Canada 10-Year Yield Near Three-Year High

Canada’s 10-year government bond yield rose to near 3.95% in September, its highest level in nearly three years, amid a global bond selloff driven by the crude oil rally and following the release of in-line domestic CPI data. Another surge in oil prices added to inflationary pressures as Canadian consumer price growth remained dominated by energy goods. The CPI rose 3.0% year over year in August, unchanged from July and matching market expectations. Still, underlying price pressures showed no broad acceleration as core gauges tracked by the BoC were unchanged near the 2% target. However, the oil rally continues to fuel inflation concerns and bets on a US Fed rate hike on September 16th. The BoC held its key rate at 2.25% at its latest meeting, but Governor Macklem said policymakers were prepared to raise rates if inflation remained elevated.

Canada’s 10-year government bond yield rose to 3.80% in September, the highest in over two years, after Canada’s retaliatory tariffs on US goods took effect and raised inflation risks. The counter-tariffs cover $20 billion of US goods, with duties ranging from 15% to 50% on products including steel, furniture, clothing and electronics. US tariffs imposed last month targeted $20 billion, or 5%, of Canadian exports to the US. Higher import prices increased inflationary pressures, while the escalating trade war reduced demand for Canadian bonds as safe-haven assets. Energy-driven inflation also boosted rate hike expectations. The BoC held its key rate at 2.25%, noting that inflation risks had increased while new tariffs had made the growth outlook more uncertain. Governor Macklem said policymakers were prepared to raise rates if inflation remained elevated.

Canada’s 10-year government bond yield eased slightly to 3.77% from a more than two-year high of 3.80% touched on September 3rd following the release of employment data. Employment in Canada declined by 41,700 in August, missing expectations for a 15,000 increase and following a 75,100 gain in July. The weak labor data could support a more dovish stance from the BoC. The BoC kept its key policy rate unchanged at 2.25% at its September meeting, as widely expected, but noted that inflation risks had increased while new tariffs had made the growth outlook more uncertain. However, Governor Macklem said policymakers were prepared to raise rates if inflation remained elevated. Meanwhile, US payrolls increased by 162,000, about three times the consensus estimate, boosting expectations for a September Fed rate hike.