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The Canadian bond market experienced a see-saw month in September. Initially bond prices fell and yields rose as investors anticipated a possible rate increase later in the month by the U.S. Federal Reserve, as well as speculation that the Bank of Japan would adjust its monetary stimulus to steepen its yield curve. The bond selloff was exacerbated by the European Central Bank’s decision to not increase its stimulus programme. Around mid-month, the market pessimism faded and bond prices began recovering as investors realized that persistently slow global growth would prevent most central banks from removing monetary stimulus. A stand-pat decision by the Fed at its September meeting reinforced this view. In addition, regulatory problems for two major commercial banks, Deutsche Bank and Wells Fargo, created a flight-to-safety bid for bonds that pushed prices higher and yields lower. Late in the month, a tentative deal between OPEC and Russia to limit oil production sparked a jump in risky assets that reduced demand for bonds. The FTSE TMX Canada Bond Universe returned 0.25% in September.
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