In August, the Canadian bond universe continued its strong recent performance with the overall Universe returning 2.0% pushing the year to date (YTD) return to nearly 7%.
The mid and long end of the curve outperformed while the short end underperformed.
Governments were strong this month and outperformed corporates in the mid and long parts of the curve by 60-70 basis points (bps). Meanwhile the short part of the curve showed a balance return.
The net result is that, overall, corporates have returned 35 basis points more than governments on an YTD basis but this outperformance is narrowing.
Here are the numbers:
August YTD
Universe: 2.0% 6.8%
Universe (Gov’t): 2.1% 6.7%
Universe (Corp); 1.8% 7.1%
Short Term: 1.1% 3.8%
Short Term (Gov’t): 1.1% 3.6%
Short Term (Corp); 1.1% 4.2%
Mid Term: 2.5% 8.3%
Mid Term (Gov’t): 2.7% 8.3%
Mid Term (Corp); 2.0% 8.2%
Long Term: 3.5% 11.9%
Long Term (Gov’t): 3.7% 11.4%
Long Term (Corp); 3.0% 13.4%
Demand for bonds continues to be strong in Canada as investors, seeking the perceived safety of the bond market, continue to move money into fixed income securities with a greater emphasis of late on government securities. We also see an increase in demand for longer dated product as investors look for additional yield by moving farther out the yield curve.
During the month, the change in yields out to a year was flat, while longer dated (1 year and beyond) Canada’s saw decreases in yields for the month ranging from 15 bps (at 12 months) to 27 bps (at 10 years).
Current Yields:
1 Month: 0.5 %
1 Year: 1.0 %
5 Year: 2.1 %
10 Year: 2.8%
Long: 3.5%
The Prime Rate in Canada is now 3% (3.25% in US) as the Bank of Canada raised their benchmark overnight interest rate for the third straight meeting to 1%. The next Bank of Canada meeting is scheduled for October 19th and they have left the door open to pause at this meeting and for the foreseeable future.
