Canadian stocks were poised to open lower on Wednesday, with S&P/TSX futures down 0.4% as a broad global bond selloff pushed government borrowing costs to multi-decade highs and oil prices swung sharply following a change to China's fuel-export policy, according to Reuters.
The yield on the 10-year US Treasury note touched 5.34%, its highest level since 2002. Canada's 10-year government bond yield rose to 3.99%, close to its highest since 2023. Yields move inversely to bond prices, so the climb reflects a sustained selloff in fixed income markets worldwide.
Why bond yields matter for stocks
When government bond yields rise, they ripple through financial markets in several ways. First, higher yields raise the cost of borrowing for companies, households and governments, which can slow economic activity and weigh on corporate profits. Second, they make bonds more attractive relative to stocks, because investors can earn a higher risk-free return. That tends to pressure equity valuations, especially for companies whose profits are expected to arrive far in the future, such as technology and other growth-oriented firms.
The move in yields is not isolated to the US. Global borrowing costs have been climbing as investors reassess how long central banks will keep interest rates elevated. The global bond selloff has been driven by a combination of resilient economic data, heavy government borrowing needs and expectations that inflation may prove stickier than hoped. Similar dynamics have pressured currencies and equities elsewhere, with European stocks slipping as yields held near multi-year highs.
Oil swings on China's export policy
Energy prices added another layer of uncertainty. Oil markets whipsawed after China adjusted its fuel-export policy, a move that affects the global supply of refined products like gasoline and diesel. China is one of the world's largest refiners and a major exporter of fuels, so any change to its export rules can shift the balance of supply and demand in Asia and beyond.
For Canada, this matters more than it might for other markets. The S&P/TSX Composite Index is heavily weighted toward energy producers, alongside financials and materials. When oil prices swing, the earnings outlook for Canadian energy companies moves with them, and that can quickly feed into the index's performance. A sustained rise in crude prices tends to support the TSX, while a sharp drop can drag it lower. The recent volatility leaves investors uncertain about which direction energy will ultimately push the index.
What it means for investors
For everyday investors, the combination of rising yields and swinging oil prices creates a challenging backdrop. Higher bond yields mean the income available from safe government debt is more competitive with dividends from stocks. That can make defensive, dividend-paying sectors — such as utilities, telecoms and financials — relatively more appealing, though they are not immune to pressure if borrowing costs keep climbing.
At the same time, a resource-heavy index like the TSX is particularly sensitive to commodity prices. Investors with exposure to Canadian energy stocks may see sharper moves in their portfolios than those holding more diversified global funds. It is worth remembering that the TSX is not a broad proxy for the global economy; it is concentrated in a handful of sectors, so its performance often diverges from US or international benchmarks.
Looking ahead, market participants will be watching several things. The path of US Treasury yields remains the key driver, with attention on upcoming economic data and comments from central bank officials for clues about the future of interest rates. Any sign that inflation is cooling could ease the pressure on bonds and, by extension, on stocks. On the energy side, traders will monitor how China's export policy shift plays out and whether it leads to a lasting change in fuel flows. For now, the tug-of-war between rising yields and volatile oil looks set to keep Canadian markets on edge.
