The first quarter of this year was ushered in by strong stock markets, rising inflation and interest rate expectations, and the appointment of a new chairman of the US Federal Reserve. After a prolonged period of low volatility for stock markets, prices began to wobble the very week in early February that Jerome Powell was sworn in at the Fed. Market volatility became the story through the rest of the quarter.
The focus for markets through much of the fourth quarter was the political drama surrounding the US tax bill and, of course, the price of Bitcoin. The US tax bill was debated and passed by both the House and Senate, and signed by President Trump before year-end.
The third quarter produced a negative total return for Canadian bond holders as the yield curve continued to rise, albeit more gradually, after the Bank of Canada’s shift to hawkishness in June.
What was a generally positive quarter for bonds, with 10-year yields drifting modestly lower in developed markets, turned on a dime during the last two weeks of June. A second 0.25% increase by the Fed, which was expected, combined with slightly more hawkish statements by several central banks to catch the market off-guard and produce the sharp sell-off.