Canada’s 10-year government bond yield climbed to 3.80% in September, its highest level in more than two years, following the implementation of Canada’s retaliatory tariffs on US goods, which heightened inflation risks. The counter-tariffs apply to US exports worth $20 billion, with duties ranging from 15% to 50% on products such as steel, furniture, clothing, and electronics. These measures followed US tariffs introduced last month that targeted $20 billion—about 5%—of Canadian exports to the United States.
Higher import costs intensified inflationary pressures, while the deepening trade dispute reduced demand for Canadian government bonds as safe-haven assets. At the same time, energy-driven price gains further strengthened expectations of additional interest rate increases.
The Bank of Canada kept its key policy rate unchanged at 2.25%, stating that inflation risks had risen and that the new tariffs had increased uncertainty around the growth outlook. Governor Macklem emphasized that policymakers were prepared to raise rates if inflation remained persistently elevated.
