The recent fall in government bond yields

Jul 16, 2021 | Elinesky Schuett Private Wealth Management


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In our blog post this week, we discuss the recent decline in bond yields, the growth outlook, and the second quarter earnings season which is now underway.

We’ve also included two other interesting economic links this week, including audio commentary from RBC’s portfolio advisory group on the outlook for the remainder of 2021 in, As good as it gets? Eric Lascelles also provides an update in the recent podcast, Reflections on June’s jobs report.

In addition to our economic commentary, there are two other interesting articles included below, the first focused on charitable giving and the second on cyber security and two-step verification. We’ve also included more information about our new online meeting scheduler that will launch in the fall of 2021.

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


Economic commentary

Global equity markets remain near their highs for the year, recently fuelled by technology and other growth areas of the market. The more interesting story in recent weeks has been the move lower in government bond yields. We discuss this a bit more below, and also preview the second quarter earnings season which is now upon us and likely to garner investor attention over the course of the next few weeks.

The recent fall in government bond yields

Government bond yields represent the approximate income return an investor can expect to earn if they were to purchase a government bond at prevailing market prices. Yields have an inverse relationship with the price of a bond. In other words, strong investor demand for bonds can push prices higher and yields lower, and vice versa. Investors watch these yields closely as they tend to be a real-time reflection of investor expectations and appetite for risk.

Yields have been falling in recent weeks, indicating that demand is rising or supply is falling, or both. The decline in yields could be an indication that investors are incrementally more concerned about the future. Some may believe that the strong U.S. economic momentum may fade to some extent as we move into the second half of the year. Others have grown concerned about growth overseas given rising COVID-19 cases that present some risk of renewed lockdowns and restrictions. Regardless, it seems investors are placing greater value today on the relative liquidity, stability, and perceived safety of government bonds than they did just a few months ago.

We remain less concerned about the growth outlook for the time being. While U.S. momentum may indeed fade from the lofty levels witnessed earlier this year, the economic environment should remain relatively favourable. Furthermore, vaccination campaigns have been slower in some parts of the world that are dealing with rising virus cases, though it is worth acknowledging that cases are once again trending higher in places like the U.S. Nevertheless, as vaccination rates improve, the likelihood of long lasting restrictions should diminish.

An alternative explanation for the recent fall in government bond yields could be that the sharp increase earlier this year – a near doubling in the case of some maturities in Canada and the U.S. – was simply overdone and the move lower in recent weeks is a reversion to more reasonable levels.

Expectations for earnings season

The other development we are watching closely is the unfolding of the second quarter (April through June) earnings season. Expectations are relatively high, with the consensus forecast calling for more than 60 percent earnings growth for U.S. companies in the widely followed S&P 500 index, relative to the same period year-over-year. It’s worth remembering that last year’s second quarter was heavily impacted by the lockdowns in most parts of the world, which helps to explain the dramatic recovery forecasted this season. Earnings growth is expected to moderate through the rest of the year and still expected to finish well above 30 percent for the full year.

The forecasted moderation in growth has garnered investor attention in recent weeks and we suspect it will remain an intensely debated issue. However, we prefer to look at the bigger picture... Long-term earnings growth has historically been anchored near the seven percent level, thus an environment characterized by double digit gains in profits is relatively attractive, at least from a historical perspective.

 

Audio commentary: As good as it gets?

The economic recovery has plenty of momentum, but the concern is that rising inflation may cause the Fed to shift gears on stimulus sooner rather than later. Markets have come a long way from the pandemic lows. What should investors look for in the second half of 2021? Janet Engels, Head of the Portfolio Advisory Group – U.S. at RBC Wealth Management, and Tylar Lunke, Senior Manager of the Portfolio Advisory Group’s Managed Portfolio Strategies team, discuss the outlook for the rest of the year.

 

Listen to the audio commentary online: As good as it gets?

 

 

Reflections on June’s jobs report

Image of business man smiling at a microphone. Text: RBC Global Asset Management. The Download with David Richardson featuring Eric Lascelles This episode, Chief Economist Eric Lascelles covers the latest macroeconomic trends around the world. Starting with some promising employment data out of Canada and the U.S., Eric also talks about the cooling inflation expectations, and questions whether the delta variant could halt further economic growth.

Listen online: Reflections on June’s jobs report
11 minutes, 33 seconds

Do you have a strategy for your charitable giving?

Family standing around a kitchen island making lunchBeing charitable can mean a number of things. For many Canadians, it’s supporting causes or organizations you care about via donations and financial means. For some, it may be contributing your time through volunteering. How and why you give, and the level of emphasis you place on charitable activities, is something completely personal to you or your family.

Read more online: Do you have a strategy for your charitable giving?

 

Take 2 Minutes: Two-step verification

Text surrounded by two circles: Take 2 minutes. Icons of a phone, lock, and key in bottom right corner. Two-step verification is one of the safest ways to secure your online accounts and keep your info out of the hands of scammers. But what is it? How does it work? Isn’t using the password “password123” good enough?

Read more online: Two-step verification

 

Coming fall 2021: A new way to schedule your next meeting with us

Coming this fall, we will be offering you a new way to schedule your next online meeting with us quickly and easily through our new interactive meeting scheduler.

It’s as easy as 1.. 2.. 3..

  1. We will send you an email invitation when it’s time to book your next meeting with us - Click on the link in the email to view our calendar

  2. Pick an available date and time that’s convenient for you

  3. Watch your email for your appointment confirmation

Over the summer, we will continue to share information with you about this new way to schedule your next meeting with us. If you have any questions, please do not hesitate to contact us directly.

Protecting your privacy

As a reminder, RBC will never send you an email asking you to click on a website link to log into your account or provide confidential information. With our new online scheduler, we will send you an email with a link to view our calendar and select your meeting time only. If you ever need to send us confidential information online, please ask about our secure message service.

 

Community Corner

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