This was the heading on a slide that Connor, Clark & Lunn showed us this morning during our quarterly review of the Income Fund. The chart (below) shows the path of a Government of Canada 10-year bond yield compared to the commonly-used indicator of inflation in Canada, the Consumer Price Index.

After 31 years of declining rates (and therefore rising bond prices), we are now at a point where bonds yields are at or below the level of inflation. ‘Real’ yields are negative. In other words, investors will be worse off after inflation is taken into account.

This chart reinforces why Connor, Clark & Lunn is being cautious and is positioning the Income Fund for higher interest rates and why we’re recommending that clients be at their minimum holding in bonds.