A price beneath 100 is the headline feature of the Government of Canada 2.25% bond maturing on 1 February 2028. As at 15 September 2026 it changes hands at 98.67% of face value, a clear discount, and offers a Yield to Maturity of 3.245% against a low 2.25% coupon. With about 1.4 years remaining, it is the longest-dated of this short cohort, and it illustrates cleanly why a below-market coupon leaves a Bond Trading below par.

What is this bond?

This is a conventional nominal bond issued by the Government of Canada, formally Canada Treasury Bonds 2.25% 01-FEB-2028, with the ISIN CA135087T958. It pays a fixed coupon of 2.25% on a Face Value of 100 and is scheduled to repay principal on 1 February 2028.

Canada’s sovereign ratings are AAA from S&P, Aaa from Moody’s and AA+ from Fitch. These reflect the Credit quality of the issuer. The bond’s Market Price responds to the level of interest rates rather than to those ratings.

Why is this bond in focus?

The discount is the draw. At 98.67 as at 15 September 2026, the price sits well below face value because the 2.25% coupon is the lowest in this group and trails the yields the market now requires at this maturity.

With roughly 1.4 years to maturity, the bond carries slightly more residual life than its 2027 neighbours, giving it a touch more price sensitivity while remaining firmly short-dated. That makes it a good illustration of discount pricing and of the reinvestment questions that come with a nearing repayment date.

What are Canadian bond yields doing?

The Bank of Canada’s benchmark Government of Canada yields, as at 11 September 2026, stood at 3.35% for the 2-year, 3.44% for the 3-year, 3.65% for the 5-year, 3.95% for the 10-year and 4.28% for the 30-year. The curve is positively sloped, having normalised from the inversion seen in 2023 and 2024.

This bond’s yield to maturity of 3.245% (15 September 2026) is close to the 2-year benchmark of 3.35% but a little below it, consistent with its residual life of under a year and a half sitting just inside the two-year point.

Interest rates and the Bank of Canada

At its 2 September 2026 decision, the Bank of Canada held the overnight rate target at 2.25%, with the Bank Rate at 2.50% and the deposit rate at 2.20%. The Bank has been on hold after cutting from higher levels earlier in the cycle, and regards 2.25% as within its estimated neutral range.

Governing Council said it was prepared to adjust Monetary Policy as needed, with no pre-commitment. The next decisions fall on 28 October 2026, alongside a Monetary Policy Report, and 9 December 2026. For a bond maturing in February 2028, the policy path is most relevant to the rate at which repaid principal can later be reinvested.

Inflation and the economic backdrop

Statistics Canada reported headline CPI at 3.0% year on year for August 2026, released on 14 September 2026 and unchanged from the prior reading. The Bank’s preferred core measures were near target, with CPI-trim and CPI-median both at 2.0%, while CPI excluding gasoline ran around 2.4%.

Gasoline, up 22.8% year on year but decelerating, is the main reason headline Inflation exceeds core. On growth, real GDP expanded at a 3.3% annualised pace in the second quarter of 2026, and the Unemployment rate eased to 6.4% in August 2026. The Bank continues to describe labour Demand as subdued, a backdrop that supports its cautious, data-dependent stance.

Coupon versus market yield

This bond shows the discount mechanism at its clearest. The coupon rate is fixed at 2.25% of face value. The current yield, near 2.28% as at 15 September 2026, divides the annual coupon by the market price. The yield to maturity of 3.245% is the highest of the three measures.

The reason is straightforward. Because the 2.25% coupon is well below the yield the market now demands at this maturity, buyers will only pay less than face value. The price falls to 98.67, a discount, so that the coupon income plus the Capital Gain from being repaid at 100 combine to give a total return, the yield to maturity, that matches prevailing rates. In other words, a below-market coupon pushes the price below 100 and lifts the yield to maturity above the coupon. The wider the gap between coupon and market yield, the deeper the discount, which is why this low-coupon bond trades further below par than its higher-coupon peers.

What could move this bond next?

With around 1.4 years to run, the bond’s price is anchored to the scheduled repayment of face value on 1 February 2028, though its slightly longer life gives it marginally more sensitivity to yield changes than the shortest 2027 bonds.

Moves in short-term yields, driven by the Bank of Canada’s October and December decisions and by incoming inflation and jobs data, can shift the price. As maturity nears, the discount narrows and the price gravitates towards par.

Key risks to watch

Reinvestment risk is central. If short-term yields fall by February 2028, holders may reinvest proceeds at lower rates than today’s.

Interest rate risk remains, with prices easing if yields rise, but the short residual life limits its reach. Credit risk is low given Canada’s AAA, Aaa and AA+ ratings. Inflation, with headline CPI at 3.0%, can still erode the real value of the modest fixed coupon over the remaining term.

What investors may watch next

Attention is likely to centre on the Bank of Canada’s 28 October 2026 decision and Monetary Policy Report, then the 9 December 2026 meeting. Statistics Canada’s coming CPI and Labour Force Survey releases will shape expectations for the front end of the curve.

For a short-dated discount bond, the practical focus rests on the reinvestment environment in early 2028 rather than on large price movements from here.