Canadian bond markets are among the most at risk, as interest rates have a way to go to get to a more neutral setting, cautions BCA Research.

The latest bulletin from the BCA Global Fixed Income Strategy service examines country allocation across the major bond markets from various perspectives. These perspectives include a blend of measures of bond valuation and relative business cycle pressures.

“While the results are somewhat mixed, the U.S. and Aussie bond markets are the most attractive overall,” it concludes. “The euro area, Japan and Canada are most at risk, with the U.K. in the middle.”

“One investment strategy that may pay dividends is to overweight those countries that have already renormalized interest rates, and underweight those that still have a long way to go. This strategy would favor the U.S., U.K. and Australian bond markets, since short-term interest rates are close to our measure of neutral,” it notes.

http://www.bankcreditanalyst.com/public/story.asp?pre=PRE-20051115.GIF