Other asset classes, including real estate and infrastructure projects, have become their go-to choice, although they are less suited to smaller, more established pension plans.
The annual inflation rate in Canada remained constant in October at 6.9%, and is not anticipated to return to the Bank of Canada’s target rate of 2% until.
In a letter addressed to the government, the Canadian Bond Investors’ Association (CBIA), whose membership represents over $1.2 trillion in fixed income assets, cited a strong and “possibly growing demand” for RRBs as it urged the government to reconsider its decision.
The potential disruption to the inflation expectations indicator that the RRB market measures through its breakeven rates – the difference between yields on nominal and real return bonds – adds to investors’ anxiety.
“RRBs must be given a chance to prove their worth in a world of elevated uncertainty around Canada’s economy, inflation and public finances,” strategists at National Bank of Canada, including Warren Lovely, said.
