Inflation gallops, food costs more and more, the price of gas keeps climbing, interest rates go up, rents go up, house prices too…
And the peak? Not only are we getting screwed over by falling stock markets, but we are also continuing to lose money with the bond market, where negotiable bonds issued by governments, state corporations and businesses are traded.
BOND DROP
Since the beginning of the year, the “FTSE Canada Bond Universe” index has lost 4.1% and the “FTSE Canada Long Term Bond” index has fallen by 8.4%.
These significant declines in the space of just two months come on top of the poor performance recorded by these same two bond indices in 2021, while the “Universe Bonds” index ended the year with a loss of 2 .5% and the “Long-term bonds” index with a decline of 4.5%.
And with the gradual increase, over the next few quarters, in the key rates of central banks, such as those of the Bank of Canada and the US Federal Reserve, that does not bode well for the bond market. At least in the short and medium term.
In principle, therefore, our investments in marketable bonds (bonds, bond mutual funds, bond index funds, other fixed income securities, etc.) are likely to continue to underperform. The “bond” portion in so-called “balanced” mutual funds will not do much better.
When we hold marketable bonds in our portfolio, we must remember that the market value of these decreases when interest rates rise, and vice versa, the market value increases when interest rates fall.
INCREASE IN THE KEY RATE
Yesterday, the Bank of Canada raised its key rate from 0.25% to 0.50%. This is the first in a series of several increases in the Bank of Canada’s key rate.
This suggests that the bond market will be under downward pressure for some time.
THE STOCK EXCHANGE
As for the stock markets, we are going through a period of great volatility due in particular to the invasion of Ukraine by Vladimir Putin’s Russia.
Worry and uncertainty are omnipresent on all the major stock exchanges in the world. Major investors and speculators are “bipolar” more than ever! This explains why the indices fluctuate enormously during the session, and from one day to another.
When you receive your investment statements for the month of February, you will no doubt find that you are less “rich” than on December 31st.
According to the firm Aubin Actuaire, here is the return in Canadian dollars (including dividends) of the various major stock market indices for the first two months of 2022.
- Toronto S&P/TSX: – 0.1%
- New York S&P 500: – 7.9%
- MSCI World, except United States: – 5.5%
- MSCI Europe: – 6.9%
- MSCI Pacific: – 4.7%
- MSCI Emerging Markets: – 4.4%
It should be noted that the Canadian stock market has generally managed to get away with it unscathed by vegetating around 0%. This is attributable to the good performance that the energy sector (+20.3%) and that of mining and metals (+9.3%) obtained during the first two months.
If these two sectors are absent or not very present in your portfolio, the latter risks posting losses.
Courage, the year is still young!
