Canadian Bond

Managers

• Professionals’ Financial – Mutual Funds Inc.

Returns ^*

* Returns for the first and last year are not annualized

* Non annualized return

$1,000 Invested Amount since inception

The FDP Canadian Bond Portfolio, Series A posted a net return of -0.5% for the first six months of 2024, versus 6.6% for 2023.

The bond market, as measured by the FTSE Canada Universe Bond Index, posted a -0.4% return for the first six months of 2024. The index’s slightly negative return is mainly attributable to lowered expectations of interest rate cuts by the Bank of Canada (BoC), though the impacts were mitigated by narrowing credit spreads.

Since the beginning of 2024, the U.S. Federal Reserve (Fed) and BoC have maintained a restrictive monetary policy and kept their rates high (the BoC implemented a single 25 basis point cut while the Fed left rates unchanged) in an effort to tackle inflationary pressures that have persisted since 2022. These policies are now on track to reach their goals as inflation is approaching target levels. Central banks’ actions of central banks demonstrate their ability to cool the economy and bring down inflation, but the labour market’s enduring strength and consumers’ resilience continue to postpone a return to a neutral monetary policy.

The yield curve, which inverted in 2022, remained inverted over the first six months of 2024. Additionally, credit spreads have generally narrowed since the beginning of the year for both provincial and corporate bonds, continuing a trend that began in 2023. This reflects the easing fears of a recession and investor optimism about central banks’ ability to manage inflation while achieving a soft landing of the economy.

On a relative basis and gross of management fees, the FDP Canadian Bond Portfolio outperformed its benchmark index thanks to its curve positioning and overweight to corporate bonds. The Portfolio benefited from the steepening of the yield curve due to its underexposure to 30+ year maturities and its overexposure to 15–20 year maturities. Narrowing yield spreads and the Portfolio’s overexposure to corporate bonds (especially banking securities) and provincial bonds had a positive impact on relative performance.