Low interest rates spark bond rally

(June 10, 2004) Persistently low interest rates fuelled another strong quarter for bond trading, the IDA says in its latest quarterly report.

In the first quarter of the year, the Bank of Canada twice cut its benchmark overnight lending rate by a total of 50 basis points, narrowing the spread between Canadian and U.S. short-term yields to 107 from 162 basis points, the IDA says.

“These events sparked a rally in the bond markets, particularly in the government sector, with Canadian government bonds trading at their most active levels in five years and provincial bond trading reaching its highest level in a decade,” the brokerage industry association says in its quarterly review of debt new issues and trading.

Trading in federal bonds totalled $1.2 trillion in the first quarter of 2004, a 15% increase from last year. Nineteen new Canadian government bond issues generated $15.7 billion, up 13% from 2003.

Eighty new provincial bond issues produced $12.5 billion, a 126% jump from Q1 last year. Ontario and Quebec accounted for 84% of the provincial issuance.

In the corporate sector, bond trading reached $32 billion, down 4% from last year. However, corporate bond issuance rose 6% to $12.6 billion, paced by new offerings in the financial services sector, including RBC, CIBC and Scotiabank.

Real-return bond trading was $5.2 billion, down 13% in value from the same period last year.

Trading in money market instruments was $1.6 trillion, up 13% from 2003.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com