US Bond Yield Surges Above 5%, Fueling Inflation Fears

The U.S. benchmark bond yield rose above 5% for the first time since 2023, while Canadian bond yields also increased. The surge in oil prices fueled concerns over rising inflation and expectations that both the U.S. and Canadian central banks will raise interest rates.

Pierre-Benoît Gauthier, vice-president of investment strategy at IG Wealth Management, said 'Five per cent is kind of a psychological mark.' He explained that yields above 5% have historically been associated with lower stock prices.

The rise in bond yields put pressure on government finances and homebuyers by increasing debt service costs. It also affected the valuation calculations of risky assets such as stocks against nominally risk-free government bonds.

The Canadian dollar hit a 12-day low as inflation data met expectations, with Canada's consumer price index showing a 3% rise in August over the previous year.