On the Radar: U.S. and French yields surge. Can Canadian rates hold?

Economic insights
Sep 24, 2026

First National Financial LP

Quick takes

U.S. ten-year yields reached 5.13% midweek, their highest since 2007, while French yields climbed to about 4.6%, their highest since 2008.
Stronger business activity, renewed oil pressure and a weak U.S. bond auction challenged expectations that borrowing costs would settle lower.
Canada faces the same global funding pressure with a weaker growth outlook, leaving Canadian rates caught between domestic restraint and overseas inflation.

The argument for lower borrowing costs became harder to make this week, even before central banks had another chance to move. U.S. ten-year Treasury yields reached 5.13 percent midweek, their highest since July 2007, while French ten-year yields climbed to about 4.6 percent, their highest since July 2008. Across both markets, investors were asking for more compensation to lend for a decade.

For Canada, the timing is uncomfortable. Renewed tariffs threaten growth just as energy costs and overseas interest rates are putting upward pressure on the cost of money. A weaker Canadian economy may justify a different policy path, but it cannot insulate Canadian borrowing costs from everything happening abroad.

Stronger growth complicates the rates outlook

The U.S. selloff gathered force after business surveys pointed to stronger activity and price pressures. In a different setting, that would have been reassuring news. With inflation still a concern and U.S. rates already rising again, it instead weakened the case that the economy would soon need relief.

Brent crude moving back above $100 a barrel added to that concern. Higher energy costs can squeeze spending elsewhere, but resilient business activity gives policymakers less reason to assume that weaker demand will quickly contain the inflationary effect. The combination matters more than either development in isolation.

Michael Barr reinforced that message on Wednesday. The Federal Reserve governor described strong growth, a solid labour market and increased inflation risks, supported the previous week’s rate increase and indicated that further policy adjustments would likely be needed. Investors therefore had both economic data and an official assessment pointing towards continued restraint.

The auction put a price on that concern

The next test came when the U.S. Treasury asked investors to buy $70 billion of five-year notes. The auction cleared at 5.033 percent, the highest yield at a five-year auction since June 2006. More tellingly, that was above the 5.002 percent yield indicated in trading immediately before the sale.

That gap of 3.1 basis points meant the government had to offer a higher return than the market had just anticipated. The bid-to-cover ratio was also below its reported six-month average. Bonds found buyers, but at a less favourable price for the borrower.

Yields climbed further after the auction, extending a move already under way. One sale cannot establish a lasting shortage of demand, but it gave the day’s repricing a practical consequence. Expectations about inflation and policy had translated into a higher cost of raising new money.

France shows the pressure extends beyond U.S. rates

France made this more than an American story. European business activity strengthened, French activity rebounded and renewed energy pressure complicated the prospect of bringing inflation under control. French ten-year yields rose alongside those of other European governments as investors reassessed how much further European rates might have to rise.

The French milestone needs some perspective. A yield near 4.6 percent was the highest since July 2008, rather than an all-time record, and the yield alone does not establish a new debt crisis. Fiscal concerns form part of France’s background, but the available evidence does not separate their contribution from the broader inflation and interest-rate pressures behind the day’s move.

The significance for Canada lies in that breadth. When investors seek higher returns across several major government bond markets, Canadian borrowers face a less forgiving international funding environment. Canada can outperform other markets without being untouched by the repricing.

Canada has a different growth problem

The domestic backdrop points in a less comfortable direction. Early this week, Bank of Canada Governor Tiff Macklem warned that new U.S. tariffs, if maintained, could roughly halve fourth-quarter growth to below 1 percent. That is a conditional forecast, but it shows why stronger U.S. activity need not produce the same policy response on this side of the border.

Energy makes the distinction harder to manage. Macklem also described damage to refining capacity that has pushed fuel costs beyond their usual relationship with crude prices. A decline in oil alone may therefore provide less relief than borrowers might expect.

Canada could consequently face weaker growth without an equally rapid easing in inflation pressure. That leaves less room for a simple conclusion that soft domestic conditions will bring rates down. The strength of the inflation impulse, and whether it spreads, still matters.

Canadian yields have already shown some independence

There is evidence that Canadian bonds can follow a different path. Between last Wednesday and Tuesday, the Bank of Canada’s five-year benchmark yield fell from 3.64 percent to 3.54 percent, while the ten-year declined from 3.92 percent to 3.83 percent. Canadian yields were therefore entering the latest selloff below their levels a week earlier.

An earlier Wednesday report put the Canadian ten-year at about 3.86 percent. It preceded the U.S. afternoon move, so it cannot establish how much of the selloff Canada ultimately absorbed. Canadian bonds remain exposed without being mechanically tied to U.S. yields.

For fixed borrowing costs, the relevant question is how the pressure reaches Canadian funding benchmarks and lender spreads. A U.S. Treasury yield of 5.13 percent is not a Canadian financing quote. Nor does an unchanged Bank of Canada policy rate guarantee that a term financing quote will remain unchanged.

The next move depends on which pressure lasts

The issue now is whether overseas inflation pressure outlasts Canada’s resistance. Stronger activity, disrupted fuel supplies and more difficult debt sales would reinforce the demand for higher yields. Energy relief or a clearer slowdown would weaken it.

Weaker growth gives Canadian borrowers a reason to expect lower rates. Recent declines in Canadian yields provided some support for that expectation. This week’s U.S. and French selloff puts it to a harder test.