Four Ways to Play the Federal Budget
Summary
- Canada’s latest budget marks a major pivot toward long-term growth, with C$115B in infrastructure spending alongside substantial allocations for defense and housing. Alongside those investments, the Feds are encouraging private sector participation via regulatory streamlining and tax incentives.
- Though deficits are expected to climb in the coming years, Government of Canada (GoC) bond supply is expected to remain in-line with forecasts for the current year and to come in below this year’s issuance pace for the next fiscal year.
- If things go according to plan, investors should watch for several sectors to outperform. Indeed, key ETF plays span infrastructure (BGIF, ZGI), industrials/energy (ZIN, ZEO, ZUT), banks (ZEB, ZWB), and government bonds (ZGB, ZFL).
We’ll admit that in our prior life as macro strategists on the trading floor, we generally dreaded the release of the Canadian fiscal budget the most. More often than not, it meant staying late into the evening combing through pages of partisan forecasts, generous assumptions and debt management strategies to have quick takes and trade recommendations ready for clients and our trading desks. Unfortunately for us, most budgets came and went without much of interest to say.
But now? We’re not so fussed about near-term trading opportunities. Instead, we care more about the implications over the next several quarters and years. And from that lens, this was potentially the most transformative fiscal budget release in years.
It’s been close to two weeks since the release of the budget. That’s plenty of time for red-eyed strategists to reflect over the salient points and what they mean for our readers. Below, we provide four of the most market-relevant points and how to play them via our suite of ETFs:
i.) Spending on infrastructure, defense and homes are the focus: As expected, the Feds are committing to spend a lot of money in a short period of time (C$115bln over five years) to build out major domestic infrastructure. In fact, last week, we received the specifics on six major projects that PM Carney is recommending to be fast-tracked through the ‘Major Projects Office’.
For defense and housing, the budget proposes net spending of $59bln and $13bln over the next five years (with the latter also boosted by reductions to GST for first time home buyers that qualify). None of this was unexpected, and the amounts appear to be in-line with most projections.
Of course, through a mix of improvements in regulatory efficiency and tax incentives (see point ii below), the Feds are hoping for a healthy degree of private sector participation. This should be beneficial for funds that track firms involved in the defense and infrastructure spaces. As such, our bets for funds that are best placed here include:
ii.) Tax incentives to play a potential role: As part of the budget, Prime Minister Carney’s team also loosely outlined a plan to enable $1trln in investments over the coming five years.
A big part of that plan is tax incentives that allow for immediate expensing for machinery and equipment used in manufacturing, processing and clean energy (including low-carbon LNG facilities). Additionally, the accelerated capital cost allowance (CCA) plans will allow for the immediate expensing of productivity-enhancing assets and research capex related to science and experimental development. The PM Office expects that this should reduce Canada’s marginal effective tax rate to 13.2% - which would be well below the OECD average.
It’s tempting to say that this plan should benefit sectors like industrials, materials, energy and technology, but the expected benefits don’t appear to be that large (at around $1.5bln over four years). Additionally, the reality is still that an uptick in domestic investment is going to require a more stable economic backdrop that allows for firms to plan out important capex projects for the coming years.
Indeed, greater clarity around Canada’s trade relationship with the U.S. will go a long way to ensuring that the private sector spending picks up as planned. If that does happen, expect this to be supportive for funds like:
iii.) Banks should benefit too: As suppliers of capital, banks stand to benefit from the expected uptick in loan demand as part of points i) and ii). What’s more is that the budget also outlined several initiatives that will ease capital requirements on infrastructure investments – thereby freeing up room for banks to lend for them.
Additional growth in loan books, plus potential opportunities for the Feds to work with capital market divisions on capital deployment, should be constructive for Canadian banks. This should be beneficial for:
iv.) GoC bond supply will remain steady: On the debt management strategy front, things weren’t nearly as bad as expected. Thanks to a C$12bln improvement in the budget balance from last fiscal year, and a C$20.4bln benefit from a non-budgetary item related to pension accruals, the wider deficit for this year will not translate to an uptick in coupon supply for this fiscal year (relative to expectations). Also, coupon supply for 2026/27 is expected to moderate slightly from this year.
The lack of growth in coupon supply is expected to endorse a ‘flattening’ trend for the CAD curve. At the margin, this removes a key risk that we’ve been eyeing for the long-end for some time now.
From a tactical perspective, this is supportive for duration and broad government bond exposure via:
To summarize, this was easily the most important budget in years with the potential to bring about transformative change. Of course, this will take time which means that market-related impacts are likely not to develop as soon as some would like. Nevertheless, the above four points chart the path towards actionable ideas for our readers. We’ll keep an eye out for meaningful shifts that could trigger entry points for trades that we’ve mentioned above.
Performance (%)
| Ticker | Year-to-date | 1- month | 3- month | 6- month | 1-year | 3-year | 5-year | 10-year | Since inception | Inception date |
| ZEB | 30.94% | 2.66% | 15.69% | 32.80% | 36.50% | 21.07% | 21.51% | 13.60% | 12.37% | 10/20/2009 |
| ZWB | 23.94% | 2.57% | 12.98% | 25.99% | 28.72% | 15.80% | 15.98% | 10.35% | 9.67% | 1/28/2011 |
| ZGB | 3.15% | 0.68% | 3.09% | 1.84% | 3.92% | 4.39% | -0.68% | — | 1.64% | 3/2/2018 |
| ZFL | -1.07% | 0.94% | 3.99% | -0.91% | -1.57% | 1.64% | -5.92% | -0.41% | 2.11% | 5/19/2010 |
| ZUT | 24.72% | 6.84% | 9.78% | 17.96% | 25.94% | 8.89% | 7.58% | 10.61% | 8.34% | 1/19/2010 |
| ZGI | 2.79% | -3.24% | 0.17% | -0.28% | 5.05% | 9.38% | 11.60% | 8.01% | 11.24% | 1/19/2010 |
| ZEO | 9.92% | -2.70% | 4.48% | 15.17% | 9.63% | 10.58% | 32.71% | 7.36% | 2.50% | 10/20/2009 |
| ZIN | 16.43% | 4.90% | 8.64% | 32.44% | 22.45% | 17.63% | 16.58% | 12.21% | 11.68% | 11/14/2012 |
| BGIF | 15.16% | 0.14% | 4.47% | 9.55% | 16.60% | — | — | — | 17.31% | 6/27/2023 |
Bloomberg, as of October 31, 2025.
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