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Reprinted with permission of Wealth Professional | Original feature<\/a><\/strong> <\/p>\n With fixed-income markets expected to undergo a patch of volatility as investors anticipate several interest rate cuts from central bankers, Canadian investment-grade bonds may be an interesting asset class for advisors and their clients this year, argues one investment industry leader.<\/p>\n \u201cThere’s potential for more inflows and interest in this category from advisors, simply because the economic environment seems reasonably strong, and there\u2019s a broad expectation that interest rates will decline,\u201d says Mark Noble, senior vice president of Retail Strategy at Guardian Capital LP.<\/p>\n \u201cThat\u2019s sort of a sweet spot for corporate credit, because, historically, it\u2019s meant that corporate yields tend to have that higher spread, which results in a higher yield.\u201d<\/p>\n<\/div>\n<\/div>\n Looking at analysts\u2019 data, Noble says the consensus view for interest rates calls for three to six rate cuts from central banks going into 2025.\u00a0The timeline of those cuts has been the subject of much discourse<\/a>, with analysts diverging on whether the Bank of Canada and the Fed will start cutting this spring or later in 2024.<\/p>\n \u201cWhat\u2019s important to highlight is that we\u2019re probably at or near a top in interest rates rather than a bottom,\u201d he says. \u201cInvestors are really having to take a hard look at their fixed-income portfolios, to see if they\u2019d want to potentially lock in interest rates from here on out. \u2026 If we start to see interest rates decline, income levels on fixed-income holdings will obviously start to decline.\u201d<\/p>\n In 2022 and through to 2023, cash was king among Canada\u2019s retail investor crowd, with flows into money-market ETFs totalling $25 billion last year according to\u00a0National Bank Financial<\/a>. As central bankers navigate a pivotal interest-rate transition and the risks of cash investments become clearer, investors must now consider when and how to rotate into other fixed-income options.<\/p>\n \u201cMoney-market instruments come with reinvestment risk, which is not a risk of loss, but a risk of declining income \u2026 They have short maturities, so they roll over very quickly,\u201d Noble says. \u201cWe could see yields on high-interest savings account (HISA) ETFs, T-bills, money-market funds start to potentially decline dramatically, so we could expect a quest for higher yield in 2024 as investors look at other things like GICs or longer-duration corporate bonds.\u201d<\/p>\n
\nAuthored by: Leo Almazora | January 23, 2024<\/strong><\/p>\n\n\n\n\nFrom \u2018cash is king\u2019 to \u2018a quest for higher yield\u2019<\/strong><\/h2>\n
Disappointing Goldilocks<\/strong><\/h2>\n