In our economic update this week, we discuss the U.S. yield curve, which has received an excessive amount of attention by most major financial news outlets.
In addition to our economic update, we have included a video featuring RBC Global Asset Management’s Chief Economist, Eric Lascelles, Economic developments: War in Ukraine, COVID-19 cases, inflation and more, and an article published on our website, Budget 2022: Will Ottawa rise to Canada's growth challenge?
We are excited to host Brad Willock, RBC Global Asset Management’s Vice President and Senior Portfolio Manager, North American Equities, for an online and interactive economic update on April 26. Your link to RSVP early is below.
In addition our economic update event, we have included an invitation for an online seminar from RBC Wealth Management that may interest you or someone you know, Wealth planning strategies for health care professionals.
In our tax feature this week, we have provided you with an update on your RBC Dominion Securities tax package. Please don’t hesitate to contact us if you have any questions.
As always, we end our weekly newsletter with a few good news stories from in and around our community.
Economic update
Volatility has been more subdued in recent weeks, as has the commodity complex, while bond yields and equity markets have continued to grind higher. The war in Ukraine has now moved into its second month. Some reports have suggested that Russia has begun to narrow its focus to the Eastern regions of Ukraine. It’s too early to confirm whether that is indeed the case. Nevertheless, the prospects of a conflict that may be turning a bit more targeted may have contributed to the market action of late, which has been less turbulent than what was witnessed a month ago. This week, we discuss the U.S. yield curve, which has received an excessive amount of attention by most major financial news outlets.
What exactly is the “yield curve”?
The yield curve can be thought of as a series of expected returns for government bonds with various different maturities. There are yields for short-term government bonds that mature in a few months for example. There are also yields for longer-term bonds that mature in ten years, or even longer. The yield curve is simply a line that links all of these various yields together.
An upward sloping curve suggests investors are willing to accept a lower return for bonds that are shorter-term, while demanding a higher return for longer-term bonds to compensate for the extended holding period. In reality, the shape of the curve can, and often does, change because bond yields are determined by investor expectations. More specifically, it’s possible for shorter-term yields to be driven higher or lower, while longer-term yields may move to a lesser extent or even in the opposite direction.
The flattening of the curve
The dynamic explained above has taken place to some extent in recent months. Investors have been preparing for central banks to raise interest rates quite aggressively. As a result, short-term bond yields have moved sharply higher. Meanwhile, longer-term bond yields have risen less dramatically of late, as they are being influenced by concerns around whether central banks could raise interest rates too far, resulting in more restrictive financial conditions that could eventually present headwinds to economic growth. This divergence over the past few months has resulted in a flattening of the yield curve, and in some cases, an outright inversion where longer-term bond yields have fallen below shorter-term yields.
Why all the fuss over the yield curve?
An inversion of the U.S. curve has proven to be a useful signal that a U.S. recession may lie ahead. But, as with most issues in investing, there is significant nuance that needs to be considered. First, there are different yield curves depending on the maturities being analyzed. Some of the other yield curves are still upward sloping, suggesting recession risks remain relatively benign. Furthermore, there can be a significant lag, often more than a year, between a yield curve inversion and a recession. As part of its plan to unwind one of its programs put in place in 2020 to address the pandemic-induced recession, the U.S. Federal Reserve is expected to begin selling bonds in the not too distant future. Those bond sales could add upward pressure to longer-term bond yields, and potentially unwind some of the flattening of the curve that has taken place.
Our firm’s broader investment team regularly reviews and publishes a U.S. recession scorecard which consists of seven different indicators, including the yield curve. To-date, none of these have flashed warning signs this cycle, giving us confidence that it remains premature to be too concerned about the risks of a recession. Nevertheless, these indicators can, and will change, over time. For that reason, we continue to be attentive.
Economic developments: War in Ukraine, COVID-19 cases, inflation and more
Watch the video online: Economic developments: War in Ukraine, COVID-19 cases, inflation and more |
Budget 2022: Will Ottawa rise to Canada's growth challenge?
Canada’s Finance Minister, Chrystia Freeland, said Budget 2022 would be about boosting Canada’s long term economic growth. But her next fiscal blueprint risks being consumed by more immediate demands. The sharply rising cost of living, Russia’s invasion of Ukraine, and the Liberal Party’s pact with the NDP have all added to the government’s spending priorities, potentially absorbing revenue surprises.
Read the article online: Budget 2022: Will Ottawa rise to Canada's growth challenge?
RBC Dominion Securities Tax Reporting Guide
Please visit our RBC Dominion Securities Tax Reporting Guide page on our website for more information about the slips issued by RBC Dominion Securities. Please contact our office for assistance if your tax package indicates that there is a book cost that needs to be calculated, or if you have questions about 2021 tax reporting from Elinesky Schuett Private Wealth Management. Brittany Beach will be your first point of contact for all 2021 tax package questions. You can contact her by email or phone, brittany.beach@rbc.com or 519-822-2024. |
All RBC Dominion Securities tax slips have been issued. Please check your notifications in RBC Wealth Management online to download your tax package. If you have chosen to receive your documents by mail, please don’t hesitate to reach out to us if you have not yet received your package.
Seminar: Wealth planning strategies for health care professionals
Wednesday, April 6, 2022 1:00 p.m. – 1:25 p.m.
This online seminar focuses on timely strategies that may be effective during each stage of owning a health care practice. Learn about strategies to consider when you’re building and accumulating wealth, selling your practice and planning for retirement. We’ll also look at strategies to help you transfer wealth to the next generation tax effectively.
This event will be hosted online using BrightTALK. If this is your first BrightTALK event, you will need to provide your name, email and password of choice. Please make sure you set your time zone and your email preferences.
Use the link below to register.
Save-the-Date! Economic update with Brad WillockTuesday, April 26, 2022 12:00 p.m. – 1:00 p.m.
This event will be hosted online using WebEx and will include a live and interactive question and answer session with Brad! RSVP early using the link below. |
| I WILL ATTEND! |
During this live online event, Brad will discuss the U.S. equity markets and provide context around some of the recent events and uncertainties that have unfolded over recent months. He'll touch on key topics including the potential for expansion, future earnings growth potential, and highlight some of the main risks to monitor as we look forward.
Community Corner
Each week, we like to share a few good news stories from in and around the community. We hope that they brighten your day!
- 'We The Ward:' Photo exhibit shines light on those living in venerable Guelph neighbourhood
- Residents of Village By The Arboretum sing, dance to help raise money for Ukraine
- Erin's Rob Armstrong shares story of winning silver at Beijing Paralympics
- Guelph student sets T-37 Canadian long jump record
- Syrup producers set to celebrate Maple Weekend April 2 to 3
- Big Brothers Big Sisters raises $80,000 at Big Night Out gala
- Art workshop leads to art show at The Grove
- Milton library holding spring book sale
As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.