Into Corporate Bonds, Out of Government Bonds - Scotia Capital

The recent sharp declines in 10-year U.S. Treasury yields have caused Scotia Capital to reiterate its move into corporate bonds.

Vincent Delisle, a strategist at Scotia Capital, said Scotia began to lower its holdings in long-term government bonds at the end of 2008 in favour of a move into corporate bonds.

He said:

Following last week’s spectacular decline in U.S. 10-Yr Treasury Yields to 2.5% from just over 3% (they started the year at 2.2%), we would reiterate that call. In our opinion, intensifying Fed liquidity measures materially increase the odds of saving the economy from a prolonged depression/deflation spiral. In such a scenario, we expect credit spreads to narrow. Last week’s spectacular decline in bond yields represents a selling opportunity.

Mr. Delisle said for those that like to invest in exchange traded funds, the TBT (ProShares UltraShort 20+ Year Treasury) offered a nice way to play a rise in U.S. long term bond yields.

He said the softening in the bad data out of the United States was also a signal that investors should increase their weighting in cyclical stocks.

However, he said the past two weeks of gains had pushed the S&P/TSX close to overbought levels. He said the TSX was trading above its 50-day moving average of 8,437.

Comments

[Larry House:]

I prefer individual bonds, but short-term corporates (2-4 years) offer a good return with somewhat less risk than stocks.

Mar 25 11:39 AM

[Skeptical Ben:]

Okay, what corporate bonds? What categories? Insurance company ratings and manufacturer/exporters are trending down in ratings, so bond values can fall quickly. The article is akin to saying "I like stocks" or "I don't like treasurys".

Mar 26 08:01 PM

[oldman:]

Does anyone know who guarantees Daimler Chrysler Internotes? They have A- and A1 ratings, so it cannot be chrysler, perhaps Daimler?

Apr 05 10:11 AM