Macro Notes - Canadian ETF Flows Rotate To Fixed Income
October 22, 2026
Canadian investors have been moving back into fixed income ETFs. The rotation emerged in August, when bond ETFs nearly matched equities’ share of flows. After moderating in September, fixed income captured approximately 50% of flows in October and moved ahead of equities for the first time this year (Chart 1).
The appeal is straightforward – higher yields have restored the income appeal of bonds. More importantly, the composition of flows is equally telling. Demand remains concentrated in investment-grade and short-duration strategies, suggesting that investors are looking to capture income without taking excessive credit or interest-rate risk.
We think the caution is warranted as the Bank of Canada still faces an uncomfortable inflation backdrop. The latest consumer survey showed that long-term inflation expectations among consumers is now the highest it’s been since early 2022, with trade tensions and high energy prices cited as the main concerns. Together, the surveys support a hawkish bias and suggest that another rate increase is a matter of timing rather than scale.
This is consistent with our Q4 Macro Regime Model Portfolio. We remain constructive on Canadian equities through the BMO S&P/TSX Capped Composite Index ETF (ZCN), while the BMO Discount Bond Index ETF (ZDB) remains our core Canadian bond exposure. In other words, we see value in Canadian fixed income but would avoid making an aggressive duration call until the inflation and policy outlook becomes clearer.
Chart 1: Share of Canadian ETF flows by asset class (%)
