Canadians boosted their US Treasury purchases in April, but rising yields tanked portfolio values
Canadian investors loaded up on US government bonds in April despite a wave of boycotts against American goods and a pullback in cross-border travel following President Donald Trump’s latest tariff threats. But a simultaneous bond market selloff drastically cut the value of those holdings, with implications that stretch beyond investment portfolios, especially for Canadian mortgage rates.
In April, the overall value of Canada’s US Treasury holdings dropped by about $58 billion, the largest swing among the top 20 foreign holders of US debt. The decline was driven by falling bond prices as long-term yields surged and the Federal Reserve kept interest rates elevated, outpacing other central banks.
“You’ve got this gap emerging with the Fed on hold and the Bank of Canada cutting rates, along with everyone else,” explained Rob Haworth, senior vice president and investment strategist at US Bank, in comments to Fortune.
While the Bank of Canada has cut rates by 225 basis points over the last nine months, including 25-point cuts in January and March, the Fed has held steady in 2025 after a series of rate reductions last year. As of Friday, the US 10-year Treasury yield stood at 4.38%, while Canada’s was at 3.30%.
The higher US rates have kept Treasuries attractive to Canadians and other foreign investors, provided they can manage the currency risk from a weakening U.S. dollar.
At the end of March, Canadian private and public sector investors held $426 billion in US Treasuries; by April, that had fallen to $368 billion. The sharp drop reflects not a selloff by Canadians, but the falling value of long-dated bonds amid market volatility.
“Valuation changes often move in the opposite direction of net US sales/purchases and are often large enough to drive overall changes in holdings,” Fed economists said last year. “As such, changes in holdings alone are an unreliable measure of cross-border demand for US or foreign securities.”
Implications for Canadian mortgage rates
This environment means continued upward pressure on mortgage rates. The surge in demand for US debt from Canadians and other foreign buyers is not enough to offset the impact of higher US yields.
If foreign appetite for Treasuries were to weaken further, the US Treasury would have to offer even higher yields to attract buyers, pushing US (and by extension, Canadian) mortgage rates higher.
Elevated US yields can lift global bond yields, including in Canada, delaying any meaningful decline in fixed mortgage rates, which are closely tied to 5-year bond movements. Meanwhile, a weaker Canadian dollar, resulting from diverging rate paths, could add inflationary pressure, further complicating the Bank of Canada’s ability to cut rates aggressively.
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So far, foreign holdings of US Treasuries have remained robust, totaling just over $9 trillion at the end of April. However, recent data indicate that central banks and sovereign wealth funds have begun to reduce their positions. Bank of America credit strategists warn that “cracks” in demand from these buyers may now be appearing.
“There’s probably still some fundamental pressure as we suss out where trade and tariffs end up,” said Haworth.
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