Canada Stocks Tread Water Ahead of Bank of Canada Decision

Canada's stock market has remained steady as investors await the Bank of Canada's widely expected rate hold. Despite this, bond yields have reached multi-month highs, and concerns over inflation and oil prices continue to weigh on markets.

The combination of higher energy uncertainty due to the Iran conflict and larger government borrowing is putting pressure on interest rates. Bond yields have been rising, with the Canadian 10-year yield reaching 3.769% and the US 10-year hitting its highest since early 2025 at 4.816%. This increase in yields tightens financial conditions by making mortgages and business borrowing more expensive.

Even if the Bank of Canada stays on pause, higher long-term yields can have a significant impact on stock valuations. As yields rise, equity valuations can be squeezed due to an increased 'discount rate' used to value future cash flows.