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- Bank of Canada likely to deliver at least 2 rate cuts (50 bps+) before June 2026 to support housing, slowing population-driven growth, and a softening labour market
- Market currently prices precisely ZERO cuts over that horizon → 50+ bps of easing remains completely unpriced
- The 2-year sector is the cleanest and most sensitive part of the curve to express this view
2. Short U.S. 2-Year Treasury Notes: Expect U.S. 2-year yields to rise, prices to fall
- After the widely expected December 2025 Fed cut, the Fed is likely on hold until at least May 2026 (possibly longer depending on new Fed leadership)
- Market is currently pricing ~20-30 bps of additional cuts in the first 4-5 months of 2026 → this looks too aggressive
- Unwinding of these priced-in cuts should push 2-year yields higher / prices lower; tactical opportunity with attractive risk-reward
3. Overweight Emerging Markets FX Carry (especially high-yielders: BRL, MXN, ZAR)
- Carry performs best when U.S. rates and the U.S. dollar remain range-bound and do not spike sharply higher; both have been choppy but contained since early September 2025 → constructive backdrop expected to continue.
- Classic carry setup: borrow cheap in USD (or JPY) and collect significantly higher yields in select EM currencies with solid fundamentals
- Special angle for Canadian investors: CAD is a high-beta G10 currency that tends to move in the same direction as EM FX; adding EM carry gives Canadian-based portfolios a natural hedge (when EM sells off, CAD usually sells off too) while picking up attractive yield; most Canadian investors remain structurally underweight this asset class
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DISCLAIMERS: This text AI generated, human edited. The information provided in this podcast is for informational purposes only and does not constitute financial, investment, or professional advice. The views expressed by the host and guests are their own and do not necessarily reflect the opinions of any organization or company. The host and guests may maintain positions in any securities discussed on the podcast. Always consult with a qualified financial advisor or professional before making any investment decisions.
