GDP Headline Beats, but the Economy’s Out of Gas

Canada’s Q3 GDP looked great on the surface — but markets weren’t buying it.

Growth came in ahead of expectations, yet bond yields barely blinked. 

The reason: the “beat” came from defence spending and weaker imports, not consumer or business strength.

The 5-year Canada yield is holding flat week over week near 2.78 %, but not because of Canada’s GDP beat. But something more sinister is happening beneath the surface of global capital markets, with lasting consequences.

We’ll explore the Japanese debt implosion below.

StatCan’s GDP data painted a flattering headline, but the fine print was sobering.

The flash estimate for October (the first month of Q4) showed a -0.3 % monthly contraction.
 

Final domestic demand was flat to negative, with household spending down 0.4 % and business investment weakening further.

According to Capital Economics, this was “the first quarterly decline in household consumption outside of the pandemic in almost two decades.”

So while government defence spending kept the top line positive, the private economy is clearly stalling.

Bond markets know it — yields barely moved. The smart money sees the slowdown already baked in, with the October contraction signalling an economy that hit the wall early in Q4.

Add in looming U.S. tariff risks for 2026, and the optimism looks misplaced. The underlying fragility — not the flashy headline — is the real story.

Fixed mortgage pricing has held steady around the 4% mark, even as capital market volatility has spiked.

Lenders are using what we call “volatility buffering” — trimming spreads when funding costs rise and padding them when they fall. The result: less drama at the street level, even when markets whipsaw.

That calm won’t last. Fixed rates won’t hover near 4% forever, and the next directional push likely comes in early 2026, when Trump’s stance on renewing CUSMA becomes clear.
If trade negotiations sour, expect yields to fall — which would likely pull down bond yields and be favourable for fixed-rate borrowers.

If a deal holds, the reverse applies. Either way, we’ll know more by February.

The other possibility for yield volatility (likely upward yields) is imported from Japan, as we’ll see below.

While North American markets debated cuts and tariffs, Japan quietly sent a shockwave through global bond desks.

The 10-year Japanese government bond (JGB) yield spiked above 1.1%, its highest level in more than a decade.

Why does this matter for Canada and mortgage rates? Because Japan has long been a global anchor for cheap debt. For decades, Japanese investors poured trillions into foreign bonds — including Canadian and U.S. Treasuries — to chase better yields.

Now, with yields finally rising at home, those same investors may bring that money back to Japan. That’s a problem:

In other words, what happens in Tokyo doesn’t stay in Tokyo. The ripple effect from a sustained JGB yield climb could make it harder for Canadian yields — and mortgage rates — to fall meaningfully, even if inflation keeps easing.

Global debt markets are waking up to a new reality: the “low-rate world” of the 2010s is not coming back soon.

Last week’s agreement between the federal government and Alberta marks a rare moment of alignment on economic development.

The deal reportedly includes:

The upside: it could unlock billions in investment, create energy-sector jobs, and ease Alberta’s long-standing frustration with Ottawa’s environmental bottlenecks.

The catch: timelines and regulatory clarity. Alberta still wants faster permitting and stronger guarantees that Ottawa won’t shift the goalposts midstream.

Overall, the deal looks cautiously optimistic — a real step toward rebuilding trust between Alberta and Ottawa, though far from a done deal. Execution and follow-through will decide whether this becomes an energy renaissance or just another round of good press.

Banks remain cautious heading into year-end, keeping fixed pricing steady but tightening discounts slightly on shorter terms.

Canada’s GDP beat was smoke and mirrors. The real economy is sputtering while government spending props up the numbers.

Now, global debt markets are shifting too. The surge in Japanese yields is a warning shot: the cheap-debt era that defined mortgage markets for a decade may be fading into history.

The next true rate direction signal will come from global bond flows — not headlines.

Stay Tuned.