After a day without trading the bond market is falling with the yield on the 10 year treasury popping higher to be trading at 4.37% right now. Tomorrow and Thursday we have both the consumer price index (CPI) and producer price index (PPI) being released. So are rates going to move higher from here or are we going to settle down in the 4.30% area? Obviously no one knows, but the chance of rates moving higher because of other factors–i.e. a massive supply of paper being sold by the treasury should be causing many investors to be looking at shorter dated maturity income issues.
Some investors care about creating monthly income without regard to movement of their capital. Some, like me, look at total returns on their portfolio. These are different goals–they cause one to invest differently.
Right now–today, I am looking for a shorter maturity security–a term preferred or a baby bond. It is likely I will buy a security in one of these area today. Recall I lightened up on some perpetual issues earlier this month–high quality, lower coupon issues and generally these issues are lower today than when I sold them. Of course much of the money went to money markets drawing 4.7% at this moment and this is not tenable over the longer term when my expectations are for returns in the 7% area.
So my ‘shopping day’ begins. I’m shopping here—and will add to a position or initiate a new position today.
you should add YTM to that list (Short and Medium Maturity Income Issues (Preferred Stock and Baby Bonds)
Short duration or fixed to floating. It is not just a tariff risk. Tax will be cut and not raised. That can be done with a simple majority in the house and the senate. Deficit will be increasing unless they can offset with real spending cuts.
Almost all of us agree the deficit is too high already.
Maybe the market is looking forward (6) months and the impact of 20% tariffs on the economy and inflation…?
Payday,
Which goods, countries, and tariff percentages will be happening?
Not to start anything political, but I doubt the market is taking the “20%” talk too seriously.
In the recent election, both candidates made a lot of statements that were just plain lies, i.e. a candidate would say anything to get votes. For example, the loser talked about price controls and a tax on unrealized income (with no idea how they would be implemented), and the winner talked about huge, across the board tariffs and even greater ones on China (with little detail).
I do believe the next president will impose some tariffs, especially against China, but I think we will have to wait a while to see where the amounts and “target lists” land.
One thing we saw the last time around with him is that it is hard to predict what he will actually do based on “rally” speeches he makes.
I read a comment that said a large part of the US trade deficit with China is due to imported goods made by US companies in China. If true, does that mean US taxpayers are subsidizing those companies? And would tariffs on such goods return the subsidy to US coffers?
The impact of tariffs is complicated. Neat conclusions, like tariffs are inflationary, might not be supported by facts. There are other ways to deal with our willingness to run a trade deficit to absorb China’s surplus. I have low expectations of politicians.
Private
Again, staying away from the political……
Just read an article confirming that China is tightening its stranglehold on the production of rare earths necessary to make computer chips and lithium batteries.
As in, it controls more than 85% of the world’s supply of rare earths.
Wonder what the impact would be if it were to match the US’s prohibition on the sale of high-end computer chips to China with a matching embargo of rare earth sales to products made by the US?
Rare earths are not used in ICs or lithium batteries. They are mostly used to make magnets for motors.
I think you are maybe overstating that a bit, David.
Off the top of my head:
-Lots of semiconductor manufacturing and test equipment relies on rare earths.
-cerium oxide is critical to “planarizing” (“CMP” – flattening and polishing) semiconductor wafers (and disks for disk drives).
-I know of ongoing research on using rare earths (e.g. some yttrium compounds) for future generations of semiconductors.
Also, while rare-earths aren’t used directly in Li-ion batteries, they are critical to electric vehicles (motors).
Westie,
I think you have the numbers a little off.
While China produces most of the world’s rare earths, they don’t control the most deposits (IIRC, they have about 1/3 of global deposits). One reason they are the major producer is that they sell cheaply (and have the environmental mess that goes along with cutting corners). So, they have driven most other producers to the edges of the industry.
There are other producers (India, Brazil, Australia…). Even the US used to be a major producer (in sunny California).
As China tightens up on rare earths, I expect to see some dislocation, but as prices rise, I would expect other producers to step in. I was reading a few months ago about some significant new production being developed in Australia, but I don’t recall the details.
That’s just it? The market does not know? And that is why rates are popping! Uncertainty!
Keeping maturities 2031 and less appears appropriate now. More conservatively look to 2027-2029 maturities.
legend.vs–for me it is the thing to do–I am very conservative.
legend
Agree
My “Bond” portfolio is CD’s/TBills and prefs with maturities shorter than 2030.
Comprises 2/3 of my investments
I have a lot of short term stuff, but my death may occur before 2030 so , for better or worse I locked in AAA munis long term. Is there really a difference between 2048 and 2064 if you’re over 65? (age 90 or 110 at those points).
Unfortunately I now find myself occasioned to sell some just to limit my exposure to tax law changes that almost happened with the first TCJA , and are much more likely this time around …especially if TCJA is made permanent.