Quebec’s main separatist political party is on the rise and it’s turning some investors away from the

province’s bonds.

Thirty-year Quebec bonds are trading around six basis points wider than similar debt from Ontario, a spread not seen in almost a decade, according to data compiled by Bloomberg. The higher risk premium suggests heightened concern about political stability in the French-speaking province, which accounts for more than a fifth of Canada’s population.

Some of the widening has occurred recently, as the separatist

Parti Québécois

consolidates its lead in public opinion polls with less than a year to go until the provincial election. PQ Leader Paul St-Pierre Plamondon has promised to hold a referendum on Quebec independence if his party takes power.

Last month also marked the 30th anniversary of Quebec’s last sovereignty vote, when citizens narrowly chose to remain in Canada by a margin of 50.6 per cent to 49.4 per cent. That was the peak point of tension in a turbulent era of constitutional politics — one that many investors still remember.

“With the overhang of a referendum, it’s a province I just can’t bring myself to buy,” said Ryan Goulding, portfolio manager and head of interest rates at Leith Wheeler Investment Counsel Ltd.

Spreads began widening when the United States imposed 50 per cent tariffs on imports of aluminum in June, dealing a blow to the province, a major producer and exporter of the metal. Though secession is unlikely, the risk is still being priced in, said Goulding, who cut his Quebec position to underweight when the tariffs hit and hasn’t bought it since.

“In an environment of tight credit spreads everywhere, investors who are looking to de-risk their portfolios out of corporate credit could be better served in a name with less tail risk,” he added.

About 60 per cent of Quebecers would vote against leaving Canada, according to a recent survey conducted by Leger Marketing for Quebecor Inc.’s news media outlets. About 30 per cent would vote to secede, and the rest either don’t know or declined to answer.

Current support for a secession, which has only rarely topped 50 per cent in polls taken over the past three decades, is a “parked vote,” said Sebastien Dallaire, executive vice-president at Leger. Many younger Quebecers have never really had to consider what it would mean if the province declared independence from Canada, he said.

“It’s not necessarily a vote that is based on deeper emotions, which will really arise once we start talking about a referendum in a year from now,” Dallaire said. “If we do, things will likely change quite a bit.”

For some Canadians, the volatile 1995 referendum vote remains a warning. Back then, few believed the separatists had a chance, until a campaign led by charismatic politician Lucien Bouchard caught fire. The Canadian dollar plunged as it appeared the secessionists might win, and the prime minister pleaded with Quebecers not to vote to leave. In the end, the separatists’ margin of defeat was only about 54,000 votes.

The specter of a vote on Quebec’s future “creates a whole lot of headaches and headlines that we’re uncomfortable seeing,” said Brian Calder, a portfolio manager at Franklin Templeton in Canada.

That may be an even bigger challenge for international investors, who may not track the situation as closely, Calder said. They have plenty of alternatives, as other provinces ramp up borrowing to offset tariff impacts.

Dominique Lapointe, a macro strategist at Manulife Financial Corp.’s investment management division, said it’s “difficult to attribute a single factor” behind the recent spread widening in Quebec bonds. Tariffs and the province’s fiscal situation may also be weighing on the minds of fixed-income investors.

Quebec’s lumber, manufacturing and aluminum sectors are feeling the pinch from U.S. levies, and the province’s deficit outlook is more strained than Ontario’s, he said. S&P Global downgraded Quebec to A+ in April — the ratings firm’s first such move since 1993 — because of slowing population growth, higher employee compensation and softer outlook for tax revenues.

“As we get closer to the October 2026 elections, more noise could occur, but we are not too preoccupied with the bond market reaction at this point,” Lapointe said.

The office of Quebec Finance Minister Eric Girard said in a statement that “the market is always right,” and that the government is working to create less uncertainty. But Girard’s political party, the nationalist Coalition Avenir Quebec, trails the Parti Québécois by around 20 points in one recent opinion poll.

PQ officials reject the idea that separation is an issue for bond investors. They point out that Quebec spreads aren’t much different from those for British Columbia.

“The difference between Quebec and Ontario remains very, very, very marginal,” Louis Lyonnais, the PQ’s director of strategic planning, said by email. “The issue of ‘political uncertainty’ is just spin invented by federalists, who are trying to cling to fear as their last argument against Quebec independence.”

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St-Pierre Plamondon, 48, has tried to calm any concerns by saying that Quebec, as an independent country, would be less indebted than most Group of Seven nations.

“Choosing independence means choosing an approach that is consistent with Quebec’s interests and choosing to open up to the world, because right now, we don’t exist,” he said during a news conference last week.

Bloomberg.com