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Surging bond yields spook investors, capping C$ gains

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TORONTO — The Canadian dollar edged

higher against its U.S. counterpart on Tuesday as oil prices

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rose, but the move was limited as investors worried that the

continued march higher in bond yields would tip the global

economy into recession.

The loonie was trading 0.1% higher at 1.3720 to the

U.S. dollar, or 72.89 U.S. cents, after trading in a range of

1.3641 to 1.3775. On Monday, it touched its weakest intraday

level since May 2020 at 1.3808.

“It’s impossible to find a bid for bonds,” said Adam Button,

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chief currency analyst at ForexLive. “The chances of a financial

or economic crisis are climbing and that directly impacts the

outlook for the Canadian economy.”

Canada is a major producer of commodities, including oil, so

the loonie is particularly sensitive to the global economic

outlook.

“We have gone from pricing in the chance of a global

recession into a likelihood of a global recession,” Button said.

The U.S. 10-year yield, a major benchmark for borrowing

costs globally, climbed to a fresh 12-year high and Wall Street

sank deeper into a bear market.

As higher borrowing costs slow Canada’s outsized housing

market, investors are betting the Bank of Canada will raise

interest rates to a lower end-point than the Federal Reserve, an

outcome that could spell more trouble for the Canadian dollar.

Oil clawed back some of its recent decline, supported by

supply curbs in the U.S. Gulf of Mexico ahead of Hurricane Ian.

U.S. crude oil futures settled 2.3% higher at $78.50 a

barrel.

Canadian government bond yields rose across much of a

steeper curve. The 10-year touched its highest level

since June 29 at 3.361% before dipping to 3.297%, up 7 basis

points on the day.

(Reporting by Fergal Smith

Editing by Alistair Bell)

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