Fixed mortgage rates are back on the rise after Canadian bond yields hit a 13-year high on Wednesday.

The yield on 5-year Government of Canada bonds, which dominates fixed mortgage rates, is in freefall, breaking above the 3.20% mark this week, a level not seen since 2008. It has now risen more than 60%. basis points in less than two weeks, closing higher every day since May 27.

Fixed rates aimed at 5%

Since fixed mortgage rates almost always follow movements in bond yields, a new push in fixed rates is all but guaranteed and has already begun.

Several national lenders have already started raising rates for certain terms this week, including big banks like Scotiabank, CIBC and National Bank of Canada.

Uninsured 5-year fixed special rates available nationwide now average 4.73%, according to data tracked by MortgageLogic.news rates analyst and editor Rob McLister. That’s up from 4.37% a month ago and 2.87% at the start of the year.

That means today’s fixed-rate mortgage borrowers who put more than 20% down are paying about $100 more in monthly payments for $100,000 of mortgage debt than buyers six months ago, on the basis of a 25-year amortization.

Discounted fixed 5-year insured rates, which are generally only available to those paying less than 20% down payment, average 4.43%, up more than 20 basis points this month.

“Borrowers getting a mortgage this month should be prepared for an additional shock. We are about to see another wave of fixed rate hikes,” McLister wrote in a recent Globe and Mail column. “With yields soaring, average 5-year fixed rates could be 15 to 25 basis points higher in about seven to 10 days.”

What motivates fear?

Beyond global inflation fears, the latest fear of the day for investors, the relentless rise in oil prices, with WTI crude hitting a multi-year high of over $122.

Not only that, but a growing number of voices suggest that oil prices could challenge the 2008 high of US$147, with a possible rise to over $150 a barrel.

On Wednesday, Jeremy Weir, CEO of multinational commodity trading company Trafigura, told the Financial Times that we currently find ourselves in a “critical situation” as oil prices could reach a “parabolic state”.

“If we see very high energy prices for a period of time, we will eventually see demand destruction,” he said. “It will be difficult to maintain these levels and continue global growth.”

His comments follow remarks by JPMorgan Chase & Co. CEO Jamie Dimon, who last week warned of a potential economic “hurricane.”

Is a Canadian recession inevitable?

The main objective of the Bank of Canada is to contain runaway inflation at the expense of economic growth and possibly house prices.

“Our main concern is to bring inflation down to make basic necessities less expensive for Canadians and to ensure that rising inflation does not take root,” said the Deputy Governor of the Bank of Canada, Paul Beaudry, in a speech last week. “History shows that once high inflation takes hold, it is difficult to roll it back without hurting the economy.”

Given that the Bank of Canada was slow to launch its latest round of rate hikes, it must now deliver rate hikes in a “fast and furious” style to convince consumers that the Bank will be able to control inflation.

Consequently, economists expect between 100 and 150 basis points of rate hikes by the end of the year, which would bring the Bank’s target for the overnight rate between 2.50% and 3%. To date, it is at 1.50%.

“The Bank does not rule out a 75 basis point hike in July, saying it is”ready to act more forcefully if necessaryBMO senior economist Sal Guatieri noted, adding that BMO now expects the bank to raise rates by 50 basis points at each of its next three policy meetings.

“The risk of a downturn will increase especially next year, depending on how far central banks need to raise rates above neutral to restore price stability,” he wrote, adding that the US Federal Reserve is expected to increase by half a point in its next four meetings.

“The odds of a recession could be as high as 45% given that the Fed hasn’t achieved a soft landing in at least six decades when inflation was so high and the jobless rate and policy rates so low at the start of the year. ‘a crunch cycle.’

Economists are split roughly 50-50 on Canada’s chances of entering a recession in the coming years, according to a Finder.com poll.

“…we see two alternative routes to a hard landing [for the BoC and Fed]noted CIBC economists Karyne Charbonneau and Avery Shenfeld.

“They could tighten too much too fast, and their desired slowdown would instead turn into an outright recession,” they wrote. “Conversely, by moving too slowly and allowing inflation expectations time to build, they could leave a recession as the only tool to bring inflation down to earth.”

The latest price forecasts

Here are the latest interest rate and bond yield forecasts from the Big 6 banks, with any changes from their previous forecasts in parentheses.