03:36 PM EDT, 06/04/2024 (MT Newswires) -- Canadian long provincial returns were positive in the past month, as 30-year Government of Canada (GoC) yields fell almost 20 bps in May, said Bank of Montreal (BMO).

Long provincial spreads also tightened modestly by just under 3 bps, helping the sector slightly outperform GoCsm wrote the bank in its Provincial Credit Watch note of June. Provincials continue to lead GoCs, although slightly, on a six-month basis, and are outperforming by almost 3 ppts over the past year.

All eyes are on the Bank of Canada (BoC), with a 25 bps rate cut expected on Wednesday, stated BMO. While there is still some uncertainty over that move, financial markets have more than fully priced in 25 bps of easing through the July 24 policy meeting, reflecting earlier and more aggressive easing this year versus the United States Federal Reserve.

Canadian inflation has simply melted more meaningfully than that in the US and the economy has proven to be more rate sensitive.

Long provincial spreads were mixed across jurisdictions over the past month and Canada has entered a quiet period with

respect to fiscal updates, added the bank. Alberta and Newfoundland & Labrador outperformed in May despite a continued pullback in oil prices. Alberta assumed $74/barrel in the FY24/25 fiscal plan, so current market conditions are still in line with their budget assumptions.

Most other Canadian provinces, including British Columbia (BC), Ontario and Quebec underperformed slightly in the month.