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

Recap

• Bond prices posted their first month of negative returns (FTSE Canada Universe Bond Index -0.28%) as most segments of the yield curve steepened in bearish fashion. Mid and long-term yields rose and short-term yields fell, as inflation expectations increased, while near-term growth expectations decreased amid economic policy uncertainty due to tariffs.
• Domestically, the macroeconomic data (backward-looking) continued to showed positive surprises, while the Bank of Canada (BoC) reduced its policy rate by 0.25% to 2.75% from 3.00% this month.
• Prior to the end of the month, the US announced that they will place a 25% tariff on all imported passenger cars and light trucks – in addition to the 25% tariffs on steel and aluminum announced earlier in the month. Canadian exports of motor vehicles and parts account for 15% of exports to the US.
• The short-end (FTSE Canada Short Term Overall Bond Index, +0.34%) outperformed the belly (FTSE Canada Mid Term Overall Bond Index, -0.05%) and the long-end of the curve (FTSE Canada Long Term Overall Bond Index, – 1.41%) Shorter duration corporate bonds (FTSE Canada All Corporate Bond Index, -0.05%) outperformed longer duration government bonds (FTSE Canada All Government Bond Index, -0.36%).
• Credits spreads on investment-grade corporate bonds (FTSE Canada All Corporate Bond Index) continued to widen by 4bps over the month, compared to the 6bps of widening last month. The shorter-duration segments of the corporate bond index (Financial, Real Estate, Securitized) outperformed the longer-duration segments (Communication, Energy, Industrial, and Infrastructure).

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 March 31, 2025

The Look Ahead

• While the backward-looking GDP figures continue to show momentum, the outlook past this first quarter of 2025 is highly uncertain. There are apparent downside risks to Canada’s economy as the threat of looming and widespread tariffs becomes reality.
• The BoC is in precarious position as inflation expectations are likely to continue to run hot in the near-term, while aggregate demand is expected to weaken. How tariffs play out remains as an unknown, but the BoC is likely to lower its policy rate at least once over the next two meetings.

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.
• With credit spreads at the lower-end of a multi-year range and significant new bond issues coming in the primary market, the Manager has implemented portfolio credit hedges within the Guardian Strategic Income Fund.
• The Manager is looking to reduce credit risk in favour of lower beta corporate bonds, while incrementally adding curve exposure aiming to enhance returns (i.e., roll-down) from further steepening of the yield curve in the Guardian Investment Grade Corporate Bond Fund.
• The Manager re-applied yield curve steepening position (i.e., overweight the belly of the curve) in the Guardian Canadian Bond Fund, seeking to reduce exposure to higher beta corporate bonds and lowering contribution to duration from corporate bonds to maintain yield carry, while seeking to mitigate risks from a spread widening event.

Source: Guardian Capital based on data for the FTSE Canada Universe Bond Index from PC Bond, Bloomberg as at March 31, 2025
**Details of the Indexes used in the chart can be found on page 5.

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 (7.19 years as at March 31).
• Higher concentration in 7- and 10-year key rates and lower concentration in 20- and 30-year key rates, relative to the benchmark.
• Increasing contribution to duration from Provincial bonds while reducing contribution to duration from corporate 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. 5.89 years, respectively, as at March 31).
• Higher concentration in 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 Financial, Infrastructure, Industrial, and Communication sectors.

Guardian Strategic Income Fund (Alternative Fund)*

• Maintained tactical US-Canada 10-year futures trade
• Tactically added to some issuers that were pricing a prolonged bearish tariff scenario as spreads widened during the month (i.e., Vermilion Energy, New Gold, ERO Copper, Rogers Communications, Cleveland-Cliffs, Chemours, Snap Inc., Norwegian Cruise Lines, Nabors Inc.)
• Rolled credit hedges (i.e., IG CDX).
• Re-initiated tactical US yield curve steepener futures trade.
• The Manager continues to look for opportunities to slowly add incremental high-quality exposure as credit spreads widen during these volatile periods.

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.

Source: Guardian Capital based on data from PC Bond, Bloomberg as at March 31, 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.

YTM: The Yield to Maturity (YTM) shown is the current yield-to-maturity, gross of fees, based on 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 shown is the 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.

^YTM reported for the Guardian Strategic Income Fund 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.

Current Yield: The Current Yield is an annualized historical yield based on actual net income of the Fund for the seven-day period ended on the date specified and does not represent an actual one-year return.

Note: ^^Current Yield reported for the Guardian Strategic Income Fund 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, option spreads, forwards, etc.) compared to traditional fixed income funds.

*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.

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Date published: April 11, 2025