Monthly Market Monitor

The same core market data is reviewed daily to assess direction, volatility, and underwriting visibility. This month’s release showed modest upward pressure across the Government of Canada curve, widening in select corporate spreads, and continued softness in housing starts. Here’s what caught our attention: long-dated yields have risen meaningfully over the past three months, while forward-looking housing activity remains negative on a year-over-year basis.

Featured Metric Deep-Dive

The Government of Canada 10-year yield closed at 3.18 percent, up 6 basis points on the week and approximately 22 basis points over six months. The 5-year stands at 2.74 percent, up 5 basis points week-over-week and roughly 19 basis points over six months. This matters because the 5-year and 10-year tenors anchor conventional and CMHC-insured multifamily pricing. A 25 basis point increase in the 5-year yield, holding spreads constant, raises annual debt service by approximately $25,000 per $10 million of floating-rate equivalent exposure. At a 5.00 percent cap rate, that incremental debt cost translates into roughly $500,000 of valuation sensitivity. Even modest basis point movement therefore alters equity requirements and refinance assumptions. The recent drift higher in intermediate and long yields narrows margin for underwriting error.

Yield Curve Analysis

The curve remains upward sloping. The 1-year yield is 2.32 percent, the 5-year 2.74 percent, the 10-year 3.18 percent, and the 20-year 3.53 percent. The spread between 2-year and 10-year is approximately 61 basis points. Short rates have been comparatively stable, while medium and long tenors have firmed over one week and one month horizons. The shape implies markets are not pricing an imminent downturn. At the same time, the one-month upward move in longer maturities suggests term premium is rebuilding. Rate normalization is gradual, not abrupt, but persistence at current levels should be assumed in base case underwriting.

Current Financing Environment

Five-year Government of Canada mortgage bond yields are 2.84 percent, up 6 basis points on the week and 24 basis points over six months. Five-year mortgage spreads over governments sit near 10 basis points, modestly tighter on the week but wider over twelve months. Corporate BBB 5-year spreads are approximately 81 basis points, up 3 basis points week-over-week and materially wider year-over-year. BoC-reported residential mortgage rates are 6.09 percent, roughly 40 basis points below year-ago levels, but unchanged on the week. Insured 5-year fixed mortgage benchmarks are 3.99 percent, flat week-over-week but approximately 30 basis points lower year-over-year. Spreads are stable in the near term, yet volatility in underlying yields continues to compress underwriting visibility.

Market Signals

The Bank of Canada policy rate remains 2.25 percent, unchanged across all measured timeframes. CORRA is holding near 2.27 percent, indicating limited short-term policy volatility. We are also watching housing starts closely. Total housing starts are down approximately 19 percent over six months and 0.7 percent year-over-year, with a sharp negative one-month move. It is important never to look at real estate in isolation. Softer housing starts, in the context of higher long yields, signal supply restraint emerging as capital costs remain elevated. The adjustment appears to be occurring through volume rather than price.

Our Strategic Positioning

• Prioritising assets with in-place cash flow and conservative leverage, assuming refinancing at current 5-year benchmarks plus stable spreads.

• Stress testing acquisitions at an additional 50 basis points above today’s 5-year yield to preserve exit optionality.

• Maintaining liquidity to capitalise on developers facing funding gaps as housing starts decelerate.

Based on these indicators, here’s what we are intending to do: preserve balance sheet flexibility, underwrite to durable debt costs, and remain patient where pricing has not yet reflected higher term rates.

Macro Context

The TSX is up approximately 20 percent over six months and more than 34 percent over twelve months. The S&P 500 shows similar strength, up roughly 7 percent over six months and 16 percent over twelve. Meanwhile, the MOVE Index has risen sharply over six and twelve months, signalling elevated rate volatility. CAD/USD remains relatively stable near 0.73, while crude oil has risen more than 11 percent over three months. Equity resilience alongside rising rate volatility creates a mixed signal. Strong equity performance supports household confidence and rental demand, yet higher volatility increases financing friction. Multifamily fundamentals remain supported by affordability constraints, but capital costs are no longer compressing.

Bottom Line

Rates are not spiking, but they are drifting higher at the long end. Spreads are stable in the near term but wider than a year ago. Housing supply is slowing. Equity markets remain constructive, though volatility is elevated. The environment favours disciplined underwriting, conservative leverage, and patient capital deployment. Execution matters more than macro prediction. Balance sheet strength remains the primary strategic advantage.

A Final Thought

In 1994, the U.S. bond market experienced what became known as the “Great Bond Massacre,” when long-term yields rose nearly 200 basis points in a single year despite modest inflation. Many leveraged investors were positioned for stability and were forced to liquidate. The episode is remembered less for recession and more for duration risk mispriced. Markets often adjust quietly, then all at once.

Important Disclosures

This analysis is provided for informational and educational purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. The content represents my personal views and analysis of market conditions and should not be construed as a recommendation to buy, sell, or hold any particular investment or security. Past performance is not indicative of future results. Real estate investments involve substantial risk, including but not limited to: market risk, interest rate risk, liquidity risk, leverage risk, and the potential for total loss of capital. Market conditions, interest rates, government policies, and economic factors can change rapidly and materially affect investment outcomes. The interest rates, spreads, and market data referenced herein are subject to change without notice and may not reflect the rates or terms available to all investors. Actual financing terms will vary based on individual creditworthiness, property characteristics, loan-to-value ratios, and lender-specific underwriting criteria.

All investors should conduct their own due diligence and consult with qualified legal, tax, and financial advisors before making any investment decisions. This content does not take into account your specific investment objectives, financial situation, or particular needs. No warranty or guarantee is provided regarding the accuracy, completeness, or timeliness of the information presented. While data sources are believed to be reliable, errors and omissions may occur. Market data and economic indicators are subject to revision. Real estate investments are illiquid and may not be suitable for all investors. Leverage amplifies both gains and losses. Forward-looking statements and market predictions are speculative in nature and involve known and unknown risks and uncertainties.