Can Canadian fixed income still offer stability amid higher inflation?

“Prior to 2022, that great repricing, we lived in a world where risk free rates were very low credit spreads were very high. In that world you want to invest in corporate bonds and, and not in government bonds,” Johnson says. “Fast forward to today we have the exact opposite. We have high risk-free rates and very tight credit spreads. When I think of a risk reward, that leads us to own high-quality corporate bonds. Things that are basically government, like infrastructure and banks. No high yield. You’re getting your risk-free rate plus a little bit of credit spread premium.”

What inflation, sluggish growth mean for the BoC

Despite a more rapid slowdown in inflation than the United States, Canada has been subject to some of the same macro forces that have kept inflation higher. That includes the oil shock from the Iran war, as well as the rapid price increases for certain goods and technical components brought about by the AI infrastructure buildout. Underneath that is the global trend towards reshoring, redundancy, and renewal of domestic manufacturing, all of which is inflationary.

While Canada faces upward pressure on inflation from these forces, there are some pressures on the country’s economic growth. While Canada fell into a technical recession over Q4 of 2025 and Q1 of 2026, Johnson notes that the Bank of Canada (BoC) is maintaining a level of accommodative monetary policy that makes a sustained recession highly unlikely. Moreover, the infrastructure and defense spending programs that have begun under Prime Minister Carney ought to be accretive both to growth and inflation.

There are ongoing risks to GDP growth that Johnson sees. Beyond the trade war with the US, he sees a wider demographic problem caused by Canada’s aging population and exacerbated by recent curbs to immigration. As the baby boomer generation continues to retire, they will create a growing economically unproductive consumer class, effectively a stagflationary cohort in Canada. He argues that without increases to immigration, Canada will head down the road of Japan.

Put together, these factors imply to Johnson that the BoC will hold rates steady on Wednesday during its scheduled interest rate decision. As the primary drivers of inflation in Canada are on the supply side, there’s little that the demand curb of a hike can do to control them.