FX.co ★ Canada 10-Year Bond Yield Holds Below August Highs

The yield on Canada's 10-year government bond hovered around 3.4%, remaining below its peak of 3.47% last seen in August, and reached again on December 22nd. This is due to indications of slower economic growth, cautious stances from the Bank of Canada, and softened expectations for global interest rates, which all influenced longer-term bonds. Recent data indicate a slowdown in economic momentum as 2025 nears its end, with projections pointing to a slight contraction in October's GDP and broader signs of weakening activity indicators. Investors interpret recent communications from the Bank of Canada as indecisive regarding further monetary tightening, with an increasing inclination to maintain steady rates or possibly make cuts next year. This perspective applies a downward pressure on long-term yields, as the anticipation of additional rate hikes diminishes. Similarly, US Treasury yields have decreased in the midst of trading characterized by thin holiday volumes, as the market factors in potential rate cuts for next year. Investors generally foresee two rate reductions in 2026, even as the Federal Reserve presents a more divided outlook, considering only one reduction.