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Interest Rates Continue Tumble

With the better than expected consumer prices announced this morning interest rates have continued there downward tumble–the 10 year treasury is now trading around 3.89% which is off 9 basis points from yesterday.

With the core CPI announced at .2% month over month folks will start to question the FOMC rate hike which is likely to come in 2 weeks. While we see softening numbers in inflation and in employment (if you believe the ‘government’ numbers) I think the FOMC is ‘locked and loaded’ for another 1/4% increase–it just doesn’t matter at this point–give the markets what they expect.

With earnings season upon us and the smaller banks announcing earnings later in the month I am ready to buy–subject to me changing my mind of course–it is much easier to have a change of heart when you can get 5.5% on short term money–the risk/reward just doesn’t pencil out.

I have continued to sit on my hands. I did ponder adding to my XFLT-A 6.50% term preferred position for a ‘dividend capture’ with an ex-dividend date of 7/14 (Friday), but I resisted since I am already overweight by quite a bunch on those and no use trying to get too cute now.

12 thoughts on “Interest Rates Continue Tumble”

  1. Today I received J.P. Morgan’s mid-year outlook. It said that “two clear intertwined risks” that could cause or accelerate a recession are regional banks and commercial loans. I found that to be surprising direct . . . and serious.

  2. I have one year treasuries maturing every month for the next 12 months. When will the party end – I don’t know but I just keep rolling them over collecting that (state) tax free payment.
    On the preferred front I have been buying WFC/Y this week. 6% with some upside is fine by me.

  3. Following up on one of Tim’s posts from a few months ago; CHSCP July 18 first call date is quickly approaching. I’m amazed at the lack of concern from holders at current price of $29.7 and lowest yield of the bunch. It’ll be interesting to see what happens.

    1. I hope the puppy gets called and my other two CHS preferred spike up to almost 30. That would be ideal. Then I would smash that like button and sell.

  4. Hi, June’s low CPI number of 3% may be a little misleading and lead many to think inflation will be under control soon. But the 3% is a year-over-year number so you have to go back to June’s 2022 and look at the CPI Index number there and compare it to today’s number to get a clearer picture of where inflation is heading the rest of this year. It doesn’t look good. The CPI Index numbers are available here: https://www.bls.gov/cpi/tables/supplemental-files/historical-cpi-u-202306.pdf

    What I see in the PDF is this:
    June 2022 index is 296.311
    June 2023 index is 305.109
    So using the formula ((June 2023 – June 2022)/.June 22) you get ((305.109 – 296.311)/296.311) = 2.97% or today’s 3% CPI number rounded.

    Today’s misleading low June CPI number can be seen if you do this. Setup a spreadsheet, enter the 2022 CPI index data in the PDF for the rest of the 2022 months, assume a 0.3% month-over-month inflation that today’s reports show occurred in June and using the formula above, you can calculate the expected monthly CPI number for the rest of this year at the 0.3% month-over-month increase. If you do that, you’ll see the CPI numbers from June 2022 to Dec 2022 are mostly decreasing. And the expected December 2023 CPI will jump back up to 4.7%. which is quite a bit higher than today’s 3% CPI number. So the Fed will likely increase interest rates to try and get that 0.3% month-over-month lower. But even if they can get it to drop to 0.2% for the rest of this year’s months, the expected CPI number in December will still jump to 4%.

  5. I have a pretty good amount in CDs and treasuries maturing in the next 25 days so looking to load up somewhere myself.

    1. yazzer – I would like to load up, but I am trying time it ‘perfect’ (fat chance of that).

    2. I started a 4 month CD/Treasury ladder last fall at 3.80%. So far, it’s worked out well and I have been able to incrementally increase the yield with a current high yield of 5.35%. With a decent amount maturing in the next few weeks. I’m on the fence about longer duration. maybe I’ll flip a coin.

      A bigger problem is that I have some appreciated preferreds and I can’t find anything worth swapping into. So I guess I’ll just hold and wait for some price dislocations. Would be nice to see some volatility again.

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