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Investment Managers Are Increasingly Overweight Canada in Global Fixed Income Portfolios, Says Desjardins

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Canada is moving up the ranks as active managers increasingly overweight the country in global fixed income portfolios, said Desjardins.

The shift appears to reflect demand for high-quality public-sector duration, as most of the increase has been concentrated in Government of Canada (GoC) and provincial bond funds, noted the bank. In contrast, Canadian corporate allocations remain meaningfully below passive benchmark weights.

The increase in Canadian exposure has coincided with declining active allocation to the United States, pointed out Desjardins. This is consistent with the bank's earlier work showing a broader slowing of fund flows into U.S. fixed income beginning in 2025. The U.S. Treasury market still faces questions around debt sustainability and a more price-sensitive buyer base.

Canada has benefited against this backdrop, as investors appear to be treating Canadian public-sector duration as a credible high-quality alternative to USTs, although with a much smaller market. The term premiums embedded in longer-term GoC bonds are the lowest among the developed markets Desjardins tracks, suggesting confidence in Canada's fiscal outlook.

Overweighting Canada relative to the United States had mixed results last year but has been more clearly positive in 2026, added the bank. This year, nearly all parts of the Canadian curve have outperformed USTs even when converted into US dollars (USD).

That performance should persist, according to Desjardins. Markets continue to price in rate hikes this year, but the economic backdrop points to a Bank of Canada that is more likely to remain on hold. CUSMA negotiations could even tip the balance of risks towards rate cuts.

At the long end, movements in global term premium should continue to put upward pressure on yields, it said. However, if investors become more concerned about debt sustainability, Canada's relatively favorable fiscal position should help depress the term premium further.

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