Canada's September Jobs Shock and the Surge in U.S. September CPI and PPI — So Why Are Bond Yields Falling? Where the October 28 BoC Decision Is Headed

Published Thursday, October 15, 2026 · Rates, market figures and outlooks in this article reflect its publication date and may differ today. Ask us for the latest picture. Translated from the Korean original.

Ahead of the Bank of Canada's (BoC) monetary policy decision on October 28, economic data and financial markets are sharply out of step, adding to the confusion. Canada's September jobs data, released on October 9, showed the largest drop in seven months, sounding a warning about weak domestic demand. Meanwhile, the U.S. September Consumer Price Index (CPI) on October 14 and then the September Producer Price Index (PPI) released on October 15 both surged well beyond market expectations. Yet despite the hot inflation data, long-term bond yields in both the U.S. and Canada have actually fallen sharply — an unusual phenomenon. Here we take a sober look at the market mechanics behind it and where mortgage rates are headed.

Key Points

• Canada's September jobs shock: Canada lost 68,300 jobs in September, far below market expectations (+7,000), and the unemployment rate rose to 6.5%. Following August (-41,700), jobs disappeared for a second straight month, confirming a rapid cooling of the real economy.
• Back-to-back surges in U.S. September CPI and PPI: The U.S. September Consumer Price Index (CPI), released October 14, rebounded to 3.7% year over year (+0.6% month over month), and the September Producer Price Index (PPI), released October 15, also jumped 1.3% month over month (expected 0.5%) and 6.3% year over year (expected 5.3%), the steepest increase in about four years.
• A paradoxical drop in bond yields amid surging inflation: Even though September inflation data repeatedly came in well above expectations, on October 15 U.S. 10-year and 30-year Treasury yields actually fell sharply by about 13bp (10-year around 5.05%, 30-year around 5.39%). This appears to be the result of large-scale selling in global tech stocks and risk assets, driven by doubts about the profitability of AI capital expenditure (CapEx) in a high-rate environment, which sent frightened money pouring into safe-haven Treasuries (Flight to Safety).
• The Fed signals a slower pace in October: As San Francisco Fed President Mary Daly moved to calm markets, saying "a further hike may be needed, but there is no urgency to decide at the October meeting," the odds of a U.S. rate hike in October, which had at one point topped 50%, fell back below 30%, and some of the dollar's strength was reversed.
• The BoC's October 28 dilemma: Canada's disastrous September jobs report and the growing possibility of a Fed hold in October strengthen the case for the Bank of Canada to "hold in October," but the risk that the surge in U.S. September wholesale prices (PPI) will push up Canadian import prices with a lag has grown even larger.

What It Means

The "falling rates amid surging inflation" that financial markets showed in mid-October carries a very important message. Bond yields are not falling now because inflation has been tamed, or because central banks have turned to rate cuts. Rather, it is closer to a "fear-driven technical pullback," as money from a stock market unable to withstand high rates and inflation pressure temporarily took refuge in the bond market.

Canada's domestic September jobs shock and the recent drop in bond yields have lowered the odds that the Bank of Canada (BoC) will force through a policy rate hike on October 28, and in the short term should give some breathing room by easing the pressure for further increases in fixed mortgage rates.

But the fundamental threat has not gone away. The surge in U.S. September PPI (+6.3%) confirmed on October 15 means production costs are rising at an alarming pace, and this will inevitably pass through, with a lag, to consumer prices and Canada's import prices. Once the stock market turmoil settles, there is a high risk that the bond market will again price in these hot inflation figures and the possibility of another Fed hike in December, pushing yields back up.

So the current temporary drop in market rates should not be mistaken for a signal of a lasting trend of rate cuts. The inflation pressure built into the broader macro economy and the trend of higher-for-longer rates remain firmly in place. If you have a renewal or home purchase coming up, rather than reacting to every short-term swing in the market, we recommend clearly recognizing these macro trends and preparing for future volatility with an even more conservative financing plan.