Fresh labour data from Canada and the United States are reinforcing expectations that the two economies will follow different paths into 2026. While job creation remains resilient in Canada, broader growth trends suggest the U.S. will continue to outperform, shaping central bank decisions on both sides of the border.
BNN Bloomberg spoke with Earl Davis, head of fixed income and money markets at BMO Global Asset Management, about how employment trends, inflation risks and credit conditions are influencing rate expectations and portfolio positioning heading into 2026.
Key Takeaways
- Canada is expected to post modest growth in 2026, while the U.S. economy continues to outperform, supported by resilient consumer spending and easier financial conditions.
- Strong Canadian employment data support a near-term hold from the Bank of Canada, with any shift toward easing dependent on labour or growth deterioration.
- The U.S. Federal Reserve is also expected to remain on hold in the short term, with one possible insurance cut later in 2026.
- Credit is favoured over long-duration bonds, reflecting caution around 20- and 30-year maturities amid fiscal and geopolitical uncertainty.
- Risk assets are likely to remain volatile but supported by abundant cash on the sidelines and a neutral-to-easing U.S. policy bias.
Read the full transcript below:
ANDREW: Statistics Canada says the economy added 8,200 jobs in November, pushing the unemployment rate up to 6.8 per cent. In the U.S., hiring slowed in December, with employers adding an estimated 50,000 jobs. Let’s get more from Earl Davis, head of fixed income and money markets at BMO Global Asset Management. Earl, thanks very much for joining us. Let’s start with the Canadian job numbers. What stood out to you?
EARL: What stood out is what I would call puzzlingly positive. We continue to get good job numbers out of Canada, which, from our team’s perspective, we’re still trying to fully understand in terms of the underlying drivers. Our view remains that Canada will underperform the U.S., and there’s still a great deal of uncertainty. Typically, that’s not an environment where you see strong job creation, but we are seeing it, particularly on the full-time side. Our view is that this is, in part, a spillover effect from the U.S., which continues to perform very well from a growth perspective.
ANDREW: When you look at Canadian employment data, do you focus on the monthly figures, or do you smooth it out over several months?
EARL: We focus on the trend. We look at whether the six-month average is higher than the three-month average and how the numbers are evolving month to month. That helps smooth out the volatility. The trend is clearly positive from a jobs perspective, which is good for the economy and good for household finances, including spending and mortgage payments. That fits with our view that Canada will muddle along — positive growth, but not nearly as strong as what we expect in the U.S.
ANDREW: There was a significant expansion in the labour force in December, more than 80,000 people. Any thoughts on what’s driving that?
EARL: I think it reflects increased comfort around hiring and job-seeking. We know there’s hiring in areas like restaurants, which have been understaffed. While tariff uncertainty remains, including CUSMA discussions this year, there’s a sense that we’re past peak uncertainty. From a retail and restaurant perspective, people seem more comfortable entering the labour force and looking for work. That’s why the unemployment rate rose to 6.8 per cent — it was driven by higher participation, which is a positive reason for the increase, rather than job losses.
ANDREW: Turning to the U.S., traders seem convinced the Federal Reserve won’t cut interest rates this month. Do you agree?
EARL: We do. Normally, softer employment numbers would support rate cuts, but we also saw stronger wage growth. Expectations were for wages to rise 3.6 per cent, and instead we saw 3.8 per cent. That reinforces underlying inflation pressures. Between resilient employment and solid growth, we think the Fed will remain neutral for now.
ANDREW: The U.S. also appears to have relatively easy credit conditions, particularly for companies. Is that fair?
EARL: Yes, for a couple of reasons. Interest rates are already lower than they were last year, which reduces borrowing costs. Looking ahead to later this year, we also expect regulatory changes around bank capital in the U.S., which would allow banks to lend more. That creates a multiplier effect for the economy. So credit conditions should become easier by the end of the year, but even today, the cost of credit is lower than it was previously.
ANDREW: Let’s look at the bond market. If we use TLT, the ETF that tracks long-term U.S. Treasuries, as a proxy, would you be a buyer right now?
EARL: No, we’re not particularly positive on TLT because it’s heavily weighted toward 20-year and longer bonds. We’re less constructive on 30-year bonds. We prefer five- and 10-year maturities. Right now, we’re slightly underweight duration, though we’re getting closer to levels where we would begin adding. Once you move out to the 20- and 30-year part of the curve, there are additional risks — fiscal deficits, long-term inflation expectations and geopolitical uncertainty. That uncertainty tends to support demand for shorter-term bonds, rather than the long end.
ANDREW: You’ve also highlighted a corporate bond from MDA Space for investors interested in credit.
EARL: Yes. MDA is best known as the maker of the Canadarm, and it operates in the defence and space sector. It’s an approved bidder for U.S. defence programs and is also a major supplier to the Canadian government through Telesat. We like its revenue profile, roughly $1 billion annually, its backlog of more than $4 billion and its solid interest coverage. The bond yields about 6.4 per cent, which is attractive. It is a high-yield bond, largely because the business is capital intensive and has concentrated customers, primarily governments. That said, we think the long-term trend of higher defence spending is supportive.
ANDREW: The S&P rating is double-B minus, which puts it below investment grade.
EARL: That’s right — it’s high yield, but not at the lower end of the spectrum. You can go much lower, into triple-C territory. This is a higher-quality high-yield issuer, and we’re comfortable holding it. That said, from an individual investor’s perspective, it’s important to hold this as part of a diversified bond portfolio, rather than as a single position, because there is always default risk.
ANDREW: For investors who prefer ETFs, does BMO offer high-yield bond ETFs?
EARL: Yes. BMO has one of the largest suites of fixed-income ETFs in Canada, ranging from short-term corporates to high yield and active core fixed income strategies. There’s a broad range of options available depending on what investors are looking for.
ANDREW: Earl, thanks very much for your time.
EARL: You’re welcome.
ANDREW: Earl Davis, head of fixed income and money markets at BMO Global Asset Management.
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This BNN Bloomberg summary and transcript of the Jan. 9, 2026 interview with Earl Davis are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
