Anum Siddiqui: In the month of February interest rates, decreased across the yield curve, and the Canadian fixed income bond market was able to produce a marginally positive return, with the FTSE TMX Universe Bond Index producing a return of 0.2%. In terms of the overall market, short-term yields actually increased over the period, as there was less concern over the Bank of Canada decreasing rates. However, mid- to long-term yields actually decreased, and this resulted in longer-term issues outperforming those of the shorter-term. In terms of credit quality, lower-quality issues also underperformed due to the fact that credit spreads widened. From a sector perspective, provincial bonds outperformed along with other government issues. Corporate bonds underperformed, and looking into the corporate bonds, it was really the energy sector that detracted from performance.
Although the index had a marginally positive return, the Morningstar Canadian Fixed Income category produced a negative return of -0.2%. However, there were some actively-managed funds that were able to produce a positive return and that fared better compared to some of their peers.
The Gold-rated PH&N Total Return Bond was in the top quartile for the month of February. This was due to the fact that they had an overweight allocation to government bonds at the expense of being underweight in corporates. However, some of their lower-quality issues did detract from performance.
The Bronze-rated CIBC Canadian Bond Fund was in the third quartile and it had a slightly negative return for the month. The Canadian Bond Fund by CIBC does have a core plus nature, which means that it has a broader opportunity set and can invest in high-yield and global bonds. Because of this wider opportunity set and their investment in high-yield bonds, they fared worse than some of their peers.
In terms of ETF options, there is the Vanguard Canadian Aggregate Bond Index ETF, which tracks the Barclays Global Aggregate, and there is also the BMO Aggregate Bond Index ETF, which tracks the FTSE TMX Universe Bond Index. Both ETFs tracked the index over the month. However, the Vanguard fund had a higher absolute return, and this is due to the fact that the index that it tracks has an overall higher allocation to government bonds.
In March, there will be some announcements made that may have an impact on the overall fixed-income market. For instance, the Bank of Canada recently disclosed that they would not be changing the overnight rate. Furthermore, the federal government will be releasing its budget later in March. Lastly, the Federal Reserve will announce whether or not they will maintain their interest rates or decide to increase them.
