On the Radar: Yields Falling While Waiting For The October 29 Rate Decision

Capital Markets update
Oct 17, 2025

First National Financial LP

Quick Takes:

Canadian bond yields fell this week as global rate expectations eased after the U.S. Federal Reserve struck a softer tone and oil prices weakened.
Traders now see roughly even odds of a Bank of Canada rate cut on October 29 after the strong jobs report offset earlier expectations for further easing.
Markets are waiting on the Bank’s October 20 survey results and the October 21 CPI report, which will likely determine whether policymakers cut or hold at 2.5 percent.

What pushed Canadian yields down

The dominant influence came from abroad. On Tuesday, Federal Reserve Chair Jerome Powell confirmed that the Fed would approach future decisions “meeting by meeting” and refrained from pushing back against market pricing for rate cuts. That small rhetorical shift was enough to send U.S. Treasury yields lower across the curve. Because Canadian yields tend to move in step with Treasuries, the decline spilled quickly across the border. The ten-year Government of Canada bond dropped toward the low 3.1 percent range, touching its lowest level since May. The five-year followed, falling in sync with the global bond rally.

Domestic data, meanwhile, offered no counterweight. The stronger-than-expected September jobs report from the previous Friday had already faded from traders’ minds by midweek. Building permits fell 1.2 percent in August, the lowest level in over a year, and the S&P Global manufacturing PMI stayed in contraction. Together, these figures confirmed that growth momentum remains soft. Even as hiring held up, business activity and construction signaled cooling demand. Those readings helped keep yields subdued, especially in the five to ten-year segment that captures expectations about medium-term economic health.

Energy markets also contributed. Oil prices extended their decline, with West Texas Intermediate crude slipping another 1.3 percent early in the week to trade around $58 a barrel. Cheaper energy feeds directly into headline inflation and influences inflation expectations. For bond markets, that means less upward pressure on yields. Falling commodity prices also dampen Canada’s export income, tightening financial conditions slightly and making it easier for the Bank of Canada to justify further easing if needed. Lower oil and metals prices therefore, reinforced the downward move in yields across the curve.

How the October 29 cut odds have evolved

Market expectations for the next Bank of Canada move have swung back and forth over the past two weeks.

At the start of the month, on October 1, overnight index swaps implied about a 55 percent chance of a 25 basis point rate cut at the upcoming meeting. That was a carryover from the September decision, when the Bank lowered its policy rate to 2.50 percent and emphasized that it was ready to act further if inflation risks eased.

By October 9, with the Canadian dollar under pressure near 1.40 to the U.S. dollar and little improvement in growth data, the odds climbed to roughly 64 percent. Traders were leaning toward another reduction as they anticipated soft labor numbers and global easing momentum.

The following day brought a surprise. The September employment report showed a gain of 60,000 jobs, mostly full-time, and an unemployment rate holding near 7.1 percent. That single data point cut expectations nearly in half. By the close on October 10, money markets were pricing only a 50 percent probability of an October cut, down from roughly 72 percent earlier in the day. The labor strength argued that the Bank could afford to wait a little longer before delivering more stimulus.

Since then, the odds have hovered around that 50–50 line.

What to watch between now and decision day

All eyes are now on the Bank of Canada’s internal surveys due October 20 and the September CPI release on October 21. The Business Outlook Survey and Consumer Expectations Survey provide early signals about investment intentions, pricing plans, and wage expectations—key inputs for the Governing Council. A marked drop in these indicators would lean the odds toward a cut. The CPI report, meanwhile, will show whether headline and core inflation continue to drift down toward the 2 percent target. A softer print could tip the scales decisively.

Bottom line

Canadian yields fell this week because the global policy environment shifted more dovish, oil prices continued to slide, and Canada’s domestic data outside the labor market offered little reason for concern about overheating. The reaction reflects renewed confidence that inflation pressures are receding and that policy can remain accommodative for longer. As investors look ahead to October 29, the market remains evenly split on whether the Bank of Canada will deliver another cut or pause to assess incoming data. The next week’s inflation and survey releases will settle that debate. For now, the trend in yields says one thing clearly: the bias remains toward easier conditions, even if the timing of the next move is uncertain.

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