Canada's Bond Yields Advance Amid US-Iran Tensions

Canada's 10-year government bond yield rose to 3.43% in early June as escalating trade tensions and renewed conflict in the Middle East increased inflation concerns. Tensions in the Gulf intensified after Iranian attacks on Kuwait, while US strikes near the Strait of Hormuz and limited diplomatic progress clouded prospects for a resolution. Oil prices remained above $95 per barrel, fueling worries about energy-driven inflation and supporting higher bond yields. Meanwhile, the Bank of Canada is widely expected to leave interest rates unchanged at next week's meeting and avoid signaling a clear tightening bias. Weak domestic demand and a slowing economy continue to limit underlying inflation pressures, reinforcing expectations of a neutral policy stance.

Canada's 10-year government bond yield fell to 3.45% from the two-year high of 3.7% touched on May 19th, tracking similar moves in the US as the outlook of soaring inflation was tamed by a pullback in energy prices. The US and Iran signaled they were closer to agreeing on a deal to end the war and restore energy supply from the key region. Despite fresh strikes that dented optimism on a deal, the drop in energy costs aligned with the Bank of Canada's signal that it does not see high energy prices spreading to inflation in core sectors of the economy. Likewise, the latest inflation report indicated that the Bank of Canada’s preferred core inflation gauges slowed more than expected to their lowest levels in five years. In turn, the GDP is expected to have been flat in the first quarter, also supporting the case for lower rates.

Canada 10 Year Government Bond Yield decreased to 3.45%, the lowest since April 2026. Over the past 4 weeks, Canada 10Y Bond Yield gained 4.80 basis points, and in the last 12 months, it increased 18.45 basis points.