by Scott Ronalds

From our Quarterly Report:

The bond market, or what’s known as the ‘senior’ market, is sounding warning bells. It’s saying there’s trouble ahead. So far this year, interest rates in Canada are down about half a percent from already recessionary levels. This is part of a worldwide trend of declining yields which includes countries that have little room to go lower. Indeed, the amount of bonds that have a negative yield is on the rise again ($USD 12 trillion and counting). Yes, you heard right. The lender pays the borrower to hold the money.

Negative rates are wacky enough, but consider that at the same time, stocks and other risk assets are doing just fine. Volatility in the stock market is low. Demand for high risk bonds and loans is strong. There’s been a wave of initial public offerings (IPO) in the U.S., most of which are losing money. And the ultimate speculative vehicle, Bitcoin, is rallying.

Don’t get me wrong. It’s not unusual for the outlook to be uncertain. It always is. We never know what’s going to happen next. But when things don’t seem to make sense (bonds worried; stocks oblivious), it usually turns out that something was amiss.

Read Tom's full brief and the rest of our Report here.