Natixis Canada Blog

Updates:


Canadian Bond Market Seesaws in February as Yields Rise Then Fall Twice in the Month

 

Jeff Herold
Jeff Herold, Portfolio Manager, NexGen Canadian Bond Funds

The Canadian bond market moved in a seesaw pattern in February, with yields rising and then falling twice in the month. The bond market remained in the trading range that began in December, once the market had initially reacted to the surprise U.S. presidential election result. The market’s focus remained on the new U.S. administration, as the correlation between Canadian and U.S. bond yields was very high. Investors were hoping for greater clarity on the new government’s fiscal, regulatory and trade policies. The economic consensus remained optimistic, with risk premia (yield spreads) for provincial and corporate bonds shrinking and the U.S. stock market continuing its post-election rally. The FTSE TMX Canada Universe Bond index returned 0.96% in February.

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Canadian Bond Market Seesaws in January as Investors Discern the Impact of the Change in U.S. Government

 

Jeff Herold
Jeff Herold, Portfolio Manager, NexGen Canadian Bond Funds

The Canadian bond market experienced a seesaw month as investors tried to discern the impact of the change in the United States’ government. After a weak finish to 2016, with lower bond prices and higher yields, it appeared that in January the market was catching its breath and evaluating whether it had discounted too much following the election of Donald Trump as U.S. president. Slightly higher yields for long-term bonds resulted in lower prices that caused the value of the overall index to decline marginally. The FTSE TMX Canada Universe Bond index returned -0.12% in January.

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Driving Forces Within the Market Cause Canadian Bonds to Decline in December

 

Jeff Herold
Jeff Herold, Portfolio Manager, NexGen Canadian Bond Funds

The Canadian bond market declined for the third consecutive month in December. Driving forces within the market included an interest rate increase by the U.S. central bank, the Federal Reserve and speculation that the European Central Bank (ECB) would eventually wind down its quantitative easing program. In addition, the U.S. presidential transition continued to roil bond markets, as a result of the anticipation for substantial fiscal stimulus, faster economic growth and wider budget deficits. Bond yields rose and prices fell in the first half of the month before bargain hunting by some investors led to a partial recovery in the second half of the month. The FTSE TMX Canada Universe Bond index returned -0.50% in December.

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Canadian Bond Market Not Immune To Global Trends In November

 

Jeff Herold
Jeff Herold, Portfolio Manager, NexGen Canadian Bond Funds

The unexpected victory of Donald Trump in the U.S. presidential election not surprisingly led to considerable volatility in financial markets in November. While Trump’s campaign was filled with contradictory policy statements, the post-election market reaction focussed on expectations for an aggressively expansionist fiscal policy that would stimulate U.S. economic growth. While equity markets reacted favourably to the more optimistic outlook, bond markets were dismayed by the potential for substantially higher U.S. budget deficits and increased inflation. Global bond markets experienced sharply higher yields and lower bond prices. The Bloomberg Barclays Global Aggregate Bond Index, which measures investment grade bonds in 24 different markets, fell 4% in November, its worst monthly loss since its inception in 1990. The bond market selloff was exacerbated late in the month by both news of an OPEC agreement to cut oil production (and thereby raise oil prices) and musings by a potential U.S. Treasury Secretary that the U.S. government should start issuing 50-year bonds. Canadian bonds were not immune to the global trend, although they suffered less than some other markets. The FTSE TMX Canada Universe Bond Index returned -2.07% in the month.

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Canadian Bond Market Moves to Higher Yields In October

 

Jeff Herold
Jeff Herold, Portfolio Manager, NexGen Canadian Bond Funds

Global bond markets moved to higher yields in October and the Canadian market was caught up in the trend. The catalyst for the increased yields appeared to be a growing consensus that monetary policy was out of options to provide additional stimulus. In particular, quantitative easing programmes (i.e. large scale central bank purchases of government bonds to push yields lower) seemed unlikely to be expanded beyond current levels. Given that quantitative easing by the European Central Bank, the Bank of Japan, and the Bank of England had pushed global bond yields to all-time record lows, investors began discounting the potential for bond yields to start rising again. As a result, they sold bonds, which lowered their prices and increased their yields. The benchmark FTSE TMX Canada Universe Bond Index returned -0.91% in the month.

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