Interest Rates Drop on European Weakness

After breeching the 2.70% the 10 year treasury has fallen again below the mark today with a drop of 5-6 basis points to trade right at 2.64% (this moment). The fall in the DJIA of about 250 points follows on the announcement by the European Central Bank (ECB) that they will not raise interest rates as the economy is slowing in Europe (no kidding). The ECB also announced another ‘cheap money’ scheme for banks to help encourage lending.

I think with this announcement and what is broadly forecast to be a weak 1st quarter in the U.S., with the Atlanta FED now forecasting .5% growth according to the GDPNow (not an official forecast–but just the same it is taken as an indicator) we are close to predicting no interest rate hikes for the year (we currently predicted 1/4% hike in June).

We are awaiting the “official” employment report tomorrow to see if it follows on the ADP employment report which was released yesterday and showed 183,000 new jobs being created. The forecast for tomorrows official number is for 175,000 new jobs being created.

Preferred stocks are off a little today–even with lower interest rates–kind of a mini fear trade looks to be occurring. I don’t think that the lower prices are meaningful–unless you own Chicken Soup for The Soul 9.75% preferred (NASDAQ:CSSEP) which has fallen $1.50 in the last 2 days. I do note that there a many more preferred falling in price today than there is rising – about 2 to 1. Maybe we will get a little bit of a buying opportunity after the sharp run ups in the last 2 months.

6 thoughts on “Interest Rates Drop on European Weakness”

  1. Anyone notice that 8.75% coupon (SPKEP) Spark Energy preferred slowwwwwly heading higher? It is currently yielding a whopping 9.43% and going EX 3/29 0.546875 cents per quarter. I may take a shot moving into the EX date to capture. I bought a HUGE slug of 8..625% coupon XAN.C (also going EX later this month) as this preferred has a nice base of $25 and I’ve “played” dividend capture here many many times. My “normal” flippers for the last few years have been common utilities into their EX dates. Wishing you profitable investing, Nomad

    1. I own SPKEP in taxable accounts. Always looking for QDI preferreds with big coupons. Bought in early Feb @ $22.75

      Looking to hold as long as they continue to pay a dividend on the common. They cut the dividend in half last year, so more room to pay the preferred.
      I wouldn’t go near the common.

      Also own XAN.C in large quantities. Have had it and it’s sister preferreds (now called) all the way back in the RSO days. Sec199A eligible, making it even more attractive. Buy and hold for me on this one. Management has really turned this company around.

  2. May be a little more than “weakness” and the volatility in preferreds may show itself again.

  3. I noticed the weakness in Preferreds today, and was wondering what you wrote – why would the income sector go down when outlook for rising rates is getting weaker, both here & internationally?

    Perhaps there will be a bounce back when the employment report comes out tomorrow.

    Just market irrationality. Oh well.

    Looking to buy some of the new NEE issue – if I can get below par that would be just great.

    1. inspbudget–that new NEE issue is a pretty darned good coupon for the quality of the issue. I may get a little for the ‘sock drawer’.

      1. Tim, let us know the ticker when it is announced. I’m thinking it would trade above par right from the onset, so got to figure out what price level is appropriate.

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