Rising bond yields negatively impact Canadian pension plan returns for Q1
28 April 2021 Canada
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Canadian Pension Plans were negatively impacted by rising bond yields in Q1 2021, according to the Northern Trust Canada Universe.
Plans in the universe saw flat performance overall, with strong equity returns countered by falling bond prices, which push up yields, explains Northern Trust.
Northern Trust highlights that positive sentiment boosted equity markets as the global COVID-19 pandemic started to wane amid new vaccine approvals and progress on vaccination programmes.
As vaccination numbers continued to rise, coupled with favourable economic data and healthy corporate earnings, investor sentiment turned more optimistic.
The Q1 2021 results found that the Canadian yield curve steepened throughout the quarter, as bond prices fell on the prospects for future growth and potential for a rise in inflation.
Meanwhile, global equities finished Q1 2021 on a much stronger footing compared to the steep decline witnessed during the same period a year ago.
Major stock indexes continued to trend in positive territory throughout the quarter as the collective efforts of policymakers maintained support to financial markets, says Northern Trust.
It was also identified that a continuation of accommodative monetary policy, supported by renewed fiscal stimulus as well as the roll-out of vaccinations, ignited a positive tone for economies around the world.
US equities, as measured by the S&P 500 Index advanced 4.7 per cent in Canadian dollars (CAD) for the quarter. All sectors excluding consumer staples concluded the quarter in positive territory led by the energy and financial sectors.
International developed markets, as measured by the MSCI EAFE Index, generated 2.2 per cent in CAD for the quarter.
Northern Trust also found that emerging markets, as measured by the MSCI Emerging Markets Index, advanced 1 per cent in CAD for the quarter, with the materials and real estate sectors posting the strongest results.
Elsewhere in the report, Northern Trust explains that the Bank of Canada (BoC) kept its overnight policy rate at 0.25 per cent and maintained its current asset purchase programme, with a reaffirmed commitment to keep rates at a lower level until 2023.
The BoC noted a stronger outlook, as vaccines rolled out earlier than anticipated, coupled with the ample amount of stimulus support. The yield curve steepened throughout the quarter, with a significant increase in yields for the benchmark 10-year government bonds.
The Canadian fixed income market, as measured by the FTSE Universe Bond index, declined 5 per cent for the quarter. The provincial segment witnessed the weakest results followed by the federal and corporate segments.
According to Northern Trust, long term bonds observed a double digit decline, underperforming both the short and mid-term bonds for the quarter.
Katie Pries, president and CEO of Northern Trust Canada, comments: “Vaccination progress has given plan sponsors a more optimistic view of the future path to recovery.’
Pries continues: “This positive outlook, however, triggered bond returns to enter negative territory, diminishing the impact of equity investment gains.”
“Emerging from the pandemic requires time and resilience, and this quarter has provided renewed visibility for many, as we continue on a journey to restore, rebuild and reshape economic and financial health,” adds Pries.
The Northern Trust Canada universe tracks the performance of Canadian institutional investment plans that subscribe to performance measurement services as part of Northern Trust’s asset service offerings.
Last year’s report found that Candian defined benefit plans took a plunge in investment returns, finishing with single-digit losses at the median after enduring a historic period of market volatility and economic turmoil resulting from the global pandemic crisis.
Plans in the universe saw flat performance overall, with strong equity returns countered by falling bond prices, which push up yields, explains Northern Trust.
Northern Trust highlights that positive sentiment boosted equity markets as the global COVID-19 pandemic started to wane amid new vaccine approvals and progress on vaccination programmes.
As vaccination numbers continued to rise, coupled with favourable economic data and healthy corporate earnings, investor sentiment turned more optimistic.
The Q1 2021 results found that the Canadian yield curve steepened throughout the quarter, as bond prices fell on the prospects for future growth and potential for a rise in inflation.
Meanwhile, global equities finished Q1 2021 on a much stronger footing compared to the steep decline witnessed during the same period a year ago.
Major stock indexes continued to trend in positive territory throughout the quarter as the collective efforts of policymakers maintained support to financial markets, says Northern Trust.
It was also identified that a continuation of accommodative monetary policy, supported by renewed fiscal stimulus as well as the roll-out of vaccinations, ignited a positive tone for economies around the world.
US equities, as measured by the S&P 500 Index advanced 4.7 per cent in Canadian dollars (CAD) for the quarter. All sectors excluding consumer staples concluded the quarter in positive territory led by the energy and financial sectors.
International developed markets, as measured by the MSCI EAFE Index, generated 2.2 per cent in CAD for the quarter.
Northern Trust also found that emerging markets, as measured by the MSCI Emerging Markets Index, advanced 1 per cent in CAD for the quarter, with the materials and real estate sectors posting the strongest results.
Elsewhere in the report, Northern Trust explains that the Bank of Canada (BoC) kept its overnight policy rate at 0.25 per cent and maintained its current asset purchase programme, with a reaffirmed commitment to keep rates at a lower level until 2023.
The BoC noted a stronger outlook, as vaccines rolled out earlier than anticipated, coupled with the ample amount of stimulus support. The yield curve steepened throughout the quarter, with a significant increase in yields for the benchmark 10-year government bonds.
The Canadian fixed income market, as measured by the FTSE Universe Bond index, declined 5 per cent for the quarter. The provincial segment witnessed the weakest results followed by the federal and corporate segments.
According to Northern Trust, long term bonds observed a double digit decline, underperforming both the short and mid-term bonds for the quarter.
Katie Pries, president and CEO of Northern Trust Canada, comments: “Vaccination progress has given plan sponsors a more optimistic view of the future path to recovery.’
Pries continues: “This positive outlook, however, triggered bond returns to enter negative territory, diminishing the impact of equity investment gains.”
“Emerging from the pandemic requires time and resilience, and this quarter has provided renewed visibility for many, as we continue on a journey to restore, rebuild and reshape economic and financial health,” adds Pries.
The Northern Trust Canada universe tracks the performance of Canadian institutional investment plans that subscribe to performance measurement services as part of Northern Trust’s asset service offerings.
Last year’s report found that Candian defined benefit plans took a plunge in investment returns, finishing with single-digit losses at the median after enduring a historic period of market volatility and economic turmoil resulting from the global pandemic crisis.
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