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Financial markets

Canadian Bonds Rally Amid Global Market Uncertainty

Strategic Insights

— 2 min read

Investors are seeking safer assets, causing Canadian government bonds to rally yesterday. The rally in U.S. Treasury bonds, coupled with the uncertainty surrounding the global financial market, driven by the collapse of Barings PLC bank in Britain, led to increased demand for Canadian bonds. According to Samuel Kahan, chief economist at Fuji Securities Inc., the movement of funds into the U.S. bond market reflects uncertainty about the stability of financial markets globally. The Canadian government bonds, despite thin trading due to the federal budget release, experienced significant price advances, with some reaching nine-month highs.

Key Takeaways:

  • The rally in U.S. Treasury bonds was triggered by a flight to safety, driven by the collapse of Barings PLC bank in Britain.
  • The resulting rally pushed the 7.62-per-cent, 30-year U.S. Treasury bond up 63 cents to 101 26/32, with its yield dropping to 7.47 per cent.
  • Canadian government bonds, particularly those with longer maturities, rose to nine-month highs, with the long Canada bond (maturity June 1, 2023) rising $1 to 92.35 to yield 8.73 per cent.
  • Availability of statistics and data indicates a significant rise in Canadian bond prices and yields amid global market uncertainty.
  • The federal budget's release after most traders called it a day led to thin trading, which emphasized price movements. Market participants were watching closely as international investors passed judgment on the government's plans to trim the deficit to $24.3 billion by fiscal 1997.
  • International rating agencies, particularly Moody's Investors Services, will be key in assessing the impact of the federal budget on Canada's long-term debt and triple-A rating.

Statistics:

  • The 30-year U.S. Treasury bond rose by 63 cents to 101 26/32, with its yield decreasing to 7.47 per cent.
  • The long Canada bond (maturity June 1, 2023) increased by $1 to 92.35, with its yield rising to 8.73 per cent.
  • Canadian government bonds with longer maturities rose to nine-month highs, with the 8-per-cent bond maturing June 1, 2023, rising $1 to 92.35.
  • International rating agencies will assess the impact of the federal budget on Canada's long-term debt and triple-A rating.

Sources:

  • "The movement of funds into the U.S. bond market reflects uncertainty about the stability of financial markets around the globe," Samuel Kahan, chief economist at Fuji Securities Inc., told Dow Jones news service.
  • Selected quotations, with changes since the previous day, on actively traded bond issues, provided by RBC Dominion Securities.
  • "I know a lot of traders who won't be sleeping well," a market watcher said.
  • A market selloff was sparked by Moody's Investors Services Inc. of New York after it announced it had Canada's long-term debt on credit watch with possible negative implications for the country's triple-A rating.

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