Global Shocks and Fixed Income Signals: Strategic View from Mackenzie’s Dustin Reid

In a recent sweeping discussion on Market Exchange, Mackenzie Investments’ Chief Fixed Income Strategist, Dustin Reid, unpacked a constellation of global developments set to shape fixed income strategy through the rest of 2025—and possibly well beyond. From central bank positioning and the evolution of tariffs to Canadian political risks and a fiscal sea change in Europe, Reid’s latest update on Market Exchange¹ was both urgent and instructive.

Backed by data, context, and decades of market engagement, Reid provides a blueprint for advisors and investors looking to understand not just the headlines—but how they translate into risk positioning and opportunity across portfolios.

Fed Steady, But Not Certain

The U.S. Federal Reserve’s March policy meeting offered no surprises on the surface. Rates were held steady, and the dot plot kept its 2025 median rate outlook unchanged. But as Reid notes, under the surface, things are shifting.

“The Fed moved from the comments in the January statement from having a relatively balanced outlook to an outlook of more uncertainty,” Reid explained.

He highlights that the number of FOMC participants expecting zero or one rate cut this year doubled from four to eight. Yet, the Fed continues to project two cuts for 2025—a contradiction that underscores the current policy ambiguity.

Market reaction split along familiar lines: rates markets keyed in on lower growth and higher inflation—a mild whiff of stagflation.

“You have lower growth and higher inflation… those are kind of stagflationary tendencies,” Reid notes.

The rise in the Fed’s preferred inflation measure—core PCE—from 2.5% to 2.8% for year-end 2025, coupled with a downgraded GDP estimate, was enough to fuel that narrative. But as Reid points out, out-year inflation estimates remain unchanged, suggesting the Fed views current inflation pressures as temporary.

Still, the central bank’s hesitancy is clear.

“We are a little bit unsure and we are a little bit surprised that we have not seen the hard data reflect as much downside risk… as the soft data.”

In essence, the Fed is watching and waiting. But the market may not wait with it.

The Tariff Clock Is Ticking

If the Fed is delicately navigating economic crosswinds, Reid sees a storm gathering on the trade front.

“I will be a little surprised if Canada escapes April 2nd without any tariffs. That does not seem to be the direction of travel here.”

Reid outlines the evolving tariff landscape, shaped by Trump-era executive orders and an upcoming announcement flagged by Secretary Bessent. According to Reid:

“Earlier this week… Bessent said that on April 2nd, every country will get a number… those 15% of countries will be where the bulk of the tariffs are enacted.”

Canada is expected to be among those targeted. Reid’s base case now tilts toward targeted tariffs of 10–15%, possibly higher depending on sectoral carve-outs.

“I think 25% is probably a bridge too far… but I’m kind of thinking 10–15 here.”

The more important question may be: how long will tariffs last?

“This is something for quarters, a year, maybe longer… If I’m Trump… why would you not have something on Canada from a tariff perspective as a negotiating point ahead of the real negotiating for USMCA?”

Tariffs, Reid emphasizes, could be used strategically—not just tactically—and may shift the framework of fiscal revenue collection itself.

Canada: Caught in the Middle

Reid's analysis of the Canadian outlook weaved together monetary policy, political risk, and the looming tariff shock.

Following a widely expected 25 basis point cut from the Bank of Canada, he flagged an underappreciated dynamic: the central bank’s upcoming neutral rate reassessment in April.

“There’s a pretty good chance… that they’re gonna up their neutral rate again from 2.25–3.25 to 2.5–3.5.”

Currently, the policy rate sits at 2.75%—the midpoint of the old neutral range. But if the range shifts upward, further cuts become less likely… unless tariffs force the bank’s hand.

“If I’m right on tariffs… and it’s ugly… we’ll move below what the bank perceives as the bottom end of neutral.”

Meanwhile, the domestic political picture adds another layer of complexity. With former Bank of Canada and Bank of England governor Mark Carney leading the Liberal party into a likely April 28 election, Reid sees a “horse race” developing.

“Maybe some of the best debates the country has seen in decades between Carney and Poilievre… it’ll be really quite interesting to see policy differences.”

Tariffs could be a defining issue, particularly if the economic shock spills into a need for a fiscal response. The choice between leadership styles—and their economic philosophies—could set the tone for Canada’s negotiation strategy going into 2026’s USMCA review.

Germany’s Fiscal Breakthrough: A Generational Shift

One of the most consequential developments Reid flagged wasn’t in North America—but in Berlin. Over just a few weeks, Germany effectively suspended its long-held “debt brake,” paving the way for over €1 trillion in defense and infrastructure spending.

“If I said it was a generational event, it might actually even be an understatement.”

Spurred in part by geopolitical uncertainty—particularly Zelenskyy’s emotional appeals in Washington—Germany has shifted from austerity to expansionism almost overnight.

“The Germans… have now suspended their debt brake for the first time in… a very, very long time.”

Bond markets reacted immediately: 10-year bund yields surged from the mid-2s to nearly 2.90% in 48 hours. The implications extend far beyond German borders.

“German growth… now on a long-term run rate needs to be recalibrated.”

Reid expects similar fiscal awakenings across Europe to follow. With France politically hamstrung, eyes are on whether other EU economies can rise to the occasion—and how the ECB responds.

“What a change over the last six months… this is why macro is extremely interesting and extremely important.”

