January Outlook
January 13, 2020  |  By Hank Cunningham

We believe the fundamentals are in place for further increases in bond yields this year. Global economic growth seems to have bottomed with modest strength emerging. There is a growing belief that monetary policy has done its part and now is the time for concerted fiscal stimulus. Thus far, such stimulus has been scattered but the momentum is growing. The net result will be to further buttress global economic growth. At present, and assuming further easing in global trade tensions, global growth is estimated at 2.8% for 2020 with Canada and the U.S. forecast to grow at 2%.

The odds of a recession have fallen markedly. With the Fed and the Bank of Canada on the sidelines and supporting the front end of the yield curve, the odds favour a further increase in longer-term bond yields and a steeper yield curve. Inflation has remained subdued, in the 2% region with no signs of acceleration. Similarly, wage growth has been anemic, despite 40-year lows in unemployment.

We forecast that the U.S. ten-year note will breach 2% in the near term and possibly trend to 2.25% in the first half of 2020.

Corporate bond yields will remain tight to government yields with little stress evident in the credit markets.         

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December Outlook
December 10, 2019  |  By Hank Cunningham

The global economy is rebounding at a modest pace and, with more fiscal stimulus in place, the stage is set for further increases in bond yields. Global growth is forecast to be in the area of 2%. Recently, a blockbuster employment report in the U.S. reinforced the expansion theme and also demonstrated that inflation is beginning to move higher, albeit still at a modest pace.

Significantly, increased fiscal stimulus added to the pickup in growth. Analysts are watching Germany carefully; should it add to the global increase in fiscal stimulus like the $120 billion of new spending announced by Japan, bond yields should rise further. In the Euro zone, sovereign yields moved higher (closer to zero) at a rate faster than that of U.S .yields.

On balance, the U.S. economy appears to be gathering strength. The consumer is in excellent condition with confidence high and debt under control.  The employment market is healthy with gains in wages, the housing market is firm and there are signs that the weakness in manufacturing may be bottoming.

In the absence of some adverse news on the trade front, bond yields are poised to move higher with the September lows of 1.43% on the bellwether ten-year looking more and more like an important inflection point. It is possible to see this bond reaching 2% before year-end and perhaps 2.25% in the first quarter of 2020.

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November Outlook
November 8, 2019  |  By Hank Cunningham

Recession talk has been pushed to the background as it appears a mid-cycle recovery is underway and bond yields globally have bottomed. This view is contingent on further progress in the U.S.-China trade discussions.

Importantly, Euro Sovereign yields began to move higher at a faster pace than North American yields. This is partly due to the emphasis on fiscal stimulus espoused by the incoming ECB President, Christine Lagarde. Not only would fiscal stimulus offer help to economic recovery, but it would also increase the supply of bonds in the market place. We believe this uptrend in yields will continue, pushing the U.S. Ten-Year through the 2% level before year-end.

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