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Bond Yields Spike, what will it do to Mortgage Discounts?

18 March, 2012 / by marketing

It took many by surprise when BMO began offering hugely discounted mortgages again this month – the second time since January that they’ve made such a move. What didn’t surprise the Canadian public was how, after BMO announced their offer, most of the other major banks followed – also the second time since January that they’ve made such a move. But, what’s going to happen now? BMO has their offer on until March 28, and last time they were the only ones that kept the offer on the table for the entire time promised. The other banks though, all pulled theirs early with some claiming narrowing profit margins and higher bank bond yields as reasons. Now, bank bonds have risen yet again; and it has many wondering what that’s going to do for the hugely discounted mortgages once being offered.

The 5-year yield on bonds has gone up over 30 basis points within the past 10 days, and 45 basis points since the end of January – right around the same time the first mortgage offers were put on the table. Some banks not in the mortgage race have already increased the rates on their mortgages and home equity loans just since Friday; and it’s thought that one of the major banks offering the discounts are going to pull them as soon as this week. But if this is deja vu of what happened at the beginning of the year, it may continue to  be so right up until the very end. Amid all the talk of banks pulling the deals off the table, a spokesperson for BMO has said, “The offer remains available until March 28.”

That may not be surprising either, seeing as how BMO seems to be the only bank that’s been truly prepared to offer such mortgage discounts, both times around. With this latest offering it was reported that the bank not only spoke to government officials to warn and prepare them of the offerings (in order to ease some of Ottawa’s anxiety about Canadians taking on too much debt;) and BMO also stock-piled cheap bonds, so that if and when the prices did rise, they were ready for it. Now once again it seems as though they are the only one of the major banks participating in the Canadian mortgage party, that are.