The Canadian Investor - Bond Yields, Inflation Pressures and the Consumer Squeeze

Episode Date: May 23, 2026

In this episode, Simon and Daniel break down the sudden surge in bond yields and what it could be signaling about inflation, interest rates, and consumer stress. They start by looking at the latest Canadian CPI data and why inflation may not be fully reflecting the impact of higher fuel prices yet. Simon highlights key takeaways from Walmart, Lowe’s, and Home Depot earnings, including rising transportation costs, weaker DIY demand, and signs that lower-income consumers are becoming increasingly stretched. The discussion then shifts to the bond market, including the sharp rise in U.S. 2-year, 10-year, and 30-year yields, changing Fed rate expectations, and why markets may be pricing in more persistent inflation risk. Simon and Daniel also touch on Japanese government bond yields, the yen carry trade, and why a disorderly unwind could matter for global markets. They wrap up by connecting higher bond yields to the Canadian housing market, mortgage renewals, variable-rate risk, and the growing financial pressure facing homeowners as higher mortgage payments collide with rising food and fuel costs. Watch the full video on Our New Youtube Channel! Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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If there's uncertainty in the markets, there's going to be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company in quite some time. All right. Welcome back. I think we're live for the, what is this our fifth? Friday. Something like that. Yeah. Friday macro lunch. It's funny. Like last week we were like, oh, yeah, we should just talk about bond yields. I mean, it seems like they're pretty, you know, like it's a story, but it wasn't like last week it wasn't crazy. Like this week is absolutely nuts what is happening with bond yields. So talk to me a little bit about what we're going to be what we're going to be going through today. Yeah. So obviously speaking of bond yields, we'll touch too on Canadian CPI came out earlier this week.

probably not too long, but I think it fits in well. I also went over at Walmart Lowe's and Home Depot's earnings, so not to go into too much detail for those, but just some big macro takeaways and what they're seeing, especially when it comes to fuel cause, but for you, obviously, being in real estate, what they're also seeing on the homeowners spend, do it yourself, renovation projects like that, especially obviously Home Depot and Lowe, so that's a good indicator. And then looking at, at the bond market in general. So I think what will look at U.S. bond yields probably touch on the Japanese JGBs and probably look at the Canadian bond yields as well, see what's going where that's going, what's causing it to rise. I mean, what's most likely causing it to rise.

And I don't know if you looked at that recently, but the market's expectation for the Fed's fund rates has changed dramatically over the last couple weeks or the last week. Isn't it as like more likely to see a hike than a cut? Yeah. Yeah, exactly. That's it. Yeah. So what do you use like CME Fedwatcher for that?

Yeah, I usually go on the CME Fed Watch. I find the tool is really good. So if I can share my screen. Yeah, if you have it. Yeah, go ahead. If you have it up. Okay. So there you go here.

And then the probabilities I've, like this is the most. So crazy. Yeah. I'll try to just to zoom that in a little. bit so it's more visible for people. So yeah, basically what you're seeing is the further we get into the year, the more likely rate hike is. Crazy. Yeah, which is pretty crazy. And when you start getting to, well, I actually increased since I last look at this this morning. So that just tells you something. So I'm looking here starting in October. So for the October meeting, there is more

chance of a hike by then, then the feds fund rate being at the current level. So it's around 46 to current level. And I guess the balance would be some kind of a hike and as high as like, I guess, a 50 to 75 basis point hike from here too. So those are pretty low when you get to the 50 to 75 basis point increase, but it actually increases further down. And you're not seeing any rate cuts priced in, even like marginally I'm talking like 12, 13% here until the end of 2027, which is pretty wild. Crazy. Okay. So this is like my favorite chart.

I pulled this up in like last couple of episodes, but like, you know, it's the, the market is always wrong about what the Fed will do, right? Yeah. So, so what do you like, what's your read? Like the, like, do you see this actually happening? Like what with what? I don't know. Like what are we, what are we looking at here? This is from like the 2020, but still, like you can see all of the areas where the market was incorrect, right?

Why would the market be correct on this today? Like, what are your thoughts? Is this a credible, like, is this a credible outcome for what the bond market is thinking? Should people actually be concerned the rates are going to go up? Or are you sort of still of the opinion that we're going to see a constriction consumption, which seems like it's already taking place and you can talk a little bit of a Walmart, I think, because that's probably like the great, great indication of where it's going to show up. first. I don't know. I'm still of the opinion like Fed fund rates are wrong. They have to

they have to react to the today's data, but the data is going to change and we will see shrink, I think we will see shrink like, you know, shrinking of consumer spending based on at least all of the data that I would be able to use today for that. Yeah, I mean, just looking at the two year, right? So the two year just in the past three months is what roughly like 50, 60 basis point in the last three months? And usually the, the, you know, U.S. two year is mostly impacted by Fed expectations. So clearly the two year is saying that they first see that the Fed will be at least a ruling out for the foreseeable future. It kind of lines up with the CMEFET watch tool some rate cuts, whether it's rate hikes or just staying still. I think

it remains to be seen. I still think my base case is that they probably won't do much until the end of the year just to make sure they have the data, right? Like even with Kevin. Warsh coming in, I would be very surprised if they don't still use the same playbook as Powell and just say, you know what, we want to see the data until we may make a move, gives them a bit more time. So that's probably my base case of what will happen. But I think it just shows, even with the 10 year and 30 year, I think the market is becoming increasingly nervous on what inflation might look like. It might not be just temporary. Sure, people can say, it's easy to look back and say, okay, well, after COVID, it was temporary because of all the stimulus,

