Portfolio returns: Q2 2026
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (Jan 30, 2023) |
IG Graduation Portfolio F | 0.35
| 1.28
| 1.57
| 3.42
| 5.54
| 4.72
| ||
Quartile rankings | 1 | 1 | 1 | 1 | 1 |
IG Graduation Portfolio Series F
Q2 commentary 2026
Highlights
① The portfolio posted a positive return over the quarter, as short-term bonds outperformed longer-term bonds.
② Corporate sector positioning added meaningful value.
③ Financial issuers were key contributors to excess return.
Portfolio Overview
The second quarter delivered a changing of the guard at the U.S. Federal Reserve, an interim peace with Iran and a bond market that finally stopped pricing hope. Canada spent the quarter debating whether it was in a recession, with the Bank of Canada holding at 2.25% in April and June, with core inflation near 2% and little energy pass through.
Canadian government bond yields exhibited notable intra-quarter volatility during Q2 2026, peaking in mid-May before closing lower by the end of June. The 10-year benchmark yield hit a peak of 3.7% on May 19 and subsequently declined to a low of 3.38% by June 30. At the close of June, the two-year and five-year yields finished at 2.74% and 3.01% respectively, preserving an upward-sloping yield curve.
These fluctuations were catalyzed by specific macroeconomic events. The mid-May surge in yields was fuelled by elevated energy prices, and conversely, an interim peace agreement with Iran alleviated energy-related inflation concerns. Yields were further depressed, led by softer-than-expected U.S. labour market data, which prompted markets to price in impending global monetary easing and exerted downward pressure on longer-term duration.
The fund outperformed the benchmark, primarily driven by security selection and sector positioning within spread sectors (particularly corporate and financial issuers). At the allocation level, corporate bonds were the largest contributor to excess performance. Strong issuer selection across Canadian financial institutions and select corporate holdings generated meaningful value, benefiting from spread tightening and resilient credit fundamentals. The corporate bonds allocation to the financial sector contributed positively, with exposure across banks, insurance companies and diversified financial issuers. In parallel fashion, an underweight exposure to federal bonds detracted from performance, as yields decreased during the period.
Market overview: earnings strength helped markets absorb uncertainty
The second quarter of 2026 reinforced the resilience of financial markets. Investors faced conflict in the Middle East, commodity-price volatility, shifting interest-rate expectations and renewed inflation concerns, yet global equities continued to advance as corporate earnings and economic activity remained stronger than expected. The S&P 500 gained 14.9% in U.S.-dollar terms for the quarter, while the S&P/TSX Composite Index advanced 6.4%, supported by healthier earnings expectations and improving market breadth.
Canadian equities were led by a strong rebound in financials, as better-than-expected bank earnings, resilient credit quality and improved capital markets activity lifted sentiment. U.S. equities were supported by earnings strength rather than a simple risk-on rally, with Information Technology leading as AI infrastructure spending continued to anchor sentiment. International equities also contributed meaningfully, with emerging markets Korea and Taiwan benefitting from demand across the global technology supply chain.
Market outlook: the Iran peace accord dragged energy prices and yields lower
The broader economic data indicates that Canada's recent growth bounce was a temporary correction rather than a full recovery. Although April GDP grew by 0.5% month-over-month, May's flash estimate slowed to just 0.1%. Domestically, the labour market remains soft, business investment continues to contract, due to tariff and Canada-United States-Mexico Agreement (CUSMA) uncertainties, and the mortgage reset cycle persists as a major drag. These structural weaknesses give the Bank of Canada substantial room to ease policy. Canadian fixed income presents an increasingly attractive opportunity, as domestic economic headwinds diverge significantly from the stronger U.S. macro backdrop, paving the way for monetary easing. We expect the Bank of Canada to implement a 25-basis-point (a quarter of a percentage point) rate cut before the end of the year. This divergent policy path makes owning Canadian fixed income directly against U.S. duration a key play for the upcoming quarters.
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