| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Corporate Yield Gap to U.S. Smallest in 5 Years: Canada Credit |
By Chris Fournier and Christopher Donville
April 20 (Bloomberg) -- Yields on Canada corporate bonds are the highest relative to U.S. company debt in five years as the Bank of Canada moves closer to raising interest rates for the first time since 2007.
Canadian corporate bonds yielded 4.196 percent at the end of last week, compared with 4.412 percent for the U.S., according to a Bank of America Merrill Lynch indexes. At 22 basis points, the gap shrunk has from as wide as 91 basis points, or 0.91 percentage point, in February. The difference, which widened to 30 basis points yesterday, hasn’t been this narrow since November 2004.
Speculation that Canada’s central bankers will lift rates faster than the Federal Reserve “is probably hurting the Canadian side a little bit,” said Robert Follis, head of corporate bond research at Bank of Nova Scotia’s Scotia Capital unit in Toronto. Bond prices tend to fall as rates rise.
The Bank of Canada kept its key lending rate at a record low 0.25 percent today, and said it will start raising rates because of faster-than-expected economic growth and inflation.
“With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus,” the central bank led by Governor Mark Carney said in a statement today from Ottawa. “The extent and timing will depend on the outlook for economic activity and inflation.”
Phrase Dropped
The central bank dropped a phrase about its “conditional commitment” to keep the rate unchanged until July unless the inflation outlook shifted. Policy makers said inflation will be “slightly higher” than their 2 percent target over the next year, and increased their 2010 economic growth forecast to 3.7 percent from 2.9 percent.
Since the start of 2008, overall Canadian corporate debt has returned 17.8 percent, including reinvested interest, according to the Merrill data. That compares with 15.6 percent for U.S. corporate debt. Returns have slowed this year, with Canada bonds losing 0.16 percent this month after a loss of 0.39 percent in March.
“We’ve seen a massive rally in Canadian corporate bonds over the past year,” said Douglas Porter, deputy chief economist at Bank of Montreal’s BMO Capital Markets unit in Toronto. “They may have gotten a little bit ahead of themselves. We’re seeing a bit of a correction.”
Elsewhere in credit markets, Ontario reopened a 10-year bond issue, foreigners bought more Canadian securities than they sold for a 14th straight month and the yield on the June bankers’ acceptances contract, a barometer of short-term interest rate expectations, fell to the lowest in April.
Ontario Issue
The province of Ontario sold C$750 million ($739 million) of 4.2 percent bonds in a reopening of its debt due in June 2020. The bonds priced to yield 73 basis points over similar- maturity benchmarks.
Foreigners bought a net C$6.72 billion of Canadian securities in February, government figures showed yesterday. That’s less than the C$9 billion of net purchases predicted by economists, according to the median of four estimates in a Bloomberg survey.
The yield on the June 2010 BAX contract fell to 0.77 percent yesterday, the lowest this month, from 0.79 percent on April 16, indicating traders are paring bets that the central bank will accelerate the timeframe for raising borrowing costs. Money managers and hedge funds use the contracts to bet on changes in interest rates and manage their exposure. The contracts have settled at an average of 17 basis points above the central bank’s overnight rate since Bloomberg started tracking the gap in 1992.
Highest Since October
Yields on Canadian company bonds reached 4.22 percent on April 15, the highest since October. The extra yield investors demanded to hold corporate debt instead of government bonds narrowed to 118 basis points yesterday, from 119 at the end of last week, according to Merrill data. They tightened to 114 basis points on March 19.
Yields on Canadian corporate bonds will likely trade in a narrow band as investors assess the likelihood of continued U.S. momentum toward economic recovery, said Malcolm J. Jones, a portfolio manager at Adroit Investment Management Ltd. in Edmonton, Alberta.
“Investors in the Canadian debt market are saying, ‘Hey, am I missing something?’ in the context of understanding the strength of the U.S. recovery,” said Jones, who helps manage about C$350 million of fixed-income investments. “The concern is that the U.S. economy may struggle for a longer period.”
--Editors: David Scanlan, Greg Storey
To contact the reporters for this story: Chris Fournier in Montreal at cfournier3@bloomberg.net; Christopher Donville in Vancouver at cjdonville@bloomberg.net.
To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net Dave Liedtka at dliedtka@bloomberg.net
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