the fiscal spending, and then you saw a bit more inflation happen when the Ukraine, Russia invaded Ukraine. But I think the market's also starting to price. And you know what? These events are happening pretty frequently now. So yes, they may be one-offs, but at some point, these one-offs that they keep happening, it might be-normal, right? Yeah, exactly. You might start seeing more structural inflation. So I think it might just be the market starting to price that in, especially if If you factor in how those bond yields, so especially the 10 and 30, how they move just based on optimism or lag thereof for the conflict in the Middle East to be resolved. So I think they're putting a lot of optimism on that. And it's definitely shifting.

But overall, even with that drop, because I guess there's been pressure on some countries in the Gulf for the U.S. to not resume strikes and just give a chance to peace talks. But even with that optimism, I think you're just seeing some small drops more on the margins and yielder staying elevated and then you factor in, you know, longer term concerns about the U.S. fiscal situation, increased geopolitical uncertainty. So I think we're going to see more conflicts in the years to come. I think we're just kind of seeing the beginning now. What's the next big one, China? And I guess like that's, yeah.

Let's hope not. But I just, I think we might not see the next one come. I mean, my point is, I think we're just simply in the fourth turning and you're starting. It's all fourth turning stuff. Yeah. And I think the market's starting to realize that this is more likely to happen. And then you add to the fact that you're seeing increased political uncertainty in the U.S., right? Like what is going to happen when the Democrats, you know, get into power in two years, which is a lightly how come?

I'm not saying it's going to happen for sure. but the pendulum will probably start swinging way to the socialist side and what kind of impact will that have on U.S. fiscal impulses. Yeah, exactly. I mean, to be fair, like Trump's not exactly a moderate, right? Like, you know, if you take a libertarian view or like want small government, like he has literally done, he spent the most money ever in history in both terms.

So I. Yeah, and the next president will spend the most money. We'll spend the most money in history as well. So I guess it just, you know, it's kind of exponential. So. Like I don't think I don't think it matters what, what color their, their lawn signs are. No, they just, you know, they'll spend on. What's going to happen is even the Democrats come in, there's going to be stuff that Trump is spending on that they'll keep spending on.

And then there is going to be other things where they will shift some spending where they won't spend as much on where Trump won't spend to something else. So they're, they'll just spend differently. Yeah. Yeah, totally agree. Calling all DIY, do-it-yourself investors, Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing.

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Chechain. I introduced the idea on like Walmart and all that. Yeah, yeah. Do you want to give me your thesis like on on if? Like let's talk about maybe before we get to Canadian CPI and like what this means for Canadian mortgage consumers, et cetera, on the bond yield side. Like why I think we're both in agreement that, you know, we'll probably still see cuts and a recession based on like, you know, what we saw.

off from Walmart, Lowe's, Home Depot, et cetera, like on their earnings. Yeah, yeah. So really interesting. So I tried to sum it up as big kind of takeaways from both of them. And it's too bad. I had a chart for Lowe's and Home Depot. So I can try to build it quickly afterwards while you give your thoughts on this, just to give people a bit an idea how both retailers are struggling.

Walmart's a bit different. So they're saying essentially that they're feeling the fuel costs. and it's definitely starting to become a real margin pressure. They took a roughly 250 basis point operating margin hit in the quarter related to fuel-related costs, and that was approximately $175 million. They decided to absorb it, and I'm sure Walmart, for some people, it's not a company that they love, and that's fine, but it's still, you know, I think still the largest retailer in the world, or definitely close if you compare it with Amazon.

But they decided not to pass it on to consumers, but warn that if it stayed elevated, it could definitely lead to higher retail inflation in Q2 and the second half of the year. And they're saying this is real, not just for them, for their suppliers as well. And this was a roundabout way for them, I think, to say, like, not to say that they will increase it, but that they will. Yeah. So without, you know, because they're probably very careful on their words because they clearly know that if they don't say the right things, Trump could just start lashing out on truth social against them. So I think CEOs are definitely very careful on what they're saying. And Home Depot echoed the same thing. Higher fuel prices. They definitely hit them through transportation cause,

but also through supplier input costs. So fuel inflation, it's not just a consumer and the pump issue. It works its way through retail supply chain as well. Walmart had something really interesting, because I didn't realize how big of, I guess, a gas retailer or fuel retailer Walmart is in the U.S. But, yeah, they saw a big uptake with that because their fuel is typically cheaper than a lot of other alternatives. Costco is probably in the same kind of range there. And they said the average customer filled up, fill up dropped to 10 gallons for the first time since 2022. And for the, yeah. So 10 gallons, I guess, what, that four?

40 liter roughly, I would say. So people are literally feeling it so bad that they're like just like literally driving less and not filling their tanks. Yeah, probably. Or like, you know, fueling less, maybe in the hopes that prices come down the next time they go fuel. So that could be a way that people are trying to make up with it. But yeah, they think it's definitely a sign of consumer stress.

