Monthly Market Monitor

Each month begins with a review of rates, spreads, and macro indicators across the financing stack, and here’s what caught my attention this time. Bond yields have stabilized at higher levels, mortgage rates remain stubbornly elevated relative to last year, and equity markets are continuing to grind higher despite tightening financial conditions. The data continues to suggest persistence rather than relief, which has implications for underwriting discipline and timing.

Featured Metric Deep-Dive

This month’s focus is the five-year Government of Canada bond, currently yielding approximately 2.97 percent. This benchmark sits near the center of the Canadian real estate financing ecosystem, anchoring insured and conventional mortgage pricing and influencing cap rate expectations across stabilized assets. While the yield is marginally lower than levels seen six months ago, the more important signal is that it remains roughly 20 to 25 basis points higher than a year ago. This matters because small changes in the five-year yield have an outsized effect on leveraged cash flow. On a $10 million acquisition financed at 65 percent loan-to-value, a 25 basis point increase in borrowing costs equates to roughly $16,000 to $18,000 per year in additional debt service. That drag compounds over a five-year term and directly reduces distributable cash flow unless offset by rent growth or operational efficiencies. The persistence of higher benchmark yields reinforces the need for conservative exit assumptions and realistic refinancing scenarios.

Yield Curve Analysis

The yield curve remains modestly upward sloping, with short-term rates anchored by policy expectations and longer-dated yields reflecting inflation persistence rather than growth optimism. The spread between the two-year and ten-year Government of Canada bonds has narrowed compared to prior quarters, but inversion risks have not fully cleared. The curve continues to signal a slow-growth environment rather than an imminent downturn, which historically has favored income durability over aggressive appreciation assumptions.

Current Financing Environment

Financing conditions continue to improve gradually, led by insured residential debt. Five-year CMHC-insured fixed mortgage rates are currently holding near 3.99 percent, unchanged across short-term periods and approximately 55 basis points lower than levels observed a year ago. That decline reflects easing benchmark pressure rather than widening credit spreads and is beginning to translate into more workable refinancing math for stabilized multi-unit assets. Five-year uninsured fixed rates remain higher at roughly 4.49 percent and have shown less compression over the past year, remaining broadly flat in recent months.

The divergence between insured and uninsured pricing continues to reflect capital allocation preferences rather than stress, with insured product benefiting first from lower benchmark volatility. On the commercial side, Canada Mortgage Bond yields remain elevated relative to pre-2023 norms, with the five-year near 3.05 percent and the ten-year around 3.60 percent. Spreads remain contained, indicating that credit markets are functioning normally even as absolute borrowing costs remain historically restrictive. Compared to mid-2024, debt capital is modestly cheaper and more predictable, and the reduction in insured rates is beginning to reintroduce selective refinancing optionality without fundamentally altering underwriting discipline.

Market Signals

The Bank of Canada policy rate remains restrictive, and housing starts have softened modestly on a six-month basis, reflecting the cumulative impact of higher financing costs. Equity volatility remains contained, but risk assets are increasingly sensitive to rate expectations. We are also watching housing starts closely, as sustained weakness would reinforce rental demand while constraining new supply, particularly in mid-market multifamily segments.

Our Strategic Positioning

• Maintain conservative leverage assumptions, prioritizing durability of cash flow over marginal yield enhancement.

• Focus underwriting on in-place income with realistic rent growth rather than future rate relief.

• Preserve capital flexibility to act if volatility creates mispricing rather than forcing deployment.

Macro Context

The TSX continues to post solid gains, now up meaningfully over the past twelve months, while the S&P 500 has extended its rally despite elevated valuations. These equity market levels reflect optimism around earnings resilience rather than easing financial conditions. It is important never to look at real estate in isolation, as sustained equity strength can support household confidence and rental demand even when borrowing costs remain elevated.

Bottom Line

The current environment is characterized by stability at higher levels rather than imminent relief. Financing remains available, spreads are orderly, and capital markets are functioning, but the margin for error is thinner than it was in prior cycles. Disciplined investors should recognize that returns will be driven more by operational execution and entry pricing than by financial tailwinds in the near term.

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.