The Canadian 10-year government bond yield climbed toward 3.6%, reaching an eight‑month high, as surging US Treasury yields and ongoing tensions in the Middle East outweighed the brief market relief that followed President Trump’s decision to postpone military strikes. The move in Canadian yields largely mirrored the US, where the 10-year yield hit its highest level in eight months amid growing pro‑inflationary concerns and a sharp rise in deficit spending tied to military expansion.
On March 18, the Bank of Canada left its overnight rate unchanged at 2.25%. However, the Governing Council cautioned that volatile energy prices and the risk of a potential closure of the Strait of Hormuz are sustaining structurally higher inflation risks, which could ultimately require additional policy tightening.
On the domestic front, Canada is grappling with its own fiscal pressures. The 2026–27 Main Estimates project total spending of $502.8 billion, including a sizable $48.4 billion allocation for national defense. This elevated spending profile has added to supply‑side pressures in the long end of the yield curve, contributing to the rise in long‑term bond yields.