The yield on the Canadian 10-year government bond held above 3.22%, near two-month high as a tight cluster of domestic forces is lifting term premia even as headline inflation eases. Core inflation remains around 3% which together with stronger labour data unemployment at 6.9% and wage growth near 4% keeps upside pressure on prospective inflation and reduces the case for rapid easing. The BoC cut the policy rate to 2.25% but signalled a data dependent stance that makes markets less confident about further cuts and pushes out the expected easing path. At the same time, Canada’s Budget 2025 raises expected marketable issuance to fund a roughly C$78.3 billion deficit for 2025–26 and pushes large volumes into the 10 year and longer maturities. The Parliamentary Budget Officer’s stress test assigns only about a 7.5% chance of meeting the government’s 1.5% of GDP deficit anchor by 2029–30 which undermines credibility and forces investors to demand higher compensation for duration risk.
