Government bonds top performers in volatile first half, report says

By Katie Keir | July 7, 2020 | Last updated on December 6, 2023
2 min read

The risk rally in credit markets lost momentum last month amid concerns about lockdown exit strategies and weak global growth, leaving government bonds as the best performers so far this year, according to a report from FTSE Russell.

Safe-haven assets such as long U.S. Treasurys, Canadian government bonds and U.K. gilts outperformed in the first half of 2020, which saw a massive market sell-off in February and April before central bank measures “revived risk appetite.”

U.S. Treasuries and Treasury inflation-protected securities have come out on top so far this year, with returns of more than 20%, the report said, while Canadian government bonds have returned 16% year to date and were also positive in Q2.

Despite the Q1 sell-off, investment-grade credit has positive returns for the first half of 2020.

“Canadian credit recovered strongly in Q2, led by energy, which gained 13%, particularly after the BoC signalled corporate bond buying,” the report said.

Canadian high-yield bonds returned 17% in the most recent quarter. Provincial and municipal bonds also benefited as the Bank of Canada extended quantitative easing to provincials.

Inflation-linked government bonds were winners across the globe in Q2, based on rebounding oil prices and inflation expectations, the report said. It pointed to regions such as the U.K. and Australia.

Meanwhile, government bonds in emerging markets and China lagged in Q2, due to caution on central bank easing.

Looking ahead to future quarters, FTSE Russell said slow global GDP growth — and the degree of central bank easing — will be a major factor in how markets perform.

The International Monetary Fund recently downgraded its forecast for global growth to -4.9% for 2020, in part due to a more gradual recovery. The report noted that consensus forecasts for 2021 are more positive, with strong recoveries expected globally, but GDP will remain weaker than pre-pandemic levels.

It will also be difficult to measure inflation trends going forward, the report said, due largely to “enforced shifts in consumer expenditures.”

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Katie Keir

Katie is special projects editor for and has worked with the team since 2010. In 2012, she was named Best New Journalist by the Canadian Business Media Awards. Reach her at