Following a challenging Q1 for interest rates, Q2 saw fixed income investments perform more positively. The tone of the interest rate cycle changed in June. First, the Bank of Canada cut rates by 25 bps on June 5th, to bring the overnight rate to 4.75%. This was the first cut by the Bank since the outset of the pandemic. The European Central Bank (ECB) followed suit the next day, cutting rates by 25 bps as well, to bring its headline rate to 3.75% (its first rate cut since early 2016).

The month of April saw income yields rise, as economic data, here domestically and from the US, provided evidence that inflation was continuing to prove tough to extinguish. For example, in early April, US ISM, which summarizes the economic activity in the manufacturing sector, was stronger, and prices paid by purchasing managers were higher than expected. The same reaction occurred again in mid-April and late April in response to higher than forecast US CPI (inflation) and US PCE (Personal Consumption) figures.