If it isn’t one thing it’s another–always something.
So as income investors we watch interest rates–which are the primary driving force of share price movements. On the other hand both macro economic factors as well as company specific financials certainly have effects on preferreds and baby bond share prices.
This week we have had a sharp downward movement in interest rates. On Tuesday (Monday was a market holiday) the 10 year treasury closed at 3.31% which was 7 basis points above the close from the previous Friday–then the 10 year yield fell by 15 basis points on Wednesday and another 8 basis points today to close at about 3.07%. This close is 40 basis points under the high from the past month at 3.48%.
In theory with rates moving this much lower we should have seen a rally of some magnitude–but it was meager – about 1% thus far. It is obvious that fears of a recession and the resultant damage it would do to corporate profits is outweighing falling interest rates. Of course falling rates for a couple of days means little as it is highly likely they will pop back up soon.
Next week Wednesday we will have the PCE (personal consumption index) Inflation numbers for May released and it is said that the Fed pays attention to this inflation indicator more than any other. You can be certain that if this number comes in above expectations interest rates will re-inflate quickly.