Canadian long provincial bond returns weakened over the past month, reflecting a broad-based rise in global yields, according to BMO Capital Markets in a note.
Government of Canada (GoC) bond yields moved higher across the curve in August, with the 10-year yield rising 8 basis points and the 30-year yield increasing 10 bps to its highest level since 2008, just ahead of the global financial crisis, wrote the bank in Thursday's note.
The Bank of Canada remained on hold at Wednesday's policy meeting, and BMO continues to expect the central bank to remain on the sidelines through 2026 as trade-related economic risks move back to the forefront.
Meanwhile, long provincial spreads were broadly unchanged in August, though risk appetite has softened heading into September amid higher oil prices and increased equity-market volatility. Despite the recent weakness, long provincials continue to outperform GoCs over both six- and 12-month horizons, added the bank.
"Provincial spread performance was mixed in August, with few major moves," wrote BMO in the note.
Alberta stood out, supported by a stronger budget outlook and higher oil prices, bringing its spreads roughly in line with Ontario's, according to the bank. Quebec's fiscal outlook has also improved ahead of the fall election, helping its spreads tighten modestly versus Ontario in recent months.