Canada’s inverted yield curve is signalling the Bank of Canada may raise interest rates to a level that triggers a recession, placing the central bank in a tough spot as it aims to tame high inflation and engineer a “soft landing” for the economy.
The yield on the Canadian 10-year government bond has fallen about 50 basis points below the two-year yield. That’s the biggest inversion of Canada’s yield curve in Reuters data going back to 1994 and deeper than the U.S. Treasury yield curve inversion.
Some analysts see curve inversions as predictors of recessions. Canada’s economy is likely to be particularly sensitive to higher interest rates after Canadians borrowed heavily during the COVID-19 pandemic to participate in a red-hot housing market.
“It makes sense that we should see more of an inversion this cycle than we have in the last few just because there is so much more…