Longer-dated Government of Canada bonds have been repricing as yields settle near 4%, and the 3.5% December 2036 issue (CA135087U931) sits a little further out the curve than most of its peers this autumn. With roughly 10.2 years of residual life as at 15 September 2026, it trades at 96.71% of face value, a modest discount to par. Its Yield to Maturity is 3.894%, above its 3.5% coupon and close to the Bank of Canada’s 10-year benchmark yield of 3.95% recorded on 11 September 2026. A slightly higher coupon narrows, but does not close, the discount.

What is this bond?

Listed as Canada Treasury Bonds 3.5% 01-DEC-2036, this is a conventional nominal bond and a direct obligation of the Government of Canada. It pays a fixed 3.5% coupon on face value, generally in two semi-annual instalments, and repays principal in full at maturity on 1 December 2036.

Canada holds S&P AAA, Moody’s Aaa and Fitch AA+ ratings, reflecting the federal government’s fiscal capacity and its debt-servicing record.

The coupon is fixed. The Market Price and the resulting yield vary with conditions. At 96.71% of face as at 15 September 2026, the bond trades below par, so its yield sits above its coupon, though its discount is shallower than lower-coupon bonds of similar maturity.

Why is this bond in focus?

The bond’s 3.5% coupon is a touch higher than the 3.25% coupons on several nearby maturities, which explains why its price sits closer to par at 96.71% of face. With a longer residual life of about 10.2 years, it also sits marginally beyond the 10-year point, giving it slightly more duration.

That combination makes it a useful case study as longer-dated yields rise. A higher coupon reduces the size of the discount needed to reach a competitive yield, but it does not eliminate it while market yields exceed the coupon. The yield to maturity of 3.894% as at 15 September 2026 reflects that balance.

A point of precision: this is an off-the-run bond, not the current 10-year benchmark, which is a separate June 2036 issue. Off-the-run bonds remain full obligations of the same issuer but may trade with slightly different Liquidity from the on-the-run benchmark.

What are Canadian bond yields doing?

The Government of Canada curve was positively sloped as at 11 September 2026. Benchmark yields ran from 3.35% at 2 years, through 3.65% at 5 years, 3.74% at 7 years and 3.95% at 10 years, to 4.28% at 30 years. The front end sits near the 2.25% policy rate; the long end sits above 4%.

That upward slope marks a normalisation from the inversion of 2023 and 2024. A positive slope typically reflects a policy rate near neutral plus a term premium on longer maturities. Because this bond matures a little beyond 10 years, it feels the pull of both the 10-year and the somewhat higher 30-year yield.

Interest rates and the Bank of Canada

The Bank of Canada held its overnight rate target at 2.25% at the 2 September 2026 decision, with the Bank Rate at 2.50% and the deposit rate at 2.20%. This was a hold. The Bank regards 2.25% as within its estimated neutral range, having eased from higher levels earlier in the cycle.

Governing Council said it is “prepared to adjust Monetary Policy as needed,” assessing the rebound’s durability and the Inflation outlook without pre-committing. The next decisions are scheduled for 28 October 2026, with a Monetary Policy Report, and 9 December 2026.

The overnight rate anchors the short end most directly. A bond maturing in late 2036 reflects expectations for average rates and inflation over the next decade, plus the term premium, more than the current policy setting alone.

Inflation and the economic backdrop

Statistics Canada reported headline CPI at 3.0% year on year for August 2026, released 14 September 2026 and unchanged from the prior month. Core measures were softer: CPI-trim and CPI-median both at 2.0%, near target, with CPI excluding gasoline near 2.4%.

Gasoline, up 22.8% year on year though slowing from 25.7%, is the main reason headline exceeds core. Rents rose 2.8% and travel tours climbed 26.1%, while grocery inflation eased to 2.8%.

Real GDP grew 3.3% annualised in the second quarter of 2026, rebounding from a soft start to the year, led by consumption. Unemployment was 6.4% in August 2026, edging down, though the Bank still describes labour Demand as subdued.

Coupon versus market yield

Keep the measures apart. The 3.5% coupon is fixed and paid on face value. The current yield of roughly 3.62% as at 15 September 2026 relates the coupon to the discounted price. The yield to maturity of 3.894% also captures the price rising toward par by December 2036.

At 96.71% of face, a holder to maturity would receive 100 at redemption, above today’s price. That pull to par lifts the yield to maturity above both the current yield and the coupon. Because the coupon is higher than on nearby 3.25% bonds, the discount and the pull-to-par effect are smaller here. It remains arithmetic between price and par, not additional income beyond the contractual cash flows.

What could move this bond next?

Movements in longer-dated yields are the key driver. Shifts in the 10-year benchmark, last at 3.95% on 11 September 2026, and in the 30-year, at 4.28%, would feed through given this bond’s slightly longer maturity. Inflation data and Bank of Canada communication sit behind those moves.

Supply is also relevant. The Department of Finance planned gross bond issuance of about $298 billion for 2026-27, down from roughly $317 billion the prior year but still heavy, with the Deficit projected near $50 billion, about 1.4% of GDP. Steady long-end issuance supports the term premium.

Key risks to watch

Interest rate risk is prominent. At about 10.2 years, this bond carries slightly more duration than a 10-year, so its price is a touch more sensitive to yield moves.

Inflation risk follows: if headline pressures persist beyond what core measures imply, markets may demand higher long yields. Liquidity is a further factor, as off-the-run bonds can trade less actively than the benchmark.

What investors may watch next

The calendar points to the Bank of Canada decisions on 28 October and 9 December 2026, the coming CPI releases and any change to federal issuance. Movements in the 10-year and 30-year benchmark yields, last at 3.95% and 4.28% on 11 September 2026, will guide how this bond’s price behaves.