Canada 10-Year Bond Yield Hovers at 3.48%

Canada’s 10-year government bond yield rose to 3.74% in May, the highest level in over two years amid the surge in US long-term yields, even as soft domestic inflation data reinforced expectations that the BoC will not hike rates. High energy prices and robust economic data in the US drove the yield on their 30-year bond to an 18-year high, spreading into North American bond markets. Meanwhile, domestic headline inflation rose to 2.8% in April due to rising gasoline costs linked to the Middle East conflict. Still, the Bank of Canada’s preferred core inflation gauges slowed more than expected to their lowest levels in five years, suggesting underlying price pressures outside energy have eased. The data aligned with recent signals from the central bank that energy-driven inflation may prove temporary and reduced concerns over additional rate hikes. Still, Governor Tiff Macklem has also warned that geopolitical tensions and trade uncertainty could still alter the policy outlook.

Canada’s 10-year government bond yield rose to 3.70% in mid-May, the highest in two years, as rising oil prices renewed concerns over a potential inflation shock. Crude prices advanced amid the lack of progress toward a deal to end ship attacks and seizures around the Strait of Hormuz, reinforcing broader stagflation fears and lifting expectations for higher interest rates. March inflation data had already highlighted the impact of elevated energy prices on Canadian consumer prices, keeping markets alert to renewed upside inflation risks. Canada’s annual inflation rate rose to 2.4%, matching the highest level in one year. Still, the Bank of Canada signaled at its latest meeting that it does not see high risks of energy-driven inflation becoming entrenched and opted to leave interest rates unchanged.

Canada 10 Year Government Bond Yield increased to 3.64%, the highest since July 2024. Over the past 4 weeks, Canada 10Y Bond Yield gained 13.80 basis points, and in the last 12 months, it increased 47.05 basis points.