Investors in Canada are shunning interest-rate sensitive stocks and are now seeking inflation protection and betting on a steeper yield curve.

This has come about as the Bank of Canada is leading global central banks in shifting to a more hawkish stance. In fact Canada’s central bank last Wednesday signaled that it could hike interest rates as soon as next year while cutting the pace of bond purchases.

If this is done, Bank of Canada would become one of the first major central banks to reduce stimulus. Canadian investors are reporting today that they have been adjusting portfolios for some time to prepare for a higher rates outlook, noting that the Central Bank’s latest stance has reinforced the focus on such an outcome.

A more hawkish Bank of Canada has bolstered the Canadian dollar in which Reuters is reporting that Investment Director at Aberdeen Standard Investments in London,  James Athey, is among investors who bought the currency last Wednesday, when it touched a one-month high at CAD1.2455 per US dollar, or 80.29 US cents.

He has also been betting that Canada’s long-term yields will rise more than short-term yields, or that the curve will steepen. That trade remains appropriate “as reducing asset purchases will happen a lot sooner and more easily than moving to tightening via higher rates,” Athey said.

The proposal in the American Federal Reserve’s budget to raise the share of long-term bond issuance to 42 per cent, up from 15 per cent, could also lead to a steeper curve. This view is supported said Earl Davis, head of fixed income and money markets at BMO Global Asset Management.