Escalation of the U.S. trade war is casting a cloud over Canada’s economic prospects. Farm Credit Canada’s new economic analysis is looking at why bond yields are rising and whether that concerning trend will continue.
Part of the problem seems to be tariffs, which have raised the U.S. inflation rate. That’s bad news for bond investors because inflation erodes the real return on Treasuries. Bond investors are also asking for extra compensation for enhanced risks associated with Treasuries which is now at a 12-year high.
Given the interconnectedness of global bond markets, bonds of other countries, including Canada, are being impacted. For Canadian households and businesses, this means fixed mortgage rates and longterm financing costs will remain much higher than levels prevailing during the 2010s.