Scott Colbourne – 06/16/2022

(Energizing music) HELLO I'M GREG BONNELL AND WELCOME TO MONEYTALK LIVE WHICH IS BROUGHT TO YOU BY TD DIRECT INVESTING. IT'S A NEW PROGRAM BROADCAST DAILY ON WEBBROKER. EVERY DAY I'LL BE JOINED BY GUESTS FROM ACROSS TD, MANY OF WHOM YOU'LL ONLY SEE HERE. WE'LL TAKE YOU THROUGH WHAT'S MOVING THE MARKETS AND ANSWER YOUR QUESTIONS ABOUT INVESTING. COMING UP ON TODAY'S SHOW: I'LL BE SPEAKING WITH SCOTT COLBOURNE, MANAGING DIRECTOR FOR ACTIVE FIXED INCOME AT TD ASSET MANAGEMENT. HE SAYS THAT IN TODAY'S RISING RATE ENVIRONMENT BONDS ARE BEGINNING TO LOOK INTERESTING FOR THE FIRST TIME IN YEARS, AND IN TODAY'S WEB-BROKER EDUCATION SEGMENT CAITLIN CORMIER WILL SHOW US HOW TO SCREEN FOR FIXED INCOME USING THE PLATFORM AND HERE'S HOW YOU CAN GET IN TOUCH WITH US, JUST EMAIL MONEY-TALK-LIVE AT TD DOT COM OR.. FILL OUT THE VIEWER RESPONSE BOX UNDER THE VIDEO PLAYER ON WEBBROKER AND BEFORE WE GET TO OUR GUEST TODAY LET'S GET YOU AN UPDATE ON THE MARKETS. After yesterday's rally, we are back into selloff. Let's check out the TSX composite. 2 1/2%, we are seeing broad-based selling right now not a lot of places to hide on Wall Street. We are seeing a pullback in the last couple of days and the price of crude is seems to be affecting big energy names. We want to show you Baytex, one of the most actively traded names. Down 3.7% right now. The S&P 500, as we said, we are all watching so carefully. A 75 basis point hike. That was the biggest hike since 1994. The markets rallied off of the back of it. Of course Jerome Powell saying they are seeking a soft land, a place where you can bring inflation under control. Perhaps a rethinking of some of those fears this morning. The S&P 500 down 3% at this hour. Now the tech heavy NASDAQ. The selling is broad-based. Taking it pretty hard today as well down a little more than 4%. Bank of America, one of those Wall Street heavyweights, also under pressure on Wall Street today. Down a little more than 2%. And the US dollar. Let's check in because we had some central bank action that we will get into in just a moment. We are actually seeing some weaknesses. Quite the run-up in the trade of the buck in the last several months. Today, a bit of a giveback. Down 1/3 of a percent. THE U-S FEDERAL RESERVE DELIEVERED A JUMBO RATE HIKE YESTERDAY. 75 BASIS POINTS, WHICH IS THE LARGEST MOVE SINCE 1994. AND WHILE THERE ARE FEARS THAT RISING RATES COULD WEIGH ON GROWTH OUR FEATURE GUEST TODAY SAYS THAT IN TODAY'S ENVIRONEMENT THE BOND MARKET IS LOOKING INTERESTING FOR THE FIRST TIME IN YEARS. JOINING US NOW IS SCOTT COLBOURNE, MANAGING DIRECTOR FOR ACTIVE FIXED INCOME AT TD ASSET MANAGMENT. Great to have you on the program with a Scott. >> Great to be here Greg. >> Let's talk about what we saw from the Fed. The tone changed. What was your big take away on the other side of that? The press conference more importantly? >> We did get surprised earlier in the week. They delete the news into the present and give us hints. The big change is, when you go back to March, they had the last summary of economic projections. This was the first time since then. They updated their forecast. The data clearly, they had to adjust right? Inflation had a pretty bad number on Friday on the inflation CPI as well as the inflation expectations in Michigan. All pointing at the Fed had to deliver more. So we got the 75 basis points pretty much as expected. I think the surprising thing was, you know, Jay Powell Creek committed to the next meeting in July. He left it open so the market is sort of handicapping in between a 15 and 75 for the next meeting. Basically, the combination of the forecast which indicates higher inflation, lower growth and an uptick in unemployment. You know, leave us with a, central bank that is continued to hike into a slowing economy. So, you know people thought at the margin it might be double initially or maybe it could have been positioned in squaring or take some downside hedges. Markets we are dealing with… As you sort of summarize well, we are dealing with the aftermath of central banks that are committed to pushing through rate hikes even if growth is slowing and that is the challenge for investors. >> I am not accustomed to speaking about the Swiss National Bank that much. But even the Swiss. > Yeah. This is not just a US or Canadian issue. We had RBA drop their curve control a while ago as you pointed out last night. This morning, the Swiss, in London time, they surprised the market and raised the rates 50 basis points. That is not happened in 15 years. Today, the Bank of Japan is in a two day meeting. There is chatter in the markets that may be they are going to move away from curve control. This is a global phenomenon. A challenge for every