Global financial markets were roiled by the collapse of the U.S.-China trade talks in early May. Investors worried that increased trade restrictions between the world’s two largest economies were going to have a substantial negative impact on global economic activity. Equity prices declined and global government bond markets rallied as investors sought safe havens. Late in the month, the U.S. announced plans to use tariffs against Mexico in response to migrant immigration which caused further uncertainty and pushed stock prices and bond yields even lower. Corporate bonds trailed government bond returns as yield spreads widened in response to the rising economic uncertainty. The FTSE Canada Universe Bond index returned 1.69% in May.

As can be seen in the following chart, global bond markets were highly correlated in May. The impact of the U.S. instigated trade wars was expected to impact growth globally, and investors worldwide sought the safe havens of government bonds. Interestingly, U.S. bond yields were under as much pressure as the bonds of other countries. Also of note, the global decline in yields led the German Bund to hit an all-time record low yield of -0.20%. In equities, the negative

reaction to the U.S. trade moves was larger in U.S. markets than in many other markets. The S&P 500 dropped 6.58% in the month, compared with the S&P/TSX at -3.28%, the FTSE 100 at -3.46%, and the German DAX at -5.00%. Many observers believe that U.S. president Trump pays attention to stock markets and will adjust his trade negotiating stance should equities suffer substantially more losses from here.