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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.

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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.

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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. 

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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.

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"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.