Natixis Canada Blog

Bonds:


Canadian Bond Market Seesaws in February as Yields Rise Then Fall Twice in the Month

 

Jeff Herold
Jeff Herold, Portfolio Manager, NexGen Canadian Bond Funds

The Canadian bond market moved in a seesaw pattern in February, with yields rising and then falling twice in the month. The bond market remained in the trading range that began in December, once the market had initially reacted to the surprise U.S. presidential election result. The market’s focus remained on the new U.S. administration, as the correlation between Canadian and U.S. bond yields was very high. Investors were hoping for greater clarity on the new government’s fiscal, regulatory and trade policies. The economic consensus remained optimistic, with risk premia (yield spreads) for provincial and corporate bonds shrinking and the U.S. stock market continuing its post-election rally. The FTSE TMX Canada Universe Bond index returned 0.96% in February.

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Canadian Bond Market Seesaws in January as Investors Discern the Impact of the Change in U.S. Government

 

Jeff Herold
Jeff Herold, Portfolio Manager, NexGen Canadian Bond Funds

The Canadian bond market experienced a seesaw month as investors tried to discern the impact of the change in the United States’ government. After a weak finish to 2016, with lower bond prices and higher yields, it appeared that in January the market was catching its breath and evaluating whether it had discounted too much following the election of Donald Trump as U.S. president. Slightly higher yields for long-term bonds resulted in lower prices that caused the value of the overall index to decline marginally. The FTSE TMX Canada Universe Bond index returned -0.12% in January.

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Upward Pressure on Yields a Global Trend in Q4

Kenneth M. Buntrock; Lynda Schweitzer; David W. Rolley; Scott M. Service; Co-Managers, Loomis Sayles Global Diversified Corporate Bond Funds

Following the US presidential election, markets adopted a view that US growth and inflation are headed higher. In December, the Federal Reserve (the Fed) raised rates and struck an unexpectedly hawkish tone, helping push Treasury yields to their highest levels since 2014. Upward pressure on yields was a global trend as investors sought equities and other higher-risk assets in response to improved economic prospects. Notably, new monetary policy tactics from the Bank of Japan kept Japanese government bond yields relatively stable and helped them outperform developed market peers.

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US High Yield a Bright Spot for Global Fixed Income in Q4

Dan Fuss; Matt Eagan; Elaine Stokes; Brian Kennedy; Co-Managers, Loomis Sayles Strategic Monthly Income Fund

Risk appetite held up well during the quarter. The US high yield rally continued and equity markets hit all-time highs following Donald Trump’s presidential win and the surprise Republican sweep of Congress. The Federal Reserve (the Fed) raised interest rates for the second time in a decade, Brent crude oil surged over 13 % in the face of a strong US dollar rally, and market volatility generally remained low.

US high yield was a bright spot in global fixed income during the quarter and built on already outstanding year-to-date returns. The sector benefited as the jump in oil prices helped strengthen credit profiles in energy and related industries. Energy-related names tended to lead the broad market in results.

The US Treasury yield curve steepened significantly, with all yields moving higher. The belly of the curve (5- to 10-year rates) rose the most, with the 10-year yield up around 100 basis points for the quarter.

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Divergence Between Stock and Bonds in Q4 2016 Highlights the Importance of a Balanced Strategy

Ron Patton, Portfolio Manager, Natixis Strategic Balanced Fund

Market Review & Outlook

The fourth quarter’s most distinctive attribute was the divergence between stock and bond performance, highlighting the importance of investing in a balanced strategy. The FTSE TMX Canada Universe Bond Index turned in its worst quarterly performance since March 1994. Yields increased ~45 basis points resulting in a -3.4% return. Stocks, represented by the MSCI World Index and the S&P/TSX Composite Index, moved higher. Canadian equities were the best performing asset class (up 4.5%), followed by global equities (up 3.9% in Canadian dollars), then bonds. As a result, our overweight position in global equities relative to Canadian equities was a slightly negative factor, while our underweight in bonds and our exposure to preferred shares was a positive factor.

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