Last week in bond markets, lower-than-expected Canadian inflation triggered a rally in Canadian bonds, pushing yields lower across the curve. The shorter-term two year Canadian government yield moved roughly 15 basis points lower to close the week off at 2.91%. The 30-year Canadian government yield climbed to around 4.04%—the highest levels since 2010, as bond investors required additional compensation to hold longer-duration debt. In the US, the 30-year treasury yield hit 5.20%—the highest level since 2007 while 10-year yields hit their highest point since January 2025. Paramount Skydance prepared financing for its acquisition of Warner Bros, as Bank of America (BoA) and Citigroup were in discussions for an approximately US$49 billion debt package. US corporate credit spreads remained near the tightest levels since the start of 2026. 

Canadian bonds rallied as lower-than-expected inflation expectations provided optimism for investors. April’s Canadian Consumer Price Index (CPI), including energy and food, came in at 2.8%, which was below the 3.1% consensus expectation. Additionally, core inflation (excluding volatile energy and food components) decelerated to the lowest levels since 2021. While investors took some solace in the softer-than-expected core metrics, longer-dated Canadian government bond yields initially moved higher on the day of the release, as energy price pressures from the Middle East war were evident—with the headline CPI exhibiting gasoline prices rising 28% higher from a year ago. 

According to Bloomberg, Paramount’s debt package will be composed of US$30 billion in investment grade bonds, US$12 billion in high-yield bonds and US$7.5 billion of loans. The Paramount deal is valued at a reported US$110 billion and is a highly anticipated financing deal this year. Third-party credit agency S&P currently rates Paramount Skydance as BB+ (non-investment grade), and has indicated they will lower the issuer’s credit rating by one notch to BB should the acquisition close as proposed, citing the higher debt-load as a contributing factor. Other rating agencies, such as Moody’s, separately assigned a B1 rating to Paramount Skydance’s new second-lien secured notes, with Paramount Global’s ratings remaining on review for downgrade. These rating agency actions from the S&P and Moody’s highlight that the post-deal close capital structure, higher-debt loads, carry meaningful credit considerations, and bond investors will likely require higher yields to compensate them for this higher perceived credit risk.

On the topic of credit risk, US corporate investment grade credit spreads, which measure the additional yield or risk premium for taking on the credit risk of corporate bond issuers over lower-risk government bonds (treasuries), declined 0.01% week-over-week to 0.72%, which was amongst the tightest levels this year and off the mid-March period when US-Iran tensions escalated. This spread compression suggests that investors have lowered the credit risk premium on investment grade issuers given the strong appetite for investment grade bonds.  These historically tight credit spreads are providing a relatively less expensive source of capital for corporate issuers as new bond issuers have come to market to lock in relatively favourable funding conditions.