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For the second month in a row, global bond markets experienced falling prices and rising yields. The Canadian bond market was no exception, with significant volatility occurring on a number of days. Investor concerns about potential reduction in monetary stimulus from central banks sparked the global selloff. The U.S. Federal Reserve, in particular, gave indications that it might begin reducing, or tapering, its purchases of U.S. government bonds later this year, and that prompted significant selling of bonds. The potential reduction of Fed purchases seemed to have an outsized impact and, in part, that reflected so-called “crowded trades”, in which too many investors who had assumed that monetary stimulus would remain in place indefinitely had to unwind their positions at the same time. As a result, liquidity declined and the price impact was increased. The turmoil was not confined to fixed income markets; global equity markets declined in June, with emerging markets suffering some of the largest losses. Interestingly, economic data received during June was generally weaker than expected and did not support the concept of central banks needing to reduce monetary stimulus. The DEX Universe Bond index fell 2.03% in the month.
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