Canadian Bond Yields Rise as Inflation Concerns Linger

The Canadian bond market is often overlooked, but it has a significant impact on financial markets. With a total value of about 20% larger than the stock market, bond yields can influence stock market returns and fixed mortgage rates.

Bond yields represent the annualized return expected for an investor who holds that bond from today to maturity. When rates rise, existing bonds become less attractive, leading to lower bond prices. The US 10-year Treasury yield has risen over the past year from 4% to 5%, affecting financial markets worldwide, including Canada.

The Canadian 10-year bond yield has also increased over the past year from about 3% to close to 4%. This rise in bond yields may be due to expectations of higher inflation or stronger economic growth. However, measures of underlying inflation remain closer to the Bank of Canada's 2% target.