cause inflation and government-finance worries have been moving markets at the same time. That can raise the yield investors require across the long end of the curve.
But Desjardins strategist Tiago Figueiredo wrote Thursday that “Canada is likely to screen well against this macro backdrop.” The idea: if long-term yields reset higher worldwide, global bond investors tend to differentiate more between countries with healthier public finances and those with shakier ones, which can keep demand firmer for the better-positioned issuers.
Why should I care?
For markets: Desjardins says Canada can “screen well” as term premia reset.
More long-term bond sales plus fewer structural buyers typically pushes up term premia, lifting borrowing costs most for countries investors see as risky over the long haul. In that kind of repricing, portfolio managers often reduce exposure to weaker-fiscal sovereigns first and keep more room for markets with stronger starting points.
That’s the practical takeaway from Desjardins’ call: even if long-term yields rise broadly, Canadian Government of Canada bonds could face less upward pressure on their extra long-maturity compensation than some peers, helping them hold up on a relative basis inside global fixed-income portfolios.