Canadian Bonds May Stand Out as Long End of Market Faces Greater Headwinds, Desjardins Says

Canadian bonds are likely to remain relatively attractive as investors reassess interest-rate exposure in longer-term bonds amid a more volatile market environment, Desjardins wrote. As traditional sources of demand weaken from investors and governments increase long-term debt sales, rising bond supply is likely to push up the compensation buyers seek to hold longer-maturity debt, Desjardins wrote in the note Thursday. "Canada is likely to screen well against this macro backdrop," wrote Tiago Figueiredo in the Desjardins note. "While not immune to the global repricing of duration, Canada's favorable starting points should support demand for Canadian duration within global fixed-income portfolios." Investors are already demanding higher-term returns from countries with weaker fiscal fundamentals, added Desjardins. Bonds have become less reliable portfolio hedges as inflation and fiscal risks play a larger role in driving markets, pushing investors to demand greater compensation for buying longer-maturity bonds.