Government of Canada (GoC) bonds are likely to underperform Treasuries over the next year, as the Bank of Canada is unlikely to begin raising rates until 2027, according to National Bank of Canada in a Wednesday note.
The bank continues to see first-quarter 2027 as the more likely starting point for rate hikes, which is slightly later than priced into Overnight Index Swap markets, but well ahead of Bloomberg's median forecast for no tightening until the second half of 2027.
National Bank thinks the BoC will need more time to gain confidence that the country's economic recovery is sustainable.
With economic slack likely to keep underlying inflation in check and third-quarter gross domestic product data not due until late November, the bank sees little chance of the conditions for BoC tightening being met tnis year.