Unsurprisingly, U.S. political events were the primary focus for fixed income markets during the fourth quarter of 2024. Despite a surge in excitement in favour of Kamala Harris after President Biden stood aside earlier in the year, polling, and particularly betting markets, moved more in favour of a Trump/Republican win as the year rolled on, correctly predicting the outcome of the early November election. Markets moved in lockstep, aiming to decipher what a Trump win and possible Republican sweep would mean. Against this backdrop, the two policies markets are most focused on and concerned about are deficit spending and tariffs.
The concerns over unfunded tax cuts drove yields higher, led by the back end of the curve – steepening the curve marginally in the process. 5-year, 10-year and 30-year U.S. Treasury yields rose 87.2 bps, 83.8 bps and 71 bps respectively, whereas 2-year U.S. Treasury yields rose 62.8 bps. Tariff concerns were most evident in currency markets with the U.S. dollar performing well, particularly against currencies most at risk of the most substantial tariffs – Mexico and Canada.
Both the FTSE Canada Universe Bond Index and the U.S. Investment Grade Bond Index posted negative returns during the quarter.
The Mackenzie Floating Rate Income ETF is the sixth-largest weighted allocation in the portfolio and the largest contributor to performance. Loans provided consistent positive monthly returns throughout all of 2024 as high coupons, strong technical and the absence of rate risk drove returns.
The Mackenzie North American Corporate Bond Fund is the fifth-largest weighted allocation in the portfolio and a positive contributor to performance. The fund posted positive returns during the periods as corporate bond spreads continued to grind narrower.
The Mackenzie – IG Global Bond Pool is the largest weighted allocation in the portfolio and the weakest contributor to performance. Curve steepening remained a prevalent theme in the period as expectations around accommodative monetary policy in the U.S. moderated and deficit spending mounted.