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Canada auctioned long-term bonds at the highest yield in 19 years, as upside inflation risks create higher borrowing costs for governments around the world.
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The government in Ottawa sold $3 billion of notes due on June 1, 2059, at an average yield of 4.201 per cent Thursday. That was the highest yield for an auction of Canada 30-year notes since July 2007, when a credit crunch began to ripple through global markets, eventually leading to a major financial crisis the following year.
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Fiscal deficits and geopolitical turmoil have pushed government bond yields to their highest levels in years, signaling elevated borrowing costs ahead for governments, businesses and consumers. On Monday, the U.S. 10-year Treasury yield surpassed five per cent for the first time since 2023.
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Canadian yields have stayed lower than those in the U.S., but they’ve been rising as inflation pressures build, largely because of higher fuel costs related to conflict in the Middle East.
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Bank of Canada officials believe they’ll be required to hike short-term rates if energy prices stay high and inflation pressures spill over more broadly into consumer prices, according to a summary of deliberations from the bank’s most recent rate decision. Policymakers held the benchmark rate at 2.25 per cent for a seventh consecutive time on Sept. 2, but Governor Tiff Macklem struck a hawkish tone, saying inflation was too high and that upside risks had increased.
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The United States Federal Reserve raised the target for the fed funds rate to 3.75 per cent to four per cent on Wednesday for the first time since July 2023 and penciled in an additional hike for later this year, with policymakers attempting to contain inflation in the U.S.
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With assistance from Erik Hertzberg
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English (US)