Canadian-based fixed income assets rallied in the first quarter of 2024 as the likelihood of interest rate cuts from global central authorities increases, according to a new report by FTSE Russell.

It noted improved inflation data helped boost the results from Canadian long, corporate and real return bonds in May. While Canadian high-yield credit gained eight per cent since January, Canadian government bond yields dropped due to lower inflation and weaker growth in the quarter.

Last week, the Bank of Canada cut its key policy rate to 4.75 per cent from five per cent, the first cut seen in four years. The banking authority said the metrics for underlying inflation are improving leading it to believe inflation rates are heading to the two per cent target. The Bank of Canada will release its next rate announcement on July 24.

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“We’ve come a long way in our fight against inflation,” said Tiff Macklem, governor of the Bank of Canada, in a report by CTV News. “And our confidence that inflation will continue to move closer to the two per cent target has increased over recent months.”

Despite the improved outlook on inflation and the potential for the U.S. Federal Reserve and the European Central Bank to follow in the footsteps of the Bank of Canada, the scale of rate cuts expected has been reduced.

During the quarter, the Bank of Canada raised its growth forecast for 2024 to 1.5 per cent, up from 0.8 per cent in January, the report noted. Similarly, revised real gross domestic product estimates for Canada in 2024 increased from 0.5 per cent to 0.8 per cent. In the U.S., GDP growth is projected to increase from 2.1 per cent to 2.4 per cent.

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