03.02.202614:01:47UTC+00Canada 10-Year Bond Yield Near 1-Month High

The yield on Canada's 10-year government bond has risen above 3.45%, reaching its highest level in almost a month. This increase is primarily influenced by a stronger yield environment in the United States and tighter cross-border duration pricing, despite weaker domestic economic indicators. U.S. 10-year yields are nearing their peak since August, bolstered by robust U.S. economic activity data and a reassessment of Federal Reserve policy with the nomination of Kevin Warsh. This shift is enhancing the U.S. risk-free yield curve and raising the opportunity cost for holding Canadian bonds. Within Canada, the upward pressure on yields is limited due to minimal growth in real GDP for November and a 0.3% contraction in goods-producing industries, marking the third decline in four months. These developments highlight ongoing excess capacity, a notion reflected in the Bank of Canada's decision on January 28 to maintain the policy rate at 2.25%. The Bank emphasized its reliance on data and the persisting economic slack, reducing the likelihood of a shift towards a more restrictive monetary policy and thus containing domestic yield growth.