FX.co ★ Canada 10-Year Bond Yield Drops to 2-Week Low

The yield on Canada's 10-year government bond has declined to approximately 3.4%, reaching a two-week low. This decline comes as markets reassess Canada's growth outlook and policy direction downward, even as U.S. term premiums and nominal interest rates rise. Statistics Canada's report for the second quarter revealed a 0.4% contraction in GDP compared to the previous quarter, alongside a roughly 7.5% drop in exports and weakened business investment. These factors have significantly adjusted expectations for Canadian policy and increased the likelihood of the Bank of Canada easing its stance. Meanwhile, U.S. Treasury yields have climbed, driven by a revised outlook for U.S. growth and higher term premiums. This is a result of stronger-than-anticipated GDP figures for the second quarter and political developments that have led some investors to seek increased compensation for holding long-term U.S. debt. Consequently, the yield spread between Canadian and U.S. bonds has widened.