A transition phase in the market

As you may have heard there appears to be a major shift happening in the markets. The information below lays out what is influencing it and what may be coming in the near future. I believe the most important aspect of my work is to take the time to go through this in detail with my clients face-to-face, to discuss how the changes may impact them personally, to answer questions and to devise future strategies. To arrange a time for us to meet face-to-face, please e-mail me at chris.stuchberry@richardsongmp.com or call me at 416-572-5429. The sooner the better.

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We are managing a transition into a new phase of the market. The long term global policy of low interest rates has bottomed and we have protected everyone by reducing bonds and bond proxy investments. We have also added to our financials and interest rate sensitive investments in order to make money for you on the increase in interest rates. 

BUT

What is beyond our control is your personal balance sheet, and we implore you to analyze and ensure you and your family are protected. Bond yield have increased dramatically post-election; banks have immediately passed on these costs to consumers to ensure their own viability. These increases are off dramatic lows and although the increases are small from a number perspective, they are actually quite massive in percentage terms. For instance, the 10-year treasury was 1.80% prior to the US election, it has moved to 2.2%, a move greater than 20% that will eventually add to your debt costs. As the cost of debt rises, protecting yourself can be done by pre-paying debt, or by locking in at lower rates.

See below, debt rates are moving higher.

Source: Google

Long-term mortgage rates are completely correlated to bond yields. If bond yields move higher, so will mortgage rates.

Source: Bloomberg

The market has priced in a 96% chance of increased interest rates in the USA, which dictates global direction for bond yields. 

Source: Bloomberg

Do not lose track of the big picture. Rates have been in a long-term secular decline since the early 80’s, and this new phase will bring significant change to the markets. Thus, we must ensure everyone not only endures this transition, but thrives through a proactive approach. The chart below illustrates10-Year Government Bond Yield going back to the 1960's.

Source: Bloomberg

We are doing our best to ensure the portfolios navigate this transition, but please ensure both you and your families are prepared for these upcoming increased costs.

My colleague Gareth Watson, Director of Investment Management & Research, prepared this wonderful report on debt and interest rates. We strongly encourage you share it with anyone and everyone to ensure no undue risk hurts those around you.

  1. We are very optimistic with the Portfolio positioning as we enter this new investment era
  2. Take action to protect against debt (ie. pay down, lock-in, help family members)
  3. Contact us to devise an actionable strategy for your personal scenario

Happy to discuss, have a terrific day.

Chris, Rick, Steve

416-572-5429

 

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