March 3, 2023

Fixed Income Insights (Canada) - March 2023

Monthly Report

Flat Q4 growth justifies BoC pause, even if January rebound drives bonds lower

The BoC’s dilemma over pausing policy tightening was eased by Q4 GDP flat-lining, even if firm January data reopens the policy debate. Canadian fixed income assets sold off in February as the market adjusted to “higher for longer” risks, with deep curve inversion giving no reward for duration risk. EM inflation bonds outperformed.

Key highlights:

  • Growth and inflation expectations – Soft landing doubts drive “higher for longer” fears on rates
  • Canadian governments and credit – High energy weighting supports Canadian HY credits
  • Global yields and spreads – Central bank caution prevails driving bearish inversion of curves
  • Performance – Broad bond sell-off hurts long Canadian bonds
  • Sovereign and climate bonds – Relative performance dominated by country weights and duration

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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