The yield on Canada’s 10-year government bond climbed above 3.57% in July, its highest level in two months, as markets weighed rising US Treasury yields against softer domestic inflation data. US yields moved higher after tensions between the United States and Iran intensified over the weekend, pushing oil prices up before they later gave back most of those gains following reassurances from Iran’s foreign ministry that talks with Washington could still proceed.
In Canada, the annual inflation rate slowed to 2.8% in June 2026 from 3.2% in May, slightly under the consensus forecast of 2.9%. Gasoline prices continued to rise but at a more moderate pace, and the Bank of Canada’s preferred core inflation measures fell to their lowest readings in more than five years. This supported the BoC’s assessment that the pass-through from higher energy prices, driven by the Middle East oil supply shock, remains limited and is not feeding broadly into the wider economy. The weaker-than-expected inflation data tempered expectations for additional Bank of Canada interest rate increases this year.
