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Bonds & Interest Rates

An Orgy of Canadian Debt

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Posted by Philip Cross

on Friday, 14 July 2017 10:35

brokenpiggy

Between 2006 and 2016, Canadian household debt grew by $932 billion (or 85 per cent); governments by $755 billion (or 83 per cent); non-financial corporations by $713 billion (or 98 per cent); and financial corporations by $778 billion (or 93 per cent)... CLICK HERE for the complete article



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Bonds & Interest Rates

1st interest rate hike in 7 years

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Posted by Barrie McKenna

on Wednesday, 12 July 2017 10:56

rate increase

The Bank of Canada is hiking its key interest rate for the first time in seven years, joining the U.S. Federal Reserve in starting the process of undoing nearly a decade of easy money.

The bank raised its overnight lending rate to 0.75 per cent from 0.5 per cent Wednesday, citing “bolstered” confidence that the Canadian economy has finally turned the corner after years of sputtering growth... CLICK HERE for the full article



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Bonds & Interest Rates

Interest Rate Hike: 3 Ways It Affects Your Finances

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Posted by Tori Floyd, Yahoo Finance

on Tuesday, 11 July 2017 10:54

Capture

It’s all but confirmed that the Bank of Canada will raise its key interest rate later this week. That prospect has many Canadians on edge, unsure of what to expect.

A report from RBC last week forecast that if interest rates were to rise one percentage point over the next year, it would mean households would end up paying an additional two cents for every dollar of income to serving debt. That amounts to the average Canadian household (with a median income of $78,870) paying about $130 more each month... CLICK HERE for the complete article



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Bonds & Interest Rates

Will Trump Fire Yellen or Vice Versa

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Posted by Michael Pento - Pento Portfolio Strategies

on Friday, 07 July 2017 07:51

trump-yellenCitigroup’s Economic Surprise Index just hit its lowest level since August 2011. But this level of disappointment has ironically emboldened the Fed to step up its hawkish monetary rhetoric. The truth is that the hard economic data is grossly missing analyst estimates to the downside as the economy inexorably grinds towards recession. This anemic growth and inflation data should have been sufficient to stay the Fed's hand for the rest of this year and cause it to forgo the unwinding of its balance sheet.

But that's not what’s happening. Ms. Yellen and Co. are threatening at least one more rate hike and to start selling what will end up to be around $2 trillion worth of MBS and Treasuries before the end of the year--starting at $10 billion each month and slowly growing to a maximum of $60 billion per month.

But why is the Fed suddenly in such a rush to normalize interest rates and its balance sheet? Perhaps it is because Ms. Yellen wants to fire Trump before she hears his favorite mantra, “you’re fired,” when her term expires in early 2018. It isn’t a coincidence that these Keynesian liberals at the Fed started to ignore the weak data concurrently with the election of the new President.



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Bonds & Interest Rates

Credit Is Spreading!

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Posted by Bob Hoye - Institutional Advisors

on Wednesday, 05 July 2017 05:34

Credit Markets

The action in credit markets is getting interesting.

Flattening, 2s to 20s, is moving quicker, and getting overbought. But, it could go further before reversing. As noted above, China's yield curve has already inverted.

Credit spreads, as determined by JNK/TLT, are working on reversing to widening. Narrowing from the end of the disaster into February 2016 was outstanding. And became the most overbought since 2011. On that roll, taking out the 20-Week ema was critical. On this roll, the exponential moving average was taken out on the week of May 15. Two attempts to restore the rally failed at the ema, and this week's decline has formalized the downtrend. Otherwise known as spread widening.

(The following is part of Pivotal Events that was published for our subscribers JUNE 22, 2017.)

A chart showing spreads and the S&P follows.

We have been expecting such a reversal at around now and it has been accomplished. Another success by Mother Nature on the way to credit distress later in the year.

The melancholy probability would be confirmed by the yield curve reversing and industrial commodities turning weak again. Perhaps after August.

The long bond (TLT) continues to rally. Now at 127, the target has been the 135 level.

The action in JNK, itself, continued up 37.41 late in May. Last week, it completed a Sequential Sell.

After one attempt, the 50-Day ma was taken out this week and the 20-Week ema is being threatened. The ema is at 36.95 and JNK is at 36.92.

It is time to seriously reduce positions in lower-grade stuff.

Bonds are always quoted or traded as a percent of par, as in 102, 88 or 44. However, the bond bust could be severe enough that some failing issues will be quoted (only) in parts per million, or PPM.

We have used this on previous big highs for Junk, with the knowledge that when such bonds get that bad there are no bids or quotes.

However, quite unusually there has been just such an example.

One of the very high-flying stocks of the DotCom Bubble was Nortel, the telecommunications giant. The May 27th Financial Post covered a settlement for creditors. Some will receive as little as US$.0415 on the dollar. And that works out to 415 PPM.

'Nuff' said on this curiosity and sector.

Credit Spreads Violate Support

We have monitored the credit spreads and yield curves for years. This week's violation of support in the spreads (PHDAX, HYG & HYC versus LQD and TLT) is combined with a break in the high-yield markets below their June 5th supports. Each suck break in credit since the 2009 bottom in equities has been followed by a 10% decline or more in the S&P.

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