Northern Trust Pension Universe Data: Canadian Pension Plans Navigate Challenging Markets in Q3

TORONTO--(BUSINESS WIRE)--Canadian pension plan returns fell in the third quarter, mostly a result of rising bond yields, with the median pension plan returning -1.5% for the quarter ending September 30 and 4.4% year-to-date, according to the Northern Trust Canada Universe.

Third-quarter financial markets were shaped by the return of energy-driven inflation and a sharp rise in global interest rates. Middle East tensions returned to the foreground, pushing Brent crude oil above $100 per barrel and renewing concerns around inflation and energy supply. The rise in oil occurred against a backdrop of resilient economic activity and generally constructive corporate earnings. After holding rates in July, the U.S. Federal Reserve raised its policy rate by 25 basis points in September. The European Central Bank and Bank of Japan also adjusted policy rates higher during the month, while the Bank of Canada and Bank of England maintained their policy rates throughout the quarter. Meanwhile, the 10-year U.S. Treasury yield rose more than 80 basis points to 5.29%, while sovereign yields also moved materially higher in Europe, the U.K. and Japan.

Despite this challenging backdrop, global equities, as measured by the MSCI ACWI Index, rose 1.8% in CAD (1.7% in USD) during the third quarter. Strong corporate earnings and resilient economic growth supported markets, while continued investment in artificial intelligence (AI) remained an important driver of sentiment.

“Canadian pension plans navigated a complex market environment in the third quarter, as resilient equity markets were offset by the impact of rising bond yields,” said Katie Pries, Country Executive for Northern Trust Asset Servicing in Canada. “The quarter underscores how shifts in interest rates and inflation expectations can meaningfully influence pension portfolio performance, reinforcing the importance of maintaining a long-term perspective through changing market conditions.”

The Northern Trust Canada Universe tracks the performance of Canadian institutional defined benefit plans that subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.

In equity markets, U.S. stocks advanced on robust earnings and ongoing AI-related spending, while Japanese equities were among the strongest performers, benefiting from earnings growth and corporate governance reforms. Emerging markets lagged developed markets as semiconductor and memory-related stocks in Korea weakened following strong first-half gains. European equities underperformed amid weaker earnings momentum and higher interest rates, while UK equities benefited from greater exposure to energy and financials sectors.

Global bonds, as represented by the Bloomberg Global Aggregate Index, fell -2.4% in CAD (-2.5% in USD) during the quarter as resilient economic activity, rising energy prices and persistent inflation concerns pushed bond yields higher across most developed markets. Markets also adjusted to expectations for further policy tightening, while increased sovereign issuance and corporate borrowing contributed to upward pressure on yields. Longer-dated government bonds underperformed as yields rose, while investment grade credit generated negative returns despite generally resilient corporate fundamentals. High yield bonds were down globally but proved relatively resilient, supported by higher income and lower interest-rate sensitivity.

• Canadian equities, as represented by the S&P/TSX Composite Index, returned 1.6% in CAD (1.5% in USD) during the third quarter. Headline inflation was 3.1% at September quarter-end, up from 3.0% the prior month, remaining below the recent peak of 3.2%.
• U.S. equities, as measured by the S&P 500 Index, gained 2.4% in CAD (2.3% in USD) against a backdrop of higher energy prices, rising yields and uncertainty regarding inflation.
• International equity markets, as measured by the MSCI EAFE Index, had a gross return of 0.9% in CAD (0.9% in USD) in Q3.
• During the third quarter, emerging markets (“EM”), as measured by the MSCI EM Index, had a gross decline of -0.2% in CAD (-0.2% in USD).

Canada’s economy showed more resilience than anticipated, yet inflation concerns and higher global bond yields gained prominence by September as trade tensions with the U.S. intensified. The Bank of Canada maintained its policy rate throughout the quarter, balancing largely contained inflation against uncertainty in the outlook arising from trade disputes. The main inflation risks now stem from supply conditions. Higher energy costs and additional tariffs, alongside potential disruptions to global supply chains, could lift prices temporarily across certain sectors.

The Canadian fixed income market, as measured by the FTSE Canada Universe Bond Index, fell -3.0% in CAD (-3.0% in USD). Provincial Bonds fell -4.1% while Federal and Corporate Bonds fell -2.6% and -2.1% respectively. Performance weakened with duration, as Short-, Mid- and Long-term bonds returned -0.9%, -3.0%, and -6.3%, respectively.

U.S. equity performance was largely driven by the energy sector as oil and gas prices surged over global supply concerns following escalating conflict in the Middle East. Information technology also benefitted owing to a shift from semiconductors to software and hyperscalers. As was widely anticipated, the Federal Reserve (“Fed”) unanimously voted to increase its key rate for the first time since July 2023 by 25 basis points, bringing it to a 3.75%-4% range, to tackle inflation brought on by rising oil and gasoline prices owing to the geopolitical conflict in the Middle East. Federal Reserve Chair Kevin Warsh noted that while the economy, including the labour market, was strong, inflation had been “too high…for too long”, stating that the rate hike would support a “timelier return” to the bank’s 2 percent target. The dot-plot of officials’ expectations pointed to another 25bps rate hike this year, with some participants seeing the possibility for two. The inflation rate rose to 3.7% in September, up from 3.4% in each of the previous two months and above the expected 3.6% largely resulting from higher energy prices.

The European Central Bank (“ECB”) raised its rates by a quarter point, lifting the deposit rate to 2.5%, its second hike since June, citing inflationary pressures, largely driven by higher oil and gas prices because of renewed fighting around the Strait of Hormuz, constraining crude supply. The bank expressed concern that the surge could translate into higher transport costs and costly heating for properties and noted that food inflation was also likely to rise. The bank also raised its forecast for eurozone growth from 0.8% to 0.9% in 2026. For the sixth time in a row, the Bank of England (“BoE”) held rates steady at 3.75%, in September, as a surge in energy prices pressures inflation. The BoE did however note that it would raise rates if high energy prices persist. The bank also raised its forecast for inflation, stating it would be “slightly above 4%” starting next year. The Bank of Japan raised its interest rates in September to 1.25%, the highest level in 31 years, in an effort to contain inflation resulting from rising energy costs. Governor Ueda noted that the bank’s focus has shifted to guarding against an inflation overshoot as domestic inflation exceeds the 2% target.

Emerging markets produced mixed results during the quarter. The People’s Bank of China left its one- and five-year loan prime rate (LPR) at 3.0% and 3.5%, respectively, for the 16th straight month reflecting caution amid Middle East-related uncertainty. Industrial production strengthened; export activity remained supported by AI-demand while retail sales softened. The Central Bank of Brazil cut its rate to 13.75% noting an uncertain environment due to conflict in the Middle East and monetary policy decisions in advanced economies while domestically data showed a moderation in economic activity and an ease in inflation. The Reserve Bank of India held rates at 5.25%, balancing resilient domestic growth against evolving inflationary and global risks.

About Northern Trust

Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking services to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 24 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2026, Northern Trust had assets under custody/administration of US$19.9 trillion, and assets under management of US$2.0 trillion. For more than 135 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit us on northerntrust.com. Follow us on Instagram @northerntrustcompany or Northern Trust on LinkedIn.

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