Canada's 10-year government bond yield slipped below 3.25%, extending its decline from the nine-month high of 3.54% reached on January 17th, as global bond markets mirrored a drop in U.S. Treasury yields. The retreat was driven by President Trump’s announcement of impending tariffs on Canada, effective February 1st, which heightened fears of diminished export demand and slower economic growth. Domestically, inflation pressures continued to ease, with headline inflation falling to 1.8% in December, below the forecasted 1.9%, while the Bank of Canada’s preferred inflation gauge met expectations at 2.5%. These factors bolstered market expectations for further rate cuts by the Bank of Canada to address weak growth and lingering labor market challenges.
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