{"id":466566,"date":"2010-03-24T10:29:00","date_gmt":"2010-03-24T14:29:00","guid":{"rendered":"e2249889-c78b-43e3-9643-b1d7d4aa587b:412428"},"modified":"2010-03-24T10:29:00","modified_gmt":"2010-03-24T14:29:00","slug":"flattening-yield-curve-threatens-aggressive-stance-on-equities","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/466566","title":{"rendered":"Flattening yield curve threatens aggressive stance on equities"},"content":{"rendered":"

With yield curves in Canada and the U.S. already beginning to flatten, investors should start preparing for a less exuberant period of equity outperformance relative to bonds, says Vincent Delisle, strategist, Scotia Capital Markets. <\/p>\n

"Our 2010 strategy theme has been to reverse our aggressive 2009
\ncyclical bias and to gradually take the risk-trade down," Mr. Delisle
\nsaid in a note to clients. "We view this ongoing tilt down in yield
\ncurves as further indication to act." <\/p>\n

Yield curves, which plot the spread between long and short-term bond yields, have started to flatten after reaching extremely steep levels earlier this quarter. The U.S. 10-year minus two-year slope has declined 21 basis points from its Q1\/10 peak, while the comparable Canadian slope has come down 47 basis points.<\/p>\n

Mr. Delisle expects central banks in both Canada and the U.S. to begin raising rates based on economic improvements and said yield curves, as a result, should continue to flatten through 2011.  He predicted the U.S. yield curve using 10-year and two-year yields, will smooth out another 60 to 210 basis points.  <\/p>\n

While the strategist continues to prefer equities over Treasuries for the time being, he said his comfort level toward stocks is declining. <\/p>\n

"Although we are projecting further 7%-10% equity upside (total return) as confidence in the global recovery solidifies, the equity risk-reward profile is no longer as
compelling as it was at the start of 2009," he said. <\/p>\n

"Our equity recommended weight has been hovering at 68% for a year. This number will be coming down,"  <\/p>\n

He recommended sectors that are less burdened by interest rate hike fears and a weaker Euro\/Yen, including industrials (capital goods), technology, discretionary (cable\/media), and oil. <\/p>\n

"Moreover, we maintain a cyclical bias in our sector strategy but have been rotating out of early cyclicals (Financials, Discretionary Retailers) and moving into Staples and Telecom since Q4\/09," he said. <\/p>\n

Geographically, Mr. Delisle said he favours North America over Europe and emerging markets. <\/p>\n

David Pett<\/a><\/p>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

With yield curves in Canada and the U.S. already beginning to flatten, investors should start preparing for a less exuberant period of equity outperformance relative to bonds, says Vincent Delisle, strategist, Scotia Capital Markets. "Our 2010 strategy theme has been to reverse our aggressive 2009 cyclical bias and to gradually take the risk-trade down," Mr. […]<\/p>\n","protected":false},"author":4060,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-466566","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/466566","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/4060"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=466566"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/466566\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=466566"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=466566"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=466566"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}