central bank. So I think that tone, that narrative reasserted itself with the surprise this morning. >> All right. As investors we take a look at the moves on the equity side. There are consequences that we are living through as investors. As we are telling the audience earlier, from a bond perspective, now the market actually looks interesting for the first time in a long time. Walk me through that. >> I think for the first time it is a bit of a challenge that you could call tops or bottoms on the market. The market is priced in a lot of hikes in the fixed income market. So, right now we have the markets pricing in early next year at about 4% in the short term rates. In both Canada and the United States. Were we were two years ago, tenure rates were around 50 basis points. We are now around just shy of 3 1/2%. We can make the argument that we might go to 4%. Maybe even a little bit higher. When you look at that, the journey, if you will, maybe 75%, 80% way through the journey. I think from a portfolio management one of you, it is starting to look intriguing. Don't pretend you can call it top. It's hard enough to do it as a professional but it is a challenge to rebalance your portfolios and I think fixed income from that point of view, you are getting an income for the first time in a long time as well. So there will be challenges and I guess the word is patience. Likelihood is that will go up a little more from here but it is definitely looking so. >> Is that the key when you think about fixed income? If I'm seeking profit, where my looking for that prophet? From price? From yield and dividend? Those are things we talk about. >> Absolutely. When rates fell to 50 basis points, you weren't getting a lot of income or yield. You got a lot of price appreciation. You know, obviously price appreciation is depreciated since we were at 50 basis points. Now you are getting an income of 3 1/2%. Let's just call it for 10 Year Yields in Canada and the US. You have a lot of buffer there in terms of where you can protect against movements. Ups and downs on a day-to-day basis in interest rates. Then you layer on the credit. You can be investing in grey bonds or high-yield bonds and that incremental income is even better. But, you know, there are risks. Risks abounding here. Obviously inflation is at higher rates. We could be seeing a recession and that's a challenge for corporations and credit. So it's not without its balancing acted in terms of understanding and sizing up your portfolio right? But for the first time in a long time you are getting an income. That's the thing about fixed income. It allows you to protect from the day-to-day movements in prices. >> It feels like it's been a long time. >> A long time. >> You mentioned recession. Obviously there are fears in the market right now. I guess it takes us back to a central bank discussion. We try to get inflation under control and that tips into a recession… At what point do the banks start cutting rates again? We are getting far ahead of ourselves. But there are some rumblings about all that. >> I guess the path to a soft landing is pretty narrow. You are hearing a big global economy and we have a global economy that is out of balance. We can touch on a lot of different things. Inflation is different around the world. Housing markets here in Canada… There are lots of challenges and that narrow path to achieve a soft landing without a recession is pretty narrow. I would say that, you know, my opinion and my team's opinion is that the likelihood is that we will see something that looks like a recession whether it is a technical definition but we Artie saw first quarter growth at -1. 5%. You can separate domestic strength versus external weakness but the technical potential for a recession is there. We are definitely seeing leading indicators of slowing down. I think the challenges that inflation is so embedded here, that is, the primary mandate for many central banks. The Fed is a duel. But for many central banks it's inflation and they have to tackle it and it's moved from just goods inflation to services and wages and shelter. So they may have to raise rates in the face of a slowing and a potential recession. >> Great start to the show. Thank you very much we will be taking your questions. A REMINDER THAT YOU CAN GET IN TOUCH WITH US ANY TIME.. JUST EMAIL MONEY-TALK-LIVE AT TD DOT COM OR FILL OUT THE VIEWER RESPONSE BOX UNDER THE VIDEO PLAYER ON WEBBROKER. YOUR HERE'S AN UPDATE ON THE TOP STORIES IN THE BUSINESS WORLD TODAY AND A LOOK AT HOW THE MARKETS ARE TRADING WE HAVE A MULTI-BILLION DEAL IN THE CANADIAN HEALTHCARE SERVICES INDUSTRY TODAY. "TELUS" HAS AGREED TO BUY "LIFEWORKS" IN A TRANSACTION VALUED AT $2.9 BILLION DOLLARS. THE TELECOM GIANT