Canada’s 10-year government bond yield climbed to 3.68%, nearing the two-month high of 3.72% reached on August 10th, after manufacturing sales data came in stronger than expected. Factory sales rose 0.1% in June from May, defying forecasts for a decline and extending gains for a fifth straight month, while sales volumes increased by 1.2%.
Recent indicators also point to a more resilient labor market, and Canada’s economy is estimated to have grown at an annualized rate of 3.4% in the second quarter, well above the Bank of Canada’s (BoC) 2.5% projection. The robust macroeconomic backdrop has strengthened expectations that the BoC could raise interest rates if energy prices remain elevated.
In July, the BoC left its policy rate unchanged at 2.25% for the sixth consecutive meeting, stating that the economy was still adjusting to recent shocks and that energy-driven inflationary pressures were easing. Even so, policymakers cautioned that inflation expectations remained high and expressed doubts about the durability of the recovery.