The Bank of Canada's policy rate has not moved since April, holding at 2.25 percent through six consecutive decisions, most recently on July 15. The Government of Canada 10-year bond yield has moved anyway, climbing 34 basis points over the same window to close at 3.74 percent this week, its highest level since May 2024. The two numbers are supposed to be connected. Right now they are telling different stories.
Governor Tiff Macklem's own Monetary Policy Report from July noted that US bond yields had risen while Canadian yields remained little changed, a gap that was weighing on the Canadian dollar rather than on domestic borrowing costs. That gap has since closed. Canadian long-term yields are now moving in step with the US long end, and the mechanism transmitting that move has almost nothing to do with anything the Bank of Canada has done.
The Transmission Is Coming From Washington, Not Ottawa
The proximate cause is a US Treasury market under strain. The 30-year US Treasury yield touched a 19-year high of 5.34 percent last week before the Treasury Department, led by Secretary Scott Bessent, announced it would at least double the size of its long-bond buyback operations starting September 9. The intervention briefly pulled yields lower, then largely reversed within 24 hours as investors concluded the move addressed a symptom of fiscal strain rather than its cause. A Canadian 10-year bond does not trade in isolation from a US 30-year bond under this kind of pressure. Canadian yields have tracked the move higher even though nothing about Canada's own fiscal position or inflation trajectory changed this week.
Layered onto that is genuine uncertainty about where the Federal Reserve itself is headed. Chair Kevin Warsh, five months into the job, delivers his first Jackson Hole keynote on August 28, four days before the Bank of Canada's own September 2 decision. Warsh has told reporters the speech will address the monetary framework in broad terms rather than offer near-term guidance, but he has also said explicitly that the Fed is not constrained by market prices, a phrase markets have read as a signal that a hawkish surprise remains on the table. The July FOMC vote held rates at 3.50 to 3.75 percent by a 9 to 3 margin, with all three dissents favouring a hike.
What This Means for the September 2 Decision
Economists surveyed ahead of the September meeting widely expect the Bank of Canada to hold again, and the domestic data supports that view: Canadian employment rose more than 75,000 in July, the unemployment rate eased to 6.4 percent, and growth has shown signs of picking up after a weak start to the year. The complication is that a hold from the BoC no longer means unchanged financial conditions for Canadian households. If the 10-year yield keeps climbing on spillover from US fiscal and Fed uncertainty, fixed mortgage rates, which track the 5-year and 10-year GoC yields far more closely than the overnight rate, tighten anyway. The Bank of Canada can hold its own lever steady while the market moves a different lever for it, and the practical effect on a household renewing a mortgage next year is the same either way.
The Bank of Canada has held its overnight rate at 2.25 percent since April. The Government of Canada 10-year yield has moved independently of that decision, tracking the broader rise in long-term North American borrowing costs.