SAYS IT WILL ADD LIFEWORKS' OFFERINGS TO ITS TELUS HEALTH UNIT. THE COMPANY IS CITING AN UNPRECEDENTED SHIFT IN THE HEALTH AND WELLNESS NEEDS OF WORKERS – INCLUDING A GREATER FOCUS ON MENTAL HEALTH. UNDER THE TERMS OF THE DEAL, LIFEWORKS' SHAREHOLDERS HAVE THE OPTION TO RECEIVE CASH OR TELUS SHARES. THE DEAL, WHICH REQUIRES SHAREHOLDER APPROVAL, WOULD SEE THE COMBINED COMPANY OFFERING SERVICES IN SOME 160 COUNTRIES. COSMETICS GIANT "REVLON" HAS FILED FOR BANKRUPTCY PROTECTION. THE COMPANY SAYS THE CHAPTER 11 FILING WILL ALLOW IT TO REORGANIZE IN THE FACE OF "CONTINUED GLOBAL CHALLENGES" – INCLUDING SUPPLY-CHAIN DISRUPTIONS, SOARING COSTS AND ITS DEBT OBLIGATIONS. REVLON EXPECTS TO RECEIVE $575 MILLION IN FINANCING FROM ITS EXISTING LENDERS -- ON COURT APPROVAL OF ITS BANKRUPTCY FILING. THE PANDEMIC TOOK A TOLL ON COSMETIC SALES AMID LOCKDOWNS AND PEOPLE NOT FEELING THE NEED FOR MAKEUP AS THE WORKED FROM HOME. HIGHER BORROWING COSTS ARE TAKING A TOLL ON HOMEBUILDING SOUTH OF THE BORDER. U.S. HOUSING STARTS FELL BY MORE THAN 14 PERCENT IN MAY – A LARGER DECLINE THAN EXPECTED AND THE LOWEST LEVEL SINCE APRIL 2021. TD ECONOMICS SAYS THE U.S. HOUSING MARKET IS CLEARLY LOSING SOME OF ITS "PANDEMIC DRIVEN MOMENTUM." AND TD SAYS AS THE FED CONTINUES TO RATCHET UP INTEREST RATES, THE HOUSING MARKET IS LIKELY TO FEEL THE BRUNT AS MORTGAGE RATES CLIMB HIGHER. TD NOTES HOMEBUILDER SENTIMENT IS NOW AT ITS LOWEST LEVEL SINCE JUNE 2020. AND HERE'S HOW THE MAIN BENCHMARK INDEX IN CANADA IS TRADING… 517 point deficit right now in Toronto. A weakness across all sectors. South of the border, the S&P 500, much of the same story. A nice rally we had left yesterday afternoon. 3.2% right now. On Wall Street, the S&P 500 shedding 124 points. Let's get back to our questions now. We are talking about fixed income with Scott Colbourne. Off the top of the show, we talked about the feds. The American dollar has strengthened significantly. Do you expect that trend to continue. >> Yes insured. The fact that it is going to raise rates and up to about 4% through the first 1:45 thousand 23. I would note though, currencies like the euro and the yen have depreciated a lot. As we move close towards the end of what the markets are pricing in, you might see some appreciation in the end for example. Or when the euro has to start raising rates more aggressively. For the time being, I'm more inclined to say that the US dollar is supported. In fact, against the Canadian dollar, one of our Achilles heels is the housing market. The Fed may be able to raise rates more back in Canada. > It's interesting from global central banks that we have seeing this US dollar strength. There is a great debate right? People say they can't last but the US dollar continues. If you take a look at that year, it is grinding. >> It is really nothing that is been first and foremost a yield supported currency appreciation. But as we now are challenging and risk assets are being more challenged, there is an element of light to quality. That is been in support of the US dollar. Despite the fact that we might be getting closer and markets are starting to price in out in the future when the rate hikes might pause. You know, you are still seeing an appreciation of the US dollar. >> It's interesting when we talk about the US dollar. We show the audience the DX why. You're talking about the Canadian dollar. I want to get into the Canadian currency now in your view on that. We compared with the US for good reason. Our largest trading partner. >> Yes and when you look back, the Bank of Canada is one of the first central banks to get ahead. … One of the first to drop quantitative easing. They had to drop rates and normalized rates and that it was giving the Canadian dollar lift. A run-up in commodities… That has given a lift. It is been transitioning right? So the commodity prices, like oil plateauing. Starting to rollover a bit. That is a tail wind for the Canadian dollar. If it is turning, that might be negative. We also have one of the most extensive housing markets in the world. We have definitely seen that go off. That will augment the rating hikes at the bank. It might in fact, a softening housing market may do some of that work in terms of taking the froth off of the excess demand in the Canadian economy. You might see the Canadian dollar depreciated bit here as the Fed continues to raise rates. > You mentioned oil. Another great debate that never goes away. It is it a petro currency or not? It is until it isn't. People tell me. How do you way that? >> There are number of factors there. When we look at the Canadian dollar and how we have the value of it, first and foremost there is differences. Differences between short-term and long-term rates in the