They haven't seen that since 2022. I would assume the last time was when Russia invaded Ukraine. and we saw that price spike those fears with the price of oil. And they're saying, too, that the consumer looks increasingly like K-shaped, essentially. That's what they said. Higher consumers are still spending. They're also able to shift where they spend, right? So higher income consumer might have gone to Target or like a higher-end retailer, but now

they're like, okay, I still want to buy as much and the same things, but I'll go to Walmart because my dollars will actually stretch further. So they said they're still spending wide-ranging categories while lower-income consumers appear to be more pressured by fuel, food, and general living costs. They also said that one thing that definitely helped in the quarter, and they weren't the only ones. Lowe's actually mentioned that as well, that Americans, their tax refunds, I think Trump had to hold tax refund thing where they would get some bigger tax credits and people saw larger refunds. But they said that that likely in help ease some of the pain. But based on IRS data, Lowe's actually mentioned that on their call, that 20% of refunds have been spent.

50% are sitting in savings. And the rest have essentially been used just to offset higher gas prices. So it's really interesting. On the home improvement side, it's really weak in terms of do it yourself demand. So it's been weak for quite some time for both Home Depot and Lowe. You're seeing their comp sales like basically flat for years now, slightly increasing. So it peaked during COVID, then dropped, and then it's been pretty much flat.

And the average ticket size as well is flat. So people are putting off big projects in big part because of higher rates, higher fuel costs. They're just, the consumer is also very cautious. So people don't really want to do a big project when they don't know if they'll have a job or not or the state of the economy. So it was very interesting to hear what they had to say on that. Yeah, I think, you know, it is crazy too because if you actually just look at like what's happening in the mortgage mortgage consumer survey came out recently and the data is similar in the U.S.

More people are actually choosing to renovate their homes than to do a transaction. And even with that and like, okay, so we can unpack why that is. But even with that, your DIY and consumer spending on residential investment. So Home Depot, et cetera, home depot lows is down. So at a period of time when we're hitting near record numbers of people choosing to renovate rather than buy, because, and again, we're thinking about yields and interest rates, I mean, the U.S. mortgage rates like 7% again. Canadian mortgages are fixed rate mortgages are rising as a result of the Canada five-year bond yield going up. people like are trapped.

Everything before that took place before was a result of low rates, right? People were able to buy these nice houses and all of these things because they had so much more buying power because rates were half of what they are today. Now rates are double and they can't, if they've grown their house, they can't even afford to upsize because even if they sold and realized their equity if they had any and it wasn't destroyed over the last couple of years, they can't afford to go and buy a new house to get more space. So what does this tell us? Well, your consumers trapped on buying and selling a house. They're actually putting the most money that they have in, again, relative to historic numbers into renovation,

and yet renovation numbers are still that low. That, that to me, like combining those two data points is scary for the consumer economy, I think, in residential investment. Yeah, exactly. Like, I'm showing it right now. So you can see it. The comp sales have basically. been flat or negative for since, let's just say, 2022 for both. Yeah. Home Depot and lows. Home Depot is still seeing growth back in 2022, but since 2023, it's been flat or below. And then, like I said, the average ticket size has also stalled.

So meaning that people are just not, you know, they're not spending that much or they're not spending more. So it is kind of funny that you said that because, yeah, people are probably looking to renovate, but they're probably reluctant to renovate at the same time. So it is, it's pretty, it was just very fascinating just to hear what they were saying. And again, same for Lowe's and Home Depot. At least Lowe's, they were a bit trying to hide it, but it felt like the wording they were using. I think consumers should expect some rising prices because of fuel prices being higher.

So that is something like they're seeing it. They're trying to mitigate it with their. suppliers but and try to mitigate the prices increase but I think same kind of wording I think Q2 and beyond they'll probably be forced to pass down on a bit more to the consumer yeah yeah 100% I so then the question becomes can the consumer absorb it and that's where I think we start running into trouble like if if Walmart is seeing margins compress massively because they're absorbing it that it would tell me I mean like let's think think about like during COVID, right? Like there were all these supply chain disruptions and whatever.

And it was like, yeah, we'll just pass those on the consumer because they're all like, they're, you know, they're all hopped up on cheap debt and they're getting stimmy checks from the government and whatever. That that's not what's happening. And you can travel, right? Yeah. Yeah. Yeah. Yeah. Yeah. I guess during that period of time as well, like there were, there were certain things that would have made the economy or gave people more income, right? Like, or more profit or whatever you call it, like take home income. Like they weren't, weren't spending money driving to work and they weren't able to travel. So they had a bunch. But like back then, like I just think it's such an easy comparable or easy thing to contrast to because everybody's

very familiar with it and it was so recent. But like you go back to then, it was like Walmart and Rona and Home Depot and whatever and Lowe's were passing those costs on the consumer like instantly. Immediately. And the consumer was absorbing them and that's why inflation went up like crazy. Now they're making the business decision saying either A, we don't think that these are going to last because we think it's going to cause demand destruction and come down. Or be, and it would be silly to, like, increase our prices to later have to decrease them. Or we don't think that consumer can absorb these costs and we would rather see our profit go down than our revenue. I don't know. Is that the right read on it?

Yeah, I'm not. I'm not sure. I mean, I think there's definitely some concerns there. I think they were probably, I think there's part of that, but I think there's probably part of it as businesses. they probably wanted to see whether this is, you know, it will kind of stay elevated for a while or not. I think is this going to be just temporary? And keep in mind to a lot of their purchasing probably was done. It is always done, you know, several quarters in advance. So yes, there is the transportation cause. They mean, you still have to move the goods closer to when you need them.

