Canada’s 10-year government bond yield declined to 3.78% by mid-morning trading on Thursday, down 1.4 basis points from the prior session’s close of 3.798%. The yield had earlier dropped as low as 3.739% before recovering to 3.799% during the session.
The retreat followed a rebound in global bond markets after a recent selloff pushed Canadian borrowing costs to more than two-year highs. Persistent inflation, elevated energy prices and increased government borrowing had driven the earlier decline. The U.S. 10-year Treasury yield stood at 4.74%.
The Canadian dollar strengthened to C$1.379 per U.S. dollar. Canada’s annual inflation rate rose to 3% in the latest data, while the Bank of Canada left its policy rate unchanged at 2.25% on Wednesday. Governor Tiff Macklem reiterated that policymakers would act to curb inflation if needed, noting that higher oil prices tied to Middle East tensions had increased upside risks to prices.
Markets were pricing in a potential rate increase by December, though the central bank’s stance remained data-dependent. Investors were closely watching Friday’s U.S. nonfarm payrolls report for signals on the Federal Reserve’s next policy move. A weaker labour market reading could ease pressure on U.S. yields and support Canadian bonds, while a strong report may revive expectations for tighter U.S. monetary policy and push yields higher.
