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Analysis••By Canadian Preferred Shares

Bank of Canada Pause: What 2.25% Means for Rate Reset Preferreds

# Bank of Canada Pause: What 2.25% Means for Rate Reset Preferreds

On March 18, 2026, the Bank of Canada held its overnight rate at 2.25% for the third consecutive meeting. This pause comes after an aggressive 275 basis point cutting cycle that ended in October 2025.

The Decision Context

Governor Tiff Macklem cited two key factors:

1. Middle East conflict - The war has increased volatility in global energy prices and financial markets
2. Cooling domestic economy - Inflation is slowing and unemployment is rising

The Bank is balancing external risks against domestic economic weakness, choosing a cautious "wait and see" approach.

Impact on Rate Reset Preferreds

Rate reset preferreds are the dominant structure in the Canadian preferred share market, representing about 55% of issues. Their dividends reset every 5 years based on the Government of Canada 5-year bond yield plus a spread.

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The Reset Formula

New Dividend Rate = 5-Year GOC Yield + Spread

With the 5-year Government of Canada bond yield around 2.95% (as of March 2026), a preferred share with a 3% spread would reset to approximately 5.95% annually.

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Winners and Losers

Benefiting from the pause:

  • Fixed-rate resets resetting soon - Will lock in decent yields

  • Perpetual preferreds - Fixed dividends become more attractive

  • Investors seeking income certainty - Rate stability helps planning

    • Facing headwinds:

  • Floating rate preferreds - Earning less with lower short-term rates

  • Issues resetting with narrow spreads - Lower total yield

  • Resetting near the bottom - May miss if rates rise later

    • Current Reset Spreads

    Spreads on rate reset preferreds vary significantly:

    | Quality Tier | Typical Spread | Approximate Reset Yield |
    |--------------|----------------|------------------------|
    | P-1 Banks | 2.00-2.50% | 4.95-5.45% |
    | P-1 Utilities | 2.50-3.00% | 5.45-5.95% |
    | P-2 Issuers | 3.00-4.00% | 5.95-6.95% |
    | Split Corps | 3.50-4.50% | 6.45-7.45% |

    Use our Preferreds Screener to find issues with attractive reset spreads.

    What to Watch

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    Next Bank of Canada Meeting: April 28, 2026

    Markets currently see only a 4% chance of a rate cut at the next meeting. The Bank appears firmly on hold unless economic conditions deteriorate significantly.

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    Key Reset Dates

    Several major preferreds are resetting in 2026:

  • Enbridge issues - Multiple resets due

  • BCE series - Conversions happening

  • Bank issues - Some 2021 issuances hitting 5-year marks

    • Check our rankings for the highest yielding reset preferreds in the current environment.

    Investment Strategy

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    For Current Holders

  • Know your reset date - When will your shares reset?

  • Calculate your reset yield - Use current 5-year GOC + your spread

  • Compare to alternatives - Is the reset yield competitive?

    • #

    For New Investors

  • Focus on spread - The spread is fixed; government yield fluctuates

  • Consider call risk - Issues trading above $25 may be called

  • Diversify reset dates - Don't have all your holdings reset in the same year

    • The Bottom Line

    The Bank of Canada pause at 2.25% provides certainty for income investors. Rate reset preferreds remain an attractive income vehicle, but investors should focus on:

    1. Spread quality - Higher spreads protect against low rate environments
    2. Issuer credit quality - Can they continue paying dividends?
    3. Diversification - Spread risk across issuers and reset dates

    The current environment favors fixed-income investments that can provide yield certainty. Rate reset preferreds, despite lower reset yields, still offer competitive income compared to bonds and GICs.

    Use our tools at PreferredSharesData.com to analyze your holdings and find the best opportunities in today's market.