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Canadian Provincial Bonds Continue to Outperform Sovereign Bonds, BMO Says

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Canadian long provincial bonds have maintained their strong relative performance despite recent stability, with a 2.6% year-to-date total return and an advantage of just under one percentage point over Government of Canada (GoC) bonds, according to a Bank of Montreal Capital Markets (BMO) note earlier this week.

This outperformance has been driven by spread narrowing, with long provincial spreads tightening by around four basis points against GoCs since the end of last year, wrote the bank in its July edition of the "Provincial Credit Watch" note published on Monday.

"While still drubbed by other asset classes like equities, provincial investors have at least been able to pick up some extra return," stated BMO Chief Economist Robert Kavcic in the note.

BMO continues to forecast the Bank of Canada to remain on hold through 2026.

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