislocations.
• Broken Safe Haven Trust: Investors no longer see US treasuries as bulletproof amid political chaos and ballooning US debt.
  Tariff-Driven Inflation Risks: Bonds look less attractive with global inflation data heating up again.
  

This unusual correlation between falling stocks and rising yields is terrible news for anyone whose mortgage renewal is approaching.

Canada Still in the Penalty Box

While Trump issued a 90-day pause on tariffs for many US trading partners, Canada was left out. The 25% duties on Canadian-made cars, steel and aluminum remain in place, while new tariffs apply to dozens of Chinese sectors.

The Canadian federal government is fighting back with retaliatory tariffs on US vehicles, excluding Mexican parts. But this tit-for-tat escalation could backfire. Canadian exporters now face:

• Higher input costs
• Supply chain disruptions
• Continued trade uncertainty
  

And with the Bank of Canada already signalling caution, the path to rate cuts is now murkier than ever

The Inflation Picture Gets Worse Before It Gets Better

Despite a better-than-expected US core inflation print (2.8%), analysts warn it doesn’t reflect the full brunt of future tariff-driven cost increases. Expect:

• Core goods inflation to rise
• Shelter prices to stop declining
• Auto prices to spike
  

Exposed to both direct tariffs and imported inflation pressure, Canada may see similar effects, especially in provinces like Ontario and Quebec that rely heavily on manufacturing and cross-border trade.

Mortgage Rate Volatility Ahead

This means more volatility in Canadian mortgage rates. While variable rates are tied to the BoC’s overnight rate (which is currently under pressure to stay put), fixed mortgage rates are closely linked to bond yields, which are now behaving erratically.

With Canadian 5-year bond yields tracking their US counterparts, borrowers may see fewer 5-year fixed rates starting with a 3 in a week or two, increasing renewal costs.

Strategic Tips for Canadian Mortgage Borrowers

• Lock in rate holds now. If you’re house hunting or refinancing, don’t wait. Rates are moving fast.
• Review your mortgage strategy. Fixed vs. variable? Payment flexibility? Work with your broker to find the right fit.
• Use the tools. A mortgage payment calculator, mortgage affordability calculator, nesto’s mortgage rate forecast and mortgage preapproval can help you assess your options before market swings affect your budget.

What Can Canada Do?

Stay the course, but diversify fast. Here’s what Ottawa should focus on:

• Accelerate trade diversification toward Europe, Asia-Pacific and Latin America.
• Invest in high-tech sectors like AI, cleantech, and biotech to reduce dependency on US demand.
• Negotiate strategically with the US, balancing retaliation with long-term economic sustainability.
  

Canada’s Resilience and Your Mortgage Strategy Will Be Tested

Canada is navigating a storm not of its own making. The economic road ahead is rocky, with tariffs locked in and bond markets in turmoil. While diversification and innovation offer long-term hope, Canadian households and mortgage borrowers will feel the pinch in the short term.

Now is the time to reassess your mortgage strategy, protect your purchasing power, and prepare for volatility. Whether you’re looking to lock in your fixed interest rate or float your discount with a variable rate, making the right move starts with expert advice. Contact nesto mortgage experts for your personalized mortgage strategy — because, in a world of economic uncertainty, having a solid plan matters more than ever.

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