And Walmart has a huge online business now. So that's something to factor in. they were probably able to offset it because, you know, I'm sure some of those products were closer to their endpoint than, you know, the ones that they're probably purchasing right now for the, the quarters to come. So I think it's probably a mix of things. You might be right. And kind of what you're saying is they're probably scared that the consumers can't even handle those increases. But I think there's probably just a part that, you know, it's, they were thinking it was more potentially temporary as well. I don't know if you got my text, but the YouTube Live didn't work. I got to reset it. Do you want to jump off for a sec or do you want to just keep going? I'm easy, but. I think we can just keep going. Yeah, okay. Yeah. Just keep it easy and yeah. Apologies. I'll just upload it to YouTube after. Yeah, exactly. We'll upload it. Okay, sounds good. What do you want to jump into now? Do you want to talk about a CPI and then just like bond markets in general? Should we go through Canadian CPI quickly? Yeah, yeah, let's do it. And I mean, I think, I guess the last point to tie in from, you know, those retailers and also looking at CPI.

So CPI was what, 3.8% in the U.S. and now you're seeing Canada hit 2.8%. That's without probably the retail inflation fully being kind of felt from the higher fuel prices. So it is a bit worrying from that perspective. Obviously, will it just result in demand destruction? I don't know. But it is some food for thought after reading the or listening to the Walmart call. Just thinking about that where, you know, CPI already looks high.

Can you imagine once it starts picking up those higher retail prices too? Yeah. Yeah. And like, it's funny. Like in Canada, okay, so why is Canadian CPI so much less drastic than US CPI on in response to the oil price shock? I'm not quite sure. What's your best guess? I mean, the different ways of calculating.

Yeah. If you go back to COVID, like a Canadian CPI, it took longer to get higher. It did peak higher, though. I think it peaked higher than US, right? Like, that was it 8.4 here. Or no, we were in sevens and they were in the age. So I think our basket reads, yeah, our basket reads like, I don't know, 100 bits lower or like, you know, so I don't know, that might just be it.

I think it's composition, probably. Like, I built that, like, real flation tool just to like, it was funny. Like, the trueflation guys actually connected with me on Twitter about it. Okay, right. Yeah, I use trueflation all the time to, like, see. Because like during when in the blow off from COVID when people were still like, oh, inflation's crazy. Like people always talk about inflation as if it's like they consumers don't think in a one year term, right? Like they think about whatever they benchmarked their spending to in the past, right?

Like, oh, I think a banana costs a dollar. Okay, well, now it's two. And so even though it hasn't changed in a year, I still think it's way higher than before. You know what I mean? People think about like price levels, not the increase. Yeah, exactly. Yeah. Exactly.

And I think, you know, it's funny because Canadians have like a really high consumer sentiment or inflation. What's it called inflation? I think it's inflation sentiment. But like they have a higher density to spend if they're fearful of inflation and not spend if they're going to see deflation. Yeah, I don't know, man. It's like I think it's a weird setup right now. Like the other thing that I've noticed in Canada, I don't know, did you see CMHC's mortgage industry report? You're actually seeing Canadians pile.

Give me a second. I'll pull it up. This is like one of my favorite charts to pull up. up residential mortgage industry report. Let me pull it up here. The trends. It's basically like Canadians are piling back into variable rates. So Canadians like I think would illustrate that.

Isn't that crazy? Like and so Canadians love to gamble, huh? I think that's what it is. I think like or like they really need rates to be low to like and they're willing to take the risk, right? My advice to people is always the same that reach out to me like close family members. is I usually ask them like, okay, so the fixed rate that was given to you. Like, are you comfortable with that for the next five years?

Are you able to make it work? Is it an issue? When people say, yeah, it's completely fine, but our rate's like going to be lower, could I save money? I'm like, well, I mean, there is value in certainty, right? Yeah. And I usually just say, you know what, if you can make it work and you can plan your budget, at least you don't have that variable.

Obviously, other things can increase in costs, including property taxes, interest, and all that. There is some value and a lot of value in certainty, and I think a lot of people discount that. Well, like, I just do things as business decisions, and it's very difficult for me to, to model a real estate investment on when I don't know what my mortgage payment's going to be over a five or 10 year period. like, you know, 10 years obviously hard to model because of the way our rates reset, but like a five-year period, like if I take a five-year fixed, even if I'm paying a higher number, I have certainty around how much cashful I'm going to have, how much principal I'm going to pay down over that five-year period,

how much equity I can later take out. And so I've always just liked that from a modeling perspective. And maybe, well, I mean, historically, I would have paid a premium on rates as a result of that. But the interesting thing to me is, like, if you look at this chart, you know, you have, your Canadians are taking primarily your three-year fixed and you're variable. So they, you know, even on the fixed side, they're saying, I think rates are going to be lower in three years or like, you know, before five years, right? Because they're taking the three. Are they getting maybe a better rate on the three? No, pricing would be similar. Like slightly. I mean, pricing would be similar. It's not like usually a five's more. And so, yeah, or so usually a three is more. And so the fact that you're, you know, that the price similar might be like the reason people are just like, yeah, I'll just take three. So then I have, I can, I can, I can capture some of the improvement in rates if there is one. But I, I don't know, man. It's crazy to see people piling.

