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Fixed Income Thumbnail

Fixed Income

Flexibility is required

Developed Market Sovereigns - Neutral/Bearish. Corporate Credit- Neutral/Bullish.


Lower yields around the world create issues for income focused investors

Although global sovereign bond yields may have bottomed, they will not be going back to their long term averages in the near term. In addition, more than $10 Trillion USD of global sovereign bonds have a negative yield.

10‑year government bond yields (%)

Mpa of the world. 10‑year government bond yields (%)

Source: Bloomberg as of December 31, 2020. Ratings are from Standard & Poor’s, and are subject to change. Foreign investing, especially in emerging markets, has additional risks, such as currency and market volatility and political and social instability. The commentary on this page is that of Manulife Investment Management. Performance histories are not indicative of future results.

The yield curve will likely continue to steepen in a rapid reopen

The consensus view is for the U.S. Treasury yield curve to continue steepening as longer‑term interest rates rise. We believe that the 2021 environment will be one of accelerating growth/inflation, in which we’ve historically seen an average increase in the 10‑year yield of 50 bps, with a standard deviation of 100 bps.

U.S. Treasury curve

December 31 vs one month and six months ago

U.S. Treasury curve  December 31 vs one month and six months ago

Source: Manulife Investment Management, Bloomberg, as of December 31, 2020.

Move to the better relative opportunity

In an environment of improving global economic growth, yield curves are likely to steepen. Typically, when this happens, credit outperforms government bonds and lower duration outperforms longer duration. In fixed-income, it’s important to understand the landscape going forward and be able to move to the better relative opportunity.

During periods of volatility, the need for a dynamic fixed income strategy is all the more important as the various types of fixed income perform differently in different environments. It is extremely rare that a fixed income type will be the top performers in consecutive years.

Source: As of December 31, 2020. Floating rate (S&P/LSTA Leveraged Loan Index), Canada bond universe (DEX Universe Bond), Canada investment-grade corporate bonds (DEX Corporate Bond), Canadian government bond (DEX Federal Universe Bond), Canadian short-term bonds (DEX Short Term Bond), global blonds (Barclays Global Aggregate), U.S. high-yield (BofA ML US High Yield Master II Unconstrained), emerging market debt (JPM EMBI Global Diversified Index)

Canadian dollar remains tied to oil prices

Recently, the loonie’s relationship to interest rates has completely broken down and the shorter‑term moves can be entirely attributed to the price of oil, specifically West Texas Intermediate (WTI). As oil prices have rallied more recently, so too has the Canadian dollar. Expect the Canadian dollar to continue its appreciation relative to the U.S. dollar. We believe it’ll be between US$0.79–0.81, with risk to the upside over the next six to 12 months.

CADUSD vs Fair value model (oil)

Last 10 years

Oil Prices vs CADUSD and Fair Value Model to Oil  2000 - Current

Source: Manulife Investment Management, Bloomberg, as of December 31, 2020.

Manulife Investment Management’s sample strategy

Manulife Investment Management’s sample strategy

Canadian equities

• Favour a selective approach to Canadian equities.

• Consider diversifying business risks, not just sectors.


US Equities

• Look for opportunities to take advantage of market dislocations.

• Consider dollar‑cost averaging into equities.

International developed market equities

• Consider less constrained strategies that can seek out opportunities wherever they may present themselves.

Emerging Market equities

Opportunities may exist within the emerging markets, specifically in the Asia ex‑Japan region.


Fixed Income
• Favour flexible strategies that can seize opportunities wherever they may be.

•Consider using different types of bonds for different objectives, whether it is downside protection or enhanced yield.

•Be mindful of the potential currency impact on global allocations.



Source: Manulife Investment Management as of December 31, 2020. For illustration purposes only. Performance histories are not indicative of future returns. The information in this document does not replace or supersede KYC (know your client) suitability, needs analysis or any other regulatory requirements. Clients should seek the advice of professionals before making any investment decisions.