Canada Bond Yields Climb on Inflation Fears, Strong Dollar Weighs

Canada's bond yields rose on Friday as investors weighed inflation risks and the outlook for interest rates. The benchmark 10-year government bond yield increased to 3.873%, up 5 basis points from the previous level, following a sharp decline on Thursday when it fell nearly 13 basis points to close at 3.823%. This move comes as markets continue to assess whether inflation pressures could keep the Bank of Canada from easing monetary policy.

The central bank held its policy rate at 2.25% earlier this month, citing elevated energy prices and uncertainty linked to the Middle East conflict and trade measures as upside risks to inflation that had increased. Canadian yields have also been influenced by the rise in U.S. Treasury yields, driven by shifting expectations for central-bank policy and higher term premiums.

The latest move in yields comes alongside weakness in the Canadian dollar. The loonie was trading 0.1% lower against the U.S. dollar as the 10-year yield rose to 3.851%, up 2.8 basis points from Thursday's close.