When Will Interest Rates Break?
by JDH on April 8, 2023
“Break” is perhaps the wrong word. A more appropriate question will be, “when will the recession become obvious, leading to a decline in interest rates?”
Here’s the Canadian 5-Year Bond yield, over the last five years:
It collapsed to close to zero at the height of the pandemic, and then peaked around 3.8% in October 2022, and has traded between 2.8% and 3.8% ever since.
My base case is that we are heading into a recession (or it has already started), and interest rates will fall.
But the crash is not yet obvious. To prepare, I currently own Canadian bond ETFs:
- CLG – IShares 1-10Y LADD GOVT BND
- XSB – IShares CORE CDN S/T BND ETF
- XGB – IShares CORE CDN GOVT BD ETF
- XLB – IShares CORE CDN L/T BD ETF
And I own TLT in my USD account.
It is frustrating that the recession is not obvious to all, but we must acknowledge in all areas of life that inevitable and imminent are two different words. It will happen, just not necessarily tomorrow.
So, I will wait patiently. I’m earning a yield on these investments, so I can afford to be patient.
I suspect the story will look a lot different this summer.
We shall see.
For now, it’s the long weekend, enjoy the better weather, and next week perhaps we will turn our attention to gold.
When Will Interest Rates Break?
by JDH on April 8, 2023
“Break” is perhaps the wrong word. A more appropriate question will be, “when will the recession become obvious, leading to a decline in interest rates?”
Here’s the Canadian 5-Year Bond yield, over the last five years:
It collapsed to close to zero at the height of the pandemic, and then peaked around 3.8% in October 2022, and has traded between 2.8% and 3.8% ever since.
My base case is that we are heading into a recession (or it has already started), and interest rates will fall.
But the crash is not yet obvious. To prepare, I currently own Canadian bond ETFs:
And I own TLT in my USD account.
It is frustrating that the recession is not obvious to all, but we must acknowledge in all areas of life that inevitable and imminent are two different words. It will happen, just not necessarily tomorrow.
So, I will wait patiently. I’m earning a yield on these investments, so I can afford to be patient.
I suspect the story will look a lot different this summer.
We shall see.
For now, it’s the long weekend, enjoy the better weather, and next week perhaps we will turn our attention to gold.