The United State’s initiation of a trade war with Canada will have at least one inadvertent impact that improves affordability in this country: fixed mortgage rates are expected to drop notably in the coming weeks. 

Canadian lenders set their long-term fixed mortgage rates based on the performance of the bond market, which fell sharply in the days leading to the confirmation that the U.S. would go ahead with 25 per cent tariffs on goods from Canada and Mexico. 

The Canada five-year bond yield, the most important indicator of where long-term fixed mortgage rates are headed, fell from highs around 2.9 per cent in late February to a low of 2.49 following the implementation of tariffs. 

They then rebounded to roughly 2.75 per cent as traders considered exemptions for autos in U.S. tariffs and rumours that the trade war could be short lived. 

The overall drop is a response to the impact that U.S tariffs and Canadian counter-tariffs of 25 per cent on billions worth of U.S. goods will have on the economy. 

The bond yield dipped to levels not seen since early 2022, when bond markets and the Bank of Canada started reacting to heavy inflation. 

Economists and mortgage brokers say that, because of the trade war, fixed rate mortgages are expected to drop in the coming weeks and months to the mid-3-per-cent range. 

Variable mortgage holders could also see larger savings if the Bank of Canada drops its interest rate lower than expected to try and spur the Canadian economy during tough economic times.