Last week in bond markets, key events included the Bank of Canada's (BoC) and European Central Bank (ECB) rate decisions and the May US Consumer Price Index (CPI) inflation report—set against the backdrop of a record Canadian-denominated corporate bond issuance from Amazon. Later in the week, optimism surrounding negotiations between the US and Iran triggered a rally in Canadian and US bonds, pushing yields lower, as falling oil prices reduced energy inflation concerns. The two-year Canadian government yield declined by approximately 0.10% to 2.76%.

In a show of policy divergence, the ECB delivered its first rate hike since 2023 as Canada left rates unchanged. The BoC maintained its key policy rate at 2.25% while the ECM raised its rates by 25 basis points to 2.25%. Canadian policymakers are currently navigating a monetary policy dilemma: addressing economic weakness while managing rising inflation, which is expected to hover around 3%, largely due to rising oil prices tied to the Iran war. Although the BoC intends to look past near-term inflation spikes, they have explicitly kept both rate hikes and cuts on the table depending on how trade and geopolitical conditions evolve. Comparatively, the ECB rate hike was supported by the energy shock and collateral inflationary impacts from the war in Iran. Across the border, US May headline inflation reached a three-year high of 4.2% year-over-year, primarily driven by rising oil prices. While the Federal Reserve is expected to keep rates unchanged at its upcoming meeting this Wednesday, officials continue to weigh persistent inflationary risks. 

In corporate bond news, Amazon executed a C$14 billion, five-part, maple bond offering—a Canadian-denominated bond issued domestically by a foreign entity, setting a new record for the largest corporate debt issuance in Canadian currency. These investment-grade bonds, rated AA by S&P, featured maturities ranging from three to 30 years with fixed coupons between 3.4% and 5%. According to Bloomberg, the longest-dated bond was priced to yield roughly 5.02%, approximately 1.15% above the risk-free Canadian government benchmark. This pricing underscores historically low corporate risk premiums, which have allowed companies to secure favourable financing rates.

The offer was oversubscribed with C$28 billion in orders, reflecting robust investor demand for hyperscaler debt amidst aggressive AI infrastructure spending. For Canadian investors, this deal offers an opportunity to broaden portfolio diversification, as the Canadian corporate bond market is historically concentrated in the financials (including Canadian banks) and energy sectors. Amazon’s transaction surpassed the previous record held by Alphabet’s C$8.5 billion maple bond offering last month. As capital expenditures for AI infrastructure continue to rise, major hyperscalers like Amazon and Alphabet are increasingly tapping into global bond markets to raise capital and diversify across non-US denominated funding sources, broadening their investor base.