September 5, 2023

Fixed Income Insights (Canada) - September 2023


Canadian yields rise after inflation bounce re-ignites fears of new rate hikes

Canadian bond market focus shifted to stronger growth in August, as yields rose. Robust consumption and tight labour markets drove inflationary pressures to remain persistent for services. Long Canadian bonds repriced to higher policy rates. In a higher yield world, income and carry optimisation may supplant duration.

Key highlights:

  • Macro and policy backdrop – As inflation eases, the focus shifts to G7 growth and stronger nominal GDP
  • Canadian governments and credit – The Canadian yield curve modestly dis-inverted, but negative carry still dominant
  • Global yields and spreads – Are markets beginning to adjust to a new era of higher rates?
  • Sovereign and climate bonds – Climate WGBI has a higher AAA exposure vs WGBI due to Bunds
  • Performance – Longer duration sovereigns fell in August, and high yield outperformed

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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