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Financial markets

Canadian and U.S. Bond Markets Experience Shift in Investor Sentiment

Strategic Insights

— 1 min read

The Canadian and U.S. bond markets recently experienced a shift in investor sentiment, with U.S. bonds showing significant gains and Canadian bonds remaining relatively unchanged. According to industry analysts, investors are reallocating their portfolios to increase exposure to bonds and decrease their equity holdings. This shift has led to an increase in demand for longer-term bonds, resulting in higher prices and lower yields.

Key Takeaways:

  • The 7.5-per-cent, 30-year U.S. Treasury bond was trading at 94 28/32, up 72 cents on the day, to yield 7.94 per cent, marking the first time this month that the long bond yield has closed below 8 per cent.
  • Technical Data senior fixed-income analyst Doug Burtnick noted that investors are shifting to buy bonds and sell stocks, citing reallocation programs that benefit the longer end of the curve.
  • Laketon Investment Management bond portfolio manager Rodney Kerr stated that the sentiment in the bond market turned bullish after stocks sold off sharply while bonds rallied, noting that this is psychologically bullish for the bond market.
  • U.S. bond prices also benefited from a poorer-than-expected durable goods orders report for October, with U.S. durable goods orders dropping 1.5 per cent last month.
  • Canadian bonds were unchanged on the middle to longer terms in late trading, while the shortest terms were hit with losses of up to 15 cents.
  • The Canadian market did not experience the same level of gains as the U.S. market due to the weak Canadian dollar and the upward pressure on the call loan target rate.

Statistics:

  • The 7.5-per-cent, 30-year U.S. Treasury bond yield decreased to 7.94 per cent, marking the first time this month that the long bond yield has closed below 8 per cent.
  • U.S. durable goods orders dropped 1.5 per cent last month, benefiting U.S. bond prices.
  • Canadian bonds experienced losses of up to 15 cents on the shortest terms in late trading.
  • The Canadian dollar closed at 72.74 cents (U.S.), fractionally lower than the 72.78 cents of late Tuesday.

Sources:

  • "The Globe and Mail"
  • Cited quotations from RBC Dominion Securities, provided by ScotiaMcLeod Bond Indexes
  • Technical Data (unspecified source)
  • Laketon Investment Management (unspecified source)

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