The first quarter of 2025 was marked by the transition in the U.S. from the end of the Biden administration to the beginning of the Trump administration. Understandably, there was some trepidation in markets ahead of this due to months of threats around immigration policies and pending "day 1" tariffs. The new administration did not disappoint, with the president signing more Executive Orders in his first one hundred days than any president in history. Most concerning for markets is the threat of tariffs and what that can lead to – inflation, economic slowdown, dysfunctional supply chains, unemployment. Of course, most concerning to us is the threat of tariffs on Canada. In the end the threat was largely toothless, with 25% tariffs being implemented not once but twice and then immediately paused. This left the threat of future tariffs hanging over Canada and the world, and that type of news flow and uncertainty is not without consequences with investors getting cautious on risk – both equities and corporate bonds – in favour of government bonds.
In Canada, yields on 2-year, 5-year, 10-year and 30-year government bonds fell 47bps, 35bps, 26bps and 11bps respectively, significantly bull-steepening the curve. Similarly in the U.S., these same tenors fell 36bps, 43bps, 36bps and 21bps. In terms of credit, the U.S. CDX Investment Grade Index – which had stubbornly refused to widen despite Trump’s electoral success and threats of disruption – finally gave up, widening from sub-50 to over 60. The FTSE Canada Universe Bond Index and the U.S. Investment Grade Bond Index ended the period with positive returns.
The IG Mackenzie Mortgage and Short Term Income Fund was the largest weighted allocation in the portfolio and the largest contributor to performance. Bonds in the financials and energy sectors contributed to performance.
The Mackenzie – IG Canadian Corporate Bond Pool was the third-largest weighted allocation in the portfolio and the second-largest contributor to performance. The fund’s overweight allocation to corporate bonds contributed to performance. Within corporate bonds, issuers in the financials and energy sectors contributed.
During the period, the fund’s exposure to the Mackenzie – IG Canadian Corporate Bond Pool remained consistent at 15.2%. The fund’s allocation to the IG Mackenzie Canadian Money Market Fund ended the period at 18.3%. The fund’s allocation to the IG Mackenzie Real Property Fund decreased from 8.6% to 7.8%. The fund ended the period with a 3.0% allocation to the Mackenzie High Quality Floating Rate Fund.