Fixed Income Viewpoint
Provincial Perspectives – April 2014 Duration Frustration
Despite surging to the top of the heap on a year-to-date basis in the FTSE TMX Canada Universe Bond Index during Febru- ary, the total return for Broad Provincials gave up some ground in March, encountering the index’s worst loss last month of -0.48%. The same factor that propelled the Provincial segment of the index to such success a month earlier was its biggest bane in March. A modest back up long Canada yields wreaked the most havoc on the overall performance of Provincials since it has the longest duration of any index component. There- fore, a -0.43% total return drubbing of long Canadas during March in large measure precipitated the loss of -0.72% for long Provincials and ultimately sowed the seeds of its overall weakness in the month. The total return for Broad Provincials underperformed the next closest index segment by almost 20 basis points. The poor showing in March also chipped away at the lead for Broad Provincials on a year-to-date basis relative to most other index segments. Its total return so far in 2014
Jason Parker, CFA
BMO Nesbitt Burns Inc. jason.parker@bmo.com (416) 359-5410
Robert Kavcic
BMO Nesbitt Burns Inc. robert.kavcic@bmo.com (416) 359-8329
fell to 3.42% and actually permitted Broad Corporate BBB to leapfrog it with a total return of 3.80% in Q1/14.
Chart 1: Province of Ontario 200
5 Yr
160 120 80 40
00
Chart 2: Province of Quebec 200
10 Yr
30 Yr
5 Yr
10 Yr
30 Yr
160
120
80
40
Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13
Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13
Source: BMO Capital Markets
Chart 4: Province of British Columbia 200
Source: BMO Capital Markets
Chart 3: Province of Alberta 200
5 Yr
160 120 80 40
00
5 Yr
10 Yr
30 Yr
10 Yr
30 Yr
160
120
80
40
Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13
Source: BMO Capital Markets Source: BMO Capital Markets