Quick Takes:
- Markets are focused on July 9, when the United States tariff pause expires, and on July 21, the negotiators’ target for a Canada and United States agreement, milestones that will shape expectations before the Bank of Canada’s July 30 rate decision.
- History shows that after the 2018 USMCA announcement the Bank of Canada raised rates within three weeks, and after the 1992 NAFTA agreement Canadian yields climbed.
- Investors now see two paths, with a trade deal likely nudging yields higher and putting a rate hike on the table, while a collapse could pull yields lower and revive talk of a cut, so borrowing costs through autumn hinge on the outcome.
On June 4th, 2025, the Bank of Canada left the overnight rate unchanged, saying trade uncertainty justifies caution even with solid growth and near-target core inflation. Government bond yields have been flat for about the last month while investors track every trade headline.
Trade talks resumed after Ottawa scrapped its digital services levy on June 30th, 2025. Both governments want an economic and security deal by July 21st, 2025. First, the United States pause on new “reciprocal” tariffs ends on July 9th, 2025, and President Trump says he will not extend it. A successful negotiation would prevent duties of up to 50 percent; failure would trigger them. These two dates drive market pricing.
The Bank’s next rate decision is July 30th, 2025. By then it will know the tariff outcome and have fresh inflation and early third-quarter data. Most desks expect limited moves until the July 9th decision point, then a clear shift once results are in. Equity gains and Canadian-dollar strength have appeared on positive talk, only to fade on negative comments, showing how closely rates track the trade story.
Will a Deal Push Yields Higher?
When Canada and the United States agreed on the United States Mexico Canada Agreement on September 30th, 2018, U.S. Treasury yields jumped, and Canadian yields followed. Three weeks later the Bank of Canada raised its policy rate, citing the new deal as a confidence boost.
A similar pattern appeared after the North American Free Trade Agreement text was settled in August 1992. Canadian 10-year yields rose from 7.38 percent to 7.79 percent in 4 weeks even as the central bank was easing, showing how quickly the trade premium disappeared.
If negotiators clinch a trade agreement in July 2025, Canadian bond yields should rise in line with the jumps that followed the 2018 USMCA and the 1992 NAFTA breakthroughs. The yield curve would likely steepen, and the Bank of Canada could keep rates unchanged or if history is an indication, they could even raise rates by twenty-five basis points at its July 30 or September meeting. Markets would then mark the expected policy band for 2026 a little higher, lifting mortgage and corporate borrowing costs through the autumn, although the move should be milder than the 1992 surge because today’s yields already embed some tariff risk and global uncertainties still cap upward pressure.
What Happens if Talks Collapse?
If tariffs resume on July 9th, 2025, Canadian yields will likely fall, increasing the chance of a Bank cut and weakening the Canadian dollar. Borrowers would enjoy a temporary drop in costs, but at the expense of confidence and hiring. Based on the history, the expectation is that a deal brings moderately higher rates with stronger growth, while failure risks lower rates for the wrong reasons.
For now, the bond market is waiting, the Bank is cautious, and the decisive dates are July 9th and July 21st.