Canadian government bond yields will edge higher into 2012, but more slowly than previously thought as fears about global growth keep official interest rates low, respondents to a Reuters poll say. Economists and fixed-income strategists surveyed this week cut their forecasts for money-market and bond yields from the levels they predicted in Reuters' August monthly survey.
The intensifying debt crisis in Europe and storm clouds over US economic growth prospects have dampened expectations for interest rate hikes by central banks and will ensure market rates rise only slowly from historical lows, the poll showed.
"Policy rates are going to take a long time to rise - until after at least 2013, not only in the US but also in Canada," said Michael Gregory, senior economist at BMO Capital Markets.
Bond prices tend to benefit from flight to safety bids as investors park their cash in low-risk government debt, pressuring yields lower. The poll of 18 fixed income analysts put the median forecast for the two-year Canadian government bond yield at 1.09 percent at the end of December and at 1.20 percent by the end of March, before it advances to 1.80 percent by the end of September 2012.
That was down from median forecast of 1.20 percent, 1.50 percent and 2.22 percent, respectively, in August's poll.
The two-year yield is currently about 0.93 percent. Short-dated bonds are the most sensitive to interest rate expectations. Yields are not expected to rise until it becomes clearer that central banks are ready to begin raising rates.
US Federal Reserve Chairman Ben Bernanke has pledged to hold interest rates near zero until 2013, fuelling expectations the Bank of Canada will maintain its overnight rate at its current 1 percent level for longer than previously anticipated.