There is an old adage in the markets that goes something like this: "markets will take the path of least resistance". Which is to say, "markets will take the path of most pain". Which, put yet another way, "markets will go against the way the majority of participants are positioned". IE, if everyone is long, the market is likely to go down...everyone short, the market is likely to go up.
I write this on the back of today's US 1Q14 GDP print of -2.9%. Pretty awful stuff, no matter how you dissect it. Combine that with the still pretty firm bid to the back end of the US treasury curve and it makes one wonder..."what is the path of least resistance for rates?" Well 57 out of 57 Wall St strategists all think the same two things: 1) the US economy will strengthen and 2) interest rates can only go up. Interesting. Sounds to me like the path of least resistance is for a weaker economy and lower rates.
What if, just what if, the US economy does weaken?
After all, we have been in positive territory for 5yrs now, and markets have seen a 5yr rally. Hmmm. Is it time for a correction? Probably not too many people talking about a recession are there? I hope there isn't but what we hope for doesn't always happen - we need to pay attention to what the markets are telling us and try to get ahead of them. And the Gov't bond market has been telling us something for 6mos now...10yr Treasuries are about +7% YTD total return. Not bad for a bond that everyone thought was going to be down 7% or more for the YTD. But what does it all mean?
What if...the economy actually is weakening and it wasn't just all cold weather for a few days out of the 90 that are in the 1Q?
We launched a new closed-end fund offering with our partners at Scotiabank: High Rock Canadian High Yield Bond Fund.
The Preliminary Prospectus was filed and receipted with the OSC on Friday May 30th and is on Sedar or a pdf is below: