Canada's 10-Year Bond Yield Peaks at 3.80% Amid Refinancing Concerns

Canada's 10-year government bond yield hit its highest reading in the Bank of Canada's latest official daily series on September 2, closing at 3.80%. This move hurt long-bond prices and raised concerns about government borrowing. However, Friday's trading saw a reversal, with the 10-year yield easing to 3.779% due to weak local employment data.

The Canadian economy is facing a challenging setup for long-duration holders. While weak jobs data can cushion yields, the U.S. long end and Ottawa's refinancing calendar may erase that relief. The federal government plans to borrow C$571 billion in fiscal 2026-27, with C$438 billion assigned to refinancing, accounting for 76.7% of the total.

The effective interest rate on federal financial liabilities is estimated at 2.68%, but recent auctions have cleared above that level, raising interest expense gradually. The government's debt ratio has slipped to 31.1% of GDP from 31.3%, while provincial, territorial, and local net debt has risen to 14.4% of GDP.