August 2, 2023

Fixed Income Insights (Canada) - August 2023


Canadian bonds underperform as BoC tightening nears completion

Canadian economic activity slowed more broadly in July, as unemployment increased, wage growth slowed and inflation fell sharply. But the BoC raised rates further, taking out more insurance against inflation rebounding. Canadian governments and corporates, notably longs, underperformed in July.

Key highlights:

  • Macro and policy backdrop – Despite rapid disinflation, the BoC tightens to safeguard low inflation regime
  • Canadian governments and credit – Curve inversions deepen after tightening as term premium falls further
  • Global yields and spreads – G7 yields back up, after more tightening; JGB curve steepens sharply
  • Sovereign and climate bonds – “Greenium” stabilises after duration and country weight changes
  • Performance – July proves to be a difficult month for Canadian bond returns

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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