Portfolio Update – July 21, 2022

I’d mentioned when I started this blog that I would be transparent about when I made changes in regards to my B&D portfolio asset allocations. Today is one of those days. I’ve added XLB which is a long term bond ETF to the portfolio and reduced the same amount from ZPR.

Below is a bit more context in relation to when the year started.

WhY make a change now?

As I had mentioned previously here, I was debating when would be the time to start switching more to bonds and longer durations. All the signs seem to be pointing towards it as central bankers around the world decide to raise interest rates to try to curb inflation.

Over the last month, I’ve noticed that as much as central banks raise their key rates, markets seem to be pricing in a recession as a direct result of those raised rates. As I read through business news articles, I’ve started noticing companies have started announcing layoffs and reducing their inventory levels. All this to prepare for the anticipated downturn in the economy and reduced demand from consumers. And this is not just happening in Canada, it’s going on around the world.

June 15, 2022, the Federal Reserve announced they were raising rates 0.75%.

July 13, 2022, the Bank of Canada (BoC) raised interest rates 1.00%.

July 21, 2022, the European Central Bank raised interest rates 0.50%.

You would think, with all these rate hikes, bond yields would be exploding higher. And yet, over the last month, they are not. 

See below the charts for VSB, VAB, and XLB.

Everything seems to be pointing to an anticipated recession and typically, markets are forward looking. They know interest rates are rising and now they’ve started to factor a recession in and what happens thereafter.

That, or I’m out to lunch. Well, regardless, I’ve decided to allocated 10% of the portfolio to XLB.

So, what are your thoughts? Is it to early to consider a recession? Are we already in one? Is it a dead cat bounce for bonds? Or, was this a good move? 

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