The Globe and Mail reports in its Wednesday edition that the Bank of Canada is widely expected to cut its headline interest rate by an additional two or 2.5 percentage points in the coming year, but fixed rates for five-year and three-year mortgages will likely drop by much smaller amounts. The Globe's Salmaan Farooqui writes that is because banks and mortgage providers often set their long-term mortgage rates based on the performance of bond markets. In general, weaker bond yields tend to align with lower rates, while stronger ones correspond with higher rates. BMO economist Robert Kavcic says bond markets dropped considerably over the summer as they priced in expected rate cuts from the U.S. and Canadian central banks throughout 2024 and early 2025. In the past two weeks, however, the bond market saw a small rebound as the U.S. economy showed unexpected strength. "In the last couple weeks that momentum has stalled out because expectation of rate cuts, especially in the U.S. has been dialled back, and that has a spillover effect in Canada because our bond yields have alignment with the U.S.," Mr. Kavcic told The Globe. Mr. Kavcic expects that five-year rates will bottom out somewhere between 3.5 and 4 per cent in 2025.