National Bank's Bond Curves Outlook With Expected Federal Reserve, Bank of Canada 2026 Divergence

01:12 PM EST, 12/15/2025 (MT Newswires) -- National Bank of Canada said it sees likely changes in policy rates at the Federal Reserve and Bank of Canada.

For nearly the past decade, the two central banks have moved directionally in tandem, but that's due to change in 2026, noted National Bank.

The bank sees the Fed continuing to ease early in the year, while the BoC will remain on hold before starting to increase policy in the fall.

In the United States, marginal easing driven still by labor market anxieties should allow for a modest rally across the curve, stated National bank. However, as conditions stabilize and fiscal policy kicks in to further bolster growth, it will prove difficult for even the most dovish FOMC participants to justify easing in the second

half of the year.

Investor attitudes about the health of the Canadian economy have quickly shifted, pointed out the bank. The modest easing bias that had persisted has quickly turned into a tightening bias.

To National Bank, patience is still warranted, but the bank's macroeconomic outlook is consistent with rate hikes being delivered in the fall.

It's also consistent with the relative Government of Canada (GoC) bond underperformance down the curve -- National Bank is expecting the GoC curve to out-flatten on a cross-market basis, though longer-end steepness should persist generally.

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