The yield on Canada's 10-year government bond has softened to approximately 3.16%, pulling back from the peak observed earlier on November 7th. This shift aligns with a more definitive policy stance from the Bank of Canada, subdued U.S. growth indicators, and an increased likelihood of the Federal Reserve easing.
In October, the Bank of Canada trimmed rates to 2.25% and released a Monetary Policy Report that highlights the economy's struggles with trade disruptions driven by tariffs. Despite these challenges, inflation remains close to the target, prompting the Governing Council to signal a reduced need for further easing, steering policy towards a more stable outlook. Concurrently, Ottawa's ambitious borrowing plans for 2025-26, coupled with an anticipated federal deficit of around $78 billion, suggest the possibility of greater sovereign debt issuance and a resultant supply premium on long-term bonds.
In parallel, U.S. economic indicators have hinted at dampened activity, leading markets to expect a potential rate cut by the Fed in December. This anticipation has decreased the yield compensation necessary for investors to hold long-term government bonds.
