Recent Canadian Macroeconomic Data Pulls Forward Central Bank Rate Hike Timing, Says National Bank

10:14 AM EST, 12/09/2025 (MT Newswires) -- Friday's session produced a significant selloff in Government of Canada (GoC) rates -- the largest single-day two-year yield increase since October 2024 -- catalyzed by yet another stronger-than-expected Labour Force Survey (LFS) report, said National Bank of Canada.

After three months, the labor market is up about 180,000 jobs, fully offsetting job losses in the summer and pushing the unemployment rate down to a 16-month low. This hasn't been the only strong data of late, noted the bank. Recent inflation reports have been warm, while Q3 gross domestic product and revisions to earlier quarters have brightened the growth picture.

Needless to say, recent data -- especially labor market data -- has led to a recalibration of the policy rate and bond market outlook, stated National Bank.

It's not every day you see such outsized GoC movement on an outright basis, pointed out the bank. It's similarly rare to see Canada-United States differentials move so drastically.

In fact, there have been just 33 prior episodes since 2000 where GoCs have underperformed two-year U.S. Treasuries by as much as they did Friday.

Empirically, these large single-day moves don't always persist. In most cases, GoC yields tended to gain back ground over the next week, by an average of around 4.5 bps. After one trading day, National Bank added they were already trending in that direction.

To the bank, that unwind may continue over the coming sessions.

While recent data is consistent with pulling forward rate hike timing, National Bank thinks market pricing may have gone a bit too far too quickly.

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