Author: Innovative Income Investor

The 10 year Treasury moved up over 4% yesterday and is now trading around 4.02% and the damage sustained by income issues has been very modest – in fact whether the minor damage incurred yesterday was because of interest rates or because of the solid pull back in all equity markets. We all know that it isn’t necessarily the direction of movements in stocks and bonds that can cause pain, but the speed in which those changes occur. We have been lucky so far as income investors to only suffer very minor damage to our capital–we are talking a few 1/10%ths.

I am certain I will commit a bit of capital to preferreds or baby bonds this week–what it will be I don’t know, but with lots of CDs maturing I won’t be recommitting all the proceeds back into CDs @ 4.6%. Also money markets continue their slow drift lower in yield–now at 4.99% on the Gabelli AAA Treasury (GABXX) which is the money market fund I use at eTrade–actually this rate isn’t bad, but given the daily drift lower the longer term outlook is somewhat bleak.

We now have hurricane Milton bearing down on Florida–a very scary situation. I don’t really know what effect this will have on markets–I haven’t studied that situation, but we do know that the Federal government will use the opportunity to spend billions that they don’t have–never miss a good opportunity to spend. Obviously as a country we have to spend on these situations, but if this was our home business we would have to cut elsewhere–no chance the Federal government will change their spending ways.

Markets are up modestly this morning–no follow through to the 1% fall yesterday, but where the day ends no one knows. I’m going to review BDC baby bonds and mREIT preferreds closely today as that is likely where I will buy this week.

I haven’t done any buying the last few days, but with quite a bunch of CDs maturing in the last couple days my hand will be forced soon. With the geopolitical situation in the Middle East I don’t feel particularly motivated, but if anything can get me motivated it would be falling monthly income. I’m not really motivated by money, but I am motivated to garner the best return possible within my risk tolerance.

Right at this moment I am awaiting the jobs numbers for July–150,000 new jobs are forecast to have been created in July and the unemployment rate is forecast to remain steady at 4.2%. The ADP jobs report on Wednesday came in hotter than forecast and the JOLTs (job openings and labor turnover) seemed to indicated that there are plenty of available jobs–what we see in 15 minutes is anyone’s guess.

I do have concerns with interest rates as the 10 year treasury is now trading at 3.87% which is about 20 basis points higher than prior to the Fed Funds rate cut. I had originally guessed that short term treasuries would fall into this month and that the 10 year would rise–this was based on the never ending supply of new debt from the government. Certainly this supply continues–and looks to continue for as far as the eye can see which would seem to indicate to me that rates on long term debt will remain elevated. I know 1 thing for sure and that is I don’t want to see interest rates head above 4%–we will begin to see capital gains erode at this level.

So now I am waiting for the numbers–254,000 new jobs–what hotter than expected and the 10 year treasury has shot way up to 3.96%. The unemployment rate falls to 4.1%. Too hot or Goldilocks?