Like the last time we saw people pile back into variable like this, it was right before the rate hiking cycle. And that was like the most catastrophic decision. And but that was also because of the stress test and people were able to qualify to a way lower rate. And it actually had an opposite effect because people were going the bond yield push fixed rates up early, right? Yeah.

And then basically people were going into the variable to get a lower, to get more buying power, get a lower qualifying rate. And that just ended up being, I mean, that was one of the ways that the stress test kind of backfired. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency. because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights,

track your dividends, and there's other stuff like learning, duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me,

search me up, some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store, and I'll see you there. There is an old saying in investing.

It's not about timing the market, but time in the market. The most successful investors aren't usually the ones trying to catch every top and bottom. They're the ones who spend the most time in the market. I've been a quest trade user for over five years, and the reason I stick with them is that they remove the friction of regular investing. With no commissions on stock and ETF trades, you don't have to wait until you have thousands of dollars saved up to make a move. You can contribute small amounts regularly and keep your portfolio growing consistently, removing the stress of trying to time the market. And they keep making it easier to build a well-rounded portfolio.

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Chechain. On the CPI side, anything else stand out to you in the CPI report? Well, obviously, the headline number was lower. Food inflation, definitely something to keep an eye on. They said it was down versus March, up 3.5% you over year. Again, I still stress people what may be like, well, I feel like it's higher. Keep in mind, this is a general food basket. So if you're vegan versus someone who eats a whole lot of red meat, or even if you eat red meat and versus someone who just eats chicken and fish, you're going to see different levels of food inflation.

So just keep that in mind. But unfortunately, I think the food inflation one is the scariest, especially by the end of this year. If the Strait of Horm moves, we don't see some kind of resolution. Something that's been under talked about is fertilizer coming out of the Middle East. at some point that's going to start rising pretty quickly. It has risen already, but that's going to trickle down and impact food prices. And I think people are very focused still on oil prices, but this is, this is the one that could be really dangerous from a societal kind of unrest perspective. Yeah, I think like people, people, a lot of people aren't thinking upstream, right? Like, we're just at

the beginning of our agriculture cycle. So you're like, when you think of rising food costs, like, at the grocery store level, right? So at the grocery store level, right? So at the grocery store level, you are just getting, right now you're just getting food that's coming from the producer and then absorbing the oil costs between the producer and the grocery store. So just the diesel to get it on a 18 wheeler to the Walmart. Because that harvest was when like three, four, like when was that planted like three, four months ago? Right. Yeah.

Yeah. Yeah. Yeah. Yeah. So if, you know, the biggest growing season is starting now, right? Like people are just like crop crops, I mean a couple of weeks ago or whatever. I mean, depending on what climates we're talking about. But if you go to, like, you know, anything during like the last, like winter season,

it would have been like greenhouse stuff, whatever, from a warmer climate. But now you're getting to like the Midwest, Canada, Canadian agricultural producers. You talk about fertilizer. Like fertilizers, like fertilizers one input. What's another huge input? What did tractors run? They're not all running solar panels and Tesla batteries, right? Like these things are burning a ton of diesel.

And, and, right? Yeah. Right? Like if agriculture and diesel went up even more. So agricultural input costs, not just fertilizer, that's going to translate to your food before it gets in the 18 wheeler to go to Walmart. So and that's not a cost that, that, you know, Walmart can try and shake off or tell the, tell the food producers or wholesalers that, oh, I'm not absorbing those costs, right? Like, that's literally the cost that the agricultural producer has to sell it to the wholesaler. And then the price gets marked up.

then they add the new fuel surcharge, which they've already discussed that they're trying to do. Yeah. So yeah, like when I think food scares me, fuel scares me. And the reason that they scare me the most, too, is like what consumer psychology around inflation. Like the Bank of Canada always puts this chart in the monetary policy report. What do consumer, how are consumers behaving that they feel inflation is going to play out? And if we're in an environment right now where consumers think that inflation is going to rise, it's not a good environment. And if consumers are seeing their gas, like the two things that they buy most frequently, right? I think. I don't think we buy anything more frequently than gas and food. The two things that we're buying most frequently,

we're seeing the costs escalate every single day or week that we're, I think you're in trouble from a sentiment perspective around inflation too. Then people start budgeting and peeling back expenses, which you pointed out to me in the CPI report about, you know, the travel hours was down. And so I think you start to see a lot of people say, okay, well, we're not going to spend five 10 grand on a vacation this year. You know, we're going to, we're going to, and now it trickles into the consumer economy. I mean, you already saw Spirit Airlines go, go belly up. I think you're seeing flight being canceled to some routes being canceled, not only in Europe,

but from North America, North American airliners too. So it's, yeah, it is, I think it's something will, the longer this continues with higher oil prices is going to have a ripple effect. So it's not, I think we're just starting to see the beginning. I think CPI will likely continue peaking despite what Tiff McLem said during the last monetary decision where they were saying it was peaking. I think April was kind of the month where it was peaking. I think it could continue going higher for several months here. So we get to like what, like a 4% CPI in Canada and then the consumer is basically too stress to continue at that point, I think.

