Canada's sovereign bond stock is relatively short-dated compared with its peers, with the highest share of bonds with a term of 10 years or less among G7 issuers, National Bank of Canada Capital Markets said Thursday.
This reflects an earlier period of very short sales before the COVID-19 pandemic, leaving comparatively limited supply at the long end of the curve, wrote the bank in a note.
While interest rates are influenced by many factors, government debt issuance patterns help shape the yield curve, wrote Taylor Schleich and Warren Lovely in National Bank's note.
Across the G7, a higher proportion of long-term debt is generally associated with steeper yield curves, as well as other factors, said the bank.
Looking ahead, U.S. Treasury sales are expected to rise further, while Canada's government bonds are likely to stay relatively stable, according to National Bank. Narrowing policy rate differentials and a less supportive Federal Reserve balance sheet suggest Canada's yield curve will likely remain relatively flat or flatten further compared with the U.S.