Bank of Montreal Gains on Traders’ Bet of 25bp Fed Hike by 2026
BMO•Bond traders are fully pricing in a 25bp Federal Reserve rate hike by end-2026, driving two-year US Treasury yields to 4.14%, a level unseen since Feb 2025. Higher rates could lift Bank of Montreal’s net interest margin and lending profitability if chair Kevin Warsh follows through on hawkish stance.
1. Traders Fully Price 25bp Hike by End-2026
Interest-rate swaps imply a Fed benchmark rate at least 25 basis points higher by year-end 2026, the first time that outcome has been fully priced. Short-maturity Treasuries saw the two-year yield climb more than four basis points to 4.14%, the highest since February 2025.
2. Implications for Bank of Montreal
Higher short-term rates should expand net interest margin for Canadian lenders including Bank of Montreal, boosting lending spreads and underpinning profit growth across its commercial and retail banking divisions.
3. Kevin Warsh’s Hawkish Stance
Newly sworn-in Fed Chair Kevin Warsh’s nomination and recent comments by Governor Christopher Waller underscored a hawkish policy shift, increasing market conviction that the central bank will act quickly to rein in rising inflation.
