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The Globe And Mail
Report on Business
Information Feature
Friday, November 10, 2006
It seems likely that Canadian bond yields have come off their highs for the year, which should mean a correlating increase in bond prices.
Adrian Mastracci, fee-only portfolio manager at KCM Wealth Management in Vancouver, says, "The corporate bond market shows a tighter yield spread when compared to federal bonds."
Portfolio manager Adrian Mastracci of KCM Wealth Management in Vancouver expects weak U.S. economic data to drive Canada's bond yields down (and bond prices up) even further. "A softer U.S. economy will spill over into Canada," he says. "The corporate bond market shows a tighter yield spread when compared to federal bonds, and the supply of virtually all Canadian bonds is tightening up. The federal government is not issuing news bonds. They are primarily refinancing the maturing issues, and Alberta has repaid all its debt."
Much of the buying taking place, says Mr. Mastracci , is in the short-term maturities (up to one year). A Canadian three-month Treasure Bill (T-Bill) rate is near 4.15 per cent, and government strip coupons with maturities of three to twelve months range from 4 per cent to 4.25 per cent.
Bonds are now perceived as a safer harbour, but it is important for investors to do their research on the myriad of available options.
"It's a pretty tight market, says Mr. Mastracci . "The federal government proposals on income trusts will send some investors into the bond camp, although "income trust refugees" may still pursue some higher yield instruments because of need for income. Overall, I expect the impact on demand bonds to be positive. Pension plan managers will be paying a little more attention to obtaining consistent yield as the demand for quality bonds rises."
In general, Mr. Mastracci cautions against making long-term investment plans based on the income trust proposals that have been introduced. "They first must be passed into law. Much can change in the political arena." |
