The Canadian bond universe had a better month in February reversing January’s poor start to the year by returning 23 basis points (bps) and thereby improving the year to date (YTD) return to negative 21 bps.

We saw both government bonds and corporate bonds perform strongly at the long end of the curve and to a lesser extent at the mid part of the curve. Meanwhile, the short end of the curve was in negative territory.

Corporates continued to outperform governments across the yield curve.

Here are the numbers:

				Feb.28	YTD				
Universe:			0.2%	-0.2%				
Universe (Gov’t):		0.2%	-0.5%				
Universe (Corp):		0.5%	 0.5%				
Short Term:			-0.2%	 0.1%				
Short Term (Gov’t):		-0.2%	 0.0%				
Short Term (Corp):		0.0%	 0.4%				
Mid Term:			0.3%	-0.1%				
Mid Term (Gov’t):		0.1%	-0.5%				
Mid Term (Corp):		0.7%	 0.8%				
Long Term:			0.9%	-1.0%				
Long Term (Gov’t):		0.8%	-1.3%				
Long Term (Corp):		1.3%	 0.2%				

Yields ended the month generally higher with increases ranging from +2 bps for the 10 year bond to +16 bps for the 2 year bond, while the yield decreased 3 bps for the long bond.

Current Yields:		Feb.28					
1 Month:		0.9%					
1 Year:			1.4%					
5 Year:			2.7%					
10 Year:		3.3%					
Long Bond:		3.7%					

The Prime Rate in Canada remains at 3% (3.25% in US). On March 1st, the Bank of Canada maintained its overnight rate at 1% for a fourth consecutive meeting noting that the recovery in Canada is proceeding slightly faster than expected and also that inflation continues to be consistent with the Bank’s expectations.

Overall, the balance of risks to the Bank’s current outlook is slightly skewed to the upside and the market continues to expect increases to the overnight rate later this year. The next scheduled meeting is April 12th.