Canada's benchmark 10-year government bond yield ticked down on Thursday as a recovery across international bond markets took the edge off recent selling that had driven Canadian borrowing costs up to more than two-year highs.
At 10:10 a.m. ET the 10-year yield stood around 3.78%, a decline of about 1.4 basis points from Wednesday's close of 3.798%. During the session the note traded in a range between 3.739% and 3.799%.
Earlier in the trading day the yield was recorded at 3.748%, down roughly 5 basis points. The U.S. 10-year Treasury yield was near 4.74% at the same time. The Canadian dollar strengthened modestly, changing hands at approximately C$1.379 per U.S. dollar.
Market pressure on Canadian bonds had intensified over recent sessions amid a sharp global selloff in government debt. That wave of selling was driven by concerns around persistent inflation, higher energy prices and increased government borrowing. Domestically, Canadian fixed income also felt strain as investors re-evaluated the prospects for interest rates at home.
The Bank of Canada left its policy rate unchanged at 2.25% on Wednesday but struck a more hawkish tone. Governor Tiff Macklem said policymakers were "prepared to raise rates if inflation remained too high." Canada’s annual inflation rate has risen to 3%, and elevated oil prices tied to the conflict in the Middle East have been cited as adding upside risks to inflation.
The central bank's stance contributed to higher Canadian yields in recent sessions, with markets pricing in a potential rate increase by December. Thursday's pullback in global yields, however, provided some relief for longer-dated Canadian debt, easing immediate upward pressure.
Looking ahead, investors are setting their sights on Friday's U.S. nonfarm payrolls report for clues about the Federal Reserve's next policy move. A weaker-than-expected labour-market reading could reinforce the recent decline in U.S. yields and lend additional support to Canadian bonds. Conversely, a stronger payrolls print could revive expectations of tighter U.S. monetary policy and put renewed upward pressure on yields.