Canada’s 10-year government bond yield inched up to around 3.7%, rebounding from a two-month low of 3.65% hit on November 9th, in line with rising US yields. US Treasury yields moved higher after stronger-than-expected October inflation data strengthened expectations of further interest rate hikes by the Federal Reserve.
In parallel, most market participants now anticipate an additional rate hike by the Bank of Canada, amid persistently elevated inflation. Canada’s annual inflation rate rose to 3.1% in September from 3.0% in August, its highest reading since May’s 3.2%. The pickup in prices comes against the backdrop of a recovering economy, with Q2 GDP expanding by 0.8%. At the same time, the Democratic Party’s victory in the US mid-term elections is seen as potentially easing trade-related headwinds to Canadian growth.
However, the case for a more aggressive policy stance is tempered by signs of labor market softness. Employment declined by 4,700 in October, well below expectations for an increase of 13,600 jobs.
