Government of Canada 10-year yields closed at 3.95 percent on Thursday, matching the high reached in mid-September and marking one of the sharper short-term swings in the yield curve since the spring. The move follows the Federal Reserve September 16 decision to raise its target range a quarter point to 3.75 to 4.00 percent, the first US increase since 2023, delivered under new Chair Kevin Warsh with a notably hawkish tone.
A Widening Gap With No Bridge Until October 28
The Bank of Canada, for its part, has not moved. It held its overnight rate at 2.25 percent on September 2 for a seventh consecutive decision, citing continuing Middle East conflict energy prices and the breakdown of Canada-US trade talks as reasons for caution rather than confidence. The two banks now sit 175 basis points apart, the widest the gap has been in this cycle, and neither has a scheduled decision before the Bank of Canada October 28 meeting, which for the first time since April carries a full Monetary Policy Report and fresh projections.
Governor Tiff Macklem has already signalled that new US tariffs could push Canadian fourth quarter growth below 1 percent, a framing that leaves the Bank more inclined toward caution than toward matching the Fed tightening. Markets are, in effect, pricing six weeks of uncertainty about which direction Canadian policy moves next.
The shaded region marks the sessions following the September 16 Federal Reserve decision, during which the 10-year yield climbed back to its September high.
What August CPI Actually Told the Bank
Statistics Canada reported headline CPI held at 3.0 percent year over year in August, matching July and landing exactly on consensus. Excluding gasoline, prices rose 2.4 percent, up from 2.2 percent in July, a sign that underlying pressure is building even as the volatile headline number stays flat. The Bank preferred core measures, the trimmed mean and median, averaged 2.0 percent, right at target on that narrower reading.
That combination, a stable headline with rising ex-gasoline inflation, is exactly the kind of ambiguous data set that supports a hold rather than a move in either direction. It gives the Bank cover to wait for the October Monetary Policy Report rather than react to a single data point.
The Transmission to Fixed Mortgage Rates
The 10-year yield is the anchor for five year fixed mortgage pricing in Canada, and its climb back to 3.95 percent this week works against any relief for homeowners renewing in the next several months, regardless of what the Bank of Canada does with the overnight rate, which has not moved since the October 2025 cut. A borrower comparing rate quotes today against quotes from two weeks ago is looking at a materially different starting point, even though the policy rate itself has not changed.