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.