economy. Then there is the commodity price the drives it. It is definitely, the recent support has been broad-based and a number of commodity based currencies around the world. But also, the other factor that we have to look at is what we call a risk factor. A growth factor. That is definitely turning. So, maybe two of the factors are turning against the Canadian dollar. One continues to support it. So, it depends on what you wanted. Sometimes it is a petro currency and sometimes it isn't. >> Some fresh questions here coming off the platform. This one from a viewer asking us had bonds priced in all of the rate hikes? > Excellent question. We think that rates can get up to 4%. If you're going to handicap it, it might go slightly higher than that. It goes back to thinking about where we are in this journey of interest rate hikes. I would say we are 75 to 80% of the way through the journey. You know, it's with things we have priced in a lot, I am comfortable at these levels and starting to think about adding fixed income over the next quarter or so. So I would say that a good chunk of it is priced in. You can never completely get it right. You know, we expect inflation to stay sticky through the balance of this Summer. And also into the fall. That might keep yielded slightly higher than we expect but we have priced in a tremendous amount so it is becoming more attractive. >> Let's dig deeper into the bond market with the question coming in from the platform. Can you give us your prediction for high-yield bonds? >> If you think about were 10 year in the future yields are, where we now in high-yield bonds? Using a generic basket of high-yield debt, it's about 8 1/2% depending on which index is used. That is very attractive. When you think about fixed income. It's giving you 8 1/2% a year. That's an amazing opportunity. It was 4% two years ago. Where might it go in a worst-case scenario? If we are going into a slowing economy, perhaps defaults start to increase a bit and there is risks. You might get from 8 1/2 to may be 10%. So again, sort of, I like to use this analogy of a journey. We went from 4% and we are at 8 1/2% now. Maybe we can get a 10% or so. It is definitely attractive but the challenge we face right now is the slowing global economy and, you know, slightly increasing default risks which, you know, as an investor in credit, you want more compensation for taking that risk but finally, you are being compensated to take some of that risk. It is, as an opportunity set, I think people should take a definite look at these days. Obviously, you have to balance out the risk if you are going global. >> Our viewers are very sophisticated. We are only starting to get into the bonds base. The whole point of the high-yield bond is you are being paid. It is a risky investment year. You're getting that premium. >> I am a bond investor and I think it's one of the most attractive spots to invest in. When you look back over history, it has about 1/3 of the volatility of investing in broad equity. So if you think you can get 7 1/2 or 8% yield and you lock in that for a long period of time, your volatility is a fraction of that of the equity market it makes compelling investments. It is so, you know, that first tentative investment of fixed income to start off some income, that is definitely an area that makes some sense. >> Fascinating stuff of course. Always make sure you do your own research when you are taking a look into these areas. We are going to get back to those questions in just a moment's time. JUST EMAIL MONEY-TALK-LIVE AT TD DOT COM NOW LET'S GET TO TODAY'S EDUCATIONAL SEGMENT FIXED INCOME IS OFTEN CONSIDERED A STAPLE THAT CAN BRING BALANCE TO A PORTFOLIO… AND WEBBROKER HAS TOOLS WHICH CAN HELP YOU EXAMINE DIFFERENT OPTIONS WITHIN THE SPACE HERE TO SHOW US HOW IS CAITLIN CORMIER, CLIENT EDUCATION INSTRUCTOR AT TD DIRECT INVESTING. Walk me through this one Caitlin! Obviously there is an option to buy fixed income products within web broker. Let me show you how to find the platform. You are going to first come to the tablets is trading. Under that tab, on the far left-hand side of the buy and sell menu, we are going to go down to fixed income. When we click there we will see that there is sort of a quick display of a whole bunch of different types of fixed income available here. We can see corporate bonds, there are provincial bonds,… All different types of fixed income products over different time frames where you can simply click and see some bonds that fit that specific criteria. If you have something specific in mind and you have a particular company or currency that you are looking for a bond in, what you can do is you can click this search button for fixed income and you can then have