Canadian pension plan investments saw very modest gains in the third quarter of 2022 as both stock and bond markets responded favourably to the pace of interest rate hikes around the globe, according to a new report by Northern Trust Canada.

The report, which tracks the performance of Canadian defined benefit plans, found the median plan returned 0.76 per cent for the quarter, registering a 14.75 per cent drop year to date as of Sept. 30, 2022.

The third quarter was marked by increased market volatility, mostly triggered by persistent inflation and the willingness of monetary policy-makers to bring it under control. Indeed, major central banks followed a similar tightening direction.

Read: Canadian DB pension plan assets down 8.8% in Q2: report

The UK government’s announcement of an unfunded fiscal package, subsequently countered by Bank of England intervention, put further pressure on global bond markets late in the quarter. But despite the restrictive monetary policy environment, North American equity markets held up reasonably well, led by the U.S.

“Measures taken by central banks to restore equilibrium across the global economy cascaded down to the investments of Canadian pension plans,” said Katie Pries, president and chief executive officer of Northern Trust Canada, in a press release. “Despite the ebb and flow of volatility, pension plan sponsors have demonstrated resilience and adapted well through ever-changing cycles, as witnessed this quarter by the positive return of the median pension plan against a backdrop of monetary tightening.”

During the quarter, emerging markets lagged developed markets, as global central banks continued their tightening path. The Canadian fixed income market, as measured by the FTSE Canada universe bond index, advanced 0.5 per cent. Provincial bonds outperformed corporate and federal bonds, while long-term bonds outpaced both short- and medium-term bonds.

Read: Canadian DB pension plans return -6.4% during heightened volatility in Q1: report

Similarly, RBC Investor and Treasury Services’ all-plan universe is reporting gains of 0.5 per cent for Canadian DB pensions in the third quarter, bringing the year-to-date return to negative 13.7 per cent for the period ending Sept. 30, 2022.

“Pensions experienced a temporary reprieve in July as the global markets rallied sharply,” said Niki Zaphiratos, managing director of asset owners at RBC Investor & Treasury Services, in a press release. “This rather short-lived change in market sentiment was based mostly on the assumption that the central banks’ actions would help control inflationary pressures. We then saw losses over the rest of the quarter, primarily due to concerns that additional aggressive measures would be taken by the central banks.”

Over the quarter, global equities returned negative 1.1 per cent, while Canadian equities returned negative 1.2 per cent. Fixed income securities held by Canadian DB plans returned 1.1 per cent, but were down 17.5 per cent on a year-to-date basis. As central banks around the world continued to aggressively raise short-term interest rates to stem inflation, long-term bonds outperformed their short-term counterparts for the quarter. However, the reverse was true on a year-to-date basis, with short-term bonds returning negative 4.7 per cent and long-term bonds returning negative 21 per cent.

Read: Canadian DB pension plan losses hit 5.5% in Q1: report