Ever feel like your wallet is on a rollercoaster and you’re not even the one driving? Well, sometimes the U.S. government has a hand on the wheel – even when it comes to your Canadian mortgage. Let me walk you through how decisions made south of the border can ripple all the way up here to affect your fixed-rate mortgage.
Let’s say the U.S. government decides, “Hey, let’s cut taxes!” Sounds like a win for our neighbors, right? But here’s the catch: unless they balance the books by cutting spending (spoiler alert: they often don’t), this can balloon their budget deficit. To cover the shortfall, the U.S. Treasury issues more bonds.
Here’s where it gets interesting. When the market is flooded with these bonds, their price tends to drop, and their yields – that’s financial speak for the return investors earn – go up. Suddenly, U.S. bonds look super tempting to global investors.
And what about Canadian bonds? Imagine them sitting at the investor party, trying to hold their ground while U.S. bonds show up offering higher yields. Investors might ditch Canadian bonds for their new, flashier American cousins. This exodus causes Canadian bond prices to drop and their yields to rise, like an awkward game of financial musical chairs.
Why does this matter to you, a Canadian homeowner (or aspiring one)? Fixed-rate mortgages in Canada are closely tied to our bond yields. When those yields go up, fixed mortgage rates follow suit. So, thanks to a chain reaction starting with U.S. tax cuts, your dream home might just cost a little more.
The takeaway? Global economies are like a big game of financial dominoes. Decisions made in the US can have a ripple effect across the border in Canada.
If you’re wondering how these trends might affect your financial plans, or if you just want to chat about your mortgage options, feel free to reach out!