However, his video sparked some discussion in Ben Felix’s Rational Reminder community (login required). Felix is ​​an advisor at PWL Capital. In an email to me, Felix wrote that the historic 121-year real yield on long-dated government bonds in Canada and the US was about 2%. but also includes corporate bonds, is currently at 3.26% and breakeven inflation is at 1.86%.”

That looks pretty normal, Felix says. “The market has priced in rate hikes well ahead of the BoC [Bank of Canada] walked. On the date of the BoC announcement, bond yields were positive. All these articles about the death of bonds came out after prices fell. When prices fall, expected returns rise. If an asset class has been declared dead, now is probably a good time to invest in it.”

Still, Matthew Ardrey, wealth advisor at Toronto-based TriDelta Financial, says he “partly agrees with the theory that bonds are dead.” He adds: “Bonds face double headwinds from both interest rate hikes and inflation. This drives existing bond prices down and makes their real returns negative… Finding value in bonds is certainly a challenge.”

Ardrey still sees a critical need for bonds for liquidity, as well as to compensate for stock volatility. “I focused on the short end of the curve. Shorter maturities have less impact from interest rate hikes. Corporate bonds also outperform governments.”

Ardrey is concerned that what was once considered “risk-free” or at least low-risk is now considered a riskier asset class. “But again, where should an investor go these days with a really low risk? Cash is eroded by inflation, stocks have volatility and alternatives have liquidity risk.”

Over to GICs

I would say the place to go is the Humble Guaranteed Investment Certificate (GIC). In the Pape’s Globe article linked above, he added a crucial qualifier: Those who want a safe haven can park money in 1-year GICs. I did this myself, as my previous GIC ladders were coming up. Using the advice of my own fee-only financial planner, I used to use 2-year GICs until last year, but it’s now clear that with multiple rate hikes still to come in 2022, it would be nice to be able to reinvest at higher rates. rates one year from now. One-year GICs provide flexibility without generating the red ink that long-term bond ETFs do today.

One does not have to wager all GIC-bound cash at once. One could add new GICs every two or three months, thereby benefiting from higher rates as the year progresses and more increases are made. When the uniformly distributed GICs mature, one has cash inflow available to reinvest at (hopefully) higher rates. Alternatively, you can park in 90- or 180-day T-bills (Treasury Bills), which will earn you a modest amount of interest while awaiting the next set of hikes.

The Bank of Canada raised rates by 50 basis points on April 13, the day I began writing this column. It’s best to wait a full week for such rate increases to be reflected in revised GIC rates, but even on April 19, I found a handful of 1-year GICs paying 2.7% or more at RBC Direct Investing:

This post Do bonds still make sense for retirement savings?

was original published at “”