Canada Bond Yields Hold Firm

The yield on Canada's 10-year government bond firmed at 3.54% after reaching a two-month high of 3.58% as a rebound in US Treasury yields supported global bond markets. US yields recovered after recent declines, while investors continued to assess the outlook for Federal Reserve policy. Still, a sharper decline in Canadian yields was prevented by the Bank of Canada's relatively hawkish rhetoric. The central bank left interest rates unchanged at its July meeting, as expected, but underscored that growth is set to remain robust in the coming quarters. This was accompanied by an upward revision to this year's inflation projections as the conflict in the Middle East pushed energy costs higher.

The yield on Canada's 10-year bond eased to 3.54% from the near two-month high of 3.57% on July 14th, as the impact from the pullback in US Treasury offset support the Bank of Canada's robust economic outlook. US yields pulled back following the combination of soft CPI and PPI readings for June, erasing expectations that the Federal Reserve would hike rates in their next meeting. Still, a sharper decline for Canadian yields were prevented by relatively hawkish rhetoric by the Bank of Canada. The central bank held interest rates unchanged in their July meeting, as expected, but underscored that growth is set to remain robust in the coming quarters. This was combined with an upward revision to inflation projections this year as the war in the Middle East lifted energy costs.

Canada's 10-year government bond yield eased to 3.52% from the six-week high of 3.59% touched on July 8th, as signs of lower energy inflation limited risks of a rate hike by the BoC. Crude prices declined on signs that diplomatic efforts between the US and Iran remain on track despite recent tensions. Even so, yields remained 12bps since the start of the month as the risk of renewed supply disruptions and higher energy prices persisted. On top of that, Canada's labor market continued to show resilience, with employment rising by 18,200 in June after an 88,000 increase in May and the unemployment rate unexpectedly tying its lowest level in nearly two years. Investors expect the central bank to leave its policy rate unchanged at its July 15th meeting.