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Like George W. Bush standing on the deck of the USS Abraham Lincoln in May 2003, the market appears to have hoisted the “Mission Accomplished” banner on this monetary tightening cycle. Risk premiums have dropped, borrowers have renewed access to capital and the percentage of economists predicting a recession has dropped considerably from the “100%” tally of not so many months ago.

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The so-called experts who called for dismal markets in 2023 were nowhere to be found in the 2024 New Year prognostications. Happy days were here again, and nobody wanted to spoil the fortunes from soaring markets that had been handed to investors by saying anything remotely negative this time around.

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Corporate bond markets raced higher in the fourth quarter as inflation continued to decline, labour market strength showed signs of moderating and Federal Reserve policymakers signaled their rate hiking efforts may be coming to an end.

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Generations of finance students have been taught Efficient Markets theory, but we have always begged to differ. What happened in 2023 to the financial markets and the economy should give anyone pause about how efficient the financial markets really are.

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It was a cruel summer in the bond market as interest rates climbed swiftly higher. Yields across both Canadian and U.S. government curves jumped, hitting levels not seen since 2007.

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Canadians rejoiced the dramatic victory of Nick Taylor who became the first Canuck to win the Canadian Open since 1954. Meanwhile, Canadian bond investors are celebrating a victory of their own, with the return of positive real bond yields. Listen more in the July 2023 Corporate Bond Newsletter

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The global bond market is experiencing the violence of sharply rising yields. Loose fiscal policy and pandemic government income supports combined increasing demand with reduced supply. Prices are soaring to levels not seen in the over 40 years since the high inflation 1970s.

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History books will show the official end of emergency monetary policy accommodation to offset the Covid-19 pandemic came on March 2nd and 16th when the BOC and the Fed raised overnight rates. In reality, the recalibration of bond markets started well beforehand, in response to inflation, and in anticipation of central bank action.