Canada's Long Bonds Hit Hardest by Rising Yields Since 2008

Canada's long-dated government and provincial bonds had a tough August as yields climbed. According to BMO Capital Markets, an investment banking firm, the Government of Canada's 30-year rate reached its highest level since 2008.

The move was broad-based, with Government of Canada yields rising across the curve. The 10-year rate increased by 8 basis points, while the 30-year rate climbed by 10 basis points. This is a challenging setup for long-term bonds, where small yield increases can lead to noticeable price drops.

The Bank of Canada's decision to hold its policy rate steady at its latest meeting did not offer any near-term relief. BMO expects the central bank to remain on the sidelines for a while due to trade-related risks weighing on the outlook. However, long provincial 'spreads' - the extra yield investors demand to hold provincial debt instead of federal bonds - were broadly unchanged.

This means that August's pain came primarily from higher interest rates rather than a sudden loss of confidence in provincial finances. For markets, BMO's 10-basis-point rise in the GoC 30-year is a significant swing for long-bond returns. A 10-basis-point yield move can make a big difference on a 30-year bond, making it sensitive to rate changes.