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By Gregory Thomas
Special to the Vancouver Sun
Saturday, June 09, 2007
Bond yields rose the most in a year this week, sending North American stock markets into a tailspin that only reversed Friday. At one point on Friday, the yield benchmark 10-year U.S. Treasury note reached 5.25 per cent, its highest level in five years, then reversed, helping equity markets end the week on a stronger note.
Adrian Mastracci, fee-only portfolio manager at KCM Wealth Management in Vancouver, says, "If you have bonds in the portfolio, and you believe rates will be higher six months down the road, the bonds you have right now will probably be showing a capital loss in six months."
The S&P/TSX Composite trimmed losses for the week to 2.3 per cent, rising 94.62 points Friday, or 0.7 per cent, to 13,798.50. The heavily gold-weighted S&P/TSX Venture composite gave up 3.22 points to 3,190.55, ending the week lower by 2.6 per cent.
As the bond selloff sent interest rates skyward, making dividends less attractive, the S&P/TSX financials lost 2.9 per cent this week, their worst weekly performance in nearly five years. Scotiabank added 54 cents to $51.82 after falling 4.8 per cent in four days.
In New York, the Dow Jones industrial did a rebound from three days of selling, climbing 157.66 points, or 1.2 per cent, to 13,424.39, trimming losses to end up 1.8 per cent for the week. The S&P 500 added 16.95 points, or 1.1 per cent, to close at 1507.67 for a one-week loss of 1.9 per cent. The Nasdaq composite rallied for a gain of 32.16, or 1.3 per cent, to 2573.52, cutting its weekly loss to 1.5 per cent. Bond yields haven't been higher since May 2002, while bond prices -- they move in the opposite direction to yields -- haven't been lower.
"This is not the time to be buying bonds," says Adrian Mastracci, fee-only portfolio manager at KCM Wealth Management. "If you believe, as I do, that we're going to have higher rates down the road. If you have bonds in the portfolio, and you believe rates will be higher six months down the road, the bonds you have right now will probably be showing a capital loss in six months."
Mastracci's clients mainly rely on 90-day Treasury bills and bankers' acceptances for fixed income right now, waiting for bond prices to turn around.
The August gold contract dropped $14.90, or 2.2 per cent, to $650.30 US an ounce, after touching $647.80 US, the lowest level since mid-March.
The prospect of higher U.S. interest rates halted the decline in the U.S. dollar, sending gold down four per cent for the week. The S&P/TSX global gold index fell 5.5 per cent this week, bringing losses for the year to nearly ten per cent.
July crude fell steeply, down $2.17, or 3.2 per cent, to $64.76 US a barrel as traders weighed the impact of higher interest rates on energy consumption. Next-day natural gas at Spectra Energy's Huntingdon tolling station in Abbotsford dipped 28 cents, or 4.3 per cent, to $6.30 US per million Btu.
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