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The bear market rally in the bond market that lasted from mid June to late July ended as bond prices fell and yields rose in August. Neither the Bank of Canada nor the U.S. Federal Reserve had active meetings during the month, but both central banks were vocal in stating their resolve to tighten monetary policy until inflation returned to their 2% targets. Indeed, the market began to believe that the Bank of Canada and the Fed would continue to tighten monetary policy to fight inflation, even if the economy falls into recession. In anticipation of higher money market yields, bond investors demanded higher yields. Globally, many other central banks continued to tighten monetary policy, including the Bank of England which raised its benchmark interest rate by 50 basis-points, the first hike of that magnitude in 27 years. The Reserve Banks of Australia and New Zealand, as well as Norway’s Norges Bank, each made similar rate increases in the month. This showed a concerted global effort by central banks to return inflationary pressures back to acceptable levels. The FTSE Canada Universe Bond Index returned -2.74% in August. (more…)