2023-03-10 16:00:00 ET
Summary
- The US dollar touched a five-month high against the loonie this week as the Bank of Canada held at 4.5% and hawkish talk from the US Fed increased odds of a US overnight rate of 5% on March 22.
- Canada’s 10-year Treasury yield topped with the loonie last October at 3.68% and has since retreated to 3.158% as Treasury bonds rallied.
- With cash equivalents paying more than 4% and the highest grade bonds yielding interest payments and capital gains, the case for holding riskier assets is slim to none.
The US dollar touched a five-month high against the loonie this week (shown below since late 2020, courtesy of my partner Cory Venable) as the Bank of Canada held at 4.5% and hawkish talk from the US Fed increased odds of a US overnight rate of 5% on March 22.
With recessionary data and credit stress compounding, the allure of a 5% risk-free rate in the world’s most liquid currency is understandably enticing global capital flows desperately seeking safe havens.
Canada’s 10-year Treasury yield topped with the loonie last October at 3.68% and has since retreated to 3.158% as Treasury bonds rallied. With Canada’s economy stalled out and financial stress spreading, the short-lived rebound from January through February is now in the rearview mirror, and a retest of the 2.80 area is next on deck.
With cash equivalents paying more than 4% and the highest-grade bonds yielding interest payments and capital gains, the case for holding riskier assets is slim to none. David Rosenberg, Founder and President of Rosenberg Research, explains further in the segment here . Happy Friday.
Disclosure: No positions.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Loonie And Treasury Yields Diving Together