Oil markets were rocked following President Trump’s initial strikes on Iran. Global benchmark levels quickly rose over 60% in price, surpassing US$100/barrel for the first time since July 2022. As the U.S. and Iran grapple over the Strait of Hormuz, the price of oil continues to whipsaw. Investors are actively assessing the length of the conflict, damage to infrastructure in the region, and the supply response from other areas globally.

The market is on a knife’s edge guessing where the next decision will land. Open the Strait and unlock a barrage of petroleum waiting to hit markets, and the price will likely plunge. Keep the Strait closed and threaten damage to regional infrastructure, and the price is sure to spike. The belief is that the current price is reflecting a binary outcome where oil will be either much higher, or much lower, depending on the outcome of the war. Nevertheless, there is little debate about the long-term impact of higher energy prices on inflation. The bond market is acknowledging this dire position. 

The financial and energy markets have run aground in the Strait of Hormuz. We and most knowledgeable experts had no idea that the perceived acclaim, ease and success of Trump’s Venezuelan adventure would lure him into trying his hand at Iran again. Our worries about eventual tariff driven inflation now seem quaint compared to what is going on with Iran’s blocking of the Strait of Hormuz and the damage to the oil industry in the Middle East, neither of which seemed considered in potential Iranian responses to the attack by the U.S. and Israeli militaries.

SOURCES

1. Source: rev. (2026, January 6). Trump speaks after US strikes Venezuela and Captures Maduro.
2. Source: Faucon, Benoit. (2026, April 12). The U.S. Sank One of Iran’s Navies. The Other Still Controls Hormuz.
3. Source: Leary, Alex. (2026, April 12). Trump Says Oil Prices May Be ‘a Little Bit Higher’
4. Source: Reuters. (April 6, 2026). US service sector cools in March; price paid measure highest in 3-1/2 years

"The Blue Jays captured the hearts of Canadians this past season with an improbable run to the World Series. And while it ended with the heartbreak of a Game 7 extra-innings loss, the Jays wasted no time in their efforts to run it back, storming into the offseason with bold roster moves. Canadians are now gearing up for the upcoming Winter Olympics in February, where the return of NHL players to Olympic ice promises a thrilling showdown and a chance to reclaim hockey supremacy. All this evokes a sense of Canadian pride in the face of ever divisive issues. We are certainly operating in an environment of heightened uncertainty, though you wouldn’t know it from looking at financial market results."

Last year was a volatile one for the financial markets as unpredictable Donald Trump entered the White House in January. Expecting the returning President Trump to bring hot markets with his election, as in his first term, investors soon learned to their chagrin that he was serious about his “Beautiful Tariffs”. Markets then tanked, recovered and then soared when he dropped the worst of his tariffs. That, and a renewed Artificial Intelligence (AI) mania, ignited a buying frenzy. Seemingly everything that could be traded went up, with even crypto, gold and silver joining the financial market glee.

Sources:

1. Source: The Washington Post. (2026, January 11). Running deficits larger than during the Great Depression is reckless.
2. Source: Ward, Jasper. (2025, December 17). Trump says next Fed chair will believe in lower interest rates ‘by a lot’.
3. Source: Swanson, Ana. (2026, January 3). Why Haven’t Trump’s Tariffs Had a Bigger Impact?
4. Source: Board of Governors of the Federal Reserve System. (2023, November 8). Changes in U.S. Family Finances from 2019 to 2022.
5. Source: Choi, Matthew and Merica, Dan. (2026, January 12). After Venezuela, Trump eyes Iran.
6. Source: Atkins, Eric et al. (2025, November 30). Manufacturing meltdown.
7. Source: Craig Brown, Robert. (2015, March 4). National Policy.
8. Source: Smith, Fergal. (2026, January 2). Canadian factory downturn lengthens as new orders hit a three-month low.
9. Source: Senate Democrats. (2026, January 3). President Trump Discusses the Capture of Nicolás Maduro in Venezuela.

Fear and uncertainty moved aside this summer, and optimism is now abound. Central Bankers are cutting rates, equity markets are touching new highs, and the Toronto Blue Jays are headed to the World Series! In credit markets, we also continue to experience historically strong market conditions. 

Sources:

1. Ronalds-Hannon, Eliza and Weinman, Aaron. (2025, October 12). From Tricolor to Saks, Bonds are Now Crashing at Breakneck Speed. 
2. Nakamoto, Michiyo and Wighton, David. (2007, July 9). Citigroup chief stays bullish on buy-outs. 

We last left you in early July with the observation that the financial markets now seemed to thrive on and reward uncertainty. The equity and credit markets had plunged in March on the initial economic fears over the Trump tariffs and then rebounded joyfully in April when Trump variously delayed and fiddled with his tariff strategy that had threatened to burn the U.S and global economy.

Sources:

1. Source: Kirby, Jason. (2025, October 4). U.S. tariff revenue piles up as Canada abandons tit-for-tat trade war approach.
2. Source: Chase, Steven. (2025, October 2). LeBlanc hopes to make progress on steel, aluminum tariff relief before USMCA review
3. Source: Chase, Steven et al. (2025, October 7). Ahead of talks with Carney, Trump says his tariffs are working.

Interest rates have been on the rise since the end of the first quarter, particularly in the long-end of the curve. From March 31st until time of publication, Canadian long bonds have risen 66 basis points (bps) while their American counterparts are up 44 bps, translating into price declines of 13% and 7%, respectively. 

Sources: 

1. Fool, Motley. (2025, May 22). The U.S. Government’s Credit Rating Just Got Downgraded for the Third Time Since 2011. History Says the Stock Market Will Do This Next.

