Canada 10-year yield rises as inflation, oil prices keep bond markets on edge

Canada's 10-year government bond yield climbed on Monday as investors grappled with persistent inflation and rising oil prices. The yield increased by 1.4 basis points to 3.954%, according to latest data. Canada's annual inflation rate stood at 3% in August, unchanged from July and in line with economists' expectations. Gasoline prices were a major contributor to inflation, though food-price growth slowed.

While the Bank of Canada's preferred core measures of inflation remained close to 2%, investors remained cautious about the potential for higher oil prices to fuel broader inflation. Brent crude oil prices had surged above $100 a barrel. The Bank of Canada has maintained its policy rate at 2.25%, warning that a sustained rise in inflation could prompt rate hikes.

This uncertainty has heightened sensitivity around government bond yields as markets consider how long the central bank might need to keep policy rates restrictive. The 10-year yield had already surged significantly in September, reaching about 3.94% by Friday's close, up from around 3.74% at the end of August. This increase in longer-term yields also reflects a broader global bond selloff, with U.S. 10-year Treasury yields briefly hitting 5% on Monday as investors priced in heightened inflation and interest rate risks.