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The Canadian bond market closed out 2011 with another month of strong performance. The DEX Universe Bond Index gained 1.68% as asset/liability related buying drove a rally in long term bonds. Yields fell to record lows, even as economic growth remained positive and new issue supply remained robust.
Canadian economic data received in December was mixed. Retail sales and building permits were both much stronger than expected. As well, capacity utilization in Canada during the third quarter hit a four-year high. Less positively, unemployment ticked up to 7.4% from 7.3%, as there were fewer jobs for the second consecutive month. The composition of jobs improved though, as full time positions replaced part time ones, self-employment declined in favour of regular employment, and the average increase in hourly earnings of permanent employees was double the pace of the previous month. Canada’s trade balance fell back into deficit as exports declined, particularly those of energy and industrial goods. This reinforced concerns that slowing foreign demand would negatively impact the Canadian economy in coming months.
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