Interest Rates Continue Move Higher

Interest rates are sharply higher again this morning with the 2 year treasury yield in the 4.25% area and the 10 year treasury yield now in the 3.78% area.

We will have more pain ahead in preferreds and baby bonds–and in some sectors we are going to have ‘bargains’–BUT will we have better bargains ahead–yes we most definitely will have and it will be painful in the mean time..

This is the most difficult time in the markets for those (like me) that hold lots of preferreds and baby bonds–but it can lead to the most financially lucrative gains in ones income portfolio. This is the time when things are scary and an investor has to resist being in the ‘buy high, sell low’ camp. Yesterday I saw losses of 1/2% in the portfolio and expect the same today–it hurts

Today I will mostly watch, but may take a few teeny tiny nibbles on some high quality preferred issues–we’ll see. I almost certainly will add a few treasury bills – 3 and 6 month maturities.

Buckle up and stay strong.

21 thoughts on “Interest Rates Continue Move Higher”

  1. Today I took the opportunity to move some of the preferreds that have taken a huge hit from my IRA into my Roth. I’ll take the tax hit on the depressed price and maybe someday with enough patience I will get the gain in the Roth.

    If ever there was a year to make use of some tax losses this is it.

      1. Call your broker, use their forms, or go their site online and find the conversion form, fill in, scan and email or mail back to them on the secure portal within your account. Gotta have a Roth set up with an account number to receive the funds or securities too. Do that first if non existent.

      2. Depends on the broker but way simpler if you use the same one for each account.
        I use fidelity and its actually quite simple as I can actually transfer all or any part of a position (without selling it) right from the IRA account into my Roth account.

        Value for tax purposes is figured at todays (depressed) price. and is considered income come tax time.

      3. Anyone who has to take an RMD must do that first -before doing conversions, so both get taxed.
        And they can no longer be undone.

  2. The street is worried the Fed is raising rates too fast. They want the Fed to moderate and see the lagging impact of the current rate increases. So how does the street respond? Raising the rates even faster than the Fed is planning. But the bond market will not be responsible, it’s the Fed’s fault.

    Strange way to view the world and unwillingness to take responsibility for accelerating rate increases too quickly.

    If the fear is the fed is going too fast, then going faster cannot be the cure.

  3. If anyone has studied any amount of human psychology, much less investor psychology, you probably know what you are seeing right now. You also probably feel it yourself. You will also know that fear is inversely correlated with logic, and the more fearful you are as a human, the less logical you will be. Remember that the current state of the market is working FOR you, giving you options to selectively add investments at more attractive risk/rewards to achieve your goals. Yes, the current price action is painful, but we have to get past that (smartly of course) to achieve our goals. Cheers,

    https://www.psychologytoday.com/us/blog/psych-unseen/202007/how-does-fear-influence-risk-assessment-and-decision-making

    1. Thanks for that one, Shep … I think I’ll print this out and put it under my pillow while I try to sleep well at night…. It’s pretty amazing that in the approach and concentration of what I’ve been doing over the past years I’ve essentially been planning for this yet it’s so tough not to end up thinking I hadn’t done enough in preparation to lessen how painful this has been.

    2. Shep, all I have to do is watch the sheep.
      Mine always figure out where the hole is in the fence or who is coming up the road and if its the vehicle that feeds them. But if anything scares them like the neighbor walking a barking dog, I have seem them run right into a fence in panic trying to get away.

  4. The good news is that just about every individual investor who visits this site on a daily basis should have considerable cash on the sidelines for the amazing opportunities that are now available. Personally, I am 37% cash in my taxable account and 50% cash in my IRA.

    Who would have thought we would ever be able to buy PSA preferreds with $15-16 handles? Anyone buying now is likely going to make a fortune when the rate cycle eventually turns (and it will). Interest costs on our $31 Trillion in national debt are approaching $500B annually now, and will continue to skyrocket.

    Eventually, the intense pressure from corporations, citizens losing their jobs, and the Federal government will get the Fed to reverse course.

    I like to say that 90% of baby bond and preferred investing is boring, but that last 10% is filled with bouts of outright terror. We are clearly in the terror stage now.

    Be calm and carry on.

    1. I would guess that most investors visiting this site are doing pretty much what they always do, maybe making minor changes based on the discusssions. Not many changing their whole portfolio based on one site.

  5. S&P and DJIA haven’t seen this morning’s levels since Nov 2020. Nearly 2 years of gains gone in a poof. I’m going to have to start trimming puts today. But technically indices look awful. Only 5 days left until end of quarter so we do have a potential bounce next week that could happen.

  6. A broker once told me that they started their career during the double digit interest rate era. The shop was big in the muni market and encouraged brokers to get muni customers who were usually wealthy.

    The broker noticed that every time the rates went up that muni prices went down. Nevertheless he was there to make some sales and he finally made his first sale which was a muni.

    The next day it went down.

  7. Ready for what the day brings. Tim is sounding a little more cautious today.
    Saw Weird Al last night, He played a song called Traveling to see a big ball of string in Minnesota, wonder if there is such a tourist trap? Heard another one that reminded me of 2WR ‘s QVC, I think called Mr. Popeil about his late night infommercials from the 70’s
    Any one who gets a chance to see the show I highly recommend it.

    1. Oooooooooh yuck – forever tied in reputation to QVC…. just an example that Peter Lynch was not always right with “invest in what you know….”

      1. I apologize for impugning your reputation 2WR was referring more to your love of musical lyrics

  8. In case you’re tired of getting pummeled and second guessing when the next disaster is going to hit: Fidelity has a 4.3% 5 year noncallable CD and 4 year 4.25% noncallable CD both from Capital One. And three new Treasuries with coupons of 4.015%, 3.875% and 3.75%.

  9. There’s an ancient saying that is pertinent,” Do your work and step aside.”
    I have done all the work I can to the best of my ability and am not respond-able or reactive to the actions of the 99.999% of the rest of the population, many which are responding and reacting in some manner they see as rational. That has no impact on me. Granted, it’s hard to peel your eyes off the screen, but if you can’t trust yourself, no truism can aid you.
    Would like to get in to MFC in Canada. yep, the common in my CN account. Waiting. Have bot several below par very near rate resets up there and waiting for their Board’s decision. Seems like a win-win if reset or called. How will it turn out? I have NO idea, just get in the way of very good odds.
    Doubled up on FBRT-E yesterday and have a hankering to add to ENB common (who has 3.5 million utility accounts in addition to their pipes, (I think this is also Grid’s secret CN util buy on a crash prospect!)).
    I placed several lowball panic type limit orders to buy good income securities, but who knows?
    Know your primary objective. For me: I am NOT going back to work and need higrade, steady income. Brand that on my hand.
    Now, it’s bike ride time in this wonderful seasonal air.
    Like Tim said, stay steady.

  10. I appreciate your candor. I am with you. This is painful to watch.

    There is a whole emotional side to investing, which frankly can be the most challenging to navigate. I am much better at navigating the emotional side than I was 35 years ago, but I’d be lying if I said that it’s not challenging to stay the course in waters like these.

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