11:52 AM EST, 03/05/2024 (MT Newswires) -- Long provincial returns were negative in the past month as Government of Canada (GoC) yields edged higher and spreads widened modestly, said Bank of Montreal (BMO).

The economy has held up well into 2024 and the bank has modestly upgraded the real gross domestic product (GDP) growth outlook for the year, while BMO predicted the Bank of Canada (BoC) to remain on hold at Wednesday's policy meeting.

Budget season is also underway, and the bank was seeing some clear differences in fiscal policy shaping up among the Canadian provinces, it wrote in its March Provincial Credit Watch note. Over the past six months, long provincials are still outperforming GoCs by a full percentage point and they are outperforming by two ppts over the past year.

Long provincial spreads were mixed across jurisdictions over the past month as 2024 budgets began to roll out, stated the bank. British Columbia (BC) underperformed, widening by 2.5 bps in the 30-year sector. That came alongside a budget that was filled with new spending, higher borrowing and no plan to balance the books.

On the flip side, Alberta spreads were steady, with the 2024 budget forecasting balanced books for the foreseeable future, and spending plans limited to inflation plus population growth. The budget was built on $74/barrel WTI oil, which is a reasonable planning assumption at this stage, according to BMO.

Despite two budgets moving in very different directions, long Alberta spreads continue to trade back of BC by roughly 6 bps, which is about the middle of the range seen over the past three years.