Bond markets are demanding 'credibility' and could compel the Bank of Canada to hike rates this year, says KPMG - Financial Post

KPMG suggests that conditions in the bond market could push the Bank of Canada toward raising interest rates this year, even as broader economic signals remain mixed. The core of the argument is credibility: when bond investors doubt that a central bank will follow through on its inflation-fighting commitments, they demand higher compensation to hold government debt. That shows up as rising yields, which tighten financial conditions on their own.

For markets, the significance is that rate expectations are not shaped by the central bank alone. If bond investors keep testing the Bank of Canada's resolve, policymakers may feel pressure to respond with an actual hike to reinforce their anti-inflation stance. That dynamic can feed into mortgage rates, the currency, and rate-sensitive sectors such as housing and utilities.

What to watch: upcoming inflation readings, the Bank's own communications, and the pace of yield moves at the front end of the curve. These will indicate whether market pressure is building or easing.