Which Canadian bonds performed the worst in the second quarter?

FTSE Russell's latest data reveals the performance of Canada’s bonds market amid nervous investor sentiment

Which Canadian bonds performed the worst in the second quarter?
Steve Randall

With the toxic cocktail of economic and geopolitical events in sharp focus, Canadian bond investors were understandably nervous in the second quarter of 2022.

But which bonds performed the best and which ones lagged heading into summer?

The FTSE Russell Fixed Income Insights for Q2 2022 shows that long Canadian conventional and inflation-linked bonds were the underperformers, with losses of more than 30%.

Credit also fell, especially euro high yield bonds.

Conversely, Canadian corporates and provinces outperformed along with lower duration US Treasuries.

Recession fears

With central banks becoming more aggressive with their inflation-taming policies - Canadian yield curve flattened further in Q2 as the BoC implemented its aggressive 0.50% rate hike in June - fears of recession grew in the last 3 months with investors selling-off fixed income assets almost completely across the board.

Looking ahead, the consensus GDP forecast for Canada is growth of 3.8% in 2022 (down from 4.7% in 2021) followed by 2.8% for 2023.

To put this in context, the US is expected to grow 2.6% this year and 2.0% next with similar growth for the Eurozone; China will be the outperformer with 5% for 2022 and 5.2% in 2023.

Consensus inflation forecasts for Canada are 5.1% for 2022 and 2.4% for 2023, compared to 7.4% (2022) and 3.2% (2023) for the US and just 2.2% and 2.3% for China.