Highlights from February Global Fixed Income Webcast

Kamyar Hazaveh's picture

Highlights from the Global Fixed Income Webcast

On February 16, 2017, we hosted a webcast on the fixed income outlook, positioning and performance.

Here are the highlights:

Looking at the global markets from a cyclical lens

  • The consensus is focused on fiscal policy and the new U.S. administration.
  • From a cyclical perspective, the improvement in global growth and inflation has been in place since the summer of 2016 (long before the U.S. election) pulling interest rates higher.
  • The question that we are focused on is how long the current upturn is going to last before markets start pricing the other side of the current cyclical wave.
  • Markets and the consensus constantly over-estimate and over-project current conditions. This was evident in 2010 and 2012 when upon Ben Bernanke’s QE announcements, inflation expectations spiked only to fall over the ensuing years.
  • Inside global fixed income, the risk premiums for bearing pro-cyclical risk have collapsed in investment grade, high yield and emerging market debt reflecting the current favorable economic conditions. On the flip side, tight risk premiums leave little room for error.

Central bank policy

  • The U.S. Federal Reserve – increasingly confident
    • Two to three interest rate hikes this year
    • Talk of balance sheet reduction (asset sales)
    • The window of opportunity for tightening is smaller than the Fed thinks
  • European Central Bank – stuck with fundamentally bankrupt sovereigns
    • Non-committal to additional QE
    • Peripheral spreads and funding costs will be a problem
  • Bank of Japan – autopilot on the most simulative path
    • Yield Curve Control (YCC) firmly in place
    • USDJPY is the best proxy for risk appetite and reflation trades globally
  • Bank of Canada – sounding dovish
    • Talking down rates hikes and the currency
    • Market unlikely to stand by as global growth improves

Italian yields – speed limit to higher yields

  • We constantly think about the extent to which interest rates can rise before pushing the risk assets or global economy into a fresh slowdown.
  • There are very few things that are certain in our business. However, we believe that the insolvency of peripheral European countries (if the current high interest rates continue) is very likely.  

Dr. Yen – risk appetite

  • With Yield Curve Control (YCC) in Japan, bonds yields in Japan are not moving while the rest of the world bonds move. This makes the USDJPY currency pair a good measure of risk appetite.
  • The direction of USDJPY correlates with other markets: weaker Yen means higher stocks, higher bond yields and lower credit spreads.

Positioning and performance update

  • Signature Global Bond Fund is positioned underweight Euros and Yen and overweight CAD. This combined with our allocation to ILBs (inflation-linked bonds) positions the fund for improvements in industrial commodities and inflation.
  • The duration of the Signature Global Bond Fund is below benchmark at the total portfolio level. The strategy is overweight duration in the U.S. and Canada at the expense of Europe and Japan.
  • The fund is about 0.46% ahead of its benchmark the JP Morgan Global Government Total Return Index – Currency unhedged, which had performance of -1.9% for the period of December 30, 2016 to January 31, 2017. The Signature Global Bond Fund’s performance was aided by active duration and curve positioning as well allocation to inflation-linked and emerging market assets.

  • Signature Tactical Bond Pool is positioned underweight duration with a large allocation to inflation-linked bonds which has been reduced recently (profit taking). Allocation to high yield and emerging market assets are about 8%. Allocation to preferred shares has increased to about 3.5% of the fund.
  • Signature Tactical Bond Pool is flat to its benchmark the FTSE/TMX Canadian Universe in terms of performance.  The benchmark returned -0.12% for the period of December 30, 2016 to January 31, 2017.
  • Active duration and curve management, inflation-linked assets, emerging markets and preferred shares contributing to the performance while the weakness of USDCAD offsetting that somewhat.

A word on counter-cyclical fixed income investing and active management

  • Investors and the consensus constantly project the current conditions too far and chase returns in assets that have performed recently. Diversification is the key in achieving financial goal for institutions and individuals and reducing the risk of ruin. Prudent portfolio construction argues for maintaining allocation to counter-cyclical fixed income.
  • Our defensive fixed income products are designed to behave counter-cyclical and correlate negatively to risky asset (stocks or high yield bonds). The absolute returns of these strategies are not going to be great in an environment where equity markets are making new higher highs every day.
  • Quantitative easing in recent years killed active management as central banks chased bond yields lower and destroyed any notion of value in financial markets in the process. With less focus on QE, 2017 could be a year where active management across all asset classes starting with bonds is more important.

Standard performance data – As at January 31, 2017

Fund Name YR 3YR 5 YR 10YR SI Inception Date

Signature Canadian Bond Fund Class F







Signature Global Bond Fund Class F







Signature Short-Term Bond Fund Class F







Signature Tactical Bond Pool Class F








This commentary is published by CI Investments Inc. It is provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in this commentary is accurate at the time of publication. However, CI Investments Inc. cannot guarantee its accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. This report may contain forward-looking statements about the fund, its future performance, strategies or prospects, and possible future fund action. These statements reflect the portfolio managers’ current beliefs and are based on information currently available to them. Forward-looking statements are not guarantees of future performance. We caution you not to place undue reliance on these statements as a number of factors could cause actual events or results to differ materially from those expressed in any forward-looking statement, including economic, political and market changes and other developments. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return include changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.  Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.


Submitted by Les Kom on

I see your views on the Euro. Any thoughts on the GBP?

Kamyar Hazaveh's picture
Submitted by Kamyar Hazaveh on

The GBP is doing fair in our assessment relative to the interest rate differential between the U.K. and Canada.

Although the GBP has depreciated against other major currencies since Brexit, long duration bonds in the U.K. have performed well especially after correcting for inflation differences. This view has kept us at benchmark allocation (i.e. JP Morgan Global Government Bond Index – Currency Unhedged) to the U.K. bond market both in terms of market value and duration. Our active positioning in the U.K. is of a micro relative-value nature.

It is important to note as well that we do not have fundamental solvency concerns for the U.K. We are concerned about solvency and re-denomination risk in European government bonds (France and Italy in particular).


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