a more defined search. You can choose which types of fixed income products you are looking for specifically. Perhaps you are looking for corporate bonds, you can set maturity dates, issuer names. In this case I will look at US dollar. Corporate bonds. I can actually click submit here. It will bring up a listing of all corporate bonds that are currently available within web broker that meet that US dollar currency as well. So here we can see the coupon rate, we can also see what the yield is and all that sort of information. All we have to do to actually go forward with the purchases click this little checkmark button here. This can actually be filled right within a web broker. When you are speaking of those high-yield bonds, they can only be purchased through our fixed income trading desk. You do have to make a quick phone call to proceed with those purchases. With this kind of investment you can go ahead with the purchase right through web broker. >> Interesting stuff Caitlin. That's how you find the fixed income products generally. What if you are looking for new issues only? How do you find those? Absolutely. Maybe you are looking for something that is fresh off the presses and want to take advantage of something when it is initially being issued as opposed to purchasing after the fact. We can still do that within web broker. Again, we are going to go under that trading adding within web broker, we are going to go under buy and sell and new issues now. This portal is now available for any one including IPOs. Common shares on those sorts of things as well. Typically if you have never locked in here before, what you will see is this sort of page. You're going to put in your email address, what type of information you would like to receive about different types of new issues and then, confirmation that you understand what this portal is all about. Then you will be able to see any current offerings. As of right now, you can see there is only equity notes but we can click on historical offerings and see if there is lots of other different types of fixed income products that have been issued in the past. You would have been able to go ahead with an expression of interest in any of those products to be able to take advantage of those new issues. Caitlin, great to have you on as always thanks for that. > Thank you so much. >> Caitlin Cormier, client education instructor at td direct investing. Check out the learning centre for master classes and webinars. AND BEFORE WE GET BACK TO YOUR QUESTIONS, A REMINDER ON HOW YOU CAN GET IN TOUCH WITH US You can send us an email anytime at moneytalklive@td.com or you can use the question box right below this screen here on web broker. Just writing your question and hit send. We will see one of our guests can give you the answer right here at MoneyTalk Live. . . . >> A lot of it is priced into the market. I think for the first time in a long time, short-term interest rates are attractive in the general sense. Whether it is in GICs or short-term bonds. They are an important part of people's portfolios. The advantage of them as they lock in your rate. The disadvantage is it is locked in. When you think about what fixed income is used for, it is also liquidity. You might have an opportunity to rebalance your portfolio out of fixed income into other asset classes. So it is about how you construct your portfolio and decide how much you want in. In a general sense, whether to short-term corporate bonds or short-term government debt or short-term GICs, the fact that you know, the central banks have been raising rates, a lot of it is priced in. Probably more to come. You might even get more attractive rates. Definitely part of your portfolio that you should consider. >> All right. We have another question. Just fresh off the web broker platform. What are your thoughts on long term? >> I think that's an interesting question. I think that's what we talk about in terms of a yield curve. What can central bankers influence? It's the short end of the yield curve. Typically, you find this slope. The difference between short-term rates and long-term rates is positive. But as the central banks after start to slow down the economy or the old adage of taking the punch bowl away from the party, by increasing short-term rate, … As it continues, the long-term rates stabilize. The short-term rates continue and then you can talk about that as an indicator of recessions but what we have actually seen is that yes, long-term rates have gone up as the process of normalization is coming but we are seeing a stabilization. A lot more stabilization in the long end. It is actually one of our preferred areas to invest in. Very short-term debt and long-term debt… Central banks of move the