February 10, 2023

Fixed Income Insights (Canada) - February 2023

monthly report

Canadian provinces and municipals lead January’s bond rally, as BoC confirms pause

The Bank of Canada confirmed a policy pause on January 25, after the soft signal in December. Markets had discounted this move, and the bull inversion of the curve continued through January. Both provincial and municipal spreads have fallen pro-cyclically during the rally, with investors drawn to their high relative yields.

Key highlights:

  • Growth and inflation expectations – BoC pause to refresh? Central bank to assess impact of tightening
  • Canadian govts and credit – Real return bonds have lagged the rally in long conventionals as breakevens fell
  • Global yields and spreads – Disconnect between cautious central banks and market optimism on rates widened
  • Performance – Provinces and Municipals lead the January rally, after underperforming in 2022
  • Sovereign and climate bonds – Swings in relative performance in 2022/23 were led by duration and country weights

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.

For specialist content on a range of investment topics, including macroeconomic analysis and how it affects market performance and multi-asset analysis, viewed through our indices and data, explore our Global Investment Research hub.

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