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In November, Canadian bond prices moved lower and yields rose. In large part, the Canadian market followed the lead of the U.S. bond market, which declined even as the Federal Reserve announced and initiated a second round of quantitative easing (QE2). Stronger economic data in the United States prompted an investor shift toward riskier assets such as stocks and away from bonds. In addition, negative foreign reaction to QE2 may have prompted some selling of U.S. bonds in the period. Late in the month, however, the European sovereign debt crisis flared up again with Ireland requiring European Union and International Monetary Fund support. Uncertainty about the widening circle of EU members requiring support led to a flight to safety bid returning to bonds, and U.S. and Canadian bond prices recovered most of their losses. As measured by the DEX Universe bond index, the Canadian bond market declined 1.09% over the month, having been down as much as 1.87% before recovering. Long term bonds experienced an even more dramatic swing, as they initially dropped 3.10% before recovering for a loss of only 1.37% in the month.
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