The global fixed income markets in 2023 were extremely volatile. They were highly sensitive to macro-economic data releases and Federal Reserve commentary.

In the US, the 10-year treasury yield was over 5% at its peak and the Canadian 10-year treasury reached 4.2% early in the fourth quarter, prior to both markets tumbling over 100 basis points during the last two months of 2023. This historic move down in yields was driven by a seemingly unimportant announcement by the US Treasury department. As reported in The Wall Street Journal, “Treasury officials cut back on the size of increases in 10- and 30-year debt auctions. They also signaled a willingness to rely more on short-term debt, which investors were happy to snap up.”¹

This change in debt auction strategy sparked a plunge in bond yields and a corresponding rise in prices. In the US, long-term treasuries surged 9.2% in November and another 8.6% in December, bringing the fourth quarter return to 12.7%. In Canada, for the fourth quarter, the broad composite index gained 8.3% (6.4% YTD). The short-term index advanced 4.1% (4.9% YTD), the mid-term index gained 8.3% (5.9% YTD), and the long-term index surged 14.8% (8.9% YTD). The CSSB custom index advanced 10.38% for the quarter and 7.66% for the year.

Currently, fixed income yields have risen from the end of 2023, as economic data has been stronger than expected. We anticipate fixed income markets will remain volatile over the near term. We think global monetary tightening policies have peaked and global central banks seem ready to start cutting interest rates sometime in the second quarter of 2024.