The week’s best fixed and variable mortgage rates

Oil and natural gas prices spiked after Israeli and Iranian strikes on energy infrastructure, raising the prospect of higher interest rates; the Bank of Canada left its policy rate at 2.25% while markets price a ~25bp hike by end-2026. The BoC said it is ready to adjust policy if needed, but weak domestic data — GDP contracted in Q4 2025 and the labour market lost 84,000 jobs in February — plus a prolonged housing slump could limit tightening and temper moves in variable-rate mortgages.

Analysis

An oil-driven shock that lifts breakevens will transmit to Canadian mortgage costs through two channels: higher nominal yields (pushing fixed-rate lock-ins up via the gov't curve + swap spreads) and a real-income shock to borrowers if energy passthrough accelerates core inflation. If Brent-type moves persist for 6–12 weeks, expect 10–40bp repricing in 2–5yr Canada yields even before a BoC reaction; that magnitude raises 5yr fixed mortgage offers by ~15–35bp via dealer funding and swap-market transmission.

Variable-rate mortgage pain is a slower-moving credit story: rising market rates increase debt-service for new ARMs immediately, but balance-sheet stress for banks and non-bank lenders manifests with a 3–12 month lag through delinquencies and higher provisions. This creates a narrow window where banks can mechanically widen NIMs (near-term benefit) even as loan-loss expectations (lagged cost) begin to erode ROE — a classic two-phase P&L where timing matters for positioning.

Macro policy is the governor: BoC’s optionality (readiness to adjust) makes the market’s haircut asymmetrical — a short-lived oil spike -> quick fade and tighter yields reverse; a protracted supply shock -> sustained higher yields and credit deterioration. That non-linearity argues for directional but hedged trades that monetize near-term repricing while capping the blow-up if domestic weakness forces policy restraint within 3–6 months.

Key Decisions for Investors

• Short 2–5yr Canada rate exposure via pay-fixed CAD interest-rate swaps (or short Canada 2y futures) — size to target a 20–35bp move; timeframe 1–3 months. Risk: BoC holds and yields fall -> stop at 12–15bp adverse; reward: 1.5–3x net carry if oil-driven inflation persists.
• Buy 3-month USD/CAD put options (i.e., long CAD) ~1.5–2% OTM to capture energy-led CAD appreciation; allocate limited notional (2–4% of FX book). Risk: domestic downside or risk-off weakens CAD -> premium loss; reward: 3:1 payoff if oil remains elevated for >6 weeks.
• Relative-value equity pair: long RY.TO (large-diversified bank) and short CM.TO (higher retail/mortgage footprint) for 3–12 months targeting 15–30% relative upside. Thesis: capture NIM upside with lower mortgage-credit sensitivity vs. direct mortgage exposure; stop if 3-month unemployment stabilizes or housing spreads tighten.
• Buy 6–12 month protection: either 1yr CDS on CIBC or 6–9 month deep OTM puts on CM.TO to hedge a household-credit deterioration scenario; size to cover mortgage-sensitive book. Cost = insurance premium; payoff non-linear if delinquencies accelerate >50–100bps versus baseline within a year.