TSX Composite Falls 0.7% as Canadian Banks Weaken and U.S. Treasury Yields Rise

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  Stocks and Investing on Mon, Dec 01st, 2025 by Toronto Star
      Locale: CANADA

Toronto Stock Exchange Composite Dips as Bank Losses Loom and U.S. Yields Surge

The Toronto Stock Exchange (TSX) Composite index slipped by 0.7% on Monday, a fall that was largely driven by sharp declines in Canada’s banking giants and a broader market sentiment that was souring on the back of rising U.S. Treasury yields. The drop sent ripples through Canadian equities and echoed a similar slide in the U.S. market, where the S&P 500 slipped 0.4% after investors weighed the implications of a steepening yield curve.

The Banking Slide

The most pronounced weakness came from the banking sector, where four of Canada’s largest lenders—Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Bank of Montreal (BMO), and Canadian Imperial Bank of Commerce (CIBC)—all fell between 1.2% and 1.8%. Analysts cited a combination of higher credit risk, tightening credit conditions, and the threat of a looming bank‑specific loss package that could erode earnings.

RBC’s shares dropped 1.6% after the bank disclosed that its projected loan loss provisions for the fourth quarter would be larger than anticipated, citing tighter credit conditions amid a higher‑interest‑rate environment. The bank’s chief financial officer noted that rising borrowing costs would compress net interest margins in the near term, which could squeeze profitability as the economy slows.

TD followed suit, falling 1.4% after the brokerage and wealth‑management arm reported a modest decline in revenue, citing softer trading activity. BMO and CIBC were also dragged down by concerns over loan loss reserves and the potential impact of a tightening credit cycle.

Bank analysts from RBC Capital Markets and Nomura warned that the higher yields on U.S. Treasuries could further erode the banks’ earnings, as the spread between the yield on their loans and the cost of funds narrowed. “The narrowing net interest margin is a headwind for the entire banking sector,” said Nomura’s senior equity strategist. “If the Federal Reserve keeps rates high, banks will need to tighten lending, which could exacerbate the loan‑loss pressure.”

Yield‑Driven Sentiment

The rise in U.S. Treasury yields, which climbed 4.2 basis points to a 10‑year yield of 4.68% on Monday, was a key driver of risk‑off sentiment. As yields climb, the present value of future cash flows falls, and valuations of both equities and fixed‑income assets decline. This dynamic was evident in the U.S. market as the S&P 500 fell 0.4% and the Nasdaq slid 0.6%.

The yield increase was the result of a steady tightening cycle by the Federal Reserve, which has raised rates in a bid to tame inflation. The Fed’s March meeting minutes revealed a “highly accommodative stance” toward the economy, but signaled that the next rate hike might not be imminent. However, the continued climb in yields suggests that investors are pricing in a more hawkish stance from the Fed.

Canadian Dollar Weakness

The Canadian dollar (CAD) was also dragged down, falling 1.3% against the U.S. dollar on Monday. The weaker CAD was attributed to the widening yield differential between Canada and the United States, as the U.S. Treasury yields rose while the Bank of Canada has yet to change its policy rate. The Bank of Canada’s policy statement, which can be found on the Bank’s website, emphasized that the central bank remains patient in its approach to rate cuts, citing the need for a “data‑driven” path forward.

Other Sector Movements

While banks and energy lagged, the mining sector gave a small lift, up 0.5%, thanks to a rebound in copper prices. The consumer staples sector fell 0.9% on concerns over slower growth in the Canadian economy. Technology stocks were relatively muted, trading in a range that reflected uncertainty about the impact of rising rates on growth valuations.

The TSX Composite, which is comprised of 500 Canadian securities, closed at 19,120 on Monday, down from 19,400 the previous day. The index’s decline represented a 0.7% drop, marking the fifth consecutive session of decline since the week’s start.

Market Outlook

In an interview with a local Bloomberg reporter, a senior analyst at Canada’s largest investment bank noted that the banking sector is still in a “tightening cycle” and that the risk of a wider economic slowdown remains. “We see the yields as a barometer for the potential slowdown,” he said. “If the Fed remains hawkish, Canadian banks will feel the squeeze. We expect a cautious approach in the coming months.”

The article’s broader message is clear: as U.S. yields rise, Canadian stocks—particularly banks—are feeling the pressure. With the Bank of Canada’s stance remaining unchanged, the Canadian dollar’s decline and the banking sector’s slide may continue to shape the market environment in the coming weeks.

The full article, available on The Star’s business section, provides further context by linking to the official Bank of Canada policy statement and a live update of the TSX Composite index. It also references a recent earnings report from RBC, which details the bank’s adjusted net income and loan loss projections, giving readers deeper insight into the forces at play in Canada’s financial sector.