May Outlook
May 9, 2019  |  By Hank Cunningham

Bond yields have reached the low end of what we perceive to be a 2.40-2.80% trading range. If Fed Chair Powell is correct in labelling the recent softness in inflation as “transitory”, then bond yields may tick higher. Some of the recent decline in yields may also have emanated from the safe-haven bid after the latest trade spat.

Global growth is positive but at a reduced pace from 2018; Europe is mired in a 1% growth phase with a majority of its bonds at negative yields.

With most central banks on the sidelines (i.e., no tightening), corporations have little to fear from rising rates. Corporate bond yields, both investment grade and high yield, have thus narrowed versus government yields. This has held true in Canada where the Bank of Canada finally abandoned its tightening bias.

Thus far, inflation has not shown any signs of accelerating and we expect no jarring moves in bond yields.

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