Yeah, people have to start making tough decision. And on the food front, right, it's going to impact those who are at the bottom of the K the most, right? Yeah, sure. So they're the ones that will feel that. Everyone will feel it, but they're the ones that are living paycheck to paycheck that have little money to spare that don't have assets. So you have that's definitely going to be a big impact.

And then I think all of this is starting to flow into the bond markets. Yeah. But there's obviously other components impacting bonds. And obviously we've seen, I think, if people are following Japanese government bonds, the yield than those. Pull up the chart because it's crazy. Yeah, the JGB. I had it here. I just have the 10-year here, but still.

Do you feel confident in your ability to explain the carry trade quickly or no? Yeah, I mean, the carry trade is pretty simple, right? So the Japanese carry trade, you borrow money in Japanese yen, and then you take the money and you go and invest it. Most of the time, it will be U.S. assets. So whether you want to buy U.S. treasuries, and then the goal is to have a stable Japanese yen or a weakening Japanese yen. Because when you have to pay back that loan, if the yen is weakening or stable, or let's just say ideally it's weakening, then you actually, end up even more in front because you borrowed the money when the yen was stronger and now you're repaying it when the yen is weaker. So you kind of pocket that spread plus whatever amount you actually

got when you invested in U.S. assets. And obviously for hedge funds, it's even levered up. So that's essentially what the carry trade is. Anything I'm missing there then? No, yeah, I think you got it. So if that if that spread breaks, then it starts to change the dynamics of currency going in and out of like, I mean, I guess a lot of people, a lot of money in the financial system depends on that trade, not unwinding, and it's unwinding. Yeah, I mean, we'll have to see. Obviously, like, if the yen starts creeping up pretty quickly, then that could be a real issue for that.

I think we had the scare. It wasn't last summer, the summer before, right? Where there was a big scare, and the Japanese yen started appreciating, and there was some jitters in the market, and then it kind of went off a little bit. This is different, though, I think, no? Yeah, I mean, this is like the last three months or, yeah, it's pretty wilder, even the last six months. So if we go back to, so the B.OJ, so the Bank of Japan increased their short-term rates to 75 basis points total, so 0.75%. Because they had been negative for a while.

Yeah. And they increased it back in December. So if we're looking, let's just say that it was around the 10-year-we. was around 2% in December roughly, depending on what date you're looking at. Well, since then, it's up like you 70 basis point roughly on a 10 year. And they haven't changed the short-term rates at all. So what does that tell you then? Yeah.

So, yeah, yeah. It's interesting, like on the short versus long as well, like when you're seeing that in the U.S., the disparity between short and long, like shorts lower now, right? So the idea is that you kind of have like this entrenched and correct me if I'm wrong, but like this is sort of my my read on it. You have this like entrenched like structural risk of like longer term inflation and higher for longer as a result of like things like you mentioned like conflict being this sort of like permanent thing. Yeah. What like what's yeah. The domestic political uncertainty, geopolitical tensions.

I mean inflation uncertainty and potentially inflation being. structural and inflation being structural doesn't necessarily mean inflation at 15% per year. Just if we start seeing in the U.S., Canada, like 3.5%, 4%, like inflation, but for several years, right, like this is the new reality. It may not feel like a lot in terms of a percentage, but your purchasing power, that takes a big impact to it. I mean, over five years, 2% inflation is roughly a 10% price increase, 4% is 22%. So that's just a five-year period. So imagine if you have that over like several decades, if you're looking at the 30-year,

that kind of stuff can make a huge difference. And then you have the term premium where investors are just saying, okay, like we're kind of seeing what's happening right now. We don't really know what's going to happen to inflation. So we'll buy your 30-year bonds, but we need to be compensated properly. And I don't know if you had the chance to look at the most recent U.S. 10 and 30 year auctions, but they weren't that good either. Not like anything alarming just yet, but not great auctions either. So it's clearly a sign that, you know, I still think there's going to be demand, but at what price, right? You can always, you know, have demand for something if the price is right.

I think that's like the phase we're at in the economy right now. I mean, housing market's the same thing. Sellers don't want to come down and meet buyers where they are. Yeah. Anything else you wanted to go through here on the bond side of things? I know we talked about Japan. We talked about kind of the Anglosphere, CPI, long-term inflation risk. I don't know if there's anything else here.

I guess at what point does this hit the consumer? Like what's next year? Yeah, I mean, I think we'll start seeing it. I think it's that simple. I think I probably give a few more inflation prints. I mean, you saw it like I was sharing your true flation earlier. It's so much lower than the U.S. CPI, so they're reporting 2.05, I think, right now. And I think theirs is what updated pretty much daily, right?

Or five minutes. Weekly, I think. Weekly, yeah, it's updated very frequently much more than the CPI. And that 2.05% compared to 3.8 in the U.S., but the direction is what's really important. So if you're seeing, I'll show it again here. you can see a little bit of a pattern if you go over the last three years specifically, right? So yes, it declined a whole lot. It was near 1% or below 1, actually close to almost zero.

If you go back to early this year and now it spiked all the way to above 2%, and really the direction is pretty significant that you saw in a few months. So there are, Truflation is definitely seeing it not to the same extent as the US CPI, but I think you're going to probably see those inflation impulses just keep going forward. I mean, that's why I like listening to conference calls because you can listen all you want to, you know, macro experts, economists. But when you start hearing businesses like Walmart, that probably have a way better pulse on the consumer than any kind of economists could have Bank of Canada government or U.S. as governor, you name it. When these companies see it firsthand, they have the data and they have tons of data too. And they're saying, you know what? We think this is consumers just continues.

