Economic Outlook

Fixed income quarterly recap

Jul 24, 2017
By BlackRock

Quarterly markets recap – Q2 2017

Canada sovereign yield curve

Canada sovereign yield curve

Source: BlackRock, Bloomberg L.P. (Bloomberg). As of June 30, 2017.
“BlackRock” means BlackRock Asset Management Canada Limited and its affiliates worldwide.

  • Yield Curve: In the second quarter, the major themes affecting markets were ongoing political risk, the continuation of the synchronization in the global economic recovery and the specter of potentially tighter monetary policy across a number of regions, including Canada. June was characterized by hawkish rhetoric across the G10 with the Bank of Canada, European Central Bank, and Bank of England all taking a more hawkish stance, causing global rate markets to sell off in the final week of June. Over the second quarter, Government of Canada 5-year yields increased by 27bps while 30-year yields declined by 16bps.
  • Spreads: Credit spreads continued to grind tighter as technical demand remained strong.

Key events:

  • At its June meeting, the Federal Reserve raised interest rates for the third time in the last six months by 25bps and also signaled its intention to begin winding down its balance sheet built up during years of quantitative easing.
  • Centrist candidate Emmanuel Macron’s decisive victory in the French presidential elections elicited a strong, albeit short-lived, rally in risk assets in early May.
  • In the UK, Prime Minister Theresa May’s decision to call a snap general election backfired with the Conservative government losing its slim majority. Optically at least this weakens the government’s hand in the Brexit negotiations, which began in Brussels on June 19.