The Canadian 10-year yield climbed above 3.36%, underpinned by increased supply, persistent inflation and hawkish expectations for the BCB. Ottawa’s record C$628 billion borrowing plan for 2025–26—compressed by a delayed budget and a pledge to lift defence spending to 5% of GDP—has swollen issuance, pressuring bond prices. At the same time, while headline inflation sits at a tame 1.7%, core gauges (CPI-trim and CPI-median) linger above the top of the Bank of Canada’s 1–3% band, tempering expectations for swift rate cuts and keeping long-term yields elevated. Additionally, the recent plunge in oil prices—following optimism over a Middle East ceasefire—has trimmed export revenue, adding a fiscal risk premium. Nevertheless, back-to-back 0.1% GDP contractions in April and May underscore economic stagnation, hinting that eventual monetary easing could rein in further yield advances.
