Global government bond returns finished January on a positive note, buoyed by expectations of further quantitative easing, such as in Canada, the E.U. and the U.K., or rates staying the same, such as in the U.S., according to a new report by FTSE Russell.
It found long Canadian real returns were up 2.6 per cent, outperforming conventional peers. Canadian 10-year conventional yields briefly touched 4.5 per cent, before ending the month lower, near three per cent, close to where they were initially, amid the threat of tariffs levied by the Trump administration. Overseas-based returns generally improved due to the weaker Canadian dollar. Short yields extended their 12-month gains in January, with one- to three-year Canada bonds and the FTSE World Government Bond Index up 6.0 per cent and 10 per cent, respectively.
Read: Canadian government long-term bond yields rise as feds deploy aggressive rate cuts: report
January also saw high-yield and investment-grade corporate bonds benefit from the equity market rally and lower rates, noted the report. While Canada had the highest investment-grade corporate bond performance, it still lost its top position relative to other regions because of the depreciation of the Canadian dollar versus other currencies. That said, both investment grade and high-yield credits were up one per cent to two per cent overall, despite significant market volatility.
The report also noted the International Monetary Fund expects global growth to be stable at 3.3 per cent in 2025 but below its historical average of 3.7 per cent (from 2000 to 2019). Canada is projected to grow by two per cent in 2025 (or 1.8 per cent according to Bank of Canada estimates) and benefit from robust U.S. gross domestic product of 2.7 per cent, though the imposition of higher tariffs could force a Canadian recession and impact U.S. trade and inflation.
Read: Canadian fixed income yields de-coupling from U.S. market performance: report