In Canada, 10-Year Bond Yields Up 75 Basis Points to 1.426%
Government of Canada (GOC) 10-year bond yields ended 2021 at 1.426%, up a “whopping” 75 basis points on the year, the biggest annual increase since 2013. Read Also: 10-Year U.S. Treasury Yield Rises to 1.62%
The Bank of Montreal noted that yesterday, to begin the new trading year, the main U.S. stock indexes were up 0.6% to 1.2% and this morning the futures markets were pointing to further gains in the 0.3%-to-0.4% range.
The strong start to equity trading coincides with a weak start for bonds. Yesterday, yields rose along the curve, ranging from 5 bps for 2 years to 11 bps for all tenors at or above 5 years.
So far this morning, yields had drifted higher from 1.6 bps at the front end to just 0.1 bps at the back end. The U.S. dollar was firmer (BBDXY +0.20%) after appreciating 0.51% yesterday.
Overall, traders were betting that Omicron won’t dent the economic expansion too badly.
“In this short week here in Canada, we’ll get a few notable data points, with December employment the highlight. With Omicron driving fresh restrictions, it’s tough to get a read on how the labour market fared, BMO said.
In addition, the B.C. floods likely took a toll. Given the huge uncertainty, BMO is looking for a flat reading for employment, with the jobless rate holding steady.
“However, we wouldn’t be at all shocked to see a meaningful positive or negative print. Once we get through the latest pandemic wave, expect hiring to rebound as it has in the past. However, given the restrictions put in place over the past few days and weeks, expect a very, very, weak January.”
This week’s other data points include November merchandise trade out Thursday. BMO said the B.C. floods will also make a big impact here with around 10% of trade running through the province.
Energy prices slumped as well, hitting exports, it noted. All told, the trade surplus is expected to narrow sharply in the month, the bank added.
“This morning, we’ll get November industrial product prices and the December Markit manufacturing PMI”.
December auto sales are expected to be released either late today or tomorrow. We’ll also get November building permits tomorrow, and the December Ivey PMI is released on Friday.
BMO noted the loonie ended 2021 at $1.2637, not far from where it ended the prior year (C$1.2725), leaving it modestly stronger.
That’s despite oil ending nearly US$30 higher on the year and the Bank of Canada well ahead of the Federal Reserve in unwinding the stimulus put in place at the height of the pandemic.
BMO expects modest further gains for the Canadian dollar in 2022, as the BoC continues to lead the Fed, and raises rates early and faster. It noted that the “very subdued” 2021 move is the smallest annual change in the currency since 2006.
The government of Canada 10-year yields ended 2021 at 1.426%, up a “whopping” 75 bps on the year, that’s the biggest annual increase since 2013.
The story was similar across the curve, with 2-year yields also up 75 bps, the largest increase in four years. The 5-year sector was hit the hardest, with yields up 86.5 bps, the most since 2009. Long bonds saw yields climb 47 bps, also the most since 2013.
BMO said with pandemic restrictions being re-imposed throughout Canada, it’s tough to believe the BoC will be willing to hike rates as early as January, suggesting that the first realistic chance at a hike looks more like March, which could provide some support to short-term bonds to start the year.
There’s one bond auction this week: we’ll get $5 bn Dec31s on Thursday. BMO noted the size is up $1 bn from recent 10-year auctions. The BoC’s buyback schedule is as follows: 30-year sector on Wednesday and 10-year sector on Thursday.
The TSX ended 2021 with a solid 21.7% gain, the best annual performance since 2009, and the third straight year in the green.
The energy sector led the way surging 41.8%, with financials (+31.6%) the next best performer. The only sector in the red was health care (-20.1%), with materials the next worst performer up just 2.3%. #In Canada, 10-Year Bond Yields Up 75 Basis Points to 1.426%
