Canadian bond yields have not risen as much as U.S. Treasuries in recent weeks

Canada's economic growth was thrown off course by the collapse in oil prices. TD's latest forecast projects that economic growth will start to pick up in the second half of this year, but to a large extent, Canada's outlook is contingent on external developments - the evolution of crude oil prices and a lift from the U.S. economy. 

Given the current economic slowdown in Canada, the Bank of Canada is expected to remain on the sidelines while the Federal Reserve starts to raise rates later this year. A more modest outlook for monetary policy in Canada has meant that Canadian bond yields have not risen as much as U.S. Treasuries in recent weeks. 

A sharper move in yields is unlikely even as we get close to BoC rate hike late in 2016. Strong global demand for high-quality liquid assets - namely highly rated sovereign debt - will keep downward pressure on yields. Global financial linkages will help anchor Canadian government bond yields lower than would otherwise be the case. Also inflationary pressures in the Canadian economy are likely to remain fairly modest, and a sharper rise in the long-end of the curve would not jive with fundamentals.