Portfolio Positioning: Active Tilts in a World of Shifting Risk

Against a backdrop of monetary ambiguity, geopolitical friction, and fiscal transformation, Reid and the Mackenzie Fixed Income team are leaning into selective positioning that reflects both macro conviction and careful risk management. Their approach is emblematic of how institutional portfolios can absorb complex information and express it in ways that are both thematic and tactical.

At the heart of the strategy is a multi-tiered approach to interest rate differentials, inflation hedging, global diversification, and relative value. Here’s how that plays out across key portfolio segments.

1. U.S.-Canada Long-End Spread Compression: Recalibrating the North American Narrative

Reid’s flagship macro trade has been a long-end U.S.-Canada spread trade, executed across Mackenzie’s Global Unconstrained, Core, and Core Plus bond mandates.

“US 30-year yields were 155 basis points higher than Canada… and we thought, well, we don’t necessarily disagree with the negative sign, [but] the right magnitude of it was too big.”

With the Fed signaling a more uncertain outlook and the Bank of Canada potentially facing asymmetric downside risks from tariffs, the team initiated a long Canada / short U.S. duration trade to capitalize on narrowing spreads.

“We’ve seen that spread move from -155 to above -130… [and] had an original target of around -110 before we reassessed.”

The trade expresses a nuanced view that Canada’s long-end yields had overshot relative to U.S. Treasuries, and that relative growth and policy risks—particularly around tariffs and domestic political uncertainty—could help drive convergence.

This kind of relative value trade is especially attractive in a macro environment where directional rate calls are fraught with uncertainty. Advisors overseeing global fixed income exposures may consider similar approaches when macro divergences open up pricing anomalies across yield curves.

2. Inflation Hedging: Tactical TIPS Management

Reid also touches on Mackenzie’s use of Treasury Inflation-Protected Securities (TIPS), emphasizing that real duration still matters—but only at the right price.

“We had a decent amount of duration in real duration TIPS… [but] we hit our profit level there and took some of that off.”

This decision reflects the team’s disciplined approach to opportunistic profit-taking amid still-elevated—but decelerating—inflation metrics. With goods inflation flattening and market expectations reasonably priced, the trade was unwound, though Reid remains open to re-engagement.

“If the inflation picture, particularly the goods inflation picture, starts to move higher again… we could re-enter that trade.”

For advisors, this underscores the value of dynamic inflation protection—not as a set-it-and-forget-it allocation, but as a position that should flex with macro inputs and valuation levels.

3. Global Duration Capture: New Zealand Bonds with a Currency Hedge

Seeking to enhance yield without significantly increasing credit or duration risk, the team also pursued New Zealand sovereign bond exposure, fully hedged to Canadian dollars.

“The yield capture on tens in New Zealand versus here is significantly more… and the currency hedge was relatively inexpensive.”

Although some softening in New Zealand’s domestic data has tempered enthusiasm, Reid frames the trade as a convergent expression of macro alignment—highlighting similarities between New Zealand and Canada as small, open, commodity-linked economies with floating currencies and inflation-targeting central banks.

The position illustrates how global sovereign diversification—when paired with active FX management—can provide incremental return without materially altering a portfolio’s core risk exposures.

4. EM Exposure: De-Risking Amid Volatility, Staying Opportunistic

In emerging markets, Reid and his team have de-risked meaningfully, shedding positions in Brazil, Mexico, and South Africa.

“We have very little on the emerging markets side at this point… we’ve dumped a lot of other things including Brazil, [Mexico], South Africa.”

Current exposures are limited, with Indonesia being one of the few remaining EM allocations—a testament to the importance of credit selectivity and volatility management in today’s market.

Yet, Reid isn’t writing off EM entirely. He flags the potential for carry trades to re-emerge if volatility stabilizes.

“One of the questions I’m always asking myself is, is carry a thematic? And what is volatility doing?”

Advisors with global fixed income mandates should take note: the EM universe remains investable—but increasingly so on a rolling, case-by-case basis, where structural fundamentals, idiosyncratic policy moves, and FX dynamics drive relative value.

5. Volatility, Carry, and the Path Forward

Across all positions, Reid emphasizes a foundational truth for fixed income investing in 2025: macro risk premia are returning, and advisors must adapt accordingly.

“We could be entering an era again where carry is interesting, but it might be carry balanced against higher volatility across asset classes.”

That volatility—whether driven by central bank ambiguity, geopolitical disruptions, or shifting fiscal dynamics—requires a framework that can pivot between defensiveness and opportunity. The Mackenzie Fixed Income team is doing just that, leaning into trades with asymmetric upside while remaining quick to exit when the environment shifts.

Bottom Line for Advisors

In an age of policy pivots, trade disruptions, and fiscal rearmament, fixed income portfolio construction demands nuance. Reid’s positioning highlights three key takeaways for advisors:

1. Look for relative value, not just directionality—especially in government bond markets.
2. Manage inflation exposure dynamically, not statically.
3. Stay global, but stay selective—particularly in EM and higher-yielding sovereigns.

In this moment of global complexity, Mackenzie’s fixed income desks are showing that macro awareness, valuation discipline, and flexible execution can still deliver clarity—and conviction—in a market landscape that’s anything but clear.

Footnote:

¹ "Global Economic Uncertainty Abounds | The Invested." 20 Mar. 2025, mackenzieinvestments.podbean.com/e/global-economic-uncertainty-abounds.

² Mackenzie Investments Podcasts." Home, 20 Mar. 2025