Canadian Bond Yields Buck Global Trend as Tariffs Curb Outlook

(Bloomberg) — Government bond yields are surging across the globe. One notable exception is Canada.

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That’s because the looming threat of upcoming tariffs to be imposed on Canadian goods by Donald Trump’s incoming administration is expected to gut the country’s economic growth. Investors are pricing in further rate cuts, helping to spare Canadian bonds from the worst of the global selloff.

The rate on Canadian 10-year notes has stayed below 3.5% since July, while the US 10-year yield is testing 5%. That rate in the UK is surging close to 5% as well, the highest level since the global financial crisis in 2008.

A broad US tariff on Canadian goods will likely see the Bank of Canada cut rates further, contributing to significant further weakness of the loonie, said Benjamin Reitzes, Canadian rates and marco strategist at BMO Capital Markets.

“The looming risk of US tariffs on Canadian exports is clouding the economic outlook and keeping bond yields relatively low,” Reitzes said.

The Bank of Canada cut borrowing costs by half a percentage point for two consecutive meetings in October and December. While a strong Canadian jobs report last week spurred traders to pare their rate-cut wagers, other factors are expected to curb growth and make the case for further easing.

More mortgage resets and a potential drag from slower immigration are additional headwinds to Canada’s economic growth, said Jason Daw, head of North America rates strategy at RBC Capital Markets.

“The Canadian economy has struggled in the last two years at a below-trend growth rate, while the US has been resilient,” and that has led to the market pricing in more easing from the country’s central bank going forward, Daw wrote in an email.

Tariff risks are uncertain, and for now markets don’t seem to be factoring that into relative yields, he added.

However, Justin Trudeau — who said Jan. 6 that he’ll resign as prime minister — is readying counter-tariffs. Meanwhile, Alberta Premier Danielle Smith, fresh from a Mar-a-Lago visit, said Canadians should be prepared to face US tariffs once Trump assumes presidency, with no exemptions for oil.