Canadian Yields Rise on Strong Macroeconomic Data

Canada’s 10-year government bond yield rose to 3.68%, approaching the over-two-month high of 3.72% touched on August 10th, following stronger-than-expected manufacturing sales data. Canadian factory sales rose 0.1% in June from May, beating expectations for a decline and marking a fifth consecutive monthly gain, while sales volumes increased 1.2%. Recent data also showed a stronger Canadian labor market, while Canada’s economy is estimated to have expanded at an annualized 3.4% in the second quarter, well above the Bank of Canada’s 2.5% forecast. The strong macroeconomic data raised expectations for a potential BoC rate hike if energy prices remain elevated. In July, the Bank of Canada held its policy rate at 2.25% for a sixth consecutive meeting, noting that the economy was adjusting to recent shocks and that energy-driven inflation pressures were easing. However, policymakers warned that inflation expectations remained elevated and questioned the durability of the recovery.

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