FX.co ★ Canada 10-Year Bond Yield Rises to 2-Week Highs

In August, the yield on Canada's 10-year government bond rose to over 3.44%, reaching its highest point in two weeks. This increase mirrored a rise in US yields, prompted by unexpectedly strong producer prices, which, in turn, diminished the urgency for imminent Federal Reserve cuts. On the domestic front, economic activity in June exceeded expectations, with manufacturing sales growing by 0.3% due to surges in the petroleum, coal, and food sectors. Meanwhile, wholesale trade increased by 0.7%, reaching C$84.7 billion, countering concerns of a looming economic slowdown. Although inflation has cooled, it is not yet resolved; the Bank of Canada's preferred inflation measure, the trimmed mean, remained at a significant 3% in June. Consequently, the Bank of Canada has little motivation to hasten rate reductions. This sentiment was echoed in the Bank's July decision and accompanying minutes, where they reduced the policy rate to 2.75% but emphasized a cautious approach due to persistent service-price pressures and the need to evaluate the effects of trade tariffs and slowing demand. This has led investors to adjust longer-term yield expectations upwards.