April 4, 2023

Fixed Income Insights (Canada) - April 2023

monthly report

Long Canadian government bonds benefit from policy pause and banking woes

Long Canadian governments benefited from heightened risk aversion in March, as Canadian IG credits outperformed HY. The bounce in the 20/2s curve from deep inversion reflects banking woes and the BoC pause, as 2-yr yields fell sharply. Banking strains suggest financial conditions may be tighter than perceived.

Key highlights:

  • Growth and inflation expectations – Consensus forecasts revert to a soft landing for rates and inflation
  • Canadian governments and credit – BoC policy pause and banking woes reduced extent of curve inversion
  • Global yields and spreads – Real G7 yields proved a safe haven of choice
  • Performance – Safe havens dominate returns in Q1 as banking shock unfolds in March
  • Sovereign and climate bonds – “Greenium” more evident again in long climate-WGBI after March rally

This report provides actionable insights on currency-adjusted performance, macro drivers, shifts in yields, spreads and curves across conventional, inflation-linked and corporate bonds within the Canadian fixed income market.

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