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Canadian Bonds Drop, Dollar Gains on Prospect Bush Wins in U.S. Nov. 3 (Bloomberg) -- Canadian bonds fell as President George W. Bush led Democratic Senator John Kerry in the U.S. presidential election, reducing concern about an unclear outcome. The currency surged more than 1 percent. Investors sought the haven of government debt before the election on the prospect it would be a repeat of 2000, when the contest between Bush and Vice President Albert Gore produced no winner for weeks during a ballot dispute in Florida. In that span, U.S. 10-year notes yielded more than Canadian bonds. "There's been an unwinding of a flight to safety" in Canada and the U.S., said Marc Levesque, chief strategist of foreign exchange and fixed-income research in Toronto for TD Securities, a unit of Canada's second-biggest bank. " The market is interpreting the results as a victory for Bush." Canada's 5 percent bond due in June 2014 shed 27 cents to C$103.69, as its yield gained 3 basis points, or 0.03 percentage point, to 4.52 percent, at 9:24 a.m. in Toronto, according to bond broker Mouvement Desjardins. The 3.25 percent bond due in December 2006 fell 5 cents to C$99.95, pushing its yield higher by 2 basis points to 3.27 percent. Bush currently has 254 of the 270 electoral college votes needed to win, with results from some states still outstanding, according to U.S. television projections. Kerry has 252. The election result hinged on the winner in Ohio, without which neither candidate can reach the votes required. Bush led Kerry in the state by 144,215 votes with 99 percent of precincts reporting results. That doesn't include provisional ballots that Ohio Secretary of State J. Kenneth Blackwell said may be outstanding and probably won't be counted for at least 11 days. "Ohio is not seen as another Florida," said Levesque. Canadian Dollar The Canadian currency, which fell below 64 U.S. cents after the U.S. election in 2000, rose 1.1 percent to 82.49 U.S. cents, from 81.57 cents yesterday. It's at the highest since September 1992. One U.S. dollar buys C$1.2122. On Oct. 28, it reached 82.24 cents. The U.S. dollar is down against 13 of the 16 major currencies tracked by Bloomberg, on speculation Bush will struggle to reduce the budget and trade deficits, at a time when foreign demand for U.S. assets is waning. Canada's dollar is the biggest gainer. "Canada's dollar is really a monetary-policy story more than anything else," said TD's Levesque. "It's a situation where the Bank of Canada is singing a more hawkish tune, making the Canadian dollar stand out compared with other major currencies; it's not just a U.S. dollar story anymore." Three-Month Surge The Canadian dollar is up almost 9 percent in the past three months, making it the second-biggest gainer against the U.S. dollar among the 16 major currencies tracked by Bloomberg. Only the Norwegian krone has fared better. The Bank of Canada lifted its target rate for the first time in 17 months on Sept. 8, to 2.25 percent, followed by another quarter-point increase on Oct. 19. The bank next meets on Dec. 7. Canadian 10-year bonds yield 39 basis points more than their U.S. counterparts, down about 6 basis points, as reports indicating economic growth in Canada outpaced those in the U.S. since late August. The so-called spread turned negative on May 10, after a U.S. jobs report surpassed economists' forecasts and investors sold U.S. bonds. The gap reached as much as 2 basis points in favor of the U.S. on Nov. 7, 2000. Higher yields on Canadian bonds relative to the U.S. often spur demand for Canadian dollars to buy the debt. Eight national polls released in the previous three days, including those by Fox News, Reuters/Zogby, CNN/USA Today/Gallup, the Wall Street Journal/NBC, the Washington Post/ ABC and the American Research Group showed Bush and Kerry with equal support from likely voters or in a statistical tie.
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