The yield on Canada’s 10-year government bond climbed toward 3.4% as the worsening conflict in the Middle East and a rally in Brent crude prices stoked global inflation concerns, offsetting weaker labor data in North America. An unexpected loss of 92,000 US jobs and an increase in the US unemployment rate to 4.4% initially pushed yields lower, but the subsequent rise in oil prices toward $90 per barrel forced investors to reprice the risk of an extended period of elevated interest rates.
Upward pressure on yields is also being reinforced by the Bank of Canada’s decision to hold its policy rate at 2.25%, despite a 0.6% contraction in domestic output in the final quarter of 2025. The central bank remains focused on a 2.4% headline inflation rate and the threat of renewed supply chain disruptions.
At the same time, bond investors are assessing the long-term fiscal implications of the South Bow proposal to restore sections of the Keystone XL pipeline. The project could significantly improve Canada’s terms of trade by increasing crude exports to the US by more than 12%.