Skip to Main Content
  • CIBC.com
  • CIBC Private Wealth
  • CIBC Websites
Client Login
  • Home
  • Our Team
  • Commentary
    • Blog
    • Video
    • Market insights
  • Services
    • Our solutions
    • Advisor Managed Account
    • Community
  • Commonly asked questions
  • Contact us
  • CIBC.com
  • CIBC Private Wealth
  • CIBC Websites
  • Client Login
 CIBC Private Wealth, Wood Gundy  CIBC Private Wealth, Wood Gundy

Cacic Wealth Management

  • Home
  • Our Team
  • Commentary
    • Blog
    • Video
    • Market insights
  • Services
    • Our solutions
    • Advisor Managed Account
    • Community
  • Commonly asked questions
  • Contact us

Blog

Address 500 Centre Street SE 27th Floor Calgary AB, T2G 1A6
Telephone Number (403) 508-3230
Email Email us
Email Email
Telephone Number Tel

Milan Cacic

October 06, 2023

Facebook
LinkedIn
Twitter

PIPES, BANKS, AND UTILITIES – OUCH!

Over the past few weeks, we have had quite a few questions regarding utilities, pipelines, and bank stocks. Basically anything that is considered conservative with a high dividend has been going down. The question people are asking us is “Why are they going down?”. The simple answer is that low-growth, high-yield companies trade a lot like bonds. When interest rates go up they go down and when interest rates go down they go up. The correlation is very close to 1.

 

As you can see from the chart below, the 10-year yield on a bond [grey line] has moved up considerably in the last couple of months which in turn has made the price of utility companies [red line] drop. It would not look much different if we overlaid a bond index, bank index, or dividend index on this chart. A laddered bond portfolio is also down over 5% in the last two months. Simply put, rising interest rates mean investors demand higher dividend rates on their stocks. Companies either have to increase their dividends or face stock prices dropping down to a level where investors are happy to hold them.

 

Graph 1

Source: Thompson One Oct 5,2023

 

These recent price drops have made pipeline companies like Enbridge and TC Energy trade at yields above 8%, while Telco's like Telus and BCE are trading at 7% yields, and Canadian banks yields are almost 6%. From a historical perspective, these yields are quite high. We also know that, historically, when interest rates start to go back down, the price of these companies will go up and their yields will drop.

 

So the real question is "when will long-term interest rates start to drop?". That answer is a little more complicated. However, if you believe the futures market then the answer is sometime in the first quarter of 2024..

 

I've also included a piece from our CIBC Economics Team entitled "Variable lags".

 

As always, if you have any questions please feel free to give us a call at any time.

 

Have a great Thanks Giving Day weekend!

 

Milan

Related posts

Milan Cacic

June 20, 2025

ISRAEL-IRAN CONFLICT AND THE OIL MARKET

Read more

Milan Cacic

June 13, 2025

LIKE IT OR NOT, THE UNITED STATES IS STILL A GOOD PLACE TO INVEST

Read more
 
 
  • Rates
  • FAQ
  • Agreements
  • Trademarks & Disclaimers
  • Privacy & Security
  • CIRO AdvisorReport
  • Accessibility at CIBC
  • Manage Cookie Preferences
  • Cookie Policy
 Canadian Investment Regulatory Organization  Canadian Investor Protection Fund

CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. Insurance services are only available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are only available through CIBC Wood Gundy Financial Services (Quebec) Inc.


CIBC Private Wealth services are available to qualified individuals. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license.