FX.co ★ Canada 10-Year Bond Yield Holds Strong

The yield on Canada's 10-year government bond remained steady around 3.42%, following the Bank of Canada's decision to maintain the policy rate at 2.25%. This move came with assurances that inflation is trending back towards its target. Softer core inflation figures and January forecasts indicating that the Consumer Price Index (CPI) will linger around 2% have diminished the urgency for additional tightening in the near term. Consequently, investors opted to reduce long-term yield premia. Additionally, the decline in global real yields has impacted Canada's yield curve through increased cross-border demand for longer durations and more favorable swap pricing. Domestically, the adjustment was exacerbated by investors who, having reduced their positions during previous risk-on phases, returned to long positions in response to the Bank's guidance. Moreover, portfolio reallocations into government bonds bolstered prices. Simultaneously, the rise in gold prices and a broader shift towards defensive assets further supported the move towards lower real yields.