Canada 10-Year Yield Eases on US Trade Tensions

Canada’s 10-year government bond yield fell to about 3.62% after touching a more than two-year high of 3.76% on August 21, as renewed trade tensions with the US raised concerns over Canada’s economic outlook. Canada imposed retaliatory tariffs of 15%-50% on roughly $20 billion of annual US imports, including metals, agricultural goods, and motorcycles, following an increase in US tariffs after trade talks between the two countries broke down. US President Donald Trump also said tariffs on Canadian cars, trucks, automotive parts, and steel would rise to 50% from January 1, 2027, alongside new duties on several other goods. Rising trade risks prompted markets to scale back expectations for a Bank of Canada rate hike this year, despite elevated energy prices adding to inflationary pressures.

The yield on Canada’s 10-year government bond fell to about 3.67% after touching a more than two-year high of 3.76% on August 21st, as a re-escalation in the trade war with the US put Canada’s economic recovery at risk. US President Donald Trump said tariffs on all Canadian cars, trucks, automotive parts and steel would rise to 50% on January 1, 2027. This came after Prime Minister Carney vowed to retaliate against the initial series of US tariffs imposed after trade talks fell through. Washington imposed 50% tariffs on furniture, plastics, plywood and electrical equipment, adding to existing 25% tariffs on steel, lumber and autos. Risks to growth from higher tariffs have reduced the case for a BoC rate hike this year. Growth is now expected to contract just as the economy has started to recover. In July, Canada added 75,000 jobs, while inflation edged up to 2.9%, largely due to gasoline prices rather than broad-based price pressures.

Canada’s 10-year government bond yield rose to 3.76%, its highest level since April 2024, as a global selloff in government bonds pushed long-term borrowing costs across developed markets to multiyear highs. The move tracked higher US Treasury yields, which rebounded after losses triggered by the Treasury Department’s announcement of a larger bond buyback. Global yields had previously surged on rising US Treasury yields, as increased credit supply and persistent inflation risks fueled a broader aversion to longer-maturity bonds. Oil prices remained elevated near multi-month highs, adding to inflation concerns. In contrast, weaker-than-expected retail sales indicated softer consumer spending and reinforced expectations that the BoC will keep interest rates unchanged next week. However, stronger-than-expected factory sales and a resilient labor market provided a counterpoint, while the economy is estimated to have expanded at an annualized 3.4% in 2Q26, above the BoC’s 2.5% forecast.