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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