Good morning. In focus today, we look at how war, inflation and government borrowing are rattling bond markets – and threatening to raise borrowing costs no matter what central banks do next. Plus, the return of the tin-can telephone.

Energy: The Premier of Newfoundland and Labrador says he wants to strike a new deal with Quebec on Churchill River power with possible help from Ottawa.

Mining: Agnico resurrects Hope Bay mine in the Arctic as part of its ambitious growth push.

Pensions: Caisse unit strikes deal to buy digital-services firm ISC for $1.2-billion.

Passings: Robert K. Irving, co-CEO of J.D. Irving Ltd., dies at 71 after a battle with cancer.

The news: Yields on longer-term U.S. government bonds spiked as investors reacted to the Iran war, elevated oil prices and renewed concern about inflation.

• The 30-year Treasury yield rose to its highest level in 19 years.
• Long-term Canadian government bond yields touched their highest levels in more than 16 years, Andrew Galbraith reports
• The benchmark 10-year yield reached its highest level since January, 2025.

What “yield” means: The yield is what investors earn for lending money to a government. A bond’s interest payment is fixed, but its market price moves. When investors pay less for the same income stream, their return rises. That higher return is the yield.

Why it matters: U.S. Treasuries set the tone for global bond markets. When U.S. yields rise, borrowing costs for households and businesses often rise too. If a government has to pay more to borrow, lenders reckon households and companies should pay a premium on top of that. Riskier business.

Canadian yields often move with U.S. Treasuries because they serve as the benchmark for global government debt. But Canadian bonds also respond to domestic inflation, Bank of Canada expectations and the amount of debt governments are issuing.

For example: Yesterday’s consumer price index report showed headline inflation rose less than economists expected, while the Bank of Canada’s preferred core measures also eased. “If it weren’t for those bothersome items like filling up your car and paying for groceries,” BMO chief economist Douglas Porter wrote in a note to clients, “there would be almost no inflation.”

Canadian bond yields fell after the report, as traders reduced expectations for another BoC rate increase.

But Canada’s bond market is also caught up in global concern over the Iran war and broader inflation pressures: The 10-year yield, which reflects longer-term risks around inflation, government borrowing and U.S. Treasuries, rose alongside its U.S. counterpart.

How rising yields lift the cost of borrowing: Five-year yields, which are more closely tied to Bank of Canada expectations and are a key benchmark for many fixed mortgages, fell after the inflation report. But they’re still up about 30 basis points over the past month.

Banks watch the five-year Government of Canada yield when pricing fixed mortgages with the same term. When that yield stays higher, lenders’ own funding costs can rise, and mortgage offers can adjust within days.

How borrowers are exposed: A Bank of Canada policy-rate increase moves quickly through variable mortgages, home equity lines of credit and other prime-linked loans. Higher government bond yields are a narrower form of tightening, but the effect is far from small in a country where most mortgage consumers still hold fixed-rate debt.

Sixty-two per cent of mortgage consumers had fixed-rate mortgages, a survey by Canada’s national housing agency found last year. That’s compared with 25 per cent on variable rates and 9 per cent with a fixed-variable combination.

What’s next: Federal Reserve meeting minutes today could move markets if they show U.S. officials are more worried about inflation than investors expected.

And while inflation fears are getting blamed for rising global bond yields, the truth is more unsettling, Desjardins strategists Royce Mendes and Tiago Figueiredo wrote in a note to clients yesterday.

Investors still appear to believe central banks can bring inflation under control. The bigger worry is that governments are borrowing heavily at a time when rate cuts are no longer expected and the war in the Middle East is keeping pressure on energy markets.

That has pushed investors to demand extra compensation for holding longer-term government debt, a warning sign that markets are paying closer attention to the strain on public finances.

“In comparison to an oil-driven spike in inflation, that’s a much more difficult problem for policymakers to solve,” the note from Desjardins strategists read.