Canada's Provincial Bonds Were Under Pressure in March, Says BMO

Canadian long provincial returns were under pressure over the past month alongside higher oil prices and a broad backup in bond yields, said Bank of Montreal (BMO).Spreads were relatively well behaved despite the risk-off sentiment stemming from the conflict in Iran, and provincials continue to outperform Government of Canada (GoC) bonds by a "solid" margin over the past six- and 12-month periods, the bank said in a Monday note.The geopolitical conflict and looming inflation impulse from higher oil prices has shifted market pricing on the Bank of Canada toward rate hikes later this year, although BMO still believes the bar for a hike is high given sluggish growth.Long spreads were mixed across the Canadian provinces over the past month, added the bank. Alberta outperformed on expectations that the recent budget, and its $9 billion deficit, will swing well into surplus in an environment of US$100/barrel oil prices.In the meantime, British Columbia continued to lag on deficit concerns and further credit rating downgrades, according to BMO. Most provinces have now tabled their FY26/27 budget.

-- Canadian long provincial returns were under pressure over the past month alongside higher oil prices and a broad backup in bond yields, said Bank of Montreal (BMO).

Spreads were relatively well behaved despite the risk-off sentiment stemming from the conflict in Iran, and provincials continue to outperform Government of Canada (GoC) bonds by a "solid" margin over the past six- and 12-month periods, the bank said in a Monday note.

The geopolitical conflict and looming inflation impulse from higher oil prices has shifted market pricing on the Bank of Canada toward rate hikes later this year, although BMO still believes the bar for a hike is high given sluggish growth.

Long spreads were mixed across the Canadian provinces over the past month, added the bank. Alberta outperformed on expectations that the recent budget, and its $9 billion deficit, will swing well into surplus in an environment of US$100/barrel oil prices.

In the meantime, British Columbia continued to lag on deficit concerns and further credit rating downgrades, according to BMO. Most provinces have now tabled their FY26/27 budget.