Canadian bond yields fall at fastest rate in decades

The yield on short-term Canada bonds is falling at the fastest rate in decades, as investors bet that the Bank of Canada will cut rates in the coming months to counter the collapse of US regional banks.

Canada's two-year benchmark fell 42 basis points Monday to 3.532%, bringing its total decline to about 77 basis points since Wednesday. The last time that the benchmark dropped was in May 1995 was in May 1995, according to data compiled by Bloomberg.

Rate cuts from the Bank of Canada will be available in June, according to traders in overnight interest swaps. The next move was expected to be a hike, according to traders last week.

It was a day of investors looking for safe havens after the collapse of regional US banks Silicon Valley Bank and Signature Bank rattled investor confidence in the US banking system. Gold jumped and the US Treasury yields saw a historic decline. Economists at Nomura Securities predicted that the Federal Reserve will reverse course and reduce its benchmark interest rate by a quarter percentage point at its policy meeting next week.

"It is safe to assume that investors will stay cautious and fly to safety until we have a complete picture of the situation," said Sebastien Mc Mahon, chief strategist and senior economist at Industrial Alliance Investment Management Inc.

It is quite unlikely that the Canadian yield curve will differ from the US, Mc Mahon said.

Financial stability concerns in the US is material enough for investors to rethink the market reaction function in Canada, says Ian Pollick and Sarah Ying, Canadian Imperial Bank of Commerce fixed-income strategists.

We have yet to see this cycle, which is why we see market overreaction to bad data into the months ahead as the market seems to be more sensitive to rallies. None The Biggest Winner of the Gas Stove Fight Is Induction Ranges