December Outlook
December 20, 2021  |  By Hank Cunningham

While the Federal Reserve Board has signaled that it will end its bond-purchasing program in early 2022 and will follow that with as many as three hikes in the Federal Funds Rate, long-term bond yields have fallen, creating a flatter yield curve in the process. Even the Fed has acknowledged that the recent surge in inflation is not transitory. There appears to be a consensus that the easing of supply-chain snarls may lead to a subsiding of headline inflation. However, the extraordinary tightness in the labour market is beginning to manifest itself into increases in wages. If this becomes a trend, it should translate into elevated inflation for longer.

The recent variant outbreak may affect global economic growth, but for now, conditions are vibrant.

It is unlikely that long-term bond yields will resume their uptrend in the short run. Thus, the “lower for longer” argument remains alive and well. Investors may look to benefit from rising short-term yields. Since September, anticipating some tightening by the Fed, U.S. two-year yields have leaped by 40 basis points, while the ten-year has risen only marginally.

Central Banks are in line with the Fed. The Bank of England has raised its key rate, while the Bank of Canada is not far behind. Thus, it appears likely that we will have multiple rate hikes in 2022, with some moderation in inflation.

Fixed income investors will continue to be frustrated by the poor returns available in the bond market.

+Full Report


November Outlook
November 15, 2021  |  By Hank Cunningham

Fixed income yields are poised to move even higher. Inflation is proving to be resilient, pushing to multi-decade highs as measured by the CPI in the U.S., and broadly higher elsewhere. The transitory view on inflation are taking a hit as price pressures spread to most sectors of the economy. In the wake of this, demands for higher wages have begun and are likely to continue.

Global growth estimates are optimistic and many developed world economies have surpassed various pre-pandemic levels.

Overall, we may be in a bear market for bonds. The move higher in short-term yields is a harbinger of the tapering about to begin. In the near term, it is likely that bond yields may make a new high for the year, passing 1.75% in the process.

+Full Report


October Outlook
October 19, 2021  |  By Hank Cunningham

With massive fiscal stimulus (and more expected to come), extremely accommodative monetary policy, and upside surprises on inflation, which threaten to remain at elevated levels, we anticipate that bond yields will continue to work themselves higher. Real yields are still negative, but less so and global growth has proven to be resilient.

The 10-year, currently at 1.60%, is approaching the 12-month high of 1.74%, which it reached this past March. As yields approach this level, we expect some consolidation, perhaps making 1.75% a reasonable year-end target.

Corporate bond markets have been well-behaved, absorbing high volumes of new issues. Yield spreads of high yield and investment-grade remain tight to government bonds and we expect little change in these spreads.

Overall, we may be in a bear market for bonds. The move higher in short-term yields is a harbinger of the tapering about to begin.

+Full Report