October 04, 2023

Fixed Income Insights (Canada) - October 2023

Monthly report

Long Canadian bond returns collapse in Q3, as markets re-price for Goldilocks?

The Bank of Canada paused tightening in September after economic activity and inflation eased, but left the door open for further tightening, unnerving the long end. The rebound in oil prices and tight labour markets mean inflation risks endure, for the BoC. Longs sold off in Q3, as investors sought safety in shorter maturities.

Key highlights:

  • Macro and policy backdrop – Soft landings for growth give central banks room to retain tight policy settings
  • Canadian governments and credit – The possibility of more hikes prompted jitters in longs, as re-investment risk eased
  • Global yields and spreads – Curve dis-inversion in long durations as some long G7 yields reach new cycle highs
  • Sovereign and climate bonds – High Japan and Euro weight in climate-WGBI continues to squeeze returns vs WGBI
  • Performance – Short Canadian corporates held up in September, amid collapse in long duration 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.

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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