The close: TSX gains as pot stocks soar; Canada’s 10-year bond yield at all-time low

Canada’s main stock index rose on Monday as investors looked to an eventual economic recovery from the coronavirus with more countries scaling back lockdown measures. Pot stocks rallied sharply on positive momentum that started for many of them last week.

But the bond market painted a less optimistic picture. Canada’s 10-year government bond yield slid to a record low.

The Toronto Stock Exchange’s S&P/TSX composite index rose 161.78 points, or 1.08%, at 15,075.42.

Japan lifted a state of emergency for parts of the country on Monday. With areas in Europe and the United States also lifting curbs, investors are increasingly betting on an eventual return to economic normalcy. Still, trading was subdued on account of a U.S. holiday.

Among advancing sectors was technology, with a 2.06% gain, and real estate, with a gain of 2.94%. Cannabis shares were well represented among top gainers, with Supreme Cannabis Co up 25.8%, Hexo 23.8%, Village Farms International 13.95%, Green Organic Dutchman Holdings up 19.5%, and Canopy Growth up 8.5%.

Pot stocks have been on a tear over the last week. March sales data from Health Canada were better than expected - possibly due to ‘pantry loading’ ahead of quarantine measures.

Financials rose 1.70%. Quarterly earnings for Canada’s Big 5 begin Tuesday, when Bank of Nova Scotia reports before markets open.

Leading decliners today on the TSX was Transat AT, dropping 7%. Transat extended the timing of its acquisition by Air Canada after European regulators launched an in-depth investigation into the deal over concerns it may reduce competition and result in higher prices.

Canada bonds

Even though equities have rebounded sharply from their March lows, Canadian government bond yields are now at or close to all-time lows - a signal of just how weak the outlook for the domestic economy has become.

Canada’s 10-year bond slid below 0.5% on Monday, a new closing low, noted Douglas Porter, chief economist of the Bank of Montreal. “These sustained low yields will help keep the cost of massive fiscal support measures manageable,” he said in a report.

The Bank of Canada’s heavy use of bond buying to keep liquidity in the market is one of the reasons yields are so low, he said. “The Bank of Canada may have been a relative late-bloomer to the world of quantitative easing, but it has jumped in with both feet. Since the end of March, when the bond buying program began, BoC holdings of government of Canada assets (bills and bonds) have leapt by $117 billion to $223 billion as of last week. This aggressive buying, and the doubling of holdings, has played a role in keeping yields in check.”

Bank of Canada Governor Stephen Poloz said in a presentation today that the Canadian economy is entering “unknowable times,” adding that the policy-makers who will follow the soon-departing central bank boss will be working in “unparalleled uncertainty.”

“It is clear that the events of this year will be a massive test for everyone’s policy-making ability. We are entering unknowable times and we will have to be nimble and innovative,” Mr. Poloz said.

With files from Reuters

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