Quarterly report
Possible regime change but valuation still matters
Overview
Government bond yields fell modestly in Q2, as oil prices fell, but rate hikes from the ECB and BoJ, and Fed caution on rates, limited gains. Inflation near target and policy rates near neutral reduce pressure on the BoC to move rates. The US capex boom and higher real yields suggest a regime shift away from the savings glut and weak productivity of the 2010s, at least in the US. However, UST yields are at, or near, valuation extremes. Our empirical work suggests starting yields are strongly correlated with future returns.
Key highlights:
- Macro and policy backdrop – Fed caution on rates, as Capex boom drives growth
- Spotlight on AI and real yields – Possible regime change underway?
- FX – Yen weakened to 1986 levels versus USD driven by broad-base dollar strength
- US Treasuries and credit – Real yields near multi-year highs. Credit spreads stable
- Canadian governments, provincials and municipals – More evidence of de-coupling of yields from US
- Canadian IG and HY credit – Correlation with US IG credit declines
- Performance – Gilts led in government bonds in Q2; linkers lagged as credit outperformed
These reports provide actionable insights on global fixed income markets. They cover shifts in global yield curve and credit spreads, across sovereign, inflation-linked and corporate indices, and FX-adjusted return performance using proprietary month-end data from our global fixed income indices.
For specialist content on a range of investment topics, including macroeconomic analysis and how it affects market performance and multi-asset analysis, viewed through our indices and data, explore our Global Investment Research hub.
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