US Treasuries Pay 134 Basis Points More Than Canada’s. Hedge the Currency and Canada Pays More.
The gap between Canada and US bond yields is close to the widest it has been in a quarter century. On Tuesday, October 13, the Government of Canada benchmark 10-year yielded 3.87% while the US 10-year Treasury yielded 5.21%, a difference of 134 basis points. In 25 years of both governments’ published yields, only 29 closes have been wider, and all 29 fall inside the last two years. At the short end it is starker: the 2-year gap sits at 160 basis points, beaten by only four closes since January 2001.
The half the headline number does not show is what that extra American yield is worth to someone who spends Canadian dollars. Hedge the currency and the Government of Canada bond pays more. The arithmetic below is ours, computed from each government’s own published yields.
How rare the gap is
The most recent close the two governments share is Tuesday, October 13, because Bank of Canada benchmark bond yields publish one business day behind the US Treasury daily par yield curve. We computed each spread on days both series published. Data as of October 13, 2026.
| Tenor | Canada | United States | Gap | Closes wider, out of 6,322 since January 2, 2001 |
|---|---|---|---|---|
| 2-year | 3.19% | 4.79% | -160 bp | 4 |
| 5-year | 3.55% | 5.00% | -145 bp | 23 |
| 10-year | 3.87% | 5.21% | -134 bp | 29 |
A negative gap means Canada yields less than the United States.
Canada’s benchmark 10-year yield less the US 10-year, in basis points, on every day both governments published since 2001. Source: US Department of the Treasury daily par yield curve; Bank of Canada Valet, benchmark bond yields. Spread computed by us on common trading days.
The Friday before was wider still. On October 9 the 10-year gap reached 138 basis points, with Canada at 3.86% against 5.24%, the widest since February 14, 2025. The widest close anywhere in this data is 158 basis points, on February 3, 2025.
Those 29 closes sit in one run, with nothing wider before December 2024: one that month, ten in January 2025, twelve in February, two in March, then October 2, 5, 6 and 9 this year. The 2-year has been beaten only on February 3, 2025 at 170 basis points, February 6 and 10 at 162 each, and Friday at 162, leaving Tuesday effectively tied for second-widest in 25 years.
The American side moved. Canada’s barely did.
A gap can widen from either end, and both times this one went to an extreme it was the American side doing the work.
| Window | Canada 10-year | US 10-year | Gap |
|---|---|---|---|
| September 21 to October 13, 2026 | 3.84% to 3.87%, +3 bp | 4.96% to 5.21%, +25 bp | -112 bp to -134 bp |
| October 1, 2024 to February 3, 2025 | 2.94% to 2.96%, +2 bp | 3.74% to 4.54%, +80 bp | -80 bp to -158 bp |
Over the last three weeks the Canadian 10-year moved 3 basis points while the American one moved 25. In the four months into February 2025 it was 2 basis points against 80. That is the sharper edge of our September finding that Canada has taken less than half of the US move all year.
Benchmark 10-year yields on the widest close in the series and on the latest one. Source: US Department of the Treasury daily par yield curve; Bank of Canada Valet, benchmark bond yields.
The levels look nothing like February 2025, when Canada was at 2.96% and the United States at 4.54%, both roughly a point lower. The Canadian 10-year has since risen 91 basis points against the American 67, which is why the gap is 24 basis points narrower now than at its widest.
The two central banks are pulling apart
The Bank of Canada’s target for the overnight rate is 2.25%, unchanged since the cut from 2.50% on October 30, 2025, which is nearly a full year on hold. The Federal Reserve went the other way: on September 17, 2026 it raised its target range by 25 basis points to 3.75 to 4.00 percent, its only move of the year and a reversal of its December 2025 cut. Take the midpoint of the Fed’s range, 3.875%, subtract Canada’s 2.25% target, and the policy gap is 1.625%, or 162.5 basis points.
Canada’s own market does not expect that to widen from this side. On the October 14 settlement, Montreal Exchange one-month CORRA futures price the October 28 Bank of Canada announcement at 5.5 basis points of increase, about 22% of a quarter point, and December 9 at 21.0 basis points, on our solve net of a CORRA-to-target basis of 4.47 basis points measured over September 2026. We went through that pricing on October 13, where the futures market still prices an increase by December.
