May 07, 2024

Fixed Income Insights (Canada) - May 2024

Monthly report

Canadian longs readjust to higher rates, for even longer

The strength of US final sales and inflation surprised markets in April, pushing US yields higher, led by longs, pressuring Canadian yields, as investors revised rate expectations higher and rates remain on hold. The Canadian PMI also showed green shoots of recovery. HY credit gains show close correlation to risk assets, though with a modest April reversal.

Key highlights:

  • Macro and policy backdrop – Resilient US growth diverges with the rest of the world, but for how long?
  • Canadian governments – Canadian yield curve disinverted on higher rates for longer narrative 
  • Canadian credit – Canadian HY spreads narrowed a little in April after government yields backed up 
  • Global yields and spreads – Real yields were led higher by US Tips in April, as real US growth remained buoyant 
  • Sovereign and climate bonds – PAB continues to underperform Choice and ex fossil fuels indices 
  • Performance – Canadian high yield gains since January reflects low duration while long governments adjust to higher rates

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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