2025.09.1615:04:06UTC+00Canada 10-Year Bond Yield Drops to 4-Month Low

In September, the yield on Canada's 10-year government bond dipped below 3.3%, reaching its lowest point in four months. This movement reflects the market's growing anticipation of multiple interest rate cuts this year by key North American central banks. With headline inflation softening and signs of moderated growth, expectations are shifting towards the Bank of Canada potentially initiating rate easing sooner than anticipated. Despite remaining vigilant about ongoing price pressures, Canada's inflation figures for August showed a 1.9% year-on-year rise, which keeps it below the Bank of Canada's midpoint target of 2%. Monthly inflation indices and a cooling in demand have reduced the inflation risk premium associated with long-term yields. Although core inflation measures are still relatively strong, they are stabilizing, thereby lowering the term premium investors seek for duration risk. Concurrently, U.S. Treasury yields are hovering near five-month lows as markets evaluate the Federal Reserve's potential policy direction ahead of its meeting. This global decrease in long yields has contributed to the reduction in Canadian rates as well.