October 10, 2017 | By Hank Cunningham
Performance was negative in all sectors of the bond market in September except for high yield corporates. While the Universe Index is slightly positive for the year-to-date, Federal Government bonds are now showing a negative return.
The U.S. ten-year yield rose 21 basis points in September after falling sharply in August and has tacked on another five basis points thus far in October.
There have been false starts before of bond yields rising in the U.S. What is different this time around is that global yields rose in unison last month. Economic growth in the rest of the world continued to accelerate in a synchronized fashion with even Europe and Japan recording 2% growth year-over-year. While there remains considerable monetary stimulus globally, some Central Banks such as the Bank of Canada and the Bank of Australia are beginning to normalize their policies. ECB head Mario Draghi, while doing nothing but saying a lot, is hinting that he will begin to taper bond purchases soon. The big surprise remains Canada. It reported a strong growth rate of 3.7% for the previous 12 months in what has been a balanced performance for the Canadian economy. The Bank of Canada increased its overnight rate by 25 basis points to 1% on September 6, catching many pundits by surprise. Market yields rose swiftly; two-year, five-year and 10-year Government of Canada bonds have now risen 85, 83 and 65 basis points respectively since early June. Moreover, the Canadian dollar continued to rise, touching $0.825 USD, up 13 % from its lows in May.
As the month wore on, the steam came out of the Canadian economic story, particularly with the second weak trade month in a row, as exports fell. The Loonie slid on this news.
At month-end, there were solid employment reports in the U.S .and Canada. Despite the headline decline in non-farm payrolls, largely a result of the hurricanes, U.S. household employment rose by a whopping 906,000, the unemployment rate fell to 4.2%, and wage gains perked up; increasing by 0.5% for the month and 2.9% year-over-year, the largest increase in eight years.
Canada reported an increase of 112,000 full-time jobs, a decline of one-tenth in the unemployment rate and year-over-year wage growth of 2%.