Manulife Financial

Manulife Canadian Bond Index GIF Select

Manager Commentary

• As at March 31, 2014

The Canadian bond market rose over the period, with the corporate bond sector outperforming the government bond sector. Among investment-grade corporate bonds, those with BBB ratings posted the strongest gains, followed by those rated A and AAA/AA. Early in the period, the 10-year Government of Canada bond yield fell by about 42 basis points (bps). Yields were little changed in response to geopolitical tension between Russia and Ukraine. Both the Bank of Canada and U.S. Federal Reserve Board (the Fed) left their administered rates unchanged, and shorter-term interest rates remained stable. The Fed also began to reduce its monthly asset purchases by US$10 billion per month.

The Fund closely tracked the FTSE TMX Universe Bond Index over the period.

We believe the Fed's tapering could contribute to higher yields in the U.S. and Canada, particularly at the longer end of the yield curve. However, we also believe the tapering will continue at a gradual pace, which should keep economic growth from slowing and yields from rising too quickly. We expect credit spreads to continue tightening as a result of improving business fundamentals and we therefore maintain a positive outlook for corporate bonds. We believe global macroeconomic and geopolitical risks will remain elevated. We therefore expect the economic recovery to continue at a moderate pace.