WEBVTT

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<v 0>I'm Jen Nevin,</v>

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and today we'll be discussing the latest edition of the Canso Market Observer.

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Today I'm joined with Jeff Carter and Jason Bell. Thank you guys for joining me.

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So let's jump in. Jeff, how have Canadian bonds done relative to U.S.,

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and what do we expect going forwards?

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<v 1>Sure, I guess I make a couple observations. First of all,</v>

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if you look at the front end,

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the very front end of both the U.S. Treasury and the Canadian Curve,

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U.S. yields have dropped quite a bit more than Canadian yields this year.

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We've all seen the political pressure on the Fed to lower rates,

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which they have done once this year,

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and there's several more cuts that are priced in as expectations into the

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market. 1-year

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U.S. treasury yields have lowered by about 90 basis points this year,

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while Canadian rates have just moved 30 basis points. In fact,

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just yesterday the Canadian Central Bank actually came out and said that the

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current level monetary stimulus is actually appropriate for the market.

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So really it's a tale of two central bank boards.

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Further up the curve, if you look at the 10 and 30-year sectors of the curve,

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really Canada has rallied not to quite the same extent as the U.S.,

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but it has rallied substantially,

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and I think really the message there from the market is that right now Canadian

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and U.S. yields relative to other G7 countries actually look quite

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attractive. In the long run,

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I'd say we expect when the U.S. reverses course and yields normalize

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to higher levels in the U.S.,

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we expect the Canadian to follow suit and sell off along U.S. yields.

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<v 0>And Jeff, what are investors doing to boost yields in their portfolios?</v>

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<v 1>Sure, Jen.</v>

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I think one of the things we've seen in the credit market this year is a classic

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reach for yield. That is,

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investors are willing to buy lower-credit-quality bonds and loans for ever lower

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yields.

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If you look at the fourth quarter of the last year in the U.S. high-yield

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market, it was soft. This year, we've seen nothing but buying,

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pushing prices higher and higher. In fact,

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the total return year-to-date in the U.S. high-yield market is approximately

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11%. Meanwhile,

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new issue high-yield deals coming to market today are coming with coupons of 5%

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or even lower.

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We think that tells us that there's quite a bit of frothiness in the market and

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that it warrants caution, and when we think about our investors' capital,

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we don't want to have weights that are too high in the high-yield market;

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we think there'll be better opportunities further down the road.

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<v 0>And Jason, what do lower yields mean for Canso's portfolios?</v>

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<v 2>Well, look, investing is a relative game.</v>

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You're trying to do the best you can with the cards that you're dealt.

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And so, today's environment is a low-interest-rate environment.

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It makes things a little more difficult for us;

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we have to search a little bit further, a little bit harder for value,

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and be a little more skeptical. But ultimately,

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we're trying to seek value where it's available.

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The other thing we like to tell investors, and this is a common misnomer,

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is that yield isn't your entire return.

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You can have a yield of 3% of portfolio,

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that doesn't mean you're going to return 3% this year. If you go back to 2007,

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Canso's Corporate Value Portfolio was yielding 5%.

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In the year 2009, that same portfolio earned 26%.

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So those two things don't have to be correlated because there's always

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opportunities when yields change to take advantage of falling bond prices.

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And that's what we try to do at Canso.

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<v 0>Well, thank you both for joining me. For more information,</v>

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go to the Canso Funds website and read the latest edition of the Canso Market

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Observer.