Fretful investors crowded into safe havens for a fourth-straight session on Wednesday, selling riskier assets as worries mounted about the nuclear crisis in Japan.
Investors were on a hair-trigger, as analysts sought to parse headlines and weigh how bad the economic effects of the troubled nuclear reactors might be. Rising political turmoil in Bahrain and bleak housing-starts data in the U.S. added to investors' anxiety.
Canadian bonds were sharply higher across the curve, well outperforming U.S. Treasurys among shorter-dated securities.
Canada's two-year bond yielded 1.513% late Wednesday, from 1.624% late Tuesday. The 10-year bond yielded 3.120%, from 3.215%. Bond yields and prices move in inverse directions.
Market participants appeared to be largely ignoring domestic drivers, taking the view that uncertainties for the global-growth outlook resulting from the developing crisis in Japan and the continuing unrest in the Middle East and North Africa are likely pressuring Canada's central bank not to raise rates until the second half of the year.
Canada's outperformance over Treasurys Wednesday was "certainly a surprise," given the strength of the domestic data, said David Tulk, chief Canada macro strategist for TD Securities in Toronto.
Canada's manufacturing sales far exceeded expectations in January to rise at the fastest pace since July 2009. Sales were up 4.5%, with 17 of 21 industries posting gains. The market expected a sales increase of 1%.
Some maturities have recently come due, Tulk said, generating an increase in liquidity, or funds that are "seeking a home," in the Canadian bond market. He said that is contributing to the outperformance in the two-year bonds.
In supply news, the small Atlantic coast province of Prince Edward Island raised $100 million from an issue of bonds maturing in May 2041, according to a person familiar with the matter.
The offering was priced at 93.5 basis points over the Government of Canada 2041 benchmark bond for a yield of 4.644%. The bonds carry a coupon of 4.60%.
Also, Canada Housing Trust aims to raise $6.25 billion from a planned issue of Canada mortgage bonds maturing June 2016. The offering has yet to be priced. But the spread talk is for about 26.5 basis points over the Government of Canada 2% June 2016 benchmark.
Canada Housing Trust, part of Canada Mortgage Housing Corp., uses proceeds from the issue of Canada mortgage bonds to purchase mortgages packaged into National Housing Act mortgage-backed securities.
Cliffs Natural Resources Inc. (CLF) reopened its existing 30-year bond offering and sold a new 10-year issue for a total of $1 billion Wednesday.
The producer and merchant of iron ore and other steel-related products reopened its 6.25% bonds due Oct. 1, 2040 for an additional $300 million. The deal was sold at a discounted price of 99.573 to yield 6.282% and offered a risk premium of 170 basis points over Treasurys.
And the new $700 million 10-year piece was sold with a coupon of 4.875% at a price of 99.897 to yield 4.888% and offered a risk premium of 190 basis points over Treasurys.
Earlier, the 10-year piece was launched with a risk premium of 170 basis points over Treasurys while the 30-yield was expected to be sold with a spread of 190 basis points over Treasurys. Both pieces were launched at the narrow end of price-guidance suggestions, indicating strong demand for the paper.
Cliffs intends to use the net proceeds from this offering to help fund the company's acquisition of Consolidated Thompson Iron Mines Ltd. and pay related fees and expenses.
And the Bank of Canada conducted a bond-switch operation Wednesday, repurchasing about $354 million of Government of Canada marketable bonds.
