Global Bond Sell-Off Pushes Canadian Borrowing Rates to 2009 Highs
A slump in global bond prices pushed long-term borrowing costs across developed markets to multiyear highs on Tuesday, lifting Canadian long-term government bond yields to their highest level since 2009.
The rise in Canadian yields came as U.S. 30-year Treasury yields, which have been climbing since the start of the war with Iran, touched their highest level since 2007. For Canadian fixed-income investors, the global bond sell-off illustrated the sensitivity of longer-term yields to international events beyond the Bank of Canada’s control.
Rising yields increase the cost of debt financing for government and corporate borrowers, but also weigh on the price of outstanding bonds.
Analysts and market participants struggled to point to a specific catalyst for the market moves on Tuesday, which extended months-long rises in yields. Nicolas Normandeau, portfolio manager at Fiera Capital in Montreal, said that a “patient” Federal Reserve, combined with persistent inflation and large deficits, has been putting pressure on longer-term bonds in the United States.
Similar forces pushing long-term yields higher are visible around the world, Mr. Normandeau said. “It’s a global phenomenon.”
Jonas Goltermann, chief markets economist at Capital Economics, said in a note to clients that unease around “ambiguity” in the Federal Reserve’s policy framework was also a contributing factor, with investors awaiting a keynote speech next Friday by Fed chair Kevin Warsh in Jackson Hole, Wyo.
Mr. Warsh has diverged from his recent predecessors by paring down official communications and eliminating the Fed’s forward guidance, which signalled its monetary policy intentions.
Analysts say reduced clarity around the future path of interest rates has led investors to demand more compensation, known as a term premium, for the risk of holding longer-term debt. Because the cash flows from longer-term bonds are spread further into the future, their prices are more sensitive to changes in interest rates than those of shorter-term debt.
The term premium on a U.S. 10-year zero coupon bond has soared since the end of February, rising more than a third of a percentage point to levels last seen in 2011, according to data from the Federal Reserve Bank of St. Louis.
Tiago Figueiredo, a macro strategist at Desjardins, said in a note: “With term premia flirting with new multi-year highs, the risk is that tighter global financial conditions begin to challenge the resilience of equity and credit markets, ultimately weighing on growth.”
A flood of new debt issuance by governments and companies is also pushing yields higher, Mr. Normandeau said. Net issuance of investment-grade corporate debt is on track to hit US$1-trillion this year in the U.S., rivalling net Treasury supply, according to a mid-year credit outlook published this month by New York-based Apollo Global Management.
Six companies alone – Amazon.com Inc., Alphabet Inc., Microsoft Corp., Meta Platforms Inc., Oracle Corp. and SpaceX – have issued more than US$200-billion worth of debt this year, with continued issuance likely to “increasingly compete for capital with other high-grade fixed income markets,” according to Apollo. Total Canadian corporate bond issuance has also soared, with issuance around $140-billion so far this year, compared with $130-billion for all of 2025, Mr. Normandeau said.
Big U.S. tech firms have played a major role in that jump through so-called maple bonds, Canadian-dollar-denominated debt instruments issued by non-Canadian companies. Alphabet raised $8.5-billion through its maple bond issue in May, and Amazon followed with a $14-billion issue in June.
These issuances have attracted more foreign investors to Canada’s market: Non-residents accounted for an “unprecedented” 26-per-cent share of corporate bond trading in July, Warren Lovely, chief rates and public sector strategist at National Bank of Canada, wrote in a note to clients.
Fiera Capital’s Mr. Normandeau said it adds “a little bit of that U.S. tech volatility within our market.”
St. Catharines, Ont.-based Avi Hooper, senior adviser to ABP Invest Ltd., a research firm headquartered in London, England, said that while Canadian bonds have performed better in recent years than their U.S. counterparts owing to Canada’s stronger fiscal trajectory, the rise in yields could still “acutely” affect the country’s provinces, which have primarily financed growing deficits in 30-year maturities.
“Our governments are still behaving like we have … these zero interest-rate policies of yesteryear,” he said.
Canadians looking to fixed-income allocations could try to minimize the impact of rising yields through shorter duration funds, such as a “short-maturity bucket of Canadian corporate bonds,” he said.
Mr. Normandeau said that while he believes there’s “a lot of value” at the front end of the yield curve, investors shouldn’t ignore longer-term exposure, though they should still be “cognizant of the risk.”
A 5.3-per-cent yield on 30-year U.S. Treasuries is already “kind of a good deal,” he said.
“At some point, we think if rates keep on moving higher, it will attract buyers.”
This article was first reported by The Globe and Mail