Yeah, the consumer is tapped out. We are actually seeing it. And that's despite getting a buffer from higher tax returns. And obviously I'm talking for the U.S., but Walmart is so large that they have presence in countries around the world, right? So let's be honest, I don't think the Canadian consumer is doing as well as the U.S. consumers, so take that as you may. Yeah. I get a question from the Instagram live here. Can you explain or find proof data to see if the Bank of Canada is buying bonds, how much if so, what is the importance of this relevant to our housing market? I think they publish that. I believe they published on a quarterly basis. Yeah, they do. Government of Canada bond purchase program. I'm trying to find it here last time. It doesn't look like they've done anything.

Yeah, probably the best thing is the Bank of Canada balance sheet is probably a good. Right. Chart, right? Yeah. Because that'll just kind of give you a bit of an idea where it's at. What was the other one? There's some other just having stuff. And I remember in the press conference, they are definitely, they were dodging those questions a little bit.

They had like one or two questions in the last monetary policy update. And they were definitely, yeah, dodging that question. Yeah. Well, I think they buy mortgage bonds too, right? Like government purchases and mortgage bonds. So like, yeah, here, here we have like, so if you look at, I mean, if you here, you have the chart or new bond. Yeah, I'll pull it up.

No, yeah. Because they have like the tranches that they're buying. Yeah, for the next like 10 years, right? So I think like the interesting thing is like the, you're able to, I don't want to say hide, but you're able to like not illustrate QE in, and then buying Canadian government bonds or like anything. I mean, it's not like in the U.S. where they're buying like from public companies,

but they're buying C&B and the government of Canada is raising on, on the Canada five year and doing a spread capture program on CNB. I don't know if you are familiar with this, but basically like government of Canada sells at whatever, whatever the bond yield is right now, 4%. And then they buy Canada mortgage bonds at 4.5, whatever,

and they capture the 5% spread while funding. Yeah, remember you mentioning that, yeah. Yeah. But the Bank of Canada is also a net buyer of the mortgage back. At the end of the day, they're pretty much the same thing, right? They're both back. Exactly. Yeah. So it's just. I always think this is interesting because like if you look at the mainline like a way that M2 and like credit, like M2 can still be climbing in Canada without quantitative easing because the way that we mainline liquidity into the market is through mortgage debt. Right. And so if they're buying a mortgage back security, every time you pay your mortgage, you're creating currency. Right. Like does that make sense to? you like mechanically. I don't know if that's the right way of thinking about it, but. Yeah. Not sure, but I kind of see what you're saying. Yeah.

Yeah. So, like, because every time you pay your mortgage, it goes to the bank and the bank issued the mortgage and you as a consumer are taking money from the economy to create the principal payment of that mortgage security. Anyway, the point of this being, like, the person asked, how does that impact the mortgage side of things? I would say if they are exercising the spread capture program and introducing a new buyer, it's sort of like a bit of a yield curve control on the Canada, a five-year bond or on the

mortgage market and is able to keep yields probably, or sorry, mortgage rates probably lower than they would be if it was purely the market pricing them. And if you want to see what it looks like for the market to purely be pricing them, just look at the U.S. where mortgage rates are 7% now. Obviously, on a 30-year, so it's a different store. but like again not not a not a pretty picture right like the u.s already has like sellers outnumbering buyers in their housing market by like in the millions and now you have buyers who just got a 20% reduction in buying power from rates yeah yeah i mean i think yeah they have the the u.s market is

is really weird because of that third year mortgage right like people that's secured those what like three, four percent during the pandemic. And now they're sitting on those type of mortgages. But I think now you're starting to see more of a flow of sellers because they probably just don't have a choice. The Canadian market, I mean, you know it better than I do. So it's going to be, it's going to be like fascinating what happens. And actually one topic that just came back to mind is, you know, if we start seeing bond

yields rising for the Canada five year and fixed rates going up, isn't it 26? the renewal, like the year for renewal wall of like mortgages that were taking the pandemic? Yeah, that's all your 2021 mortgages, which was the biggest sales year ever. So acquisition mortgages, that's the most, but it's not the most mortgages in total. And we're already halfway through the year. So it's not like we have a ton more distress to really come into the market. Actually, let me rephrase that. Because Bank of Canada did a, let me just find it here, a whole study on this. Yeah, because weren't these, I thought they were saying that 2026 was going to be that the year with the most renewals. It is the most, but it, but it also is like it was

your, like if we're talking acquisition side, it's your, it was your spring market, which were already passed, right? So it was 2021, Q1 halfway, like from basically ends now, like January to May, right, today. So you're kind of like halfway, or you're, you're pushing through like the biggest volume of acquisition deals. The refi deals was sort of like spread throughout the year, but let me just pull up the, the bank. And I guess you have also people that, kind of refinance or it took like three years back in 22. Tons of people. Tons of people broke their loans and took five-year mortgages at record low rates, right? Why wouldn't you? It was a financially sensible thing to do. Like that's just people being rational participants in the economy.

