On the Radar: When U.S. Jobs Disappear, What Happens to Canadian Rates?

Capital Markets update
Nov 14, 2025

First National Financial LP

Three Takeaways

U.S. private payroll and labor market data now indicate that jobs are disappearing, not just slowing, even as official reports are delayed.
History shows that every major U.S. job slump since the early 1980s has been followed by lower Canadian overnight rates and falling 5-year and 10-year Government of Canada yields.
If this deterioration in U.S. jobs continues, the weight of past cycles suggests Canadian rates are more likely to fall from current levels than remain where they are.

When U.S. Jobs Disappear, Canadian Rates Fall

Private data is now showing a sharp weakening in the U.S. job market, even while the government shutdown delays official releases. Real-time payroll estimates suggest that employers will cut thousands of jobs a week in late October, which appears more like the start of a recession than a soft patch. The natural question for a Canadian fixed-income investor is simple. When U.S. jobs have fallen this quickly in the past, what happened to Canadian overnight rates and to 5-year and 10-year Government of Canada yields?

The short answer is that every major period of rapid U.S. job deterioration has been followed by clear downward pressure on Canadian rates across the curve. The details vary by cycle, but the direction is consistent. When U.S. jobs vanish, policy pivots, and Canadian yields fall.

Early 1980s: Job Losses Follow Rate Hikes, Then Rates Collapse

The early 1980s recession stemmed from a deliberate interest rate shock. To break high inflation, the U.S. Federal Reserve and the Bank of Canada pushed policy rates to record levels. The Bank of Canada’s overnight rate briefly reached around 20 percent in 1981. Mortgage and business borrowing costs were punishing, resulting in a deep recession on both sides of the border.

The job damage was severe. U.S. unemployment reached double digits. In Canada, the unemployment rate climbed above 13 percent, the worst since the 1930s. Employment losses were concentrated in rate-sensitive sectors such as construction and manufacturing.

Once inflation finally broke, the policy stance flipped. The Bank of Canada cut the overnight rate aggressively through 1982. Five-year Government of Canada yields, which had traded at close to 19 percent at their peak, fell into the 10 percent range within roughly a year. Ten-year yields moved down in parallel. The trigger for that change was not a gentle slowdown. It was a clear collapse in employment and output after an extended period of very restrictive policy. When jobs gave way, the central bank could no longer hold rates at those extremes, and the whole curve repriced lower.

Early 1990s: A Jobless Slump Pulls Canadian Yields Down

The period from 1990 to 1992 brought another recession, with Canada being hit harder than the United States. Heading into the downturn, the Bank of Canada again kept policy quite tight. The posted prime rate was in the mid-teens in 1990. That stance contributed to a sharp slowdown and a long, painful labor market adjustment.

Unemployment in Canada moved above 11 percent and stayed elevated for years. The phrase jobless recovery came into common use. In the United States, the recession was milder, but job growth was weak and the unemployment rate still drifted higher into the early 1990s.

In response, the Bank of Canada shifted to an inflation targeting framework and cut interest rates in large steps. The overnight rate fell by several hundred basis points from its peak. Five-year Canadian yields, which had been in the low double digits at the start of the 1990s, slid into the mid-single digits by the middle of the decade. Ten-year yields followed a similar path, dropping from above 10 percent to the 7 to 8 percent range. Again, a period of sustained labor market weakness coincided with a significant and prolonged decline in Canadian yields.

Early 2000s: Tech Bust, 9/11, And Fast Policy Easing

The 2001 downturn, following the tech bubble and the September 11 attacks, was smaller in scale, but it still caused clear job market damage and a predictable interest rate response. The U.S. economy lost more than a million jobs, and the unemployment rate rose from near 4 percent to around 6 percent. Canada felt the slowdown in trade, investment, and confidence. Hiring stalled even though the rise in Canadian unemployment was more modest than in earlier recessions.

