The Canadian bond market tread water in February, with prices and yields moving in narrow ranges. In contrast with equity investors bidding up stock markets (the S&P/TSX Composite and the S&P 500 were both up roughly 3% in the month), bond investors appeared to be waiting for greater clarity re future growth and central banks’ monetary responses. In the end, benchmark Canada bond yields edged higher, but the risk premia on provincial and corporate bonds narrowed somewhat. The FTSE Canada Universe Bond index returned 0.18% in February.

Canadian economic data received in the month was mixed. The unemployment rate rose to 5.8% from 5.6%, as robust job creation was offset by a jump in the participation rate. The higher participation rate suggested Canadians had greater confidence in the labour market and more of us re-entered it. Also on the positive side, housing starts remained above the 200,000-unit pace. Manufacturing sales, however, were weaker than expected, with the oil and gas sector particularly weak. Inflation fell to 1.4% from 2.0% as year ago price increases dropped out of the calculation. Core inflation measures, however, remained steady at 1.9%.

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