Canadian Short-Term Government Bond Yields Shift Focus From Oil to Economic Data, BMO Says

07:02 AM EDT, 10/15/2026 (MT Newswires) -- Canadian short-term government bond (GoC) yields have been driven largely by energy prices since the start of the conflict between the United States and Iran in late February, according to a note from BMO Capital Markets. Bank of Canada Governor Tiff Macklem said in Bangkok on Wednesday that "every major central bank is worried," noting that higher energy costs will ultimately have to be absorbed somewhere in the economy, wrote BMO in Wednesday's note. "However, since early September, GoC yields seemed to break away from energy prices," said BMO Chief Economist Douglas Porter in the note. GoCs turned their attention to incoming economic data and shifts in US yields, the bank added. A stronger-than-expected US jobs report initially raised expectations of a Fed rate hike, reinforced by Chair Kevin Warsh's hawkish Jackson Hole speech. More recently, softer Canadian employment figures pushed domestic yields lower, before hotter-than-expected US CPI sent them higher again. Canadian two-year yields have rebounded to 3.25%, 100 basis points above the BoC's overnight rate, with markets pricing in a cumulative 100 bps of tightening by the end of 2027, said BMO. However, these expectations seem too high given the continued headwinds facing the Canadian economy from US trade uncertainty and tariffs, according to the bank.