Canada 10Y Bond Yield Hits 12-week High

The yield on the Canadian 10-year government bond was at 3.46% on Thursday, extending the volatile momentum from but remaining higher since the start of the week as elevated energy prices increased the likelihood of a hawkish response by the Bank of Canada. Oil and refined product prices were sharply higher as commercial vessels crossing the Strait of Hormuz were targeted by both the US and Iran, prolonging the likelihood of suspended tanker flows form the area. The latest data showed that higher energy prices drove Canada's headline producer price index to surge 2.4% from the previous month in March, above expectations of a 1.6% increase, while the raw materials price index surged 12% in the period, the most since 2020. Data from the period had already shown that annual consumer inflation surged 0.6 percentage points to 2.4%, aligned with warnings from the Bank of Canada that higher energy prices were hitting inflation expectations.

The Canadian 10-year government bond yield edged down to 3.4% on Friday, approaching one-month lows, following a global decline in sovereign yields as the reopening of the Strait of Hormuz temporarily eased inflation concerns. Iran’s Foreign Minister said that the strait is now fully open to all commercial vessels for the duration of the 10-day ceasefire between Israel and Lebanon. This led to a nearly 10% plunge in il prices. The de-escalation has prompted global traders to increase bets on central bank rate cuts by year-end, with markets now pricing in a higher probability of dovish pivots.

The Canadian 10-year government bond yield tumbled toward 3.4% as the threat of a catastrophic global energy shock receded following a conditional ceasefire agreement between the United States and Iran. This significant decline in expected borrowing costs accompanied a plunge in WTI crude prices after President Trump delayed infrastructure strikes for two weeks to allow for formal negotiations. The cooling of geopolitical tensions has effectively removed the immediate stagflation fears that dominated March and provided major central banks with the necessary headway to adopt more dovish policy stances. Markets remained focused on the easing of transportation and logistics costs which had previously threatened to unanchor inflation expectations. Investors are now shifting their attention to Friday's US CPI data to gauge the lasting impact of the five-week conflict on North American price pressures.