FX.co ★ Canada 10-Year Bond Yield Rises to 6-Month High

In July, the yield on Canada's 10-year government bond surpassed 3.45%, marking its highest point in six months. This increase can be attributed to persistent domestic inflation, strong labor market data, and renewed uncertainties surrounding trade wars. Notably, June’s trimmed-mean core Consumer Price Index (CPI)—the Bank of Canada's favored metric for assessing underlying inflation—remained steady at 3%, significantly above the 2% target, reinforcing the anticipation that the Bank might halt its rate-cutting measures and potentially increase rates should inflation continue. Furthermore, May witnessed unexpectedly robust job growth coupled with a declining unemployment rate, highlighting the economy's ability to withstand tighter monetary policies. On the trade front, recent tariff threats from the U.S., including President Trump’s weekend declaration of a 30% tariff on EU and Mexican imports after imposing a 35% duty on Canadian exports outside the USMCA, have cast a shadow over cross-border trade prospects. Consequently, foreign investors are seeking higher yields to mitigate the potential risks facing Canada's trade-reliant sectors.