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Market Chatter: Bank of Canada Warns Against Overreacting to Techical Recession Indicator

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Bank of Canada Senior Deputy Governor Carolyn Rogers cautioned against concluding the country is in a recession after recent data showed the economy contracted for a second consecutive quarter, Bloomberg is reporting Monday.

"Two quarters of annualized contraction in GDP does meet one definition of a recession. But simply the fact that you have to put the term 'technical' in front of it sort of tells you that you need to really look past that one indicator," Rogers told a parliamentary committee on Monday.

Bloomberg noted real gross domestic product fell by 0.1% on an annualized basis during the first three months of the year, Statistics Canada reported Friday. That follows a 1% contraction in the fourth quarter, a downward revision from a 0.6% decrease previously reported by the federal agency.

Rogers said employment data and leading indicators should also be taken into consideration, such as a flash estimate for industry-based GDP that suggested the economy grew by 0.4% in April. "I think we need to be careful not to put too much weight in any one indicator," Rogers told parliamentarians.

(Market Chatter news is derived from conversations with market professionals globally, and/or from other media sources. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)

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

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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Major U.S. Rate Rethink Has Been Primary Driver of Government of Canada Bond-U.S. Treasury Outperformance, Says National Bank

Canada's economy has suffered one disappointment after another, blunting the threat of Bank of Canada rate hikes, said National Bank of Canada.So, when it comes to economic performance and related cross-market re-pricing, it's perhaps better to be lucky than smart, writes the bank in a note. Put another way, a major U.S. rate rethink has been the primary driver of the Government of Canada (GoC)-U.S. Treasury outperformance during this seasonal sweet spot, as Canada isn't the only market making gains.Still, the anticipated cash influx may have contributed at the margin, as longer-end GoC performance has been more pronounced than most developed markets, stated National Bank.Now, with so much performance in hand, it might be appropriate to consider taking profit on a long Canada-short U.S. position, added the bank.For what it's worth, the post-Monday track record "isn't great," according to National Bank. As for Canada's seasonal curve 'flattener', results so far have been underwhelming -- both in isolation and when 'boxed' against the UST curve.Again, that looks to be down to revised BoC expectations. But National Bank is inclined to stay in a 10s-30s flattener here, with the historic record and current location both somewhat "soothing."

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