FX.co ★ Canada 10-Year Bond Yield at 2-Week High

The yield on Canada's 10-year government bond has risen to over 3.22%, reaching a peak not seen in two weeks. This increase is driven by a combination of internal and external factors influencing the cost of long-term borrowing. The Bank of Canada (BoC) highlighted in its Financial System Review the high levels of household debt and the significant involvement of leveraged hedge funds in government bond auctions. These factors have moderated expectations for an immediate interest rate reduction and indicate a more cautious approach in monetary policy. Concurrently, the Federal Reserve in the United States has opted to maintain rates between 4.25% and 4.50%, with indications that inflation and unemployment might remain persistent concerns. This has pushed up US Treasury yields. Additionally, escalating threats of tariffs between the US and Canada, only slightly mitigated by a trade agreement between the US and the UK and upcoming negotiations between the US and China, have muddled Canada's export prospects. This has driven investors to demand higher term premiums. Moreover, considerable issuance of federal bonds to finance government fiscal measures has increased the bond supply, further exerting upward pressure on yields amid select areas of risk aversion.