MARKET NEWS

Investing.com -- Canada's benchmark 10-year government bond yield edged lower on Thursday as a recovery in global bond markets eased some of the pressure that had pushed Canadian borrowing costs to more than two-year highs.

The 10-year yield was around 3.78% at 10:10 a.m. ET, down about 1.4 basis points from Wednesday's close of 3.798%. It had traded between 3.739% and 3.799% during the session.

Earlier in the session, the yield was reported at 3.748%, down 5 basis points, while the U.S. 10-year Treasury yield was around 4.74%. The Canadian dollar was also stronger, trading around C$1.379 per U.S. dollar.

The move comes after a sharp selloff in global government bonds in recent sessions, driven by concerns about persistent inflation, higher energy prices and rising government borrowing. Canadian bonds had also come under pressure as investors reassessed the outlook for domestic interest rates.

The Bank of Canada kept its policy rate unchanged at 2.25% on Wednesday but delivered a more hawkish message, with Governor Tiff Macklem saying policymakers were prepared to raise rates if inflation remained too high. Canada's annual inflation rate has risen to 3%, while higher oil prices linked to the conflict in the Middle East have increased upside risks to inflation.

The central bank's stance had contributed to higher Canadian yields, with markets pricing a potential rate increase by December. But Thursday's decline in global yields has provided some relief to longer-dated Canadian debt.

Investors will now focus on Friday's U.S. nonfarm payrolls report for clues about the Federal Reserve's next policy move. A weaker labour-market reading could reinforce the recent pullback in U.S. yields and provide further support for Canadian bonds, while a strong report could revive expectations of tighter U.S. monetary policy and put renewed upward pressure on yields.