RE:RE:RE:Good AdviceAlwaysLong683 wrote: Torontojay wrote: I like long term duration bonds and believe they can outperform stocks in 2023. You never lose with bonds in a recessionary environment as interest rates come down. A portfolio that is weighed towards bonds and cash may be a prudent way to manage the expected turbulence for next year.
Economist David Rosenberg shares your bullishness on long bonds, though note he is talking US Markets, not Canadian, in the article.
Quote from article:
"I think the total return in the long bond is likely to be more than 20% of the next year. I don't think the stock market's making 20% in the next year." (Rosenberg said it was a "big mistake" not to buy long-dated bonds based on their recent weakness, as he expects bonds to be the first asset class to recover from the current downturn.)
If I was to hold long bonds (I currently do not), I'd pick a Canadian-based ETF inside a tax-sheltered account like an RRSP or TFSA. One people may wish to consider is XLB.
Not sure if interest rates will come down in 2023 (maybe second half of the year), but I don't think they'll rise much more.
The Canadian 10 year savings bond doesn't even come close to matching the 10 year US treasury. As of Dec 2 the 10 year on the Canadian is 2.77%
If the 10-year on the Canadian drops to 2% then you're looking at annual returns of approximately 0.77% *10 =~ 7.7% annual return.
The US 10-year is at 3.6% and if interest rates come down to 2% then you're looking at approximately 1.6%*10 =~ 16% annual return. My guess is inflation will reach its 2% target by mid 2024 and the 10 year could get back on target.
I like the long term duration bonds because of the multiplier effect and expected inflation to reach its 2% target.
A 1% drop in interest corresponds to a approximate 10% return on a 10 year bond.
A 1 % drop in interest on a 2 year bond corresponds to a 2%
annual return (held for 1 year)