Waiting for the next opportunity in fixed income markets

As central banks continue to normalize interest rates, bond markets will be far more volatile than in the past, says CIBC's Patrick O'Toole.

Michael Ryval 22 November, 2018 | 6:00PM
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Central banks have been gradually hiking interest rates and putting downward pressure on bond markets. While long-term bond specialist Patrick O'Toole concedes that the rate-hiking momentum will continue into 2019, he argues that the economic backdrop may cause central banks to take a breather sometime next year, and that may present bond-buying opportunities.

"The guidance from the Federal Reserve is that they will hike again in December and three times in 2019, and once for good measure in 2020. They're telling us they are going a little above 3% [for the Fed Funds rate]," says O'Toole, vice-president, global fixed income at CIBC Asset Management in Toronto. "They've said, 'We believe 3% is neutral.'" Meanwhile, the Bank of Canada has also said that a neutral stance is 3%, and with the bank rate at 1.75%, it has some ways to go.

"That means the Bank of Canada could be hiking rates five or six times in the next couple of years. But we'll see," says O'Toole, an Ottawa native and a 29-year industry veteran who worked at several fund companies before joining CIBC in 2004. "This is all predicated on everything going along swimmingly," says OToole, noting that the implication is that economic growth remains solid and inflation does not get out of hand.

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Michael Ryval

Michael Ryval  Michael Ryval, a regular contributor to Morningstar, is a Toronto-based freelance writer who specializes in business and investing.

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