Canadian Bonds and Interest Rates: A Holding Pattern Ahead of Federal Reserve Meeting

Strategic Insights -

The Canadian bond and currency markets have been in a holding pattern, awaiting developments on the interest rate front. The Federal Reserve Board is expected to increase U.S. interest rates to slow economic growth and keep the reins on inflation. A survey by Technical Data showed 61% of respondents expect a half-point increase, while 29% expect a quarter-point move. This could be constructive for U.S. and Canadian long bonds. Meanwhile, the Canadian market has shifted some attention away from the runup to the Quebec election, with the Parti Quebecois Leader's focus on a good government platform seen as constructive for Canadian bonds and the Canadian dollar.

Key Takeaways:

  • The Canadian bond and currency markets have been in a holding pattern, awaiting developments on the interest rate front.
  • A survey by Technical Data showed 61% of respondents expect a half-point increase in U.S. interest rates, while 29% expect a quarter-point move.
  • A half-point increase could be constructive for U.S. and Canadian long bonds, according to Brian Garvey of Idea Inc.
  • The Canadian market has shifted some attention away from the runup to the Quebec election, with the Parti Quebecois Leader's focus on a good government platform seen as constructive for Canadian bonds and the Canadian dollar.
  • The 8% Canada bond maturing June 1, 2023, fell 10 cents to 87.7, yielding 9.22%.
  • The new benchmark U.S. long bond, the 7.5% 30-year Treasury, lost 9 cents to 99 28/32, yielding 7.51%.
  • Prices on the Canadian market were down a maximum of 15 cents in late trading.
  • The Federal Reserve Board is expected to increase U.S. interest rates to slow economic growth and keep the reins on inflation.
  • NIC Hydro Quebec 11% 15 Aug 20 fell 0.050 to 108.575, yielding 10.064%.
  • New Brunswick 7.88% 7 Apr 03 fell 0.100 to 91.725, yielding 9.287%.
  • Saskatchewan 9.88% 6 Jul 99 fell 0.000 to 103.375, yielding 8.999%.
  • Ontario Hydro 10.88% 8 Jan 96 fell 0.080 to 103.770, yielding 7.918%.
  • Toronto-Metropolitan Board of Trade 10.38% 4 Sep 01 fell 0.050 to 105.800, yielding 9.234%.

Statistics:

  • 61% of respondents expect a half-point increase in U.S. interest rates, according to a survey by Technical Data.
  • 29% of respondents expect a quarter-point increase in U.S. interest rates, according to a survey by Technical Data.
  • 10% of respondents expect no action on U.S. interest rates, according to a survey by Technical Data.
  • The 8% Canada bond maturing June 1, 2023, fell 10 cents to 87.7, yielding 9.22%.
  • The new benchmark U.S. long bond, the 7.5% 30-year Treasury, lost 9 cents to 99 28/32, yielding 7.51%.
  • Prices on the Canadian market were down a maximum of 15 cents in late trading.
  • The U.S. Treasury 6 1/4 Aug 23 fell 5/32 to 7.61-4/32, yielding 4.16.

Sources:

  • Technical Data: Survey on U.S. interest rate expectations
  • RBC Dominion Securities: Selected quotations on Canadian bonds
  • ScotiaMcLeod: Bond Indexes
  • Idea Inc.: Quote from Brian Garvey on Canadian bonds and interest rates