So you have by the end of 2025, you had 18% payment increases. By the end of 2026, you have 33% of mortgages seeing payment increases. A vast majority is no change in payments because you had a lot people in variable. And then you have about just under a quarter seeing payment decreases by the end of 2026. That's in total from the beginning of a 24. Yeah, the payment decrease would probably be those that took on mortgages in like 2020-23, right? Like late 22? Yeah, yeah. Mid-late, yeah. Yeah. Yeah, you're two, three-four or two, two and three-year mortgages coming up. It even does a breakdown by the types of mortgages too. So mortgages with payment increase. is mostly your five-year fix. So all your five-year fix are coming up, 73% of the mortgages

that are going to be seeing an increase in payments. And then anything with a decrease is 56% two- and three-year fixed mortgages. So you're looking at homeowners, a lot of homeowners that will see higher payments. Yeah, like that's why you're still seeing shelter as a big part of inflation, right? Even though rents are falling and we'll eventually get past this mortgage renewal wall. But yeah, like you still do have like, or 2026 is the year where the most new financial stress will be added to the market. Yeah. If that makes sense.

And if you're one of those, you're also dealing with higher fuel costs. You're also dealing with rising costs everywhere else. Like this, it could be a difficult year for a lot of homeowners that are seeing those higher mortgage costs. That's just something I was talking with Dan, Dan Kent the other day is, yeah, it's another variable that might make some home owners even more squeezed. For sure, yeah. I mean, CMH did a mortgage consumer survey.

Where is it? 35%. I think it's 35%. Renewers were more likely to say they experienced increased financial pressure due to changes in interest rates. So people renewing mortgages. And on average, their payments went up $375, which is like not a small number. Like that's like that's, you know, that's your gas budget for the month.

Like if you drive a small car. Like this just and I think the interesting part on the mortgage side is like that's a recurring loan. It's not like, it's not revolving credit or like gas prices or like something that you can, you can like change your spend on. It's something that it will bleed you out slowly. So like all of the pain, and this is why interest rates operate with a lag, right? Like your rate increase happens, but then you don't really end up suffering or like seeing it up here in the consumer economy for like a couple of months because people, you know,

they eat the payment for one, two, three, four, five months and eventually they run out of money and start budget. Yeah, they might have some savings or, yeah. able to make do. Yeah. So anyway, yeah, it's going to be interesting. I think next week, I mean, even if Braden's not available, we're going to do an AI thing because it's Tech Week next week. And so we're going to be, I'm going to be streaming live from the Tech Week event.

We'll do a little bit of a shorter one, I think, because I'm probably going to be a pretty loud, crowded room, but we'll do like 12 to 1230, 1245-ish maybe. And we're going to talk about AI. If Braden shows up, maybe I'll let you guys riff a little longer and just leave it up. But yeah, so that's for next week's. For those of you are on YouTube, sorry we didn't make it this week. I got to fix the streaming back end, but we'll figure it out. Yeah.

And everybody else watching on everything else or listening to this in the recording. Make sure you check these out. We go live typically noon every Friday, just the Friday macro lunch, I think, is what we're calling it for now. May shuffle those around a little bit in the summer if there's like holidays or whatever. But, well, we're going to keep doing it for a while. No, it's been fun. I mean, it feels like there's always something. to talk about macro wise. So definitely the housing. I tend to, I know a little bit to be dangerous,

but I definitely tend to rely on you a bit more on that part. Clearly you're the expert there, but it's always, it's fascinating. And I guess at the end of the day, it's probably a reflection of the times we're in. And for those not familiar with it, you know, we keep talking about the fort turning. There is a couple books on that. So if you're, you're interested in understanding where we're coming from, essentially it just means that, you know, the post-second World War order that we were used to, it's starting to shift. And it's just repeating a pattern that's happened over what centuries, I mean, or thousands of years pretty much in history. And we're seeing it happening right now. So maybe we'll finish on that. Yeah. As much as...

Just trying get him on the show, actually. I have a friend who knows him quite well, so I'll see if I can get him to come to an episode of the list. Yeah, Neil Howe, right? Yeah. So, yeah, that'd be great. I think it would be fun. So I encourage people to read that book. You know, just don't take it with a grain of salt, even listening to Neil Howe recently.

He doesn't know which way it's going to play out. Nobody knows. But it is, yeah, exactly. But it is kind of on track with historical patterns. Yeah, yeah. I mean, he's nailed it on a lot of the first calls. And he has an updated book, too. The fourth turning is here.

You've got to read that one because you haven't read it yet, right? No, no, I will go in order it after. throw it in the audiobook while you're biking or whatever you do. Yeah, yeah, exactly. No, with kids, it's great. You can do stuff. You can do stuff around the house and still kind of learn. I know, some people just prefer the book version, but, you know, you have kids.

I have kids too. It's just sometimes you just can't, you can't just sit down and read. So the audiobook's definitely, yeah, pretty useful. Or if you do, like, I was doing it for a while when we had our second. And he, you know, like, I would be so tired from having a kid. I do it right before bed and I just pass out. I used to read for like an hour before bed. And I was like 10, 10, 15 minutes and I can't get my eyes open.

So, yeah, audiobooks are kind of the necessary evil right now. That's it. I'll let you go, buddy. Have a good weekend and I'll see you again on Friday. Okay, sounds good. Okay, brother, take care. The Canadian Investor podcast should not be construed as investment or financial advice. The host and guests featured may own securities or assets discussed on this podcast.

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