FX.co ★ Canada 10-Year Bond Yield Falls Near May-Lows

In October, the yield on the 10-year Canadian government bond decreased to approximately 3.16%, aligning closely with its levels from May. This shift resulted from a combination of declining long-term US yields, increasing market expectations of additional monetary easing by the Bank of Canada, and indications of slower domestic growth. US long-term yields dropped as markets anticipated a more significant slowdown in growth and a higher likelihood of monetary easing by the Federal Reserve, prompted by the government shutdown and a lull in economic data releases. This development heightened the demand for long-dated Treasuries, subsequently influencing Canadian yields to move downward. Concurrently, Canadian money markets began to anticipate a more gradual approach by the Bank of Canada, resulting in a decrease in expected short-term rates and a broad repricing of the Canadian yield curve. Domestically, signs of diminishing economic activity and easing inflation expectations allowed investors to lengthen duration. Additionally, a weaker oil market, coupled with new warnings from the International Energy Agency about a substantial supply surplus, negatively impacted Canada’s terms-of-trade outlook, reducing a significant source of government revenue.