July Outlook
July 9, 2018  |  By Hank Cunningham

Given the strong fundamentals for the U.S. economy and the accompanying rise in inflation, ten-year yields should move above 3% soon, with a year-end target of 3.25% a distinct possibility.

The Federal Reserve and the Bank of Canada will continue to withdraw accommodation at a measured pace and thus will move their respective key short-term rates ever closer to “normal.”

Overhanging the bond market is the possible detriment to global growth arising from the tussle over tariffs. Neither the Fed nor the Bank of Canada has made any downgrades thus far to their respective forecasts.

Credit markets have displayed some nervousness understandably but, overall, they remain well-behaved.

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June Outlook
June 7, 2018  |  By Hank Cunningham

The yield curve flattened further in May. It actually steepened early in the month when long-term rates rose quickly but this reversed and the yield spread between the two-year and ten-year U.S. Treasury ended the month at 43 basis points.

May began with a continuation of this year’s rise in bond yields. With the U.S. economy throwing off strong retail sales, manufacturing and employment reports, the U.S. ten-year yield rose to 3.11%. Then, it all changed.

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May Outlook
May 11, 2018  |  By Hank Cunningham

Bond yields rose at all maturities in April with the yield on the bellwether U.S. ten-year note adding twenty basis points to reach 2.95%. The U.S. two-year note reached 2.50%, the highest since 2008 and its yield now exceeds the dividend yield for the Dow Jones Industrial Average.

Thus, performance was negative in most sectors of the bond market in April. It was notable that Government bonds underperformed corporate bonds by a healthy margin as credit spreads stabilized and government yields rose. The high yield market was stable and produced positive returns.

The yield curve was slightly steeper for the month but the flattening trend has resumed in May.

It was noteworthy in Canada that the Government five-year yield reached its highest level in five years and gave rise to hikes in mortgage rates. The Bank of Canada did not raise the Bank Rate and adopted a neutral tone as the Canadian economy experienced some headwinds.

Elsewhere, there was no change in the monetary accommodation by the European Central Bank or the Bank of Japan.

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