TSX hits 9-day low as investors adjust to higher bond yields

·2 min read
Toronto Stock Exchange's S&P/TSX composite index rises to a record high

By Fergal Smith

TORONTO (Reuters) - Canada's main stock index on Wednesday fell to its lowest level in more than one week as the recent jump in bond yields reduced investor appetite for high-growth sectors such as technology, offsetting gains for gold mining shares.

The Toronto Stock Exchange's S&P/TSX composite index ended down 69.41 points, or 0.3%, at 21,205.16, its lowest closing level since Jan. 10.

Bond yields globally have climbed this year as investors bet that central banks will hike interest rates over the coming months to tamp down inflation. Canada's 10-year yield touched its highest level since March 2019 at 1.905% before pulling back to 1.874%.

Canada's annual inflation rate accelerated in December to hit a 30-year high, data showed, bolstering expectations the Bank of Canada could hike interest rates as soon as next week.

"The adjustment to higher yields will probably result in more downside volatility in the high-multiple, low-margin growth stocks," said Stan Wong, a portfolio manager at Scotia Wealth Management. "Technology is the area that everybody is watching right now."

Higher interest rates reduce the value to investors of the future cash flows that technology and other high-growth sectors are expected to produce.

Tech stocks on the Toronto market fell 2% to hit their lowest level since May last year. The sector has fallen 25% from its September peak.

Financials, the most heavily-weighted sector on the TSX, lost 1.4%, while consumer discretionary shares ended 2.2% lower.

The energy sector fell 0.4% despite further strength in oil prices.

U.S. crude futures settled 1.8% higher at $86.96 a barrel after a fire on a pipeline from Iraq to Turkey briefly stopped flows, while gold jumped about $27 to $1,840.54 per ounce.

The materials group, which includes precious and base metals miners and fertilizer companies, added 4.2%.

(Reporting by Fergal Smith; Additional reporting by Amal S in Bengaluru; Editing by David Gregorio)