FX.co ★ Canada 10-Year Bond Yield Eases After BoC

The yield on Canada's 10-year government bond has decreased to approximately 3.15%. This adjustment in market expectations is due to the recent monetary policy changes and long-term inflation forecasts. The Bank of Canada recently lowered its policy rate by a widely anticipated 25 basis points, bringing it to 2.5%. This move signals the beginning of a sustained easing cycle. Domestically, the economic landscape has contributed to this repricing. The second quarter saw a notable GDP contraction of about 1.6%, alongside a significant 27% drop in exports. These developments have dampened the growth and trade outlook, making further rate reductions more conceivable. Simultaneously, the headline inflation rate eased to 1.9% in August, allowing the Bank of Canada to relax its policy without risking its inflation target. Additionally, the softening labour market has alleviated immediate wage pressures. Furthermore, the decline in U.S. Treasury yields, coupled with a general decrease in global long-term interest rates, has influenced Canadian bonds, compressing the term premium.