Market Insights

Market volatility, inflation, and geopolitical developments have all made for a cloudy bond market. However, we are seeing the silver lining from an attractive running yield, dislocation across sectors and geographies, and improved opportunities in security selection.

Given the recent market volatility, YTD 2022 has been an extremely challenging period for fixed income as central banks began tighter monetary regimes. As a result, bond yields spiked, sending bond prices plummeting. This created an opportunity for fixed income investors to purchase bonds and GICs at the most attractive yield levels, and many are now wondering if they should use GICs instead of bonds as a source of safe income.

Although the independence of DIY investing can seem appealing, we believe that investors should reflect on these key themes and potential challenges that exist with achieving diversification, managing, and maintaining bond portfolios cost, and the potential impact of taxes. A qualified investment manager that specializes in bond portfolios can help investors navigate this established asset class in a way that can help achieve investor objectives across market environments.

July saw central banks continue their fastest and most aggressive monetary tightening in recent history. However, we believe some of the volatility that we saw during the first half of the year may be beginning to dissipate and signs of improvement may be on the horizon for fixed income investors. Against this improving backdrop, we have seen credit spread volatility fall and believe there are interesting opportunities that didn't exist at the beginning of 2022 that can deliver strong returns for our portfolios.

We are pleased to announce the launch of our new strategy, RP Broad Corporate Bond (Fossil Fuel Exclusion), designed in partnership with our client, University of Toronto Asset Management (UTAM), and in collaboration with FTSE Russell. Learn more about the strategy and how the first-of-its-kind screening approach was developed!

Living in unprecedented times has become the norm since the pandemic took hold in early 2020, and just when the light at the end of the tunnel begins to shine through, another set of obstructions materialize. We are familiar with the current impediments – inflation running at four-decade highs, escalating geopolitical risks, and a harsh monetary policy regime purposely restricting economic growth. Altogether, we believe this may be a recipe for a recession – but what kind of recession?

In the past few years, we've seen ESG-labeled bonds benefiting from a cost advantage that became known as the "greenium." As the ESG bond market has grown, we've noticed this "greenium" fade as the market matures and the advantages ESG bond issuers once had becomes tied to the ambition of their projects, not just the label of their bond.

Since the beginning of 2021, bond holdings have posted double-digit losses and weighed down portfolio performance. However, as is often the case in markets, with pain comes opportunity. Despite the potential for continued short-term volatility, we believe the time to increase bond allocations for intermediate and long-term investors is now.

During Q1 2022, bond markets suffered across the board as the ongoing conflict in Ukraine, rising inflation expectations, and rising bond yields impacted prices negatively. We discuss the anticipated rate hikes by the US Federal Reserve, corporate fundamentals, and an example of how we generated gains through a relative value lens.

The SEC recently unveiled its landmark proposal requiring companies to disclose a variety of climate-related data as part of their annual reports and audited financial statements, covering both quantitative and qualitative information. We see this as an important step in the codifying of climate-related risks in line with what we already see in the Eurozone.

2022 began with plenty of market activity as monetary policy took center stage and Covid-19 continued to evolve. We believe the driver of recent volatility stems from changing expectations about monetary policy, including the pace and number of interest rate hikes and a greater chance of quantitative tightening in 2022/2023. Find out more about our views on recent market events in the market commentary linked below.

The EU Taxonomy is a classification system that defines environmentally sustainable economic activity under EU law. in this article, we take a look at where we stand and our views on the taxonomy, especially for natural gas and nuclear energy.