FEARS GROWING THAT ELECTIONS COULD HURT CANADA'S BONDS

FEARS GROWING THAT ELECTIONS COULD HURT CANADA'S BONDS

Global long-term interest rates are edging down, but Canada is bound to buck the trend this month as the outcome of federal elections Oct. 25 raises doubts about the country's future fiscal policy, analysts said.

Reflecting fears that Canada is losing control over its debt, the 10-year Canadian bond yield has risen 0.35 percentage point since Sept. 1, while the yields on equivalent U.S. and Japanese issues have declined.Most analysts expect the Canadian credit market to extend its losses through the elections amid fears the national debt may explode if the Conservatives lose.

According to the latest opinion polls, the opposition Liberal Party is gaining support and likely to be part of a coalition government. Its members, concerned about the double-digit unemployment rate, have expressed less concern about the nation's growing deficit.

"A change of governing party from Conservative to any of the known opposition parties would bring about a material change in the direction and conduct of economic policy," said chief economist Carl Weinberg at High Frequency Economics.

"Credit rating agencies both in Canada and abroad may be obliged to review Canada's credit rating if there is a change in government," Mr. Weinberg said.

Due to the deepening recession, the Canadian government is falling short of the tax revenue it had pro- jected.

"The test for us would be the policy the next administration would follow, regardless of which political party is in power," said David Beers, who heads the international rating division at Standard and Poor's Corp. "We are not anticipating a change of rating at the present time."

Mr. Beers said, regardless of who wins the elections, the Canadian administration will continue to have difficulties meeting the budget targets outlined earlier.

"What scares investors is that the Canadian government does not seem to be looking at its debt realistically," said senior bond analyst Robert Bannon at I.D.E.A. Inc.

He said a large share of Canada's debt is held by Japanese and British investors who may decide to sell their bond holdings - despite the attractive 7.06 percent yield and a low 1.7 percent inflation rate - amid fears of a debt downgrade, a sagging Canadian dollar or prospects of an independent Quebec which may argue about its share of the national debt.