Canada 10-Year Yield Continued to Swing

The yield on Canada’s 10-year government bond hovered around 3.48%, as rising oil prices, driven by ongoing uncertainty in the Middle East, kept upward pressure on inflation. US–Iran talks have stalled, and despite mixed signals on a possible resumption, the Strait of Hormuz remains largely closed, further fuelling price pressures. Recent data underscored this trend: Canada’s headline producer price index rose 2.4% month-on-month in March, well above the 1.6% forecast, while raw materials prices surged 12%, the sharpest increase since 2020. Earlier figures also showed annual consumer inflation accelerating by 0.6 percentage points to 2.4%, in line with Bank of Canada warnings that higher energy costs are lifting inflation expectations. The Bank of Canada is widely expected to hold rates steady at this week’s meeting, though markets remain split on whether it will signal a potential hike or an extended pause for the rest of the year.

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.