A global bond sell-off that has driven long-term U.S. and British government borrowing costs to multi-decade highs has rattled markets worldwide, but Canadian corporate debt has emerged as a relative bright spot, with credit spreads holding firm and issuance running at a rapid clip even as foreign investors pour record sums into Canadian debt securities.
The U.S. 30-year Treasury yield touched 5.24 per cent recently, its highest level since June 2007, up 37 basis points since the start of the year. Canada’s 30-year government bond yield has also climbed to nearly 18-year highs, reaching 4.16 per cent, up 24 basis points over the same period. Yields have risen even more sharply elsewhere: Britain’s 30-year Gilt yield hit a 28-year high of 5.77 per cent, up roughly 50 basis points this year, while Japan’s 30-year yield rose nearly 60 basis points to 3.98 per cent.
Why Canadian Bonds Are ‘Well-Behaved’
Despite tracking the same broad global trend — U.S. and Canadian bonds tend to move together, according to Konstantin Boehmer, portfolio manager and head of fixed income at Mackenzie Investments — Canada’s market has fared comparatively well. Boehmer described Canadian bonds as “quite well-behaved in the global space,” particularly at the long end of the curve.
Derek Brown, managing director and head of fixed income at Beutel, Goodman & Co., attributed the resilience partly to fiscal discipline. He noted the U.S. has averaged federal deficits of around 6 per cent of GDP in recent years, while Canada’s combined federal and provincial deficit sits at roughly 3.5 per cent of GDP even under the federal government’s “Canada Strong” budget. Brown also drew a distinction between the two countries’ stimulus approaches, characterizing U.S. tax cuts and immediate expensing — which allow AI hyperscalers to claim large deductions — as a “sugar rush,” compared with Canada’s focus on longer-term infrastructure spending on ports, pipelines and rail.
Corporate Credit Outperforms
Corporate bonds have outpaced government debt in the recent turbulence. The S&P Canada Investment Grade Corporate Bond Index has gained 0.7 per cent since the start of the year, while the Canada High Yield Corporate Bond Index has risen nearly 3.4 per cent. Brown said long-end buyers such as insurers and pension plans, seeking higher yields, have helped cushion the sell-off in longer-dated corporate credit over the past month. Corporate credit spreads — the premium companies pay over benchmark government yields to borrow — have not widened as much as might be expected given higher oil prices and rate expectations, he added.
Issuance has also stayed brisk. Hanif Mamdani, managing director and head of alternative investments at RBC Global Asset Management, pointed to an “explosion of issuance” from companies that had not previously accessed the high-yield debt market, estimating roughly $30 billion in “high-yield-like” corporate debt instruments issued over the past 18 months.
Unlike the United States, Canada has avoided a surge of AI-linked corporate borrowing. Reuters reported, citing BNP Paribas data as of Aug. 10, that AI hyperscalers issued US$220 billion in debt in 2026, compared with US$12.5 billion a year earlier — a wave that has added to upward pressure on American yields. Canada’s corporate issuer base looks different, dominated by financials, energy companies and pension funds. Avi Hooper, a senior adviser to London-based research firm ABP Invest Ltd., described that mix as “very high quality, very positive free-cash-flow-generating companies.”
Canadian Corporate Debt Market Snapshot
Foreign Appetite for Canadian Debt Hits Record
The relative stability of Canadian credit has coincided with a surge in foreign demand for Canadian debt securities. According to TD Economics, foreign investors added to their holdings of Canadian government and corporate debt in the second quarter following a strong first quarter, pushing inflows into debt securities to a record $110.2 billion. Total portfolio inflows reached $100.6 billion in the second quarter and $157.8 billion for the first half of 2026 — a sharp reversal from a $23-billion contraction over the same period a year earlier.
TD economist Maria Solovieva noted that demand continues to favour debt over equities and is increasingly coming from outside the United States. Also notable was an unprecedented $20-billion jump in Canadian net acquisitions of foreign securities denominated in Canadian dollars — so-called Maple bonds — driven by large issuances from Alphabet and Amazon. TD described the strength in foreign demand for Canadian debt as encouraging at a time when the country needs to raise more capital, though it cautioned that some of the broader investment data remains volatile from quarter to quarter.
Looking ahead, market participants do not widely expect the run-up in long-term bond yields to extend much further, though few see a reversal to the ultra-low rates of the past decade and a half. “We have exited the post-great-financial-crisis paradigm of ultra-low interest rates,” Brown said, adding that investors are still adjusting to a higher-rate environment that he characterized as a return to historical norms rather than an aberration.
This article is for informational purposes only and does not constitute financial, investment, or legal advice. Consult a licensed financial advisor before making investment decisions.
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