February 05, 2024

Fixed Income Insights (Canada) - February 2024

Monthly report

Canadian longs fall as market reassess easing cycle, but credit outperforms again

Central bank caution and an inflation uptick duly drove a long end sell-off in January, as markets re-assessed how quickly rates will fall. The BoC made clear policy easing is unlikely before inflation reaches the 2% target, driving Canadian governments and Provisionals lower. Over 3M, long Canadian credits have gained 12-14%.

Key highlights:

  • Macro and policy backdrop – Scope for easing but realisation the case for rapid moves is unclear?
  • Canadian governments and credit – Long Canadian bonds declined, as yields backed up after BoC caution
  • Global yields and spreads – Modest bear steepening but global inflation breakevens fall back to 2021 lows
  • Sovereign and climate bonds – Long Green Sovereign duration catches investors out during the 2022-2023 sell-off
  • Performance – High yield credits benefit from equity market rally in January

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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