Central banks moved quickly. The Federal Reserve cut its policy rate from 6.5 percent to below 2 percent in a single year. The Bank of Canada reduced its overnight target by about 3.5 percentage points in 2001. That shift was immediately evident in the bond market. Five-year Canadian yields dropped from roughly 6 percent to 4 percent. Ten-year yields moved from the upper 6 percent range to near 5 percent and occasionally lower.

The lesson from this cycle is that even a relatively short and moderate U.S. downturn, with a clear impact on payrolls, is enough to generate material rate relief. The scale of job losses may differ from earlier episodes, but the direction of rates is the same. When the labor market weakens, policy easing and lower medium-term yields follow.

2008 to 2009: Great Recession, Rates Near Zero

The global financial crisis was the cleanest and most powerful example of the pattern. Construction, manufacturing, and finance all went into free fall. U.S. payrolls ultimately declined by more than eight million jobs. The unemployment rate reached about 10 percent. Canada’s unemployment rate climbed from just over 6 percent before the crisis to near 9 percent at the peak. The pace of job losses in late 2008 and early 2009 was the worst Canada had seen since the early 1980s.

Central banks responded with emergency measures. The Bank of Canada cut its policy rate from the mid 4 percent range to 0.5 percent in less than a year, which was the effective lower bound at the time. It also began using forward guidance and later balance sheet tools to reinforce that stance.

The curve moved in lockstep. Five-year Government of Canada yields, which had been around 3.5 to 4 percent before the crisis, fell to roughly 1.5 to 2 percent at the trough. Ten-year yields, which started near 4 percent, dropped to below 3 percent. Investors priced in a long period of weak growth, subdued inflation, and continued policy accommodation.

The sequence was straightforward. Severe job losses in the U.S. and Canada forced central banks toward zero, and Canadian bond yields repriced downward across the curve to reflect this new reality.

2020: Pandemic Crash and Record Low Yields

The pandemic recession in 2020 was unusual in cause, but familiar in its effect on jobs and rates. Public health measures shut large parts of the economy almost overnight. Canada’s unemployment rate spiked to nearly 14 percent, surpassing the peak of the early 1980s. The United States experienced an even sharper, albeit shorter-lived, surge in unemployment.

The Bank of Canada delivered two emergency cuts in March 2020, lowering the overnight rate to 0.25 percent, which it described as the effective lower bound. It also launched large-scale purchases of Government of Canada bonds. Those actions, combined with a global flight to safety, pushed benchmark yields to new lows. Ten-year Canadian yields traded below 0.5 percent at points in 2020. Five-year yields moved down into the 0.3 to 0.4 percent zone. For borrowers who still had access to credit, the cost of medium and long-term funding was lower than at any other time on record.

Even though the pandemic shock was different from a normal business cycle, the job rate relationship held. A sudden collapse in employment led to immediate and aggressive easing, and Canadian yields fell to levels that no one would have considered realistic a decade earlier.

What History Suggests for Today

The current situation has one unusual feature. Official U.S. labor statistics are delayed by the government shutdown, so the market is relying more heavily on private data such as payroll processor reports and job posting indicators. Those series are now pointing to net job losses, not just slower hiring. The pattern looks less like a gentle cooling and more like the early phase of a recession.

History suggests that if those private signals are correct and sustained, Canadian interest rates are likely to face downward pressure. Every major episode of rapid U.S. job deterioration since the early 1980s has been associated with lower Canadian overnight rates and meaningful declines in 5-year and 10-year Government of Canada yields. Sometimes the trigger was a homegrown policy mistake, sometimes it was a global financial shock, sometimes it was a real economy event, but the outcome for rates was consistent.

If U.S. payrolls genuinely start to fall at scale and Canadian growth slows in response, it becomes very difficult for the Bank of Canada to maintain a restrictive policy. Markets will anticipate cuts, five-year yields that anchor many mortgage rates will drift lower, and ten-year yields will likely follow as investors price in weaker growth and inflation. The details of each cycle will differ, but the direction is the same. When jobs disappear, Canadian interest rates tend to follow them down.

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