Few corners of the Government of Canada market illustrate the mathematics of ultra-long duration as starkly as the 2.75% bond maturing on 1 December 2055. As at 15 September 2026 it changed hands at roughly 74.365% of face value, with an approximate current Yield near 3.7% and a yield to Maturity of 4.3%. With about 29 years still to run, the gap between its modest coupon and today’s long-term yields explains almost everything about that deep discount. This article looks at why the bond sits so far below par and what investors are watching at the very long end.

What is this bond?

CA135087P998 is a nominal (non-index-linked) Government of Canada bond carrying a fixed 2.75% annual coupon and a maturity date of 1 December 2055. The coupon is paid on a Face Value of 100, so a holder receives C$2.75 per C$100 of nominal each year, in two semi-annual instalments, regardless of where the Market Price moves. At maturity the government repays the C$100 face value in full.

The bond is a direct obligation of the federal Crown, and Canada carries top-tier Credit ratings: S&P AAA, Moody’s Aaa and Fitch AA+. What has moved is not creditworthiness but price. Issued when long yields were much lower, the 2.75% coupon now looks small against the roughly 4.28% long (30-year) benchmark yield recorded by the Bank of Canada on 11 September 2026. That mismatch pushes the market price well below face value.

Why is this bond in focus?

The bond draws attention because of its extreme sensitivity to interest rates. With a residual life of nearly three decades, its price responds far more violently to yield changes than shorter bonds. A small move in long yields translates into an outsized move in the Market Value of a 2055 bond. That makes it a barometer for how investors are pricing the distant future.

It is not, however, an official benchmark. The current 30-year/long Government of Canada benchmark is the 3.5% December 2057 bond (CA135087S703), effective 6 March 2026. The 2055 issue is off-the-run: still actively traded, but no longer the reference point around which new long-end pricing is set.

What are Canadian bond yields doing?

The Government of Canada Yield Curve is positively sloped as at 11 September 2026. Bank of Canada benchmark yields ran from 3.35% at two years to 3.95% at ten years and 4.28% at the long end. That upward slope marks a normalisation from the inversion seen in 2023-24, when short rates sat above long rates.

For a 2055 bond, the long benchmark near 4.28% is the relevant anchor. The bond’s own yield to maturity of 4.3% (15 September 2026) sits in line with that long-end level, confirming that its price reflects prevailing ultra-long yields rather than any distress or special feature.

Interest rates and the Bank of Canada

The Bank of Canada held its overnight rate target at 2.25% at the decision on 2 September 2026, keeping the Bank Rate at 2.50% and the deposit rate at 2.20%. That 2.25% level is regarded as within the Bank’s estimated neutral range, after earlier cuts from higher levels. Governing Council said it remains “prepared to adjust Monetary Policy as needed,” without pre-committing to a path.

For a 2055 bond, the policy rate matters less directly than for short maturities. The overnight rate anchors the front of the curve, but a bond maturing in 29 years is driven far more by long-term expectations for inflation, growth and the term premium than by the level of overnight financing today.

Inflation and the economic backdrop

Statistics Canada reported headline CPI at 3.0% year on year for August 2026 (released 14 September 2026), unchanged from the prior reading. The Bank’s preferred core measures were softer: CPI-trim and CPI-median both sat at 2.0%, near the 2% target midpoint. Elevated gasoline, up 22.8% year on year, kept headline Inflation above core.

Growth data were firmer. Real GDP rose 3.3% annualised in the second quarter of 2026, a rebound from a weak start to the year, while the Unemployment rate edged down to 6.4% in August 2026, though the Bank still described labour Demand as subdued. For a 29-year bond, the key question is whether inflation settles near target over decades — the anchor for long-term real returns.

Coupon versus market yield

The distinction between coupon and yield is central here. The 2.75% coupon is fixed on the C$100 face value and never changes. The market price — about 74.365% of face on 15 September 2026 — floats with prevailing yields. Because the coupon sits well below the roughly 4.3% long-term yield investors now require, buyers will only hold the bond at a price low enough to make up the difference.

That is why the price sits far below 100. The approximate current yield of 3.7% simply divides the coupon by the discounted price. The yield to maturity of 4.3% goes further, folding in the pull-to-par: as 2055 approaches, the price is expected to drift back toward 100, and that Capital accretion is counted alongside the coupons. Over 29 years, the coupon shortfall combined with enormous duration mechanically drives the price well below face, while the YTM aligns the bond with the market. A discount is arithmetic, not an assessment of value.

What could move this bond next?

The dominant driver is the level of long-term yields. Shifts in inflation expectations, the term premium demanded for holding long paper, and global ultra-long yields all feed directly into the price. Heavy but stable federal Supply is relevant too: the Department of Finance plans gross bond issuance of about C$298 billion for 2026-27, against a Deficit near C$50 billion.

Key risks to watch

Duration risk dominates: a rise in long yields would cut the price sharply, and the effect is amplified at 29 years. Inflation surprises, a wider term premium, heavier issuance and moves in global long yields could all push prices lower. Falling long yields would work the other way. Liquidity in an off-the-run line can also be thinner than in the current benchmark.

What investors may watch next

Attention turns to the Bank of Canada’s next decisions on 28 October 2026 (with a Monetary Policy Report) and 9 December 2026, upcoming CPI and GDP releases, the long benchmark yield, and the federal borrowing programme. Each shapes where ultra-long yields — and this bond’s price — settle.