Long-dated Government of Canada bonds have been repricing as the country’s long yields settle above 4%, and the 3.5% bond maturing on 1 December 2045 sits squarely in that story. Trading at 90.99% of Face Value on 15 September 2026, with a Yield to Maturity of 4.187%, it shows how a coupon fixed in an era of lower rates now sits below prevailing long yields. With roughly 19.2 years to run, its price reflects both that coupon gap and heavy duration. It is an off-the-run issue, not a current benchmark.

What is this bond?

The security (ISIN CA135087ZS68) is a nominal Government of Canada bond paying a fixed 3.5% coupon annually on its face value, with the face value repaid in full on 1 December 2045. It is a direct federal obligation and carries Canada’s sovereign ratings of S&P AAA, Moody’s Aaa and Fitch AA+.

The coupon never changes. The Market Price does, and it stood at 90.99% of face value on 15 September 2026, a clear discount to the 100 due at maturity. That discount is the market’s way of lifting the effective yield to line up with today’s long rates.

Why is this bond in focus?

Its 3.5% coupon was set when long-term interest rates were lower than they are now. Canada’s long (30-year) benchmark yield was 4.28% on 11 September 2026, and the 10-year benchmark 3.95%. Because this bond’s coupon sits beneath those levels, buyers will only accept it at a price below face value, so the total return, measured by yield to maturity, matches the market.

The yield to maturity of 4.187% (15 September 2026) captures both the 3.5% coupon and the gain as the price is pulled towards 100 over the next 19 years or so. The discounted price is a mechanical repricing, not a discount opportunity. That is precisely what makes the bond a useful illustration of how the long end has adjusted.

What are Canadian bond yields doing?

As at 11 September 2026, the Government of Canada curve slopes upward: 3.35% at two years, 3.65% at five, 3.95% at ten and 4.28% at the long end. Having been inverted in 2023-24, the curve has normalised, with longer maturities yielding more than shorter ones.

A December 2045 maturity falls towards the longer part of the curve, between the 10-year and 30-year points. The bond’s 4.187% yield to maturity is consistent with that region. With around 19.2 years of residual life, its price responds sharply to movements in these long yields.

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%. The rate is seen as within the Bank’s estimated neutral range after earlier cuts. Governing Council said it stood “prepared to adjust Monetary Policy as needed,” with no pre-commitment. The next decisions are set for 28 October 2026, alongside a Monetary Policy Report, and 9 December 2026.

The 2.25% policy rate anchors short maturities. A bond maturing in 2045 depends far more on the long-run path of inflation, growth and government borrowing than on today’s overnight rate. Policy shapes long-term expectations rather than moving the 2045 price directly.

Inflation and the economic backdrop

Headline CPI held at 3.0% year on year in August 2026, per Statistics Canada data released on 14 September 2026. The Bank’s preferred core measures, CPI-trim and CPI-median, both stood at 2.0%, near target. Gasoline, up 22.8% year on year but decelerating, keeps headline above core.

Real GDP grew 3.3% annualised in the second quarter of 2026, a rebound led by consumption, while Unemployment eased to 6.4% in August 2026 amid still-subdued labour demand. For a bond running to 2045, the durability of Inflation near target matters more than any single print. Core near 2% supports that, while headline above target sustains some caution in long yields.

Coupon versus market yield

The three key numbers should not be confused. The coupon is fixed at 3.5% of face value. The current yield, about 3.85% on 15 September 2026, divides that coupon by the discounted price of 90.99%. The yield to maturity, 4.187%, is higher again because it folds in the pull to par by 2045.

So the sequence runs coupon 3.5%, current yield ~3.85%, yield to maturity 4.187%, each higher than the last because the bond trades below face value. That progression is the arithmetic of a discount bond, not a signal about Credit quality.

What could move this bond next?

Duration is the dominant force. At about 19.2 years, a change in long yields produces an amplified price move: a rise from the 4.28% long benchmark (11 September 2026) would lower the price, a fall would raise it. Watch inflation surprises, the scale of federal issuance and swings in global long-term yields, which strongly influence Canadian long bonds.

Key risks to watch

The main risk is price Volatility from heavy duration. Persistent above-target inflation could keep long yields high and prices under pressure. Planned gross bond issuance near $298 billion for 2026-27, with a federal Deficit around $50 billion, may support term premium at the long end. Movements in global yields can dominate domestic factors over short periods.

What investors may watch next

Likely focal points include the Bank of Canada’s October and December decisions, upcoming CPI releases and Department of Finance issuance plans. How the long benchmark yield moves relative to this bond’s 4.187% yield to maturity will show how the market continues to reprice long-dated debt.