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.
The rapid yield increase in the fourth quarter of 2016 gave way to a much more sedate first quarter 2017 trading range for both the Canadian and US 10-year government bonds. Both bonds traded in an approximate range of 0.25%-0.30%, and finished March slightly lower than where they began the year.
Central Banks have given us a lot to think about over the last few years with respect to yield curves and positioning fixed income portfolios.
While the effects of central banks’ efforts have varied somewhat in 2016, there had been a general trend to flatter yield curves, lower government bond yields and tighter credit spreads over the last 8 months.