NEWS / Foreign Exchange

An update on real return bonds

Summary

• Real return bonds generated a total return of just 1.19% between November 11th, 2005 and March 9th, 2007. That??™s not too impressive, compared to the 8.66% total return yielded by Canadian government bonds with maturities of longer than 10 years.
• Canadian inflation could be higher than expected in February (+0.6% during February) and somewhat sticky in March.
• Right now, those who believe that U.S. economic growth will quickly return to its potential, (which is not the case with us), can protect themselves against inflation risks relatively cheaply.

Weekly indicators

• United States ??“ Retail sales were up 0.1% in February, but excluding autos they were down 0.1% after a revised 0.2% gain in January. Business inventories rose 0.2% in January after being flat in December. The inventory-tosales ratio edged up to 1.3 months, compared to 1.28 months in December, while business sales dropped 0.7%. Import prices were up 0.2% in February, following a 0.9% decline the previous month. Excluding petroleum, import prices were down 0.1%. The fourth quarter current account deficit narrowed to $195.8 billion from $229.4 billion in Q3. Boosted by energy prices, producer prices rose by 1.3% in February, the largest increase in three months. Core PPI increased more than expected with a gain of 0.4%. The New York Fed manufacturing survey fell from 24.4 in February to 1.9 in March while the Philadelphia survey fell to 0.2 from 0.6. The CPI increased 0.4% in February from January, leaving the index 2.4% higher than 12 months ago. Core CPI was up 0.2% for the month and 2.7% since February 2006.
• Canada ??“ Business productivity grew 0.3% in Q4 after being flat in Q3. It was up 1.2% for 2006 compared to 2.1% in 2005. Strong growth in hourly compensation led to a 2.6% increase in unit labor costs in 2006, the largest increase since 2001. New motor vehicle sales declined 3.3% in January to 144,136 vehicles. The number of homes sold via MLS in Canada??™s 25 major markets was down 1.0% in February (seasonally adjusted). Factory shipments decreased 2.1% in January, erasing all the previous month??™s gains. New factory orders were down 2.3% in January.