Why TD's deputy chief economist thinks bond traders are misreading the path for mortgage rates
Bond markets are bracing for a Bank of Canada tightening cycle. One of Canada's big-bank economists thinks they have it wrong.
Derek Burleton, vice-president and deputy chief economist at TD Bank Group, delivered the opening keynote at MortgageFest Canada in Mississauga, Ont., on Sept. 23. He told the audience that markets are pricing in four or more rate hikes in Canada. His baseline calls for none.
He said he still thinks the central bank "is going to be able to kind of sit on its hands." He added that if it were to have to hike, "we don’t see it hiking by 3 or 4 times as the market expects."
The call puts Burleton at odds with traders just weeks after the Bank of Canada's seventh consecutive rate hold on Sept. 2, which left the policy rate at 2.25%.
Why Canada may not follow the Fed
Much of the repricing traces back to Washington. The US Federal Reserve raised rates on Sept. 16 for the first time in more than three years, and Canadian yields have followed US yields higher.
Burleton said the market is assuming Canada will follow the Fed. "So I just want to say that yields are reflecting a little bit of this paint all countries with one brush. Be careful," he said.
He argued the two economies are in different places. He said US core inflation is running above 3%, while Canada's is close to the Bank's 2% target.
"In Canada, our inflation will get worse with higher oil prices, but not dramatically. And when you think of Canada, we have excess slack in our job market. We have an economy that still has room to grow. We don't think there's nearly the case for the Bank of Canada to raise interest rates," he said.
He was candid about the odds. "Our view is that the Bank of Canada doesn't hike, but if I was to sort of lean on the probabilities, I'd put maybe a 50% chance on that. But there is a significant risk that they take one bad inflation data point; they may have to move," Burleton said.
"The market thinks it's going to be four. I think if I was to have a secondary scenario, they'd have maybe one hike, maybe two max."
The Federal Reserve has raised rates for the first time in three years. While it doesn't directly impact Canadian mortgages, it could put pressure on bond yields and fixed mortgage rates.https://t.co/e4Ij1yaJza
— Canadian Mortgage Professional Magazine (@CMPmagazine) September 17, 2026
What higher yields mean for brokers
The gap between policy expectations and bond markets is already showing up in broker pipelines. Burleton said Canadian five-year yields have climbed about 80 to 85 basis points since their February lows. That increase is gradually working its way into fixed mortgage rates across the Canadian market.
"Now, I'm comfortable with the 5-year yield. I do think that there's room for it to begin to pull back, probably not till next year," he said.
He added that yields won't fall back to where they were in March 2025. "They're going to remain more elevated for longer," he said.
He urged brokers to be straight with borrowers. "So if anything, you know, we have to be honest with clients, right? That, you know, yes, you got to be able to sleep at night, and they will have heard kind of some whiff about rate hikes by the Bank of Canada," Burleton said.
On housing, Burleton said Ontario average prices have fallen more than 20% over a four-year correction.
"And I think we're now beginning to see green shoots for recovery beginning to happen. So I think the bottom is here. And I think now we can look forward to the next phase," he said.
TD forecasts national mortgage volume growth of 4% to 5%. Burleton described that pace as "moderate, sustainable, healthy."
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