A bond market rout that drove yields through key levels has some investors prepared for another leg that may finally declare an end to a three-decade-long bull run.
The $15 trillion Treasuries market tanked on Wednesday, with the 10-year and 30-year yields racing to seven-year and four-year highs, respectively. Traders again dumped U.S. government debt on Thursday following upbeat economic data and hawkish remarks from Federal Reserve officials.
Then a solid jobs report on Friday extended the market sell-off, propelling yields - which move inversely to prices - to fresh multi-year highs.
“The last man standing was the 30-year, and it has definitively broken above a multi-year base that should over time carry us to significantly higher yields,” said Jeffrey Gundlach, chief executive officer of DoubleLine Capital, who manages $123 billion.
Rising bond yields, which in turn make borrowing more expensive for consumers and corporations, knocked Wall Street stock prices lower for a second day on Friday. The pullback in equities has spurred safe-haven demand for Treasuries, slowing the rise in yields. Some key levels that investors are now focused on are around 3.25 percent for the benchmark 10-year and 3.50 percent for the 30-year. The 10-year and 30-year yields hit 3.240 percent and 3.4050 percent, respectively, at midday Friday.
For the week, the 10-year yield is on track to rise nearly 18 basis points, which would be its steepest weekly increase in eight months. The 30-year yield is poised to increase almost 21 basis points, which would be its biggest weekly jump since last November.
Technical signals suggest bond yields may rise further, especially on the longer-dated debt, and at least stall the likelihood the yield curve would invert as the Fed will likely push short-term rates higher.
-- Richare Leong, Reuters
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Stocks to ponder
O2Micro International Ltd. (OIIM-Q). Founded in 1995, O2Micro designs, develops and markets power-management components for electronics manufacturers. Based in the Cayman Islands, the focus is on Asian sales, although there are nominal revenues outside of that continent. With less than 61,000 people, the Caymans cannot exactly sustain a company with ambition but will help those looking for tax breaks. The enterprise has some beautiful numbers. While the stock trades at around US$2.30, book value kicks in at US$3.28 with no goodwill on the balance sheet. There is zero debt, which helps to negate risk. Insiders own about 6 per cent. There is about US$40-million in the kitty between cash and short-term investments. Revenues have been trending upward, cresting at US$60-million last year. So why is this stock so woebegone, having dropped from over US$20? The Contra Guys take a look at this stock (for subscribers).
Dollarama Inc. (DOL-T). This widely held stock is the focus of this week’s column about the most oversold and overbought stocks on the TSX. RSI buy signals have only been moderately successful in finding profitable entry point for Dollarama stock. Over the past 24 months, buy signals have more often signaled a period of stabilization – extended sideways price movement – than imminent rallies. This was the case following buy signals in November 2016 and February of 2018. More recently, a July 2018 buy signal did forecast a 12-per-cent rally to early September, but Dollarama stock took a horrendous beating shortly thereafter. Another RSI buy signal on Sept. 17 marked only a brief pause in selling pressure before further price weakness occurred. Dollarama’s fundamental outlook could provide a much more positive story – fundamental research should be part of every investment decision – but the current RSI buy signal is not a reliable indicator in my opinion. Scott Barlow reports (for subscribers).
How the spike in bond yields could turn out just fine for dividend investors
Bond yields are on the move again, hitting fresh multiyear highs on Thursday and sending ripples of concern through the global stock market, which fell sharply. But some observers believe that the period of sharply rising bond yields is nearing an end, which could give a new shine to dividend stocks at a time when companies are boosting their quarterly payouts. The latest bond moves, and the stock market’s reactions to them, are remarkable. The yield on the 10-year U.S. Treasury bond rose above 3.2 per cent early Thursday, to a new seven-year high. The yield on the Government of Canada 10-year bond rose as high as 2.58 per cent, also a multiyear high and up nearly a full percentage point over the past year. Stocks were hit hard, as investors worried about the bond market’s impact on stock valuations and corporate profits. David Berman reports (for subscribers).
Warning: Reviewing your portfolio’s 2018 results may be stressful
Your success as an investor in 2018 and beyond may depend entirely on how much global exposure you have in your portfolio. Through the first three-quarters of the year, bonds have been money losers and the Canadian stock market has been weak. Only global markets have performed dynamically. The current year is shaping up as a frustrating one for Canadian investors who have most of their assets in domestic stocks and bonds. The risk here is that these investors compound their problems by making counter-productive changes in their portfolios. Rob Carrick looks at three portfolio-changing traps to avoid as your reflect on 2018 (for subscribers).
HSBC launches foray into digital advisers in Canada
HSBC is joining the Canadian banks' robo-adviser revolution. HSBC Bank Canada, a subsidiary of HSBC Holdings PLC and the seventh-largest bank in Canada, announced on Thursday the launch of HSBC Wealth Compass, an online digital portfolio manager for mutual fund investors looking to access exchange-traded funds. Clients must have an existing HSBC mutual fund account and a minimum of $500 to invest in order to access an online portfolio manager that offers five investment portfolios. Clare O’Hara reports.
A big moment for a small exchange: Canadian Brad Katsuyama’s IEX lands its first listing
When U.S. stock markets open on Friday, there will be one subtle but telling difference. For the first time, there will be a listing on the upstart exchange headed by Brad Katsuyama, the Canadian innovator profiled in Flash Boys, Michael Lewis’s 2014 bestseller. Mr. Katsuyama, a former trader at Royal Bank of Canada, has become Wall Street’s best-known rebel and an outspoken critic of trading practices that enrich exchanges and middlemen at the expense of customers. Yet despite the fame generated by Flash Boys, his IEX Group Inc. has not had an easy time wooing business away from established players such as the New York Stock Exchange and Nasdaq Inc. Ian McGugan reports (for subscribers).
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Ask Globe Investor
Question: How much income can a university student in Ontario make before paying tax? Also, are tuition and other education expenses a deduction?
Answer: An Ontario university student can take advantage of the basic personal amount, which for 2018 federally is $11,809 and in Ontario is $10,354. So, an Ontario student with income below $10,354 would pay no tax either federally or provincially. Tuition fees provide for a non-refundable federal tax credit and, in many provinces, a separate provincial credit. In Ontario, however, the provincial credit for tuition was eliminated for fees paid after Sept. 4, 2017. As a result, if an Ontario student with $6,500 of tuition claimed the tuition credit and the basic personal amount, she could earn about $18,309 ($11,809 plus $6,500) of income before paying any federal tax but would pay about $400 in Ontario tax ($18,309 minus $10,354, multiplied by 5.05 per cent). (Note that, effective Jan. 1, 2017, the separate federal education and textbook tax credits were eliminated.)
--John Heinzl (with expert advice from Jamie Golombek, managing director of tax and estate planning with Canadian Imperial Bank of Commerce)
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What’s up in the days ahead
John Heinzl takes a look at the dramatic decline in GE stock over the past decade, and Rob Carrick examines how advisers can better assist women with investing.
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Compiled by Gillian Livingston