3:00 Monday vs 3:00 Friday
2yr 99-28 vs 99-31; 4.049% vs 4.012%
5yr 99-23 vs 99-28; 4.184% vs 4.146%
10yr 99-06+ vs 99-12; 4.473% vs 4.451%
30yr 100-05 vs 100-03+; 4.989% vs 4.992%
2/10 42.152 bps vs 43.867 bps
5/30 80.252 bps vs 84.507 bps
Related Articles
Treasury
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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Treasury
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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Treasury
Poor Q1 GDP Data Implications for The Bank of Canada, Notes Scotiabank
Friday's Q1 gross domestic product figures in Canada, including revisions, stunned everyone in consensus and at the Bank of Canada, said Scotiabank.Consensus had forecast about 1.5% quarter-over-quarter seasonally adjusted annual rate (SAAR) growth with a trimmed range between about 1% to 2% and the BoC's projection in the April Monetary Policy Report was 1.5%, noted the bank. Instead, GDP was basically unchanged at 0.1% quarter-over-quarter SAAR decline. There were also negative revisions.Markets reacted to the readings by edging cumulative pricing for rate adjustments this year to just a 25bps hike by year-end, with much of a hike starting to be priced in September and October BoC meetings, stated Scotiabank. Markets foresee about 50bps of cumulative hikes into 2027.The BoC will likely lean on the argument that GDP figures point to somewhat more slack than anticipated by the central bank and everyone else, as growth underperforms potential GDP growth that is likely around 1%, added Scotiabank. This will give the BoC more room to assess forward-looking developments like the impact of the broadly based surge in commodities upon growth and inflation, plus ongoing additions to fiscal policy contributions to growth.Scotiabank is still of the view that the BoC will hike this year. The bank previously had a Q3 tightening of 50bps and then +25bps in Q4 before stopping at 3%. Scotiabank leans toward reversing that pattern with hikes no earlier than September into Q4. The BoC's job is inflation control and that has a multitude of drivers.Regardless, Scotiabank stands by its record versus consensus since the bank shifted to projected hikes by late 2026 in last November's forecast, while everyone else was talking cuts.Judging by the inflation-adjusted policy rate, the BoC has been passively taking out stimulus by looking through expected inflation resulting from pre-war and wartime influences on inflation risk. The real policy rate has dropped sharply, according to the bank. It would be policy error to add to this by cutting the nominal policy rate.
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