Canadian bond yields surged and prices tanked after employment jumped by 87,800 in June, pushing the jobless rate down to 6.6% and sparking speculation the Bank of Canada may pause rate cuts or even hike again.
Canadian government bonds sold off sharply after June's employment report showed a 87,800-job surge, the largest since 2024, and the unemployment rate tumbled to 6.6%. The robust data fueled repricing of Bank of Canada rate cut expectations, sending yields higher along the entire curve.
Good economic news reduces the likelihood of central bank rate cuts, which makes existing bonds with lower yields less attractive, pushing their prices down and yields up.
In the short term, yields may remain elevated as traders await further data and BoC commentary. A break above key technical levels could accelerate the sell-off.
Short-end yields, like the two-year, were hit hardest as they are most sensitive to interest rate expectations, but the sell-off extended across the curve.
The Canadian dollar strengthened against the U.S. dollar following the blowout jobs data, with USD/CAD falling as markets priced in higher-for-longer Bank of Canada rates relative to the Fed. The pair broke below key support at 1.3300.
The strong employment report suggests the Bank of Canada may keep rates higher for longer, making the Canadian dollar more attractive relative to the greenback.
A sustained break below 1.3300 could open the way toward 1.3200, while a reversal above 1.3400 would negate the bearish short-term outlook.
Short-term momentum favors the loonie as rate expectations adjust, but the pair's direction will depend on upcoming U.S. data and BoC communications.
Government of Canada bonds sold off sharply after June's employment report showed 87,800 new jobs, the largest gain since 2024, and the unemployment rate tumbled to 6.6%. The robust data fueled expectations that the Bank of Canada will hold rates steady or possibly resume tightening, driving yields higher across the curve. The two-year yield spiked, reflecting repricing of near-term policy path.
The report showed a net gain of 87,800 jobs in June, with the unemployment rate falling to 6.6%, both significantly better than expected.
The strong jobs data undermined expectations for further Bank of Canada rate cuts, causing a repricing of interest rate expectations and sending bond prices lower and yields higher.
The robust labor market likely removes the urgency for the BoC to cut rates; policymakers may now hold steady or even consider tightening if inflation pressures persist.