Why Our Stronger-than-Expected GDP Data Didn’t Impact Bond Yields
December 1, 2025
Last week Statistics Canada confirmed that our economy added 54,000 new jobs in November.
That surprisingly strong headline defied expectations, just as our latest GDP print did the week before. But that wasn’t all these two most recent key data releases had in common, because again, the more detailed employment data belied the banner headline.
As with the two prior months, the newly created positions were in part-time work (+63k). Full time positions declined. And while our unemployment rate declined from 6.9% in October to 6.5% in November, about half of that drop was attributed to 26,000 Canadians withdrawing from the labour force. That is not a sign of strength.
To be clear, any job growth is encouraging against the backdrop of Trump’s trade war. In addition to the newly created jobs, our average wage growth ticked up from 3.5% in October to 3.6% last month. But looking back over a longer time horizon, our unemployment rate has risen steadily over the past three years. In mid-October, Bank of Canada (BoC) Governor Tiff Macklem described our labour market as “soft”, despite Stats Can having just confirmed that our economy added 60,000 new jobs in September (which was an even bigger surprise at the time).
Simply put, our latest GDP and employment headlines offer encouraging signals that our economy is faring better than many feared. But a deeper look at the details confirms that we aren’t out of the sugar maples yet.
The Latest on Mortgage Rates
Government of Canada (GoC) bond yields spiked on Friday in response to our surprisingly strong employment data. Several lenders have already raised their fixed mortgage rates in response.
While I think bond-market investors over-reacted to the headline of the report, spiking bond yields are likely to continue to put upward pressure on fixed mortgage rates over the near term.
Interestingly, there is also upward pressure on US Treasury yields, despite recent negative US employment data and the near universal expectation that the US Federal Reserve will cut its policy rate by another 0.25% this Wednesday.
Normally, weaker momentum and a more dovish Fed would cause US Treasury yields to drop. But US inflation remains stubbornly above the Fed’s 2% target. For their part, and US bond-market investors now seem more concerned that additional rate cuts will add to inflation pressure.
Changes in Treasury-yields have a much greater impact on US borrowing costs than the Fed’s policy rate does. If bond-market investors believe that additional Fed rate cuts are ill-advised and will continue to stoke inflation, they will push US Treasury yields higher in response. There is risk that additional Fed rate cuts will do more harm than good.
Variable-rate mortgage discounts off prime were unchanged last week.
There isn’t any real debate about what the BoC will do when it meets this Wednesday, with near universal consensus that it will stand pat.
The Bank recently assessed that its policy rate is at “about the right level” based on its current projections. BoC Governor Macklem added that it would take an “accumulation” of evidence to cause the Bank to alter its assessment.
Since its last meeting in October, we’ve seen better-than-expected economic data. The bond market is starting to price in the possibility of rate increases in 2026 (although those odds are still quite low).
If the BoC surprises us this Wednesday, I think it may do so by pushing back against the idea that rate hikes should enter the narrative. As is the case in the US, rising GoC bond yields tied to that speculation could counteract much of the stimulative impact that the BoC’s policy-rate cuts were intended to provide.
It’s possible that the Bank will use dovish policy-rate language to nip rate-hike talk in the bud for the time being. With that in mind, put me down for dovish hold this Wednesday.
Insider’s Tip for Borrowers
Mortgage rates have fallen substantially from where they peaked in late 2023.
If your current mortgage rate is 5.00% or higher, you may now be able to save money by refinancing.
This post outlines an easy-to-follow step-by-step process for figuring out if you can realize savings this way and provides links to calculators that will help you crunch the numbers.
My Take on Today’s Most Popular Mortgage Options
My assessment of today’s mortgage options remains the same.
Fixed rates are offered at about their long-term average levels.
Right now, the best available three- and five-year fixed rates are both good options. If these rates remain roughly equal, I think five-year fixed-rate terms offer slightly better value.
I continue to believe that today’s variable mortgage rates will likely produce the lowest borrowing cost over their full terms (even though additional BoC rate cuts don’t appear likely over the near term).
Anyone choosing a variable rate should do so only if they can live with its inherent potential for volatility. Borrowers must also have the financial capacity to withstand higher costs (and in some cases, higher payments) should my assessment prove incorrect.
Three Posts Every New Visitor to My Blog Should Read
This post provides a detailed comparison of the pros and cons of fixed- and variable-rate mortgages.
This post provides a detailed breakdown of the very different ways that lenders calculate their fixed-rate mortgage penalties. The amounts charged can vary significantly from lender to lender. A lower penalty can save borrowers thousands of dollars if rates drop.
This post provides a detailed summary of the key terms and conditions to pay attention to in your mortgage contract.
