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Global financial markets experienced a wave of optimism in January, as investors anticipated improving economic conditions. Equity markets surged higher, with many bourses gaining more than 5% before receding late in the month. The United States’ avoidance of the fiscal cliff, improving economic data from China, and a lack of headlines regarding the European debt crisis (“no news is good news”) contributed to the positive sentiment. The S&P 500’s so-called fear gauge, the VIX, was quite low, which indicated a lack of anxiety by investors. In this environment, demand for the safety of fixed income fell and global bond yields rose. Only the European countries at the centre of the crisis (viz. Greece, Portugal, Italy, and Spain) experienced significantly lower yields. Canadian yields moved higher in sympathy with the global trend, but generally less than most other bond markets. In part, the relative strength of Canadian bonds may have been the result of a new, more dovish stance by the Bank of Canada. The DEX Universe declined 0.74% in the month.
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