rates higher. >> Great questions are coming in. We have one in there. Getting a little inside deep into the bond market. What is your take on corporate versus government debt? >> That's an excellent question. For a long time, we have said that corporate debt was very tight. Early on, we have the support by governments. In particular central banks and corporate debt. That spreads the difference between government debt and corporate debt and it was very tight. It has moved a lot wider as the economy has slowed down and central banks of raised rates. Now we are handicapping stress about a recession or a global slowdown. They finally have become a lot more attractive. We are starting to pick away our preferred areas. Particularly front end, very short and oriented investment. For example, you could generically buy a two year government bond at around 3 1/4. Maybe you could get one and one of the half percent at an investment rate debt. You were starting to think that that is become much more attractive than it was two years ago. So it is more attractive. But the challenge, the riskier is that there is, as I said earlier, a narrow path towards a soft landing. There is potential for a recession. And in that, default rates go up in credit rates wind down. That is the opposite side of the riskier on credit. But you are being increasingly compensated for taking that risk. >> A good balance approach to that one. Another question from a viewer. We've talked a lot about central banks. We talked a lot about the Swiss and that was some big news. Now everyone is saying what do you get from the bank of Canada? Are they going to follow the US lead? >> Pretty much. We have both Bank of Canada and… Till the year end. The next meeting by the Bank of Canada… The market is handicapped being 50 to 75 basis points. Eileen more to the 75 basis point camp. The language that the Bank of Canada used when they were releasing the monetary policy report was forceful. You know, there is definitely a tolerance in seeing a wider dispersion. A more intense part of the CPI basket. So the bank is definitely wanting to get back to what they would call "neutral". At a minimal, tighter than that. I would think that they are going to get to 75. I would handicap them getting to about 3 1/2 this year. >> We have touched through our conversation briefly about the housing market. We are talking about the Bank of Canada and future rate hikes. Let's talk about mortgage rates and what that's going to mean for Canadians. >> Around 4 1/2% is the last I heard about mortgage rates. Probably with a bias higher than that. >> What a difference from a year ago. >> I know. It's a part of our domestic economy. It's a high proportion of our GDP. Higher than it has ever been. There is definitely a speculative element in it. You know, the Bank of Canada and its financial stability report basically said "look, we are welcoming the cooling housing market from what was clearly an excessive level." So there is nothing in the current data, that will lower adjustment prices or increase in inventory. Nothing that is going to bother the central bank whatsoever. I mean, it is unfortunate that people who have recently gotten into the market, you know, housing prices are off, that is going to impact them and ate negatively. But broadly speaking, this is part of what the central bank wants. To remove this excess demand from the housing market. So, it's a challenge and they are not going to respond by cutting rates in the housing market. > You bring up a great point in terms of housing being like any other asset. When did you get into the market… I think the Bank of Canada may have expressed that same concern. If you have done in the past year or so, this is going to be a tougher go and if you had for quite some time. >> A vast majority of Canadians, they would say, are locked in. It's the rollover impact as people renegotiate. But it is really going to particularly hit those who have just recently gone on and hit those speculative rates. Ultimately, we want to watch what will impact housing. And that is your capacity to pay your mortgages and your debts. As that cost goes up, that squeezes you and whether you have a job or not. There are potential risks of a slowing economy and maybe increased unemployment. So those two risks are going to squeeze the housing market. >> It's not a very funny joke at all. Recession is what enables you to lose your job or depression is when you lose her job. >> Very true. >> Dark humour on that. We are going to get back on your questions and we do want to check on the market action in the meantime. It is definitely catching our attention after yesterday's late afternoon rally on both Bay Street and Wall Street in the wake of