Bond Yields Slide as Central Banks Blink

Bond yields continue sliding, adding negative pressure to fixed mortgage rates and drawing closer to 0.50% of Bank of Canada cuts. With central banks turning dovish and oil markets rolling over— now touching levels we haven’t seen since 2021.

The 5-year Government of Canada bond yield sits near 2.63%, down roughly 10 basis points or 5% in the past week. Fixed-rate mortgage relief is inching closer. All eyes now turn to Tuesday’s CPI report, which could decide whether this rally keeps running or stalls out.

Bank of Canada Governor Tiff Macklem struck a notably dovish tone this week, acknowledging Canada’s growth remains “soft,” likely stuck near 1% — well below potential. Weak business investment and fading exports are front and centre.

Bank of Canada Governor Tiff Macklem struck a notably dovish tone this week, acknowledging Canada’s growth remains “soft,” likely stuck near 1% — well below potential. Weak business investment and fading exports are front and centre.

Markets have now priced an 80% probability of a 25-basis-point rate cut at the October 29 meeting.

The BoC is signalling it’s ready to support, not restrain, an economy that’s clearly losing altitude.

WTI crude flirted with US $56 a barrel, the lowest since the COVID lockdown days of 2021.

A mix of excess supply, sluggish Chinese demand, and muted global growth has turned Canada’s export engine into a drag. Lower oil means weaker real GDP and softer fiscal revenues — a classic recipe for lower bond yields.

For Alberta and Ottawa alike, this slump could shave billions off expected royalties and transfers in 2026.

StatsCan’s August report showed manufacturing sales down 1.0% and wholesale trade off 1.2% — the first dual decline in months. Export orders to the U.S. dropped another 3.4% y/y as tariff rhetoric resurfaces.

It’s confirmation that Canada’s real-economy slowdown isn’t just theoretical. The weakness is spreading through hard data — exactly what rate-cut doves have been waiting for.

Across the border, Fed Chair Jerome Powell cemented the pivot. He highlighted a “sharp slowdown in hiring” and said risks to employment now outweigh inflation concerns.

Powell even floated the idea of ending the Fed’s balance-sheet runoff — meaning a return to buying Treasuries or ‘quantitative easing’.

Yields fell hard: the U.S. 10-year dipped below 4%, dragging Canadian bonds lower in lockstep.

An unexpected loan-loss disclosure at a U.S. regional lender reignited credit fears, sending investors fleeing into safe-haven bonds. Canadian yields mirrored the U.S. move as global funds rotated toward sovereign debt.

It’s déjà vu for anyone who remembers early 2023 — regional banks wobble, yields tumble.

One constraint remains: debt supply.

The U.S. Treasury’s annual interest bill now exceeds US $1 trillion, and Ottawa’s own deficits are still widening.

All that issuance keeps a floor under long-term yields — the tug-of-war between fiscal stimulus and monetary easing continues.

Rates are easing but not collapsing. Many prime lending borrowers are getting rate quotes starting with a “3” — something unseen since mid-2022.

This weeks Canadian CPI report (Tuesday) is the headline event.

If inflation surprises lower, expect another leg down in yields and sharper fixed rate drops.

A firm print, however, could pause the rally and keep fixed-rate mortgages from falling further.

Either way, this CPI print will likely set the tone for the rest of Q4.

Bond yields are telling the story: growth is fading, and central banks are getting nervous.

If oil stays weak and CPI softens, 5-year fixed mortgage rates could drift toward the mid - high-3 percent range by year-end.

It’s not rate-cut euphoria yet — but the market’s leaning that way.

Stay tuned…