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Is Now the Time for Bonds?

November 27 to Dec 1, 2023


Is Now the Time for Bonds?

November 27 to Dec 1, 2023

Weekly Commentary

Market Recap

  • While not all global equity markets ended the week on a positive note, most of the majors posted relatively solid gains as some softer economic data bolstered hopes that rate relief could be just around the corner.
  • While U.S. Thanksgiving likely kept trading a little thinner than usual, the moderate helping of weaker U.S. data offered an early read on the start of Q4. Notably, existing home sales slipped to the lowest level since 2010 in October, while durable goods orders fell to a four-month low.
  • For its part, the Fed has acknowledged the economy’s headwinds, noting that it is “proceeding carefully” and that its members would continue to closely monitor all incoming data in the coming months.

The Fed

The minutes from the U.S. Federal Reserve’s (Fed) latest meeting were released last week, and they reveal consensus amongst the governors regarding their intention to stay on the sidelines. Importantly, they’re not yet claiming victory in the fight against inflation—they’ve put their tools down but not packed them away completely, so if inflation does flare back up, they can respond. But it’s clear that they don’t want to raise interest rates any further. This stance reinforces our belief that two things are happening in markets: one, that equities can rally to the end of the year based off the likely end of the rate cycle, and two, that now is the time to be owning bonds. As the yield curve normalizes, bonds can be expected to outperform Guaranteed Investment Certificates (GICs) and cash; the latter two are likely to have peaked, while the momentum for bonds is just starting. Case in point: the Morningstar U.S. 10+ Year Treasury Bond Index, which tracks the price return of longer-term Treasuries, has appreciated by approximately 15% since the Fed’s rate announcement on November 1.1

Bottom Line: Clients may be asking for GICs, but now is the time to consider taking fixed income over GICs and cash.


Last week’s Canadian Fall Economic Statement highlighted Canada’s growing debt, with the federal budget deficit now topping $40 billion, and the government’s focus on lessening the burden of inflation. Housing remains a critical issue. For consumers, the impact of higher interest rates will play out over several years as mortgages roll over—that’s what policymakers are hoping to protect against. Of the roughly one-third of Canadians that have a mortgage, about 25% have a fixed-rate loan. Within that 25%, only about 5% renewed this year, while the other 20% will renew in 2024 or beyond. Homeowners renewing this year are seeing mortgage rates of 6-7%, up from about 3.5% five years ago. People renewing their mortgage two years from now won’t do so at 7%, but even 4.5-5% is a steep hike from the 1.5-2% they likely have on their current loan. Additionally, anyone with other debt is already feeling the crunch of higher rates, with that burden only being compounded by an eventual mortgage renewal.

Bottom Line: The Canadian government’s concern about housing is warranted, as the impact on the consumer is likely to worsen over the next few years.


Artificial intelligence (A.I.) stocks have been on a tear this year, and Nvidia recently announced another round of impressive earnings. For investors, is there more upside on the table, or is it time to take your profits? Our team’s view is that you’re not buying Nvidia for a quarter or even a year—you’re buying it because the A.I. theme is likely just getting started. Nvidia is a quality company with excellent management that is at the forefront of both the A.I. theme and trends in consumer demand. Has its stock price run up too far, too fast? Possibly. But what we saw last month is a good example of the pitfalls of a short-term mentality—an investor might have intended to sell and buy it again once it dropped back, but before they could capitalize on the downswing, it was back up to new highs. As with any stock, there will be ups and downs along the way. With quality growth companies like Nvidia, however, you should have more ups than downs.

Bottom Line: Some quality companies should be held through ups and down, and Nvidia remains one of the top positions in our portfolios.


For a detailed breakdown of our portfolio positioning, check out the latest BMO GAM House View Report, titled Stocking Up for a Hiday Rally.


The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.

BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.

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