Although economic growth and inflation in Canada have been weaker than expected, we believe bond yields will likely remain elevated as the BoC evaluates the impact on inflation due to the Middle East conflict and stronger than expected global growth. As bond yields remain elevated, investors should expect higher income over the next 12 to 18 months.

Credit spreads remain tight, supported by strong fundamentals, but rising AI-related spending and mergers and acquisition activity is creating a more challenging supply and demand backdrop. With risk premiums fairly flat across the yield curve, we continue to favour short to mid-term corporate bonds over longer term bonds.

Stronger than expected U.S. growth is leading investors to expect both higher global growth and higher global inflation over the next 12 to 18 months. As a result, bond yields are expected to remain elevated.

Emerging market local currency government bonds offer attractive levels of income relative to developed market bonds; however total return prospects vary by region.  We broadly favour short-maturity bonds or currency positions in select Latin American, eastern European and African countries, where inflation-adjusted yields are attractive. In contrast, we are cautious on Asian countries where yields are relatively lower, and dependencies on energy imports could cause volatility to stay elevated.

While earnings growth and fundamentals remain supportive, growing uncertainties around private credit and highly leveraged AI-impacted businesses have potential to tighten lending conditions. Overall, we see the risks as balanced in high yield and remain neutral given tight valuations.

Commercial mortgages continue to provide accretive income while insulating investor returns from the increased volatility in interest rates.

We believe most value adjustments in Canadian commercial real estate are complete. Office occupancy (especially in Toronto) has begun to improve as large users mandate returns to office. Despite U.S. tariff policy volatility, Canada's industrial market remains healthy. Poor condominium markets and lower immigration have temporarily pressured residential rental rates in Toronto and Vancouver. Long-term multi-unit residentials will likely see strong rental growth due to structural supply-demand imbalance. 

Returns are starting to improve globally. U.S. and Asian Pacific markets have seen the capitalization rate stabilizing, while Europe continues to outperform. New capital raising and significant redemption rescissions are also early indicators of the improved sentiment for continued recovery.

Infrastructure continues to offer stable returns and lower volatility due to its essential long-term nature. The persistent global infrastructure spending gap remains a key investment driver, reinforcing the need for increased investment. Additionally, accelerating trends such as the electrification of industry and the expansion of digital infrastructure are significantly increasing demand for power generation assets, creating compelling investment opportunities.

Global Private Credit provides premium income through diversified global origination across corporate, real estate, infrastructure, and specialty finance, including middle‑market corporate relationships. TDAM’s robust credit risk infrastructure supports strong governance and disciplined access to attractive risk‑adjusted return opportunities.

High credit quality and global diversification provides an income ballast in an uncertain economic environment. Incremental income and potential capital appreciation from interest rate moderation provide upside.

Commodities have strengthened amid supply disruptions, particularly in energy, natural gas, and select industrial inputs. Recent gains appear driven more by curtailed supply than excess demand, reinforcing commodities’ role as a portfolio diversifier during periods of geopolitical stress.

Longer-term valuation metrics suggest the USD remains overvalued, supporting a modest underweight positioning. While the USD continues to benefit from safe-haven demand amid ongoing geopolitical uncertainty, upside versus the CAD may be more limited from current levels. Canada’s softer growth outlook and sensitivity to global trade dynamics continue to act as near-term headwinds for the CAD, partially offset by support from elevated energy prices. Overall, we view the CAD as broadly fair valued, with relative currency movements likely to be driven by shifts in global risk sentiment and commodity dynamics.