Ahead of the Curve: Monthly Bond Market Recap and Outlook – June 2025

Recap

• The broad Canadian fixed income universe ended the month in positive return territory (FTSE Canada Universe Bond Index; +0.06%) as the market continued to experience bouts of intra-month volatility.
• The Bank of Canada (BoC) kept rates unchanged in June, citing uncertainty about US tariffs, softening but not sharply weakening economy and unexpected firmness in preferred measures of inflation, as reasons for holding the policy rate at 2.75%.
• The US Federal Reserve (Fed) also kept rates unchanged in June, citing recent indicators pointing to expanding economic activity, somewhat elevated inflation, and robust labour conditions, as reasons for holding rates at 4.50%.
• Domestically, the macroeconomic data continued to broadly surprise to the downside, with the unemployment rate rising to 7% as jobs losses continue to mount in tariff-exposed sectors (i.e., manufacturing -12.2k, transportation and warehousing (-15.5k). Consumer Price Index (CPI), year-over-year, came in as expected (1.7%), as shelter prices grew at a slower pace, while prices for travel tours, air transportation and gasoline fell in May. Prices for new passenger vehicles rose 4.9% YoY in May, attributed to electric vehicles.
• The net result was higher yields across the yield curve, driven by mid- and long-term yields, as the curve steepened in bearish fashion. The short-end of the yield curve (FTSE Canada Short Term Overall Bond Index, +0.27%) outperformed both the belly (FTSE Canada Mid Term Overall Bond Index, +0.22%) and the long end (FTSE Canada Long Term Overall Bond Index, -0.42%). Shorter duration corporate bonds (FTSE Canada All Corporate Bond Index, +0.29%) outperformed longer duration government bonds (FTSE Canada All Government Bond Index, -0.01%).
• Credit spreads on investment-grade corporate bonds (Bloomberg Canada Aggregate Corporate Index) continued to compress tighter during the month, driven by bonds within the Materials, Consumer Staples, and Consumer Discretionary sectors.

Source: Guardian Capital based on month over month (MoM) change data for the FTSE Canada Universe Bond Index from PC Bond, and data from Bloomberg for the Canada Sovereign Curve rates (ID: YCGT0007); as at June 30, 2025

The Look Ahead

• While the BoC has kept rates unchanged over their last two meetings, we are still in an easing cycle of accommodative monetary policy. With monthly GDP for April showing a contraction, and the flash estimate for May indicating another contraction, market expectations (based on OIS pricing) indicate that the BoC may cut rates by an additional 25 bps before the end of the year.
• The pace of new corporate bond issuances is expected to be lower during the summer months, which should be supportive of credit spreads.

Positioning Opportunities

• For investors seeking to reduce the reinvestment risk associated with Guaranteed Investment Certificates (GICs) and high-interest savings accounts (HISAs) due to short-term yields moving lower, GuardBonds™, a suite of target maturity funds, provide attractive yields and offer the potential for greater tax efficiency because of the capital gains potential embedded in purchasing of discount bonds. Additionally, GuardBonds™ are able to provide daily liquidity to investors unlike non-redeemable GICs, which may penalize investors for early redemption.
• The Manager is targeting idiosyncratic issuers with larger coupons that are expected to have a lower market beta compared to fund-flow driven large outstanding high yield issuers, in the Guardian Strategic Income Fund.
• The Manager is making some incremental switches further out on the term structure where the credit spread curve looks attractive in the Guardian Investment Grade Corporate Bond Fund. The Manager also purchased new issues from issuers that have spreads that are historically lower beta to the market.
• The Manager is seeking to maximize return from carry/roll-down and mitigate credit spread exposure in the Guardian Canadian Bond Fund by allocating towards mid-and-long-term Provincial bonds.

Source: Guardian Capital based on data for the FTSE Canada Universe Bond Index from PC Bond, Bloomberg as at June 30, 2025
**Details of the Indexes used in the chart can be found below.

Guardian Fixed Income Funds | Current Positioning

GuardBonds™ Investment Grade Bond Funds

• A suite of actively managed, defined maturity bond funds, that can be used to efficiently construct customized bond ladders.
• Mostly invested in Investment Grade bonds purchased at a discount, to take advantage of capital gains potential.²
• Excellent GICs alternative, more liquid¹ and tax efficient.²

Guardian Canadian Bond Fund

• Similar duration relative to its benchmark, the FTSE Canada Universe Bond Index (7.14 as at June 30).
• Higher concentration in 7- and 10-year key rates and lower concentration in 20- and 30-year key rates, relative to the benchmark.
• Overweight exposure in short-term corporate bonds, but a lower relative contribution to spread duration. Relative excess exposure to spread sensitivity is predominantly allocated to mid-and-long-term Provincial bonds.

Guardian Investment Grade Corporate Bond Fund

• Similar duration profile relative to its benchmark, the FTSE Canada Mid Term Corporate Bond Index (5.84 vs. 5.92 years, respectively, as at June 30).
• Higher concentration in 3- and 10-year key rates and lower concentration in 5-year and 7-year key rates, relative to the benchmark.
• Overweight bonds within the Real Estate and Energy sectors and underweight bonds within the Infrastructure and Industrial sectors.

