What's shaping the fixed-income landscape amid global uncertainty?
Canada’s fixed income markets showed surprising resilience through July, as domestic sentiment held up despite persistent tariff worries.
The latest Canada Fixed Income Insights report from FTSE Russell states that “Canada’s economic activity remained resilient so far, with business and consumer confidence withstanding tariff uncertainty” but that the Bank of Canada maintained its steady hand, keeping policy on hold amid underpinning inflation pressures.
Equity market sentiment remained positive in July, after US trade deals with Japan and the Eurozone. The policy uncertainty index fell sharply as a result, but gold stayed close to historical highs, reflecting its broader portfolio role.
Underlying inflation weighed on markets. Inflation break-evens climbed sharply in 2025, buoyed by tariff concerns, fiscal stimulus, and rising headline prices, driving long Canadian bond yields higher
On the corporate front, spreads among Canadian investment-grade issuers tightened significantly, especially for AAA and AA credits nearing their 2021 lows, even as room remained for further tightening among A and BBB-rated issuers. But while BBB spreads tightened, they didn’t do so as dramatically as higher-quality counterparts.
High-yield markets also displayed strength; smaller in scale and with shorter durations (2-4 years), they benefited from protection amid rising rates and saw notable performance from the energy sector.
Meanwhile, in the green bond space, sovereign and corporate issuance held steady, with “currency exposure remains heavily weighted towards EUR,” a result of European issuance predominance and limited US sovereign green activity.
Looking at bond returns, the report notes that both investment-grade and high-yield credits weathered tariff-related volatility, buoyed by a risk-on equity rally that saw leadership shift toward emerging markets and Europe.
Canadian corporate bond returns were modest in July with slight underperformance by municipals and provincials. Year-to-date, corporate returns sat at roughly 2–3 percent, lagging Europe’s robust 9–10% gains.
