Canada’s 10-year government bond yield inched up to around 3.4% after the US Federal Reserve adopted a more hawkish tone at its latest policy meeting. As widely expected, the Fed left interest rates unchanged, but its projections surprised markets on the upside: roughly half of FOMC members now anticipate at least one additional rate hike this year. At the same time, the Fed raised its inflation forecasts, leading investors to scale back expectations for imminent monetary easing and putting upward pressure on North American bond yields.
In contrast, the Bank of Canada held its policy rate steady at 2.25% at its most recent meeting. The central bank noted that uncertainty remains elevated amid tensions in the Middle East and proposed new US tariffs, but reiterated that it stands ready to respond if necessary and will not allow higher energy prices to fuel persistent inflation. Markets continue to price in a 25-basis-point BoC rate increase in December.