In October, the Canadian bond universe continued to march along with another positive return for the month, albeit a rather modest one.  The overall DEX Universe Bond Index returned 22 basis points in October, pushing the year to date (YTD) return to nearly 8%.

The short and mid portions of the curve outperformed while the long end actually had a slight negative return for the month at -2 basis points.

Also, corporates outperformed governments except at the long end of the curve where long corporates were -27 basis points while long governments flat.

The net result is that, overall, corporates have returned 56 basis points more than governments for 2010.

Here are the numbers:

October     YTD

Universe:                       0.2%    7.8%

Universe (Gov’t):            0.2%    7.6%

Universe (Corp);            0.3%    8.2%

Short Term:                   0.3%    4.1%

Short Term (Gov’t):        0.2%     3.8%

Short Term (Corp);        0.4%     4.8%

Mid Term:                     0.4%     9.4%

Mid Term (Gov’t):           0.4%    9.3%

Mid Term (Corp);           0.6%    9.6%

Long Term:                   0.0%    13.8%

Long Term (Gov’t):         0.0%   13.5%

Long Term (Corp);         -0.3%   15.1%

Two themes remained in October: firstly, there continued to be demand for bonds even as the equity markets continued to advance; and secondly, investors continued to look to corporate issuers to increase their yield.

During the month, the change in yields was modest across the curve with a range of +10 basis points at the long end to -10 basis point at one year.

Current Yields (as at Oct 31st):

1 Month:           0.8%

1 Year:             1.2 %

5 Year:             2.0 %

10 Year:           2.8%

Long:                3.4%

The Bank of Canada held its overnight rate at 1% at its October 19th meeting.  Therefore the Prime Rate in Canada remains at 3% (3.25% in US).  The next Bank of Canada meeting, and the last meeting for 2010, is scheduled for December 7th.