the Fed. Some even tougher medicine from the Swiss and the Bank of England. Right now a deficit on 2% on the TSX. Well below that level of 20,000 that we breached days ago. …Air Canada, I am noticing on both sides of the border some significant pressure on travel related names. Down 7.3%. Now we will take a look at what is happening on Wall Street with our broader REIT of the American market. The NASDAQ, on a percentage basis taking it even harder. Down more than 4% on the NASDAQ 100. As we said, both sides of the border, we will show you a cruise line company in the states. Carnival right now, down to the tune of more than 10%. And, let's take a look at the US dollar which has shown considerable strength lately. Scott and I had a conversation earlier about where it may be headed. Right now with some of the other news coming from central banks globally. This is the trade weighted measure of the strength of the US dollar. We are going to get back to your questions in just a moment's time. Reminding you that you can get in touch with us any time. Do you have a question about investing or what's driving the markets? Our guests are eager to hear what's on your mind so send us your questions. There are two ways you can get in touch with us. You can send us an email anytime at moneytalklive@td.com. Or you can use the question box right below this screen here on web broker. Just write in your question and hit send. We'll see if one of our guests can get you the answer right here at MoneyTalk Live. RECESSION RISK IS BECOMING AN INCREASING TOPIC OF DICUSSION IN THE MARKETS AND TD SECURITIES HAS A NEW REPORT OUT WITH THEIR VIEW ON HOW AN ECONOMIC SLOWDOWN COULD HIT THE BASE METALS SPACE. MONEYTALK'S ANTHONY OKOLIE JOINS US NOW WITH MORE. Anthony Okolie joins us with more. >> Metal prices have come down from the recent peaks earlier this year. They point to higher inflation, rising interest rates, recession fears as well. Not to mention COVID-19 lockdowns. Securities also believe in aggressive Federal Reserve as well as high energy and food costs could accelerate the growth slowdown. So at this report, they have ran a sensitivity scenario. Assuming a recession in 2023. Here are some of the key takeaways of that report: first, under this recession scenario, TD securities lower commodity prices to what they called the 19th percentile of the cost for 2023. This is basically where prices fall below the cost of production are breakeven. In addition to that, TD securities believes that free cash flow for these base metal minors would disappear in 2023 under this recession scenario. But they see very limited risks to the balance sheet. And while TD security expects that base dividends will be maintained, the performance of dividends and shared buybacks would likely be halted in 2023. I get in this recession scenario. And finally, they believe that teams would likely take a ghost low… When it comes to big capital expenditures going forward in 2023. Greg? >> Interesting report. Thank you Anthony. What is actually TD's biggest case for the risk of a recession? >> TD securities believes that this economic recession will continue to accelerate in the coming months. There base cases they believe that the recession will be avoided going forward. > All right. Interesting stuff Anthony. Thank you as always. >> My pleasure. >> Anthony Okolie for the market… >> Let's check on those markets again. Of course we are seeing a significant soft in Bay Street and Wall Street. Down 2 1/2%. Still down significantly. South of the border the SNP, a little more than 3%. Down 120 points. We are back now with Scott Colbourne. Managing Dir. fixed income. We have another viewer question coming up the platform. Can we get your view on the emerging markets right now? This is an interesting one because in the past years we have been very concerned about when the game changes. What is it mean for the emerging markets? >> A very intriguing part of the markets. As a bond investor there is two ways I can invest in emerging markets. I can invest in what we call the local market which is the exposure to, say the local currency. So the Mexican peso for example. I could also invest in the hard currency market which is the denominating US dollar. We have been investigating and investing in emerging markets. It's a great way to diversify our credit exposures. Great countries that have similar advantages that Canada has. For example, trading commodities. We have invested in a number of Latin American countries as well. This is work to our advantage. There is a challenge this year with Russia and that being part of a broader index. It makes sense to have a very bespoke index or a bespoke exposure rather than take a broader index on those things. On