U.S. economic data was also mixed in March. The unemployment rate fell to 3.8% from 4.0%, but job creation was weak. (Of note, however, average hourly earnings increased at the fastest pace in 10 years.) The housing sector was stronger than expected with starts of new homes and sales of existing homes exceeding forecasts. However, retail sales only partially recovered from very weak results in December and manufacturing production disappointed. Consumer and business sentiment surveys also painted a mixed picture, alternating between optimism and pessimism. Late in the month, the estimated pace of growth in U.S. GDP during the fourth quarter of 2018 was revised from 2.6% to 2.2%. However, economic data covering December and January need to be interpreted with some caution because of the distortion caused by the 35-day federal government shutdown. The U.S. Federal Reserve left interest rates unchanged but surprised the market by indicating that it was unlikely to raise interest rates again until 2020, which caused bond yields to immediately drop 5 basis points or more. The Fed also indicated that it would be stopping the reduction of its bond holdings in September. As a result, the bond market will no longer have to absorb the $50 billion of bonds that the Fed was been shedding each month.

The European Central Bank also kept interest rates unchanged at its March 7th meeting but updated its guidance for a rate hike. Interest rates have been at record lows for years following the euro sovereign debt crisis of 2011 in an effort to boost inflation and stimulate growth. The ECB had previously said that rates would remain at these levels through to the end of the summer. But, because of slower than expected growth and increased global risks, it said it now expects its key interest rates to remain at their present levels at least through the end of 2019. Other global central banks, including those of Australia and New Zealand, also indicated that they were concerned about growth prospects and would likely keep interest rates unchanged for the next several months.

The Canadian yield curve moved lower and became a little flatter in March as yields of long term bonds fell more than those of short term bonds. Specifically, the yield of 2-year Canada Bonds declined 22 basis points while the 30-year yield dropped 29 basis points. The biggest move occurred with the 10-year Canada bond, however, as its yield plunged 32 basis points. The declines left the yields of all Canada bonds maturing in 10 years or less below the Bank of Canada’s overnight target rate of 1.75%. That implied that bond investors were anticipating the Bank would start lowering its interest rates in the next few months.

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