Research Product · Canada
CA Fixed Income Allocation Model
Three-state fixed-income sleeve for CAD-mandate portfolios. 70% Canadian aggregate bond core + 30% rotating overlay across high yield, long-duration Canada govt, and short-duration cash, gated by Canadian rate-favorability signals and a US HY OAS credit-cycle discriminator.
DEFENSIVE2months in state
1/3 unfavorable rate vote·Next rebalance June 30, 2026
ETF held
ZSB
Signal date
May 31, 2026
Current state
DEFENSIVE
Months in state
2
ETF held: ZSB
Prior state
DEFENSIVE
Signal date May 31, 2026
Next rebalance
June 30, 2026
Quarterly rebalance
Rate vote
1/3 unfavorable
Threshold 2 of 3
State logic: Rate vote unfavorable (failed 2-of-3 Canadian rate-favorability test). Overlay defaults to short Canadian government bonds (ZSB) regardless of credit conditions.
Estimated annual turnover
~24–36% of the portfolio per year (80–120% on the 30% overlay; the 70% core never trades).
Estimated tax drag, assuming the Canadian 50% capital-gains inclusion rate: ~18–30 bps/yr on a whole-portfolio basis — a conservative upper bound; less at lower rates. Registered / tax-deferred accounts (RRSP, TFSA, IRA, foundation) see none. See Limitations for the full breakdown.
This week
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Current allocation
XBB 70%
ZSB 30%
Core (permanent)
XBB70%
Overlay (this month)
ZSB30%
Rate signal
1/3 · Unfavorable
Canada 10Y − 3M positive
Yield curve slope ≥ 0 — long rates above short rates, signals non-recessionary CAD rate environment.
ZFL 6M total return ≥ 0
Long Canadian government bonds rallying or stable — duration is not currently penalized.
XRB 6M total return ≥ 0
Real return bonds rallying or stable — inflation-linked duration is supportive.
Rate environment unfavorable — only 1 of 3 components are positive, failing the 2-of-3 threshold. Overlay defaults to short Canada govt bonds (ZSB) regardless of credit conditions. Threshold: 2 of 3.
US HY OAS discriminator
z ≤ 0 → CREDIT_ON
HY OAS level
274 bps
FRED BAMLH0A0HYM2
60M z-score
-1.06
Window: 60mo · min 36mo
z position (clamped −2 to +2)
−2 (tight credit)0 (neutral)+2 (wide credit)
US HY OAS at 274 bps sits below the 60-month mean (z = -1.06, ≤ 0). Credit cycle is favorable — rotate into US High Yield via the CAD-hedged XHY wrapper.
Rate vote unfavorable this month — HY OAS z does not govern the overlay. Allocation defaults to DEFENSIVE (ZSB).
Recent monthly returns
24 months · strategy total return
Jun '24
+1.2%
Jul '24
+1.9%
Aug '24
+0.2%
Sep '24
+2.0%
Oct '24
-1.5%
Nov '24
+2.1%
Dec '24
-1.5%
Jan '25
+1.3%
Feb '25
+1.5%
Mar '25
-0.6%
Apr '25
-1.2%
May '25
-0.3%
Jun '25
-0.2%
Jul '25
-0.6%
Aug '25
+0.5%
Sep '25
+1.6%
Oct '25
+0.6%
Nov '25
+0.1%
Dec '25
-2.1%
Jan '26
+0.5%
Feb '26
+2.4%
Mar '26
-2.6%
Apr '26
+0.1%
May '26
+0.7%
Per-month state coloring will be added once publish.py emits the per-month allocation state in history rows (forward pipeline improvement).
Act on this signal