07:59 AM EST, 01/03/2025 (MT Newswires) -- Canada sovereign bonds outperformed United States Treasuries in 2024 due to a weaker economy, lower inflation and aggressive central bank easing, noted Bank of Montreal (BMO).

Barring a trade war, however, it could lag this year as the economy picks up, wrote the bank in a note. After rising 12 bps to 3.23% in 2024, the 10-year rate is expected to decline modestly to 3.0% by yearend.

Faced with historically wide interest-rate spreads with the US and staring down the double barrel of punishing tariffs

and tough talks to renew the USMCA, the Canadian dollar (CAD or loonie) is a "proverbial sitting duck," stated BMO.

The loonie depreciated 7.9% in 2024 to a near two-decade low of 69.5 cents US. Of some consolation, it weakened only modestly on the crosses, pointed out the bank.

This is largely a story of US dollar (USD) supremacy, as an outperforming US economy is generating more

attractive returns than in other countries, including Canada, drawing capital to that country. BMO suspects the loonie will remain on the defensive for a while, though if the country successfully sidesteps tariffs, it could climb toward 72

cents US by yearend.