Tausi Insider

The bond market is flashing code red on our economy. It’s a vivid warning of what’s likely to come, and what will likely cut the borrowing costs for millions of Canadians by the end of next year. What we’re talking about here is the yield curve, which has a compelling track record of predicting recession – and falling mortgage rates. What’s a yield curve, you say? Think of it as a graph – one that shows how interest rates, or yields, change based on how long you lend to the government. People looking at the curve often focus on the difference, or “spread,” between yields on 10-year bonds and two-year bonds. Normally, long-term yields are higher than short-term yields (reflecting the higher risk in lending for a longer period). Not today. As we speak, the 10-year yield is almost 100 basis points below the two-year. That’s extraordinary. (A basis point is one-hundredth of a percentage point.) In fact, it hasn’t happened in more than three decades – and the last time it did, in the earl...

Stocks rallied and Treasury yields fell Wednesday after the head of the Federal Reserve said that the central bank could soon begin slowing down on its interest rate increases, noting signs that its efforts to tame inflation are working. Fed Chair Jerome Powell, speaking at the Brookings Institution, reaffirmed that the central bank could begin moderating its pace of rate hikes as soon as December, when the policymaking committee is due to hold its next meeting. “We have a risk management balance to strike,” Powell said. “And we think that slowing down (on rate hikes) at this point is a good way to balance the risks.” Even so, Powell noted that the Fed will likely have to keep rates elevated for some time to ensure inflation comes down sufficiently. “History cautions strongly against prematurely loosening policy,” Powell said. “We will stay the course until the job is done.” Stock indexes, which had been wavering ahead of Powell’s remarks at 1:30 p.m. Eastern, rose broadly in afterno...

A retired money manager confessed something to me this week. “I never thought it would come to this,” he said, with the embarrassed look of a fitness instructor caught digging into a tub of rocky road ice cream. “I finally did it, though. I broke down and bought a GIC.” For my friend, a guaranteed investment certificate is a symbol of professional surrender. He has spent several successful decades picking stocks both for his former employer and for his own portfolio. He is a staunch believer in the long-term benefits of stock ownership. But a few months ago, he decided he was simply not seeing many areas of the Canadian or U.S. stock markets where the potential reward over the next year outweighed the risk. So he edged away from his lifelong love affair with equities and put a portion of his portfolio into one of the safest, most boring investments imaginable. Many other people are also discovering the allure of GICs. Since the start of the year, Canadians have pumped roughly $120-bi...

A man walks past the Bank of Japan headquarters, in Tokyo, on May 22, 2020. Kim Kyung Hoon/Reuters The Bank of Japan (BOJ) will likely raise its inflation forecasts next week and debate whether further steps are needed to address market distortions it sought to fix with December’s surprise tweak to its yield control policy, sources say. The BOJ’s decision last month to widen the band around its 10-year yield target has failed to remove market distortions caused by its huge bond buying, leaving traders guessing whether more steps could come as early as its Jan. 17-18 rate review. While the distortions could be among topics of debate at the Jan. 17-18 meeting, many BOJ officials prefer to spend more time scrutinizing the effect of December’s decision, said five sources familiar with the bank’s thinking. Keen to wait for more clarity on whether wage hikes will broaden, the central bank is also seen holding off on making big tweaks to yield curve control (YCC), such as abandoning negativ...

A retired money manager confessed something to me this week. “I never thought it would come to this,” he said, with the embarrassed look of a fitness instructor caught digging into a tub of rocky road ice cream. “I finally did it, though. I broke down and bought a GIC.” For my friend, a guaranteed investment certificate is a symbol of professional surrender. He has spent several successful decades picking stocks both for his former employer and for his own portfolio. He is a staunch believer in the long-term benefits of stock ownership. But a few months ago, he decided he was simply not seeing many areas of the Canadian or U.S. stock markets where the potential reward over the next year outweighed the risk. So he edged away from his lifelong love affair with equities and put a portion of his portfolio into one of the safest, most boring investments imaginable. Many other people are also discovering the allure of GICs. Since the start of the year, Canadians have pumped roughly $120-bi...