U.S.-Canada 10-Year Yield Spread Narrows as Tariff Uncertainty Fades, BMO Says

06:45 AM EST, 12/09/2025 (MT Newswires) -- After reaching a record wide earlier this year, the gap between U.S. 10-year Treasury yields and like-dated Government of Canada (GoC) bonds has narrowed sharply in recent weeks, Bank of Montreal (BMO) said.

At one stage in early February, at the height of the U.S.-Canada tariff uncertainty, the spread gapped out to 158 bps, with U.S. yields trading above Canada, the bank noted. The spread has since been cut by more than half, narrowing to about 70 bps at one point on Monday.

The run of surprisingly strong Canadian data in recent weeks has quashed prospects of further Bank of Canada cuts, even as markets have priced in Federal Reserve cuts with a bit more certainty, stated BMO.

To be sure, 75bps is still a relatively wide spread, as the 20-year average is around 30 bps, pointed out the bank. As recently as 2022, the spread was negative, meaning Canadian rates were above U.S. ones.

The gap in yields usually tracks the currency very closely as well, with the notable distortion of 2020 aside, added BMO. Just as spreads have melted to their narrowest since early 2024, the Canadian dollar (CAD or loonie) has made a sudden turn to strength as well.

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