Bank of Montreal Capital Markets says investors should anticipate a move higher in the bond market.
Very simply, the banks take is the Canadian economy has turned a corner and is performing much better than markets are pricing.
They say there will be a readjustment in terms of prices selling off and yields or interest rates moving higher.
There are a couple of angles to this story though; medium to long-term debt markets are underpricing Canadian economic growth now that the worst is behind us following Alberta’s wildfires last year.
Secondly, although a rate hike is not forecasted from the Bank of Canada until mid-2018; Governor Stephen Poloz’s dovish message will be difficult to maintain as it becomes more obvious the Canadian economy is on a stronger footing.