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The Canadian bond market enjoyed good returns in November as positive long term bond results offset some weakness in shorter maturities. Initial bond gains faded following surprisingly robust labour market data, but bonds rallied again after dovish remarks by the Bank of Canada in the middle of the month. Canadian bond market returns beat those of the U.S. market, reflecting the somewhat weaker economic growth north of the border. The FTSE TMX Canada Universe Bond index returned 0.79% in November.
Canadian economic data received during the month was mixed. Unemployment edged up to 6.3% from 6.2% a month earlier, but the underlying details were positive as job creation was strong and the participation rate rose. Other positive news included stronger than expected manufacturing sales and housing starts that remained elevated. Less positively, wholesale and retail sales were weaker than expected and the trade deficit was larger than forecasts. The fifth round of NAFTA negotiations ended with greater pessimism about a successful conclusion. Inflation remained constrained at 1.4%, which allowed Bank of Canada Senior Deputy Governor Wilkins to suggest the Bank would be cautious about raising rates. Wilkins cited uncertainty about trade and the impact of recent changes to mortgage borrowing rules as reasons for the Bank to slow its rate increases going forward. Bond yields declined following Wilkins’s dovish remarks. (more…)