RBC Fixed Income on bond sell-off, BOE, and credit (with Tom Mackenzie, Guy Johnson, Anna Edwards)

Fade the bond rally; it's a technical short squeeze, not a trend change. The market is finally waking up to the US fiscal doom loop, which will keep upward pressure on long-end yields. Corporate credit is the next shoe to drop. Spreads are dangerously tight given heavy issuance and higher real yields. We are underweight, expecting a material widening. The BOE is a dovish mispricing; they are far more constrained than the market believes and won't deliver priced-in hikes.

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RBC 8.0
Investment Bank $1200.00B
Rufaro Chiriseri 8.0

RBC Fixed Income on bond sell-off, BOE, and credit (with Tom Mackenzie, Guy Johnson, Anna Edwards)

yields

We think yields and spreads continue to go higher.

4/28/2026 10:28:30 AM	medium term cautious up	20 days later	+5.64%	+2.82%
4/24/2026 9:54:32 PM	medium term cautious up	21 days later	+6.62%	+3.31%
4/13/2026 9:11:49 AM	medium term up	20 days later	+4.46%	+4.46%
3/30/2026 7:24:50 PM	medium term cautious up	20 days later	-1.41%	-0.71%
12/24/2025 8:45:08 PM	medium term up	20 days later	+0.58%	+0.58%
10/29/2025 8:40:43 PM	medium term cautious down	20 days later	+0.98%	-0.49%
10/14/2025 1:23:21 AM	medium term cautious up	20 days later	+1.06%	+0.53%
10/2/2025 4:24:17 PM	short term cautious down	5 days later	+0.24%	-0.12%
9/30/2025 2:00:39 AM	short term cautious up	5 days later	+1.36%	+0.68%
9/16/2025 5:59:07 PM	short term cautious down	5 days later	+1.64%	-0.82%
9/11/2025 2:15:18 AM	short term cautious down	5 days later	+0.37%	-0.18%

Show all yields results

Tom Mackenzie

Asks if the reprieve in bond markets is short-lived.
Rufaro Chiriseri

The past week's move is partly an unwind of crowded shorts. Real yields tracking higher are feeding into the fiscal story, especially for the US, which was largely ignored through 2025.
Tom Mackenzie

Asks if the long end of the US Treasury curve is starting to look attractive.
Rufaro Chiriseri

RBC has been underweight the long end due to fiscal concerns. Yields were too suppressed given the deficit and the Fed on hold. The 30-year yield at levels not seen since the GFC is now more interesting, but they are happy to be patient on the shorter end.
Guy Johnson

Asks if the market is overpricing BOE hikes.
Rufaro Chiriseri

Yes. Policy is already restrictive at 3.75%, the labor market is weaker than in 2022, and businesses expect lower wages and employment in a year. The BOE doesn't need to follow through with hawkish policy; financial conditions have already tightened.
Anna Edwards

Asks if the market's pricing of 54bps of cuts through 2026 is right.
Rufaro Chiriseri

RBC's base case is for one cut around July. The previous pricing of 2.5 cuts for 2026 alone seemed excessive.
Anna Edwards

Asks about the factors moving the long end of the curve and building inflation in the US.
Rufaro Chiriseri

The big reaction is from crowded short positioning and the fiscal element coming into play. Higher yields worsen the deficit, and higher coupon issuance is likely for next year. These factors will continue to plague the long end.
Tom Mackenzie

Asks when corporate credit becomes vulnerable given tight spreads and heavy issuance.
Rufaro Chiriseri

Issuance is close to 2020 levels. The tech sector is issuing debt at four times its average pace. The equilibrium for spreads needs to sit higher given the inflation outlook and higher real yields. There is room for spreads to move higher.
Guy Johnson

Asks if there is a big catch-up still to come in credit spreads vs government markets.
Rufaro Chiriseri

Yes, there is still quite a bit of a move in credit spreads through the rest of the year. RBC is happy to be somewhat underweight credit.

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