The theme of Canso's previous April 2025 Market Observer was that only a fool would try to predict what would happen to the financial markets and the global economies after Donald Trump declared his Tariff War on the World. The more expertise you possessed, the less you were probably able to forecast the actual outcome. As they say, it’s not over until it’s over but rising equity markets and tightening credit spreads weren’t most experts’ first choice, but that’s what has happened. 

Sources:

1. Source: Canso Investment Counsel Ltd. (2025, April). April 2025 Market Observer.
2. Source: Burgess, Mark. (2025, July 4). Who cares about uncertainty anyway?
3. Source: Boggioni, Tom. (2025, July 5). ‘It’s all fake’: White House insider admits Trump’s trade war is just for show.
4. Source: McCreesh, Shawn. (2025, Feb 28). ‘This is going to be great television’: Trump sums up his showdown with Zelensky.
5. Source: Blanchfield, Mike and Hawkins, Ari. (July 6, 2025). In tech tax ‘cave,’ Trump and Carney may have both gotten what they wanted.
6. Source: Rjoseph1. (June 3, 2018). Trudeau calls tariffs ‘insulting’ while Trump aide labels it as ‘family quarrel’.
7. Source: Aiello, Rachel. (May 14, 2025). Canada’s new housing minister doesn’t think prices need to come down.
8. Source: CNC News. (Dec 16, 2024). Read Chrystia Freeland’s letter of resignation from Trudeau’s cabinet.

We were writing about the confused state of political and economic affairs in June and wondered, like the Marvin Gaye song title, “What’s Going On?”. We marvelled at how the financial markets were ignoring any bad news in their haste to move ever upwards in price. 

We are starting to see more and more credit opportunities emerging. Even though default rates remain relatively low, the increase in distressed transactions points to increasing stress among highly levered companies as interest rates remain higher for longer.

"What’s Going On” was the plaintive refrain and title of Marvin Gaye’s 1971 hit song about the controversial Vietnam War and the resulting societal and political upset in the United States. His song of confusion and disappointment seems as relevant to us today. We look with trepidation on the political and social tumult around the world and wonder ourselves what is going on.

Like George W. Bush standing on the deck of the USS Abraham Lincoln in May 2003, the market appears to have hoisted the “Mission Accomplished” banner on this monetary tightening cycle. Risk premiums have dropped, borrowers have renewed access to capital and the percentage of economists predicting a recession has dropped considerably from the “100%” tally of not so many months ago.

The so-called experts who called for dismal markets in 2023 were nowhere to be found in the 2024 New Year prognostications. Happy days were here again, and nobody wanted to spoil the fortunes from soaring markets that had been handed to investors by saying anything remotely negative this time around.

Corporate bond markets raced higher in the fourth quarter as inflation continued to decline, labour market strength showed signs of moderating and Federal Reserve policymakers signaled their rate hiking efforts may be coming to an end.

Generations of finance students have been taught Efficient Markets theory, but we have always begged to differ. What happened in 2023 to the financial markets and the economy should give anyone pause about how efficient the financial markets really are.

It was a cruel summer in the bond market as interest rates climbed swiftly higher. Yields across both Canadian and U.S. government curves jumped, hitting levels not seen since 2007.

Canadians rejoiced the dramatic victory of Nick Taylor who became the first Canuck to win the Canadian Open since 1954. Meanwhile, Canadian bond investors are celebrating a victory of their own, with the return of positive real bond yields. Listen more in the July 2023 Corporate Bond Newsletter

The global bond market is experiencing the violence of sharply rising yields. Loose fiscal policy and pandemic government income supports combined increasing demand with reduced supply. Prices are soaring to levels not seen in the over 40 years since the high inflation 1970s.

History books will show the official end of emergency monetary policy accommodation to offset the Covid-19 pandemic came on March 2nd and 16th when the BOC and the Fed raised overnight rates. In reality, the recalibration of bond markets started well beforehand, in response to inflation, and in anticipation of central bank action.

Central banks have created far more money than necessary for actual economic activity and the result is the highest inflation in 40 years. Interest rates are up, and the financial markets have shuddered, shattered and fallen precipitously in price. Listen here in the July Market Observer.

Looking at the financial market returns for the third quarter and year-to-date 2022, there was no obvious place to hide as all asset classes suffered. The carnage in fixed income markets is the worst seen in most of our lifetimes.

After vanquishing the Evil Inflator and banishing him to the far regions of the Yield Universe over 40 years ago, the Interest Rate League has been called back into action! Listen more in the December Market Observer.

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Have central bankers done enough to get inflation under control? We believe that monetary policy and the credit cycle are powerful forces, but we suspect that things on the inflation front will be a lot more difficult than the fashionable market crowd suspects.

The year began with swift optimism. Equity markets quickstepped higher, while credit spreads swung tighter. Buyers lined up to purchase new bonds from both investment grade and non-investment grade issuers. In sequence, investors who were knocked down by one of the worst years of their careers bounced back up and danced.

We continue to see that inflation hopes are springing eternal in the world’s bond markets in the Spring of 2023. The bond market is moving manically between elation that nagging inflation has finally been vanquished, and fears that it has not. It depends on the day, the hour, or even the minute after an “important number” is released, but bond traders continue to focus on the Federal Reserve’s (Fed) next move. Even after the plunge in bond yields the seizure of Silicon Valley Bank (SVB) and the worries about Credit Suisse, yields are still up considerably in the past year.

The recent rise in Canadian bond market yields is something that bond investors have seldom seen in their professional lifetimes, and never for a sustained period. After hitting generational lows from 2010 to 2020 when central bankers became enamoured with ZIRP (Zero Interest Rate Policy) and QE (Quantitative Easing), there was nowhere to go but up for bond yields!

The first quarter financial market bruising exploded into full blown carnage by mid-year as second quarter returns pushed deeper into negative territory. Several markets recorded double digit losses, as investors fled the riskiest assets.