07:00 AM EST, 01/09/2025 (MT Newswires) -- Relative to the United States, Canadian long-term interest rates have been turned on their head, said Bank of Montreal (BMO).

In the decades before the late 1990s, Canadian long-term bond yields were typically one percentage point above their US counterpart, or even higher, noted the bank.

That all changed after Canada got its fiscal house in order in the late 1990s, and also as Canadian inflation began steadily coming in a bit below US trends, stated BMO. For the next 25 years, spreads tended to toggle around the zero line and were still slightly positive as recently as mid-2022.

However, in recent weeks and days, those spreads have gone to new

extremes, dropping to roughly -140bps, while -150bps for 30-year

bonds), pointed out the bank.

According to BMO, this reflects factors in both economies: a) US yields are forging higher on renewed inflation concerns amid still-solid growth, as well as nagging fiscal concerns in light of an ambitious policy slate from the incoming administration of President-elect Donald Trump.

b) Canadian yields, while up from the September lows, are staying

extremely subdued owing to the tariff threat, and the possibility that

the Bank of Canada will need to respond even more aggressively.

BMO pointed out that the fixed income is the one market that has largely priced in the tariff risks.