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Top Links: Junk bonds could be dividend investors’ ‘canary in the coal mine’

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

Employment data for Canada and the U.S. were released at 8:30 a.m. ET this morning. Domestically, 43,900 jobs were created, when economists forecasted a loss of 15,000 jobs. In the U.S., 161,000 new jobs were created, versus predictions of 173,000.

The Trudeau government has stated that taxpayer support for Bombardier is a matter of "when, not if."

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Given the company's performance of late, and the moral hazard risks of rewarding poor efficiency, the government's defence of such a move is likely to present a severe test of Canadians' collective gullibility. We can forgive, to some extent, the C-series delays that allowed the competition to develop their own options in the same market segment – the complexities involved in designing a new plane have also caused delays for Boeing and Airbus on previous occasions.

Bombardier's operational limitations in their rail division are a lot harder to understand.

"Metrolinx files notice to terminate Bombardier contract worth over $700M" – CBC

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Traders are making jokes about 'battle helmets and concrete bunkers' ahead of the U.S. election. Polls are tightening and the Financial Times detailed what investors should expect in the event of a previously-unfathomable Donald Trump victory,

"First, there will be horror and a big sell-off, centred on US stocks and the dollar. (US treasury bonds, overvalued though they are, might counter-intuitively gain, thanks to their haven status). The Brookings Institution's estimate that the fall could be between 10 and 15 per cent seems overdone… After this, however, we can probably expect a re-run of the Brexit rebound, at least for the stock market… [which] implies a buying opportunity for US stocks — particularly those that benefit from the cheaper dollar."

"So how would markets react if Donald Trump wins?" – Financial Times

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The oil price is likely to end the week with the biggest loss in ten months, thanks to a giant build in U.S. inventory levels and OPEC's difficulties arranging a production freeze. A group of oil producers including Saudi Arabian Oil Co., Royal Dutch Shell Plc, Total SA, BP Plc, Eni SpA, Statoil ASA and Repsol SA also announced a pledge of $1-billion (U.S.) to develop carbon capture technology.

"Oil Heads for Weekly Drop After Erasing OPEC Algiers Deal Gains" – Bloomberg
"Oil set for sixth straight day of declines" – Reuters
"Big Oil to Invest $1 Billion in Carbon-Capture Technology" – Bloomberg
"Will oil peak within 5 years?" – Financial Times

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The U.S. high yield bond market could very well represent the proverbial canary in the coal mine for market sectors sensitive to rising bond yields. Investors are pulling assets from high yield ETFs at a rapid pace and corporate debt issues are being cancelled due to lack of interest. Citi credit strategist Matt King has been warning about the dangers in this market for the past 18 months. Many of the securities are highly illiquid, and mass fund redemptions might lead to forced sales of bonds where no bidders show up, causing big losses.

"Junk-Bond Sales Cool in Market's Worst Slump Since February" – Bloomberg
"@lisaabramowicz1 US high-yield & high-grade bond funds had their biggest weekly outflows of the year, of $4.1 billion & $2 billion respectively: Wells Fargo " – Twitter
"@SBarlow_ROB Credit Suisse model says 10Y UST fair value yield above 2.5% " – (chart) Twitter

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Tweet of the Day: "@EddyElfenbein "It's waiting that helps you as an investor, and a lot of people just can't stand to wait." – Charlie Munger " – Twitter

Diversion: "10 Sites and Apps to Discover New Music" – Cross, A Journal of Musical Things

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More

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