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Top Links: Dividend investors need to be watching bond yields, starting right now

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

Ask a big domestic bond trader for the yield on the five-year government of Canada bond, they won't give you a percentage.

They'll say something like "ten back," meaning 10 basis points less than the five-year U.S. Treasury bond. This underscores the supremacy of the U.S. bond market, and it's power to drive global yields along with it, even if it makes no economic sense.

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This trend is clearly apparent this week.

Domestic bond yields are rising quickly. The five-year government of Canada bond yield – the one that drives mortgage rates – has jumped from 66 to 88 basis points in the past five trading sessions. The important psychological level of 1 per cent, and higher mortgage rates, are in sight.

We've had inflationary head fakes before, but much more of this and income investors will start taking out-sized losses in their portfolios. Merrill Lynch's Michael Hartnett, for one, believes the threat is real this time,

"Inflation capitulation: U.S. election sparks violent rotation out of deflation to inflation plays: from EM to US small cap, from REITS to US banks, to industrial commodities, from US 'uber-growth' to global banks. The risk: 'bad' rise in rates causes US dollar to soar, credit spreads to widen, bank stocks to reverse, tech to crack. Bear flattening, jump in rates volatility causes risk assets to decline and (temporarily) disrupt the rotation from deflation to inflation."

"@SBarlow_ROB ML: "inflation capitulation"" – (research excerpt) Twitter
"The only thing we have to fear is fear of inflation" – The Economist
"@Ch2Christo fed fund futures. guess they expect a lot of hikes in 2017 and 2018" – (chart) Twitter
"Carry Trades Collapse as Emerging-Market Yield Advantage Shrinks" – Bloomberg
"@SBarlow_ROB Canada's favourite dividend stocks took A BEATING in past 5 trading days.' – (includes table of oversold stocks) Twitter

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The copper price is on pace for its best weekly rally in 30 years. In part, this is also an inflation story,

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"Copper rose as much as 7.6 per cent to $6,025.50, the biggest intra-day increase since 2009. Prices were at $5,915 as of 12:17 p.m. in London. For the week, the metal is up 19 percent, the most in records stretching back to 1986.

The rally, which started three weeks ago, has been fueled by speculative trading in China, which will cool later this year, Citigroup Inc. said in a note. As the most-traded base metal and a barometer of economic growth, copper is also a proxy for investors' views that Trump's presidency will boost government spending on bridges, roads and airports.

"Copper Explodes Above $6,000 With Prices Set for Best Week Ever" – Bloomberg

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The oil price, unfortunately for investors, is not participating in the commodity rally,

"Investors were always skeptical that a deal to cut or freeze oil output could be reached and implemented at an OPEC meeting on Nov. 30, an increasing amount of data has underscored a global skew towards oversupply.

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"OPEC reported on Friday an increase in its output to another record high, pointing to an even larger surplus on the market next year. It said it pumped 33.64 million barrels per day (bpd) last month, up 240,000 bpd from September."

A Reuters story should help allay Canadian fears that the new president will "tear up" NAFTA and restrict access for Canadian exports,

"[the Canadian ambassador to Canada] said that even if NAFTA were torn up, the two nations would be bound by the terms of the 1987 Canada-U.S. Free Trade Agreement, the precursor to the trilateral deal which added Mexico, noting, "I can't imagine them wanting to do anything about" that deal. A source with direct knowledge of Canadian government thinking said Ottawa saw only a small chance that Trump, who won a Nov. 8 election, would move quickly on NAFTA, since changes would require cooperation from pro-business Republicans in Congress."

"Canada sees U.S. trade deal minus Mexico as fall-back option" – Reuters
"Nafta can be discussed, but not renegotiated, says Mexico" – BBC

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Tweet of the Day: "@trevortombe What's the current state of North American trade? Informative report, and data, at brookings.edu/interactives/m… #cdnecon " – Twitter

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Diversion: "President Trump: How America Got It So Wrong" – Taibbi, Rolling Stone

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