March Outlook
March 9, 2018  |  By Hank Cunningham

Performance was mildly positive in most sectors of the bond market in February. U.S. yields rose by more than Canadian yields at three month, two- and ten-year maturities by five basis points across the board. February saw a continuation of this year’s bear trend as the yield on the bellwether ten-year note hit 2.95% on February 21. The following factors identify the sources of rising bond yields:

  • Growing global economic growth – world growth reached 4% in Q3
  • Solid economic performance in the U.S. in almost all sectors – employment, housing, construction, manufacturing, exports, consumer spending and optimism, and vehicle sales
  • Uptick in inflation was modest but has reached 2% year-over-year
  • Buoyant labour market – wages advanced in the U.S. by 2.9% year-over-year, the most rapid pace since 2009. They recently ebbed to a 2.6% rate year-over-year
  • Increased supply – the combination of the increased deficit plus the run-off from the Federal Reserve’s balance sheet means that there will be an extra $500 billion of new U.S. Treasury supply

  • While the Federal Reserve stood pat, the incoming Fed Governor Jerome Powell left little doubt that the Fed would continue to normalize rates this year. The market now assumes that he will raise the Fed Funds Rate four times.

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