How much higher can bonds go?

In case you haven’t noticed, the TSX is down 5% YTD and 10% from April 2011 highs… which puts it squarely in a typical correction territory… while Bonds (as represented by XBB – DEX Universe Bond Index) are up 2.5% and 4.25% for the same period as illustrated by the TSX/XBB weekly charts

Here is look at the bond performance over the past decade… and today XBB gaped up!

The question is not how low can stocks go but rather how much higher can bonds go?

Bond prices are inversely related to interest rates i.e. if bonds are rising then interest rates/yields are falling… for all intents and purposes, XBB reflects all rates along the yield curve i.e. short and long term rates…

short term rates are above their record lows but 1% is still low historically

10 yr GOC yield is at 2.8%… which is ~10 bp higher than the most recent low of 2.68% from a year ago

So there is room for bonds to go up further especially considering the Euro area weakness… but will we see new lows in 10-year yields?

(in case you are wondering why the 10-year yields… the trend of 10-year yields is usually considered a good barometer of future economic growth)