the local basis, emerging markets were some of the first countries out there to actually raise rates well ahead of the Bank of Canada. They provided a lot of buffer into the inflation challenges and so there is a number of markets that look attractive. They have very very high rates. Around 9% for example. In Mexico, over 12% and in Brazil, in an appropriately sized portfolio, it makes a ton of sense to start to invest in these countries where you have such an advantage. >> Another interesting question coming in from the platform. Very simple: why are bonds selling off with equities? Aren't they supposed to protect us? >>interesting question. It sounds simple but it's really deep. Equities go down, bonds go up. When you dig deeper into that, one of the risks is the inflation shock. Bonds change. What we have seen over the last year or so is that correlation. So in fact, the prices of equities have fallen and the prices of bonds have fallen. So that means the yields have gone up. Because the bonds, the bond market is responding. The central banks telling them that inflation is a problem, the equity market is realizing that is also a risk to growth and earning. So it is a real shock. I think I saw the figure. When you think about the 6040 portfolio going back over the last hundred or so years, in the US, you know, the last time we were this bad it was 1931. And so, it is a deep question. It is not a sustained thing. I think what you are seeing is the fact that central banks have responded. Going forward, you will see an element of normalization and diversification element. But right now, we are adjusting to the inflation shock. We are getting comfortable that the central banks are trying to get out there and balance the risks. >> The deepest questions always seem the simplest on the surface. That is my saying. >> Yes. >> Here is an interesting one to we talk so much about interest hikes. Interest rates versus quantitative… We are starting to tighten that. What is the correlation? What's going on? >> We use quantitative easing to help us through the pandemic. Central bonds another letting those bonds mature. Central banks ahead of others, this is part of a toolkit… The Fed are letting the treasuries and mortgage banks roll off the balance sheets and it is a part of the equation in terms of tightening rates. So, you know, the liquidity changes. It depends on how much bond, how much the federal government or whether it is in Canada or the United States decides to issue and spend going forward. Particularly if we are going into a recession. So the details and the weeds will have an important impact on how I feel going forward. In the general sense, it's the opposite side of what we saw entering the pandemic. >> A lot of great questions. A lot of people very interested in what's happening. Fixed income and bond markets. Any final thoughts Scott? This will be the first half of the year. We are almost at the halfway point. It is gone by quick. Let's talk but the second half and going forward. >> I would like to underscore the fact that I know fixed income hasn't really attracted or rather has been really attractive for a long time. We have yielded down to 50 basis points. We have an opportunity to reinvesting. I think a fixed income provides you income for the first time in a long time. We are getting that. It provides you with liquidity to rebalance your portfolio. Whatever makes sense. That is always the case. The final one is diversification. That is been a real headache if you will. This year, for everybody. It is starting to look like, as we slow closer and closer towards a recession, that that will play an important role in people's portfolios. So for the first time in a long time, it is attractive. No I'm not predicting this because that is a bit of a bug's game. But I definitely think that fixed income can play a role in your portfolio. >> Great discussion. Thank you for being here Scott. OUR THANKS TO SCOTT COLBOURNE, MANAGING DIRECTOR FOR ACTIVE FIXED INCOME AT TD ASSET MANAGMENT. Always a reminder to people at home to do your own research. NOW HERE'S SOME UPCOMING EVENTS YOU MAY WANT TO KEEP ON YOUR CALENDER.ON MONDAY, JUNE 20TH WE'LL GET THE NEW HOUSING PRICE INDEX FOR MAY IN CANADA ON TUESDAY, JUNE 21ST WE'LL GET THE LATEST RETAIL SALES REPORT FOR CANADA I do the grocery shopping at my house and I have noticed. Leading into Wednesday, will have the Canadian inflation report for May. On Friday, tomorrow we will be joined by Hussain Al on commodities. On Monday we will come back with Colin Lynch. And then on Tuesday, June 21, we will speak with Ben Gossack. Thank you so much that's all the time we have for today. Thank you for watching us today on MoneyTalk Live. (energizing music)