National Bank said it remains constructive on the shorter-term Government of Canada (GoC) sovereign bond yields as tighter policy is pushed back relative to the market's expected timeline.
While the bank stated it is skeptical that longer-term yields will moderate meaningfully, that's more a function of global dynamics.
On a relative basis, in other words, versus United States Treasuries, long-term GoC bonds should hold up well, supported by a well-established and growing fiscal advantage and supply technicals, according to National Bank.
Canadian data has continued to disappoint in 2026, pointed out the bank. The recovery it saw briefly late last year is now a distant memory.
Back then, expectations for tighter policy were justified by a recovering jobs market, resilient growth and warm core inflation.
Today's hike expectations have more to do with oil-driven price pressures than underlying economic strength. Despite markets flagging the risk of near-term hikes, National Bank continues to judge that relatively well-contained inflation and lingering economic slack will allow the BoC to look through the shock, pushing an eventual return to neutral into 2027.