Intelligent Investment
The Cost Of Action
Canada Monthly Market Commentary - September 2026
September 30, 2026 2 Minute Read
The rise in global bond yields that has been building over the last couple months accelerated in recent weeks, with the 10-year U.S. Treasury yield spiking to nearly two-decade highs and pulling Canada yields alongside them. Growing concerns over war-induced inflation and weakening government finances have been the main driving force in the bond market selloff. Then with the U.S.-Iran conflict entering its seventh month and no signs of resolution, the accumulated inflationary pressure has triggered a global central bank pivot into a new interest rate hike cycle. Altogether, this resulted in 10-year U.S. Treasury yields surging close to 50 bps in just this month to well over 5%, hitting their highest level since mid-2007. While this jump also lifted yields in Canada, the increase has been notably more muted, with the Canada 10-year yield rising at roughly half the pace of the U.S. as a result of Canada’s relatively more contained fiscal footing. But even so, borrowing costs are still materially higher and property debt service coverage ratios have come under pressure.
At the same time, Canada’s trade relations with the U.S. have deteriorated further and threaten the economic outlook just as momentum was building. GDP in Q2 2026 had risen by an annualized 3.3% with broad-based growth across most sectors signaling a rebound was underway. But after the latest escalation in Canada-U.S. tariffs and counter-tariffs, uncertainty has risen again and the Bank of Canada warns that Q4 2026 economic growth could be halved. While the federal government has been making concerted efforts to diversify Canada’s trade and attract investment capital, this “pivot will come at a cost” and tough times are likely ahead.
Against this backdrop, the Bank of Canada chose to keep interest rates flat in this month’s monetary policy meeting, marking the central bank’s seventh consecutive hold. However, market expectations have rapidly shifted for the Bank of Canada to start following its peers like the Federal Reserve, European Central Bank and Bank of Japan and hike interest rates. Market-implied odds have risen sharply to roughly 60% chance of a Bank of Canada interest rate increase at the October 28 meeting, with at least one 25 bps increase fully priced in before the end of the year. If this marks the start of another interest rate hike cycle in Canada, this could mean another headwind for the Canadian economy in the coming quarters.
According to CBRE’s Q2 2026 Canada Investment Overview, real estate investment activity had been building momentum over the first half of the year. Investment volume grew to $16.2 billion in Q2 2026 for the highest quarterly total seen since early 2022. In addition to stronger single-asset and portfolio investment activity across most asset classes, volumes were further buoyed by Welltower’s acquisition of Amica Senior Lifestyles in Q2 2026. Full year investment volumes are on track to hit a new record high, aided by more merger and acquisitions activity, but investor confidence will likely be tested through the second half of 2026.
Economic Highlights:
- Employment fell by 41,700 jobs in August 2026 while the unemployment rate held flat month-over-month at 6.4%.
- Headline inflation rose to 3.0% in August 2026 but core measures CPI-Median and CPI-Trim were unchanged at 2.0% and 1.9%, respectively.
- Retail sales decreased by 0.7% month-over-month in July 2026 and advanced estimates for August suggest sales subsequently rose by 1.3%.
Viewpoints:
- Treasury yields rise as march to multiyear highs continues
- Carney warns of tough times ahead in national address as retaliatory tariffs kick in
- Bank of Canada governor warns new tariffs could cut fourth-quarter growth in half
- Global rate-hike cycle in view as central banks take on inflation
- Canadian Commercial Real Estate Sales Volumes Hit $16.2B in Q2
Latest Market Insights
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Brief | Intelligent Investment
The Cost Of Action
The rise in global bond yields that has been building over the last couple months accelerated in recent weeks, with the 10-year U.S. Treasury yield spiking to nearly two-decade highs and pulling Canada yields alongside them
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Brief | Intelligent Investment
Brace For Impact
Canada braces for another extended period of economic uncertainty after trade talks with the U.S. broke down and a new phase of the trade war began.
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Brief | Intelligent Investment
De-escalating the Re-escalation
Volatility once again defined global markets in July. The preliminary peace deal between the U.S. and Iran last month unraveled and hostilities resumed and expanded.
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