What the gap is worth to a Canadian buyer, after the hedge
Here is where the headline number stops being a free lunch.
All four figures below are from Wednesday, October 7, the most recent day on which both governments published both a bond yield and a bill yield. The Canadian bills are the Bank of Canada treasury bill series at 3 months and 1 year, and the American figures come from the Treasury par yield curve.
| Canada | United States | Difference | |
|---|---|---|---|
| 3-month bill | 2.39% | 4.22% | 183 bp |
| 1-year bill | 2.90% | 4.42% | 152 bp |
| 10-year bond | 3.94% | 5.28% | 134 bp |
Start with the bond. Canada 3.94%, the United States 5.28%. Hold the Treasury for a year and the yield advantage is 134 basis points.
Now price the hedge. A currency hedge is priced off the two countries’ short-term interest rates: selling US dollars forward against Canadian dollars means giving up the American short rate and receiving the Canadian one, so the hedge costs you the difference between them. On October 7 the one-year bills were 4.42% in the United States and 2.90% in Canada. The difference is 152 basis points, and that is the price of carrying the hedge for a year.
Subtract one from the other. The Treasury’s 5.28% less 1.52% of hedging cost nets about 3.76%, against the Government of Canada bond’s 3.94%. Hedged into Canadian dollars, the American bond finishes 18 basis points behind the Canadian one rather than 134 ahead.
That 18 basis points is not an accident of two subtractions. It is the difference between the two curves’ slopes. Canada climbs 104 basis points from the one-year bill at 2.90% to the ten-year bond at 3.94%, while the United States climbs 86 basis points, from 4.42% to 5.28%. The 134 basis point gap is a story about where each central bank has set its short rate, and a hedged investor never collects it. What a hedged investor collects is the difference between those two slopes, 18 basis points, and nothing else.
Roll the hedge in three-month contracts instead and today’s price is steeper. Those bills were 4.22% and 2.39%, a difference of 183 basis points, which takes the Treasury down to about 3.45%, or 49 basis points behind the Canadian bond. That is today’s price on a contract that reprices every quarter, not a year’s cost locked in.
This is our calculation from each government’s published bill and bond yields, on the covered interest parity relationship that sets a currency forward, and it is before any dealer spread. Anyone holding CAD-hedged Canadian Depositary Receipts pays for the same mechanism on a different asset, and we have measured what a CAD-hedged receipt charges for the hedge.
The unhedged version is the same fact seen from the currency side. The Bank of Canada’s daily rate had USDCAD at 1.4257 on October 7. On those one-year bill yields, the covered one-year forward works out to 1.4049, which prices the Canadian dollar 1.48% stronger than spot, against 1.34 percentage points of extra yield on the American bond. That is the same comparison with the forward compounded rather than the two bill yields simply subtracted, so it lands a few basis points away, 14 rather than 18, and it points the same way: the forward market charges slightly more for the currency risk than the bond pays you to take it.
Put it in a form anyone can check against a quote screen. From the Bank’s October 14 rate of 1.4263, the loonie only has to strengthen to 1.4074 inside a year to wipe out the entire yield advantage, which was 1.34 percentage points on both the October 7 and the October 13 readings. The 134 basis points is the price of carrying that currency risk. It is not 134 basis points of free income.
The loonie, at its weakest daily rate of the year
| Date | USDCAD | One Canadian dollar buys |
|---|---|---|
| January 2, 2026 | 1.3737 | 0.7280 USD |
| October 9, 2026 | 1.4271 | 0.7007 USD |
| October 14, 2026 | 1.4263 | 0.7011 USD |
Source: Bank of Canada daily exchange rates, series FXUSDCAD.
October 9’s 1.4271 is the weakest daily rate the Bank has published for the loonie this year. The last rate at or above it was April 2, 2025, at 1.4320, and this single-rate series begins in January 2017. The series’ own high is 1.4603, set on February 3, 2025, the same day the yield gap hit its widest close. The dates coincide, and that is all we can say about them.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Bond yields are the latest close both governments had published, Tuesday October 13, 2026, from the Bank of Canada benchmark series and the US Treasury daily par yield curve. Canada publishes one business day behind the Treasury. The bill yields and exchange rate used in the hedging arithmetic are from Wednesday October 7, 2026, the most recent day on which both governments had published both.
