ZUAG.F - BMO US Aggregate Bond Index ETF (Hedged Units)

In the Q3 edition of this report, we were more constructive on our outlook for the U.S. fixed income space relative to Canada. This reflected our view at the time that the market was underpricing the risk of Federal Reserve (Fed) rate cuts in the fall, while the Bank of Canada (BoC) was likely at the end of its cycle.

Fast forward three months, we’ve largely seen this story play out. U.S. rates have outperformed as Canadian dollar (CAD)-U.S. dollar (USD) spreads have tightened aggressively across the curve.

As the global trade paradigm shifts, countries are reassessing old economic configurations.

Consider, that with the United States retreating from free trade, developed market economies can now expect the contribution from net trade to economic growth to decline in the coming years. Indeed, those same economies will now need to chart a different course as the degree of access to U.S. markets has changed dramatically.