US Jobs Disappearing – Canadian Rates Decreasing

Private and public data is showing a weakening in the US job market, even though the US isn’t releasing much details. Payroll estimates suggest that employers will cut thousands of jobs a week, which appears more like the start of a recession than a soft patch for the US.

The natural question for a Canadian fixed-income investor is simple: When U.S. jobs have fallen this quickly in the past, what happened to Canadian overnight rates and to 5-year and 10-year Government of Canada yields?

The short answer is that every major period of rapid U.S. job deterioration has been followed by clear downward pressure on Canadian rates across the curve. The details vary by cycle, but the direction is consistent. When U.S. jobs vanish, policy pivots, and Canadian yields fall.

Early 1980s: Rate Shock, Job Losses, and a Rapid Reversal

The early 1980s recession followed a deliberate interest rate shock as the Fed and Bank of Canada pushed rates to record highs to crush inflation. Canada’s overnight rate neared 20 percent, driving a deep recession and severe job losses, especially in construction and manufacturing.

Once inflation broke, rates fell quickly. The Bank of Canada slashed the overnight rate through 1982. Five-year yields dropped from about 19 percent to near 10 percent within a year, with 10-year yields moving in parallel. It wasn’t a soft landing—it was a collapse in employment and output that forced rates sharply lower.

Early 1990s: A Jobless Slump Pulls Yields Down

From 1990 to 1992, tight policy going into the recession—prime rates in the mid-teens—helped trigger a sharp slowdown. Canadian unemployment rose above 11 percent and stayed high, giving rise to the “jobless recovery.”

The Bank of Canada adopted inflation targeting and cut rates by several hundred basis points. Five-year yields, once in the low double digits, fell into the mid-single digits; 10-year yields moved from above 10 percent to around 7–8 percent. A weak labour market again aligned with a prolonged drop in yields.

Early 2000s: Tech Bust, 9/11, and Fast Easing

The 2001 downturn was milder but still brought job losses -over a million in the U.S.- and stalled hiring in Canada. Central banks cut quickly: the Fed reduced rates from 6.5 percent to below 2 percent, while the Bank of Canada cut about 3.5 points.

Five-year Canadian yields fell from roughly 6 percent to 4 percent, and 10-year yields from the high-6s to near 5 percent. Even a modest recession with clear labour-market damage produced meaningful rate relief.

2008–2009: Great Recession and Near-Zero Rates

The global financial crisis caused massive job losses: U.S. unemployment hit 10 percent, and Canada’s rose from just over 6 percent to nearly 9 percent.

The Bank of Canada cut its policy rate to 0.5 percent and used forward guidance and balance-sheet tools. Five-year yields dropped from 3.5–4 percent to about 1.5–2 percent; 10-year yields fell below 3 percent. A collapse in jobs pushed policy to the lower bound and yields down the curve.

2020: Pandemic Crash and Record Lows

Public-health shutdowns sent Canada’s unemployment rate to almost 14 percent. The Bank of Canada cut rates to 0.25 percent and began large-scale bond purchases.

Five-year yields fell to around 0.3–0.4 percent, and 10-year yields dipped below 0.5 percent—record lows driven by an unprecedented employment shock.

What History Suggests for Today

With official U.S. data delayed or not entirely provided, private indicators now point to net job losses—more like the early stages of a recession than a soft cooling.

History shows that sharp U.S. job deterioration consistently pushes Canadian rates lower. If U.S. payrolls decline and Canadian growth weakens, the Bank of Canada will struggle to hold a restrictive stance. Markets would anticipate cuts, and 5- and 10-year yields would likely fall as investors price in slower growth and inflation. Across cycles, the pattern is the same: when jobs disappear, Canadian interest rates follow them down.

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