In Europe, economic growth accelerated in the first quarter, but the second quarter was expected to experience some slowing, because the first quarter relied heavily on exceptional growth in German household consumption. The European Central Bank stated it would keep its stimulative monetary policy unchanged through the first half of 2020, an extension of six months versus its previous projection. The ECB’s forward guidance combined with concerns that growth would slow caused European bond yields to fall. For example, German 10-year Bund yields, which were already in negative territory, fell from -0.20% to -0.33% in June. French 10-year government bonds (OATS) fell even more, declining from +0.20% to -0.005%.

The Canadian yield curve flattened in June as 10 and 30-year Canada bond yields fell 2 and 8 basis points, respectively, while 2 and 5-year yields went up a few basis points. With the decline in 30-year yields, the whole Canada yield curve finished the month below the Bank of Canada’s overnight interest rate of 1.75%. This suggests that investors are anticipating that the Bank will eventually be lowering its interest rate in the coming months. The changes in the Canadian yield curve in June were markedly different from the shift in the U.S. yield curve. In the United States, the more dovish remarks by Fed officials led investors to anticipate a series of interest rate reductions commencing in July. The yields of 2 and 5-year U.S. Treasuries dropped 19 and 17 basis points, respectively, while 30-year yields fell a more muted 4 basis points.

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