Yield pick-up in Canadian corporate bonds attracts investors amid stable macro backdrop
Canada’s fixed income market is regaining investor interest, with government bonds rallying and corporate credit, particularly investment grade, drawing fresh inflows.
That’s according to the December 2025 Fixed Income Insight Report from FTSE Russell which highlights that, in the third quarter, Canada’s economy expanded at an annualised pace of 2.6%, while inflation stood near 2.2% year-on-year, comfortably within the comfort zone of monetary policymakers. This balance of steady growth and moderate inflation helps explain why the Bank of Canada’s policy rate, currently 2.25%, may remain unchanged for now.
After a period of steepening in 2024–25, the yield curve for Canadian government bonds has flattened across the 7- to 10-year maturities, returning roughly to pre-pandemic levels. At the long end, a combination of lower new issuance and sustained demand has supported prices, even as markets weigh the possibility of future rate cuts.
Canadian investment-grade corporate bonds are now delivering a more attractive yield premium over risk-free government debt than comparable US investment grade credit. Notably, longer-dated corporate issues have seen some of the most pronounced spread tightening, and sectors such as communications, industrials and financials have emerged among the stronger performers.
At the same time, high-yield corporate debt has undergone what the report calls a “major re-rating,” reflecting growing investor appetite. Provincial and municipal spreads, including those of provinces that saw earlier widenings, have narrowed as investors refocus on jurisdictions with stronger fiscal profiles.
With economic growth fair, inflation under control and central bank policy likely to stay steady, Canadian fixed income is presenting what the report calls a “larger risk premia in Canadian credit than US, relative to risk-free yields.”
For investors and wealth managers weighing risk and return, that mix — macro stability, yield potential and corporate-credit value — may make Canadian bonds among the more attractive fixed-income propositions in North America right now.
