Canada's Bond Yield Hits Nearly Three-Year High Amid Energy Inflation Concerns

Canada's 10-year government bond yield has reached its highest level in nearly three years, rising to around 3.95% in September amid concerns over energy-driven inflation and a strengthening US economy.

The surge in yields is partly due to the recent rebound in oil prices after a five-week pause following the US-Iran war. Uncertainty over diplomatic efforts to end the conflict and reopen the Strait of Hormuz has kept oil prices elevated, adding to inflation worries.

Strong US economic data has also fueled expectations that the Federal Reserve could deliver another rate hike this year, with most policymakers predicting an increase before the end of 2026. This has put further pressure on Canadian bonds, as domestic yields tend to track US rates.

The Bank of Canada kept its key policy rate unchanged at 2.25% in September, but noted that inflation risks had increased and new tariffs had made the growth outlook more uncertain. Governor Macklem emphasized that policymakers were prepared to raise rates if inflation remained elevated.