Guardian Strategic Income Fund (Alternative Fund)*

• Maintained tactical US-Canada 10-year futures trade.
• Maintained tactical US yield curve steepener futures trade.
• Took profits in select energy names as oil prices spiked due to the conflict in Iran.
• Added short duration carry to enhance the portfolio’s current yield while managing credit risk.

¹ Each GuardBonds™ fund, despite having a specified maturity date, is fully liquid (intra-day liquidity on the ETF versions, daily liquidity on the mutual fund versions). GICs – even those of the redeemable variety – do not offer the same option for liquidity should it be needed.

² Each GuardBonds™ fund prioritizes holding bonds trading at a discount with the intention of holding them until maturity. When a discount bond matures at par  value, the price appreciation is treated as a capital gain. Total return on a GuardBonds™ fund is expected to consist of bond interest income and capital gains. GICs, on the other hand, are always fully taxed as interest income.

Fund Details

Source: Guardian Capital based on data from PC Bond, Bloomberg as at June 30, 2025

The Duration, Yield to Maturity, Coupon, Average Price and Average Quality shown are based on the weighted average of the securities held in the respective Funds’ portfolio, and for the comparative benchmarks they are based on the weighted average of the Index constituents.

Current Yield: The Current Yield is calculated as the weighted average coupon over the weighted average price, as of the date specified and does not represent an actual one-year return. ^Note: For the Strategic Income Fund the yield value reported in the Current Yield column is its Distribution Yield. Distribution yield is based on Series F distributions per unit over the trailing 12-month period, divided by the end of period unit price. This is a more appropriate measure of the rate of income an investor may expect from the Fund than Current Yield because the Fund may invest in non-coupon paying securities (i.e., futures, options, forwards, etc.) compared to traditional fixed income funds.

YTM: The Yield to Maturity (YTM) shown is the current yield-to-maturity, gross of fees, based on the current market price of the underlying portfolio holdings as at the date indicated. These yields will fluctuate regularly. YTM represents the expected annual rate of return earned on a bond under the assumption that the debt security is held until maturity. †Note: For the T-Bill Funds, the YTM value shown is Yield to Maturity at Cost or YTM (at Cost), which is the weighted average YTM (at Cost) of each of the underlying T-Bill securities in the portfolio, net of cash. YTM (at Cost) means the percentage rate of return paid if the T-Bill security is held to its maturity date from the original time of purchase. The calculation is based on the coupon rate, length of time to maturity, and original price of the underlying T-Bill securities. This is not the yield, distribution rate or performance return of the Fund and is not intended to represent the distribution or return experience of any unitholder. It is only intended to give investors an idea a particular portfolio characteristic of the underlying securities held in the Fund’s portfolio. ^^Note: For the Strategic Income Fund the YTM value shown is Yield to Worst (YTW), given the Fund mostly holds high yield securities. YTW represents the expected annual rate of return earned on a bond under the assumption that the debt security is repaid in full ahead of schedule by the issuer. YTW is lower than YTM given the bond would be held over a shorter period, and is more commonly used for high yield securities like the majority of securities in the Guardian Strategic Income Fund’s portfolio.

*The Guardian Strategic Income Fund is an alternative mutual fund. It is permitted to invest in asset classes or use investment strategies that are not permitted for other types of mutual funds. The specific strategies that differentiate this Fund from other types of mutual funds include borrowing cash, engaging in short selling and investing in specified derivatives. While these strategies will be used in accordance with the Fund’s objectives and strategies, during certain market conditions they may accelerate the pace at which your investment changes in value. This Fund also pays the Manager a Performance Fee equal to 15% of the amount by which the Investment Performance of the applicable series of Units exceeds the aggregate of the High Water Mark and the cumulative Hurdle Amount during the Performance Period. Please refer to the Fund’s prospectus for additional details. Statistics only reflect bond segment.

For more information on the financial terms used in this document, please refer to the Glossary of Financial Terms on our website at: https://www.guardiancapital.com/investmentsolutions/glossary-of-terms/

**Fixed Income Risk-for-Yield Spectrum chart

91 Day T-Bill: FTSE Canada 91 Day T-Bill Index, which tracks Canadian Treasury Bills with maturities of 91 days.

Short: FTSE Canada Short Term Overall Bond Index, which tracks bonds with maturities of 1-5 years.

Mid: FTSE Canada Mid Term Overall Bond Index, which tracks bonds with maturities of 5-10 years.

Universe: FTSE Canada Universe Bond Index, which tracks the universe of corporate and government bonds within Canada.

Long: FTSE Canada Long Term Overall Bond Index, which tracks bonds with maturities over 10 years.

Corporate: FTSE Canada All Corporate Bond Index, tracks corporate bonds within Canada.

High Yield: FTSE Canada High Yield Bond Index:, which tracks high yield bonds within Canada.

DISCLAIMER

This commentary is for informational purposes only and does not constitute investment, financial, legal, accounting, tax advice or a recommendation to buy, sell or hold a security. It shall under no circumstances be considered an offer or solicitation to deal in any product or security mentioned herein. It is only intended for the audience to whom it has been distributed and may not be reproduced or redistributed without the consent of Guardian Capital LP. This information is not intended for distribution into any jurisdiction where such distribution is restricted by law or regulation.

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Date published: July 17, 2025