Power Producers Extend Canada Loss Streak as Bond Yields Pop

Some of 2020’s top performing stocks in Canada have lost some luster as bond yields grind higher and recent power woes in Texas add to the drag.

Canada’s utility stocks have fallen for 13 straight sessions, their longest losing streak on record. Rising yields on bonds reduce the attractiveness of utilities as a safe-haven for dividend-oriented investors.

The “dramatic” spike in bond yields has been the primary culprit for the sector’s weakness, said Chris Kerlow, a Toronto-based portfolio manager at Richardson Wealth Ltd. The firm remains positive on Algonquin Power & Utilities Corp. because of its power and renewable exposure.

Power Producers Extend Canada Loss Streak as Bond Yields Pop

Yields on 10-year treasuries in the U.S. and Canada have hit levels just above 1.43% and 1.35% this week, their highest in about a year, and climbing more than 50 and 60 basis points, respectively, this year alone.

Read more: Bond Market Overshooting Inflation Expectations, BMO’s CFO Says

Utilities posted some of 2020’s strongest rallies, with Boralex Inc. up more than 90% and Northland Power Inc. almost 70%. Both stocks are down so far this year. Boralex garnered an upgrade to outperfrom from sector perform at National Bank Thursday following its weakness.

Rising bond yields have hurt the group, though Boralex could garner more investor attention given its renewable exposure and “well contracted portfolio,” analyst Rupert Merer said in a note to clients.

Ontario-based Algonquin told investors this week it expects a hit to adjusted Ebitda from the severe storm in Texas. Meanwhile, Just Energy Group Inc. revealed a big loss and said it may have trouble continuing as a going concern after last week’s freezing weather cost it about $250 million.

Amid the group’s retreat, at least one investor isn’t sweating pessimism around higher rates. Until they climb to about 3% to 5%, “it’s not worth worrying about,” said Ryan Bushell, portfolio manager at Toronto-based Newhaven Asset Management. Short-term interest rates will remain “depressed for a very long time,” he added.

Bushell says utility-stock weakness presents a buying opportunity, and sees “big expanded demand for electricity” over the long-term driven by cloud computing, transit electrification, and a continued housing boom.

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