Bond yields face some resistance… for now

Mar 12, 2021 | Elinesky Schuett Private Wealth Management


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In our featured economic commentary this week, we discuss the worsening virus trends in some parts of the world, including Canada, and some resistance that bond yields faced this past week.

In addition to our regular weekly commentary, we’ve also included a few additional economic videos and podcasts:

  • Economy reopening, vaccines, higher yields and more
  • Podcast: The economy springs back?
  • Podcast: Maintaining momentum

This week we celebrated International Women’s Day with an online panel featuring three extraordinary women. We’ve included a highlight of the event below, and look forward to sharing the video with you as soon as it is available.

As always, we end our weekly blog post with a few good news stories from in and around our community.

Your economic update

The upward pressure on bond yields that had been so notable of late was less pronounced over the past week, driven by a confluence of factors that we explain below. Meanwhile, trends on the virus front have deteriorated. The next wave of the pandemic may have less meaningful investment implications this time around given the rollout of vaccines, but it suggests the world is not quite out of the woods just yet.

Coronavirus update

Frustratingly, the rate of new infections is increasing once again in some countries. In Canada, the seven-day average rate of new daily infections stands at over 3,000 for the first time in a month. The country’s largest province, Ontario, is mostly responsible as it has experienced a noticeable uptick in cases, driven largely by new variants of the virus. Manitoba has also seen an increase, although most other provinces have continued to see declines.

Meanwhile, parts of Europe are struggling to contain a third wave of the virus that is already well underway. Most notable has been Eastern Europe, with the Czech Republic, Slovakia, Hungary, and Poland all experiencing some of the largest infection rates in months. Even Italy and France are dealing with rising figures. Turkey, India, and Brazil are all examples of other countries around the world that are contending with rising infection rates.

The U.S. continues to experience declines. However, the rate of improvement has slowed, and a few states are now seeing rising trends.

Bond yields face some resistance… for now

Global bond yields faced a bit of resistance this past week, which provided some support to global equity markets and led some, like the Canadian stock market, to reach a new high for the year.

There were a number of factors at play that helped limit the upward pressure on bond yields. First, the inflation readings out of the U.S. for the month of February were relatively tame, which served to remind investors that the economy is still in the early stages of recovering and that any signs of pricing pressures have yet to materialize.

Secondly, the European Central Bank decided to take quick action to offset recent upward pressure on bond yields by committing to buy government bonds at a faster clip, hoping to drive bond yields lower as a result. This adds to a similar decision undertaken by the Reserve Bank of Australia the week before. It underscores the notion that monetary authorities remain focused on ensuring that financing conditions – such as borrowing costs for businesses and consumers – remain very accommodative.

Lastly, bond markets were supported by a sizeable debt auction by the U.S. government that went reasonably well. Many governments are issuing increasing amounts of debt to fund the massive amounts of aid and stimulus that have been announced since the onset of the pandemic. This includes the $1.9 trillion stimulus package signed into law by the U.S. administration in recent days. The bond auction resulted in reasonably healthy demand from investors this past week, including large institutions such as pension funds for example.

Ultimately, markets were reassured to some extent that inflation is not yet an issue, central banks remain proactive, willing and able to intervene to counteract forces that could jeopardize an economic recovery, and there remains sufficient investor demand to absorb a growing supply of low yielding government bonds, despite inflation concerns.

We still expect markets to be tested in the months to come as inflation readings should rise as we lap the spring period from a year ago. The potential to overshoot inflation expectations in the near-term remains a possibility given the high amount of savings, pent-up demand, and new rounds of stimulus. Over the longer-term, we are less convinced that inflationary forces will prevail. As always, we remain vigilant and prepared for any additional market wobbles.

Economy reopening, vaccines, higher yields and more

In this video update, Chief Economist Eric Lascelles reviews how countries are reopening their economies as infection rates fall, especially in emerging markets. Surprisingly, recent data suggests that Canada has not experienced economic decline despite job losses over the past few months. He also reviews Canadian competitiveness and the implications of rising bond yields.

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Watch the video online: Economy reopening, vaccines, higher yields and more

Podcast: The economy springs back?

close up image of a mobile device and earbuds on a desk. The screen is orange with a white headphone graphic. There is also a partial view of a keyboard and tablet. Increasing job numbers in the U.S. and Canada are among a string of indicators pointing to a better-than-expected economic recovery. In this episode, Chief Economist Eric Lascelles shares his outlook for what’s ahead this spring. Eric also explores the rise in bond yields from an economic perspective – from central bank decisions to inflation concerns.

Listen to the podcast or read the transcript online: The economy springs back?



Podcast: Maintaining momentum

Stu Kedwell, Co-Head, North American Equities, joins Dave for a deep-dive into the concept of momentum, and how it’s factored into active management as market narratives shift.

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Listen to the podcast or read the transcript online: Maintaining momentum

International Women’s Day

Collage of people participating in an online panel. Top row includes an promotional graphic for the event: Celebrating International Women's Day. Your host: Elinesky Schuett Private Wealth Management of RBC Dominion Securities. The other two square have to women smiling, Suzanne Bone and Kate Drummond. The bottom row is of three people smiling; Jennifer Goody-Brown, Shakiba Shayani, and Tom Schuett.

This week we celebrated International Women's Day by hosting a panel with three extraordinary women: Shakiba Shayani, President & CEO, The Guelph Chamber of Commerce, Suzanne Bone, CEO, The Foundation of Guelph General Hospital, and Kate Drummond, Canadian Actor, Public Speaker, Former School Teacher.

Each of these women had very different stories to tell, but they all deeply underscored the need to continue the conversation around gender equality.

We were also thrilled to share that a $2,500 donation will be made to Guelph Wellington Women in Crisis from the RBC Foundation in honour of International Women's Day.

The event was recorded and we will share it with you as soon as it is available.


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Community Corner

Each week, we like to end our posts with a few good news stories from in and around the community. We hope that they brighten your day!

As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or