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

The yield on Canada's 10-year government bonds has surpassed 3.36%, driven by increased issuance, ongoing inflationary pressures, and expectations of a hawkish stance from the Bank of Canada (BoC). Ottawa's unprecedented C$628 billion borrowing plan for the fiscal year 2025–26, influenced by a delayed budget and a commitment to raise defense expenditure to 5% of GDP, has resulted in heightened bond issuance, applying downward pressure on bond prices. Despite the overall inflation rate being a moderate 1.7%, core inflation indicators (CPI-trim and CPI-median) remain above the BoC's target range of 1-3%, dampening hopes for rapid interest rate cuts and sustaining elevated long-term yields. Moreover, a recent decline in oil prices, attributed to optimism surrounding a potential ceasefire in the Middle East, has reduced export revenues, introducing a fiscal risk premium. Nonetheless, consecutive GDP contractions of 0.1% in both April and May highlight economic stagnation, suggesting that future monetary policy easing could potentially curb further increases in yields.