Bond Pool Quarterly Review
For the period ending
December 31, 2009
While the Bond index was marginally negative for the quarter at -0.2%, the discrepancy in the returns between Government of Canada bonds and corporate bonds continued, with the Government bonds declining 0.5%, and corporate bonds up 1.0%. Canada bonds in the mid and long term part of the yield curve were the cause of the declining return, as yields rose throughout this part of the curve.
During the quarter, the portfolio had a return of 0.3%, 50 basis points ahead of the index, while for the 12 months ending December 31, the portfolio return of 7.3% was well ahead of the index return of 5.4%.
Our overweight to corporate bonds drove the outperformance during both these periods.
FIXED INCOME REVIEW & STRATEGY
The duration of the portfolio was maintained close to the index as the prospect for higher interest rates, considering the historical lows achieved early in the year, was substantially offset by diminished concerns about inflation. Beginning in 2010, we anticipate a gradual removal of excess monetary accommodation which may begin to put upward pressure on bond yields.
Our overweight position in corporate and provincial bonds during 2009 was a substantial factor that positively impacted the portfolio as a result of their strong relative risk-adjusted returns. The portfolio continues to overweight very high quality Canadian corporate and provincial bond issues in order to generate a higher portfolio yield than the index.
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