Canadian government bonds strengthened after Conservative Prime Minister Stephen Harper won a majority government for the first time, allowing him to pursue plans to erase the budget deficit and cut corporate taxes.
The yield on the nation’s 10-year debt fell as much as six basis points, or 0.06 percentage points, to 3.148 percent, the lowest since March 18. The price of the 3.5 percent bonds due in June 2020 climbed 32 cents to C$102.69 at 9:55 a.m. in Toronto.
“Tax changes for the corporations will remain in place, which will clearly please the investing public,” said Andrew Parkinson, a money manager at Van Arbor Asset Management Ltd. in Vancouver, which manages about C$50 million ($53 million).
The Canadian dollar rose against more than half of its 16 major peers, climbing the most, 0.9 percent, against the British pound. Canadian stocks dropped along with shares worldwide.
The Conservatives won 167 districts, above the 155 seats needed to form a majority in the House of Commons, Elections Canada data show. A majority government doesn’t require the support of opposition parties to pass laws. Harper garnered the first Conservative wins in central Toronto, the nation’s biggest city, since 1988.
The New Democratic Party, led by Jack Layton, won 102 seats, and will be the Official Opposition for the first time. The NDP displaced the Liberal Party, which was reduced to 34 seats, the lowest total in its history. The NDP also won almost all of the ridings previously held by the separatist Bloc Quebecois, which shrunk to four seats from 49 in 2008.
Harper, 52, oversees the economy with the fastest growth and among the lowest deficits of the Group of Seven nations. The loonie has been the strongest in the G-7 over the past two years. Finance Minister Jim Flaherty, who was re-elected in his riding near Toronto, has said the government plans to eliminate the deficit by the 2014-2015 fiscal year.
Two-year government bonds also increased, pushing the yield down 2 basis points to as low as 1.679 percent, the least since March 23. The price of the 1.75 percent bonds due in March 2013 gained 4 cents to C$100.12.
The Canadian dollar erased initial gains versus its U.S. counterpart, trading little changed at 95.21 cents. It earlier reached 94.59 cents, near last week’s three-year high of 94.46. One Canadian dollar buys $1.0502.
“The Conservatives are always the favorite party for financial markets, so it should be a positive result for Canadian assets,” said Charles St-Arnaud, Canadian economist and foreign exchange strategist at Nomura Securities International in New York. “The fact that he will pass the tax cuts for corporations, that’s something investors appreciate, also a strong commitment to a balanced budget.”
Canadian government bonds have returned 5.2 percent over the past year as of yesterday, according to Bank of America Merrill Lynch index data, compared with a 2.8 percent average for the G-7.
“It will be relatively positive for government bonds,” said Hosen Marjaee, senior managing director at Manulife Asset Management in Toronto, which oversees about C$16 billion in fixed-income assets. “The Conservatives had a plan to balance the budget. They are going to be able to stay on the plan without extra spending being introduced in the program.”