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Royal Bank Cuts Mortgage Rates Amid Declining Bond Yields

Jan. 20 (Bloomberg) -- Royal Bank of Canada, the country’s second-largest lender by assets, cut some of its residential mortgage rates amid declining yields on Canadian government bonds.

Royal reduced its five-year fixed mortgage 10 basis points to 5.24 percent on Jan. 18, the first decrease in 10 months, Sean Amato-Gauci, senior vice president of home equity financing, said today in an e-mailed statement. Royal Bank also pared other home loans by the same amount, including reducing its five-year mortgage special to 3.69 percent, he said.

The yield on Canada’s five-year government bonds, the benchmark security in the market where banks finance mortgage lending, has fallen 27 basis points this year to 1.67 percent, the lowest level since July, as weaker-than-expected economic data fueled speculation the Bank of Canada will signal a bias to lower its benchmark interest rate.

Bank of Canada Governor Stephen Poloz will give an economic update at a Jan. 22 interest-rate decision. Economists predict the bank’s policy rate will remain 1 percent, where it has been since September 2010.

Royal Bank’s special rate undercuts Toronto-Dominion Bank, Bank of Montreal and Canadian Imperial Bank of Commerce, according to company websites, though it’s higher than Bank of Nova Scotia’s 3.59 percent special on a five-year closed term.

Royal Bank’s five-year special rate last year reached a high of 3.89 percent in August, up from a low of 3.09 percent in June, according to the Toronto-based lender.

The Canadian average for five-year mortgages at the country’s banks has been unchanged at 5.34 percent since Aug. 28, according to Bank of Canada data. Finance Minister Jim Flaherty, who has been encouraging Canadians to reduce household debt, urged lenders in March to avoid a “race to the bottom” on mortgage specials after Bank of Montreal and Manulife Financial Corp.’s Canadian bank unit offered promotional mortgage rates below 3 percent.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Peter Eichenbaum at peichenbaum@bloomberg.net

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