As Canadian government yields have climbed from the lows of the recent easing cycle, a handful of federal bonds now trade close to Face Value because their coupons broadly match today’s market. The Government of Canada 3.25% bond maturing on 1 September 2028 is one of them. Priced at 99.855% of face value on 15 September 2026, it sits a whisker below par, its coupon and its Yield to Maturity of 3.326% almost aligned. With around two years to run, it offers a clean reading of where the front-to-middle of the curve now sits.

What is this bond?

This is a conventional Government of Canada nominal bond, the Canada Treasury Bond 3.25% 01-SEP-2028 (ISIN CA135087Q491). It pays a fixed 3.25% annual coupon in semi-annual instalments and repays its face value at maturity on 1 September 2028. As a direct federal obligation, it carries Canada’s sovereign ratings of AAA from S&P, Aaa from Moody’s and AA+ from Fitch.

At 15 September 2026 it trades at 99.855% of face value, marginally below par. Its approximate current yield is 3.25%, and its yield to maturity, equal to its yield to worst here, is 3.326%. With roughly 2.0 years of residual life, it sits between the front and middle of the curve.

Why is this bond in focus?

The bond is worth watching because its price sits almost exactly at face value. That happens when a coupon closely matches the market’s required return, leaving only a sliver of discount to bridge. As yields have risen, this security has stayed near par while lower-coupon peers slipped further below it, making it a transparent gauge of near-term rate expectations.

It is an off-the-run security rather than a current Bank of Canada benchmark, so it trades a touch away from the most actively quoted points, but its two-year residual life keeps it close to the well-followed short end. For investors tracking how far Canadian yields have travelled, a near-par bond of this maturity is a straightforward marker: its price barely departs from face value, so almost all of its return comes from the coupon rather than from any recovery in price toward par.

What are Canadian bond yields doing?

Government of Canada benchmark yields, published by the Bank of Canada as at 11 September 2026, sloped upward: 3.35% at 2 years, 3.44% at 3 years, 3.65% at 5 years, 3.74% at 7 years, 3.95% at 10 years and 4.28% at 30 years. The curve has normalised from its earlier inversion, with the front anchored near the 2.25% policy rate and the long end above 4%.

This bond’s yield to maturity of 3.326% sits close to, and just below, the 2-year benchmark reading of 3.35%, fitting for a security with about two years left. It prices off the front-to-middle of the curve.

Interest rates and the Bank of Canada

The Bank of Canada held its overnight rate target at 2.25% on 2 September 2026, keeping the Bank Rate at 2.50% and the deposit rate at 2.20%. This was a hold, not a cut. After easing from higher levels earlier in the cycle, the Bank regards 2.25% as within its estimated neutral range.

Governing Council said it was “prepared to adjust Monetary Policy as needed,” committing to weigh the durability of the rebound and the Inflation outlook without pre-committing. The next decisions come on 28 October 2026, with a Monetary Policy Report, and 9 December 2026. For a bond maturing in September 2028, the policy path over the coming quarters is the main influence on its price.

Inflation and the economic backdrop

Statistics Canada reported on 14 September 2026 that headline CPI held at 3.0% year on year in August, above the 2% target midpoint. Core Inflation was softer: CPI-trim and CPI-median both at 2.0%, with CPI excluding gasoline around 2.4%. Gasoline, up 22.8% year on year though decelerating from 25.7%, is the main reason headline runs above core.

Growth firmed. Real GDP rose 3.3% annualised in the second quarter of 2026, roughly 0.8% quarter on quarter, rebounding from a soft start to the year, with solid consumption. The labour market stayed weak, with Unemployment at 6.4% in August, and the Bank still describes labour Demand as subdued.

Coupon versus market yield

The bond’s yield figures sit unusually close together, which is what defines a near-par bond. The 3.25% coupon is fixed and paid on face value. The current yield of about 3.25% divides that coupon by the price, which is barely below par. The yield to maturity of 3.326% is the fuller measure, incorporating both the coupon and the tiny gain as the price edges from 99.855 toward 100 at maturity.

Because the coupon of 3.25% is almost identical to the market’s required return, the discount is minimal, and the pull-to-par effect is small. That is why the yield to maturity sits only fractionally above the coupon and current yield. This near-alignment is what makes the bond a clean reference point rather than a source of extra return.

What could move this bond next?

With a two-year residual life, the bond responds mainly to near-term rate expectations. A shift in the outlook for the 28 October or 9 December decisions, driven by fresh CPI or labour data, could move front-end yields and its price. Softer data could revive cut expectations and lift the price; firmer data could push yields higher and weigh on it. Because the coupon sits close to prevailing yields, price moves are likely to be more contained than for lower-coupon peers.

Key risks to watch

The principal risk is that above-target inflation persists, keeping the Bank cautious and front-end yields elevated, which would pressure the price. A sharper downturn is the counter-risk, potentially reviving easing bets. Heavy but stable federal issuance, with planned gross bond Supply near $298 billion in 2026–27, forms the backdrop, though it weighs more on longer maturities. The short residual life keeps duration risk limited.

What investors may watch next

The 28 October and 9 December Bank of Canada decisions, coming inflation prints and further labour readings are the key markers. Tracking the 2-year and 3-year benchmark yields will most clearly show how the front-to-middle of the curve, and this near-par bond with it, is repricing.