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Following two months of negative returns, the Canadian bond market turned positive in August. In part, the move higher in bond prices appeared to be simply a rebound from excessive pessimism the previous two months. As well, the U.S. government’s ability to borrow and refinance existing debt requires an increase in the debt ceiling by the end of September, but the dysfunctional state of U.S. politics increased the risk that the United States could technically default on its debt. Perversely, that possibility prompted some investors to buy government bonds. More importantly, the nuclear tensions between North Korea and the United States cast a pall over most markets. The resultant risk-off sentiment prompted a flight to safety bid for government bonds and modest widening of corporate bond yield spreads. The FTSE TMX Canada Universe Bond index returned 1.41% in August. (more…)