December Fixed Income Report

The Canadian bond universe ended 2010 with a year to date rate of return of 6.7% helped by a modest return of 0.2% in the month of December.  Overall, the bond market was strong for the year up to November before experiencing a negative return in the month.

On the year, corporate bonds outperformed governments by 83 basis points which was the case across the yield curve but was most evident at the long end of the curve.

Also, longer dated securities outperformed shorter dated securities.

Here are the numbers:

December        YTD

Universe:                       0.2%              6.7%

Universe (Gov’t):            0.1%               6.5%

Universe (Corp);            0.3%               7.3%

Short Term:                   0.1%               3.6%

Short Term (Gov’t):        0.1%               3.3%

Short Term (Corp);        0.2%               4.3%

Mid Term:                     0.3%               7.8%

Mid Term (Gov’t):           0.2%               7.6%

Mid Term (Corp);           0.5%               8.2%

Long Term:                   0.2%               12.5%

Long Term (Gov’t):         0.2%               12.1%

Long Term (Corp);         0.3%               14.2%

For the month of December, yields across the entire yield curve were basically unchanged compared to November 30^th, with changes of only +/- 1 to 2 basis points.

Current Yields (as at December 31st):

1 Month:           0.9%

1 Year:             1.4 %

5 Year:             2.4 %

10 Year:           3.1%

Long:                3.5%

As expected, the Bank of Canada held its overnight rate at 1% at its January18^th meeting, therefore the Prime Rate in Canada remains at 3% (3.25% in US).  The next scheduled meeting is for March 1, 2011