BoC: Fiscal update keeps rate path steady – TD Securities

TD Securities strategists Andrew Kelvin, Robert Both and Emma Lawrence note that Canada’s Spring Economic Update leaves the FY26-27 deficit projection near Budget 2025 levels as stronger revenues fund CAD 37.5bn of new measures. The Debt Management Strategy keeps GoC bond issuance at CAD 298bn, while T-bill stock is trimmed. They maintain expectations for the Bank of Canada (BoC) to hold policy through 2026 and turn neutral in early 2027, remaining constructive on Canadian fixed income.

BoC seen on hold through 2026

"With a lack of any material change from the 2025 budget, the Spring Economic Update didn't make too big of a splash in Canadian rates as levels remain unchanged and Canada continues to underperform versus the US. We maintain our base case on the BoC holding throughout 2026 and remain constructive on fixed income heading into June 1st."

"The updated Debt Management Strategy (DMS) reaffirmed the government's bond program from the Fall Budget; with the projected budget deficit essentially unchanged, there was no reason to make changes to the bond program. GoC bond issuance this year is still projected at $298bn, and the breakdown in issuance was also reaffirmed: $110bn in 2s, $80bn each in 5s and 10s, $24bn 30s, and $4bn worth of green bonds."

"The Spring Economic Update felt more like a small bump in the road rather than anything material, with front-end rates moving a bp lower (if even that) in the aftermath of the announcement. The lack of any extraordinary changes to deficit projections and a stable bond program likely kept the reaction muted, alongside the increased focus on trading around geopolitical headlines."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)