BMO's Michael Gregory sees Canadian government bonds continuing to take cues from US Treasurys, as they have over the past several weeks. He adds that longer-term Canada-US yield spreads should widen amid falling yields, but narrow when yields rise. That's been evident since November, as 10-year bonds have lifted from about 1.6% to 1.9% late Tuesday, while the 10-year Canada-US spread has narrowed from 12.5 basis points to 4.0 basis points, according to CQG. When it comes to shorter-termed maturities, the spread could widen between Canada-US bonds if a BOC rate hike appears on the horizon, Gregory notes.
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