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Hank Cunningham.JENNIFER ROBERTS/The Globe and Mail

Hank Cunningham is fixed income strategist at Odlum Brown.

Top Picks:

Telus 3.60% January 26, 2021

$106.93 2.24%

Bank of Montreal 2.12% March 16, 2022

$99.77 2.16%

Shoppers Drug Mart 2.36% May 24, 2018

$102.06 1.60%

The rationale in selecting these three issues revolves around preservation of capital. By selecting non-cyclical bonds, investors will avoid the risks in cyclical sectors where, especially in the energy and metals spaces, there is the possibility of downgrades. Also, these issues are all relatively short maturities.

Past Picks: June 6, 2014

Bell 3.35% June 18, 2019

Then: $103.35; Now: $105.26; 1.92%; Total return: +4.68%

Brookfield Asset Management 3.95% April 9, 2019

Then: $105.02; Now: $106.20; 2.18%; Total return: +4.55%

Shoppers Drug Mart 2.36% May 24, 2018

Then: $100.42; Now: $102.00; %1.55; Total return: +3.79%

Total Return Average: 4.34%

Market outlook:

Little has happened to change our view that bond yields are in the midst of a gradual cyclical rise with a likely range of 2.00% to 2.50% for the bellwether ten-year U.S. note.

The headlines have changed from a month ago, with the Greek drama having played out (for now) and having being replaced by the rout in commodities and commodity-based currencies (including ours.)

The U.S. employment situation continues its improvement with solid monthly gains in non-farm payrolls exceeding 200,000 and a falling unemployment rate. Not only is employment growth solid, but so is the housing market and consumer confidence.

The market now assumes that the Federal Reserve will begin to normalize interest rates with an increase of 25 basis points in the Federal Funds Rate at the September meeting. So far, though, inflation, particularly wage inflation, has been benign. The Fed remains confident that inflation will rise to its 2 per cent target. This is bringing about a flatter yield curve as two year yields have risen while ten-year yields have fallen.

As to Canada, the worst appears to be over, based on the most recent trade report, depicting a broad-based improvement in exports. The recent $3-billion of child benefit Federal cheques, combined with solid auto production forecasts and the resumption of energy production in Alberta, (following the fires there), should result in a lift for the Canadian economy in the current quarter, forestalling a recession. The loonie has suffered mightily during the slide in commodity prices, not to mention that the U.S. dollar has been strong. Thus, our currency now sits well below its purchasing power parity of $0.84 (U.S.). With Europe on the mend and with U.S. demand improving, there is a possibility of the slide in commodity prices coming to an end, bringing with it some stability to our currency.

Of course, the giant question mark remains China and there is little way of knowing what will happen to their economy.

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