Portfolio returns: Q2 2025
| Total Return | 1M | 3M | YTD | 1YR | 3YR | 5YR | 10YR | Since Inc. (Jan 30, 2023) |
IG Graduation Portfolio F | 0.39
| 0.64 | 2.26 | 6.88 | 5.27 | |||
Quartile rankings | 1 | 2 | 1 | 1 |
IG Graduation Portfolio Series F
Portfolio commentary
Q2 2025
Highlights
① The portfolio posted a positive return over the quarter as the Canadian yield curve steepened, and investors navigated geopolitical uncertainty and tariff-related volatility.
② Corporate bonds had the greatest impact on the portfolio’s performance during the period.
③ Short-term bonds posted positive performance amid uncertainty.
Portfolio Overview
The second quarter of 2025 opened with markets leaning into the disinflation narrative and the prospect of global rate cuts, but that momentum proved fragile. Sticky core inflation, mixed data, and geopolitical noise kept central banks on the sidelines and left rate curves more reactive than directional.
In Canada, the macro narrative continued to diverge. The Bank of Canada’s April 16 Monetary Policy Report presented scenario analysis around ongoing tariff uncertainty, while reiterating downside growth risks in worst-case trade outcomes. The Bank of Canada continued to stress household debt sensitivity and cumulative tightening effects, but held its policy rate steady in both April and June.
Canadian yields declined across the curve, particularly in the front end. The 2-year yield fell to 2.25% early in the quarter before rebounding toward 2.60%, while 10-year yields ended around 3.25%. The Canada-U.S. 10-year spread narrowed, moving from -125bps at the start of the quarter to approximately -95bps by the end, in line with our long-held view of spread narrowing. Both curves steepened over Q2 2025, but rising issuance expectations in Canada meant a long-end underperformance.
The FTSE Canada Short Term Bond Index achieved positive returns for the quarter.
The portfolio’s allocation to investment-grade corporate bonds positively impacted its performance. Specifically, holdings in corporate bonds within the financials and energy sectors contributed to gains during this period.
The portfolio ended the period with an overweight allocation to corporate bonds at 63.5% and an underweight allocation to government bonds at 33.8%. During the period, the portfolio decreased its allocation to the communication services sector and increased its allocation to the real estate and infrastructure sectors.
Market overview: volatility gripped global markets during "Liberation Day" fallout
The second quarter of 2025 served as a stark lesson in the market’s ability to absorb sharp, politically driven shocks. The period was dominated by the U.S. administration's chaotic trade policy, beginning with the April announcement of sweeping tariffs, which sent global equities into a tailspin. The S&P 500 Index plunged into correction territory, marking its most significant retreat since March 2020.
This initial panic sent investors fleeing to safe havens, a move clearly reflected in the 5.7% surge in gold prices this quarter. However, the administration’s subsequent and rapid reversal of the policy triggered an equally dramatic V-shaped recovery. The initial fear that gripped the market evaporated, and major equity indices charged back into positive territory.
Throughout this turbulence, central banks remained on the sidelines. The U.S. Federal Reserve (the Fed) and the Bank of Canada (BoC) held rates steady, caught between the inflationary threat of tariffs and the risk of a corresponding economic slowdown.
Market outlook: Bank of Canada near end of easing cycle, room for modest cuts remains
Barring a sharp deterioration in domestic activity, the Bank of Canada appears close to done easing. Our stance is slightly more dovish than market pricing, but only moderately so. With the overnight rate at 2.75%, the midpoint of the Bank of Canada neutral range, we believe there is room to cut further toward 2.25%, though the timing isn’t urgent. A more aggressive U.S. Federal Reserve could give the Bank of Canada cover for one or two final moves to round out its cycle.
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