Ed Devlin

US Long-Term Government Bonds: US is going to have to do a massive amount of issuance to finance the various bailouts. In the short time there are very powerful deflationary forces at work. There is also a public policy to have low financing rates. Given how important it is to get cost of debt down to both consumer and US corporate, the Fed will come in through open purchases and put a cap on yields in the short-term. In the longer term, there are clearly some inflationary forces but that is a 3 to 5 year view.

IV notes issued Jan 15/09 at 9.5%. Called Tier One Capital. Hybrid securities because have characteristics of both debt and equity. Think of it as a deeply subordinated fixed income instrument i.e. it pays a coupon. Price has gone up so the yield is about 8.75% now.

Thinks the downturn will be a multi-year process so with policy rates so low, now is the time to take some risk with very high quality spread products. The yield curve is very steep so longer-term 20-30 year provincial bonds (Ontario or Quebec) yielding in the range of 5.3% and 6.2% is better.

5.37% October 2037 bonds gives a 7.5% yield. There are a number of institutions that are too systemically important to fail. US government is backing them.

5.65% June 2029 bonds yielding 8.1%. Likes high-grade corporates that are non-cyclical that have steady earnings that can be counted on even if consumers go into a severe retrenchment.