Interest Rates Fall Under 1.80%

Over night the 10 year treasury yield moved lower to be trading at 1.78% right now (6 am central).

With turmoil in the equity markets the last thing we need at this particular moment is a giant spike in interest rates.

The increase in rates over the last 6 months has been at a pace that has made the pain in preferred stocks and baby bonds somewhat bearable. The average $25/share issue has fallen about 4% in the last year which is plenty –in particular with our current high inflation rates and with low coupons we are being hit with a double whammy.

I continue to hold baby bonds with short dated maturities and term preferreds which have performed very well in the current environment. Of course they have fallen in price but the reductions in share price is a fraction of the average perpetual preferred.

I expect when we get stability in the equity markets we will see interest rates move back into the 1.80%’s – on the way to 2%–I just hope it takes a month or two to get there.

9 thoughts on “Interest Rates Fall Under 1.80%”

  1. I see the big firms are forecasting 4 fed hikes. And 10 yr going over 2.25 and possibly up to 3.

    BUT…many are saying that when it’s done we will experience deflation!
    So the yield curve starts getting far more interesting. If we invert it’s almost always followed by lower rates across the curve…..and a sign of a recession. Ultra shorts are offering return free risk!!

    1. 4 rate hikes = recession or worse. Which could mean deflation offsetting a fraction of the the preceding inflation. But it won’t be pretty. Inflation or not depends on Fed policy, and to a lesser extent government policy, so anybody predicting without inside information is just guessing.

  2. Well…..SP500 hit the 200 day today, and it looks like it wants to keep dropping. I noticed it’s finally bringing down the higher rated preferreds now like T-C for example. Probably going to get a 20% correction and preferreds across the board under $24. Better cash out refinance your house and get ready to go all in.

      1. I like a PE of 17 for the S&P500 based on a conservative OEPS of 220-225 which is doable in a year or two even with a somewhat rocky economy. So the bottom is 3750. But I would probably start buying below 4000 in names I like. Quite the ways to go… lol. 20% from the top is not a bad call at all!

        I am not sure I should admit it but it was basic calculations like this that determined when I went in heavy during the covid crash. I think it was a PE of 15-16 I had during that time frame. I just used what I thought was a conservative OEPS for the next year and away I went.

      2. You never know when the bottom is in. For preferreds, pick a yield you like below the call price and start buying. If it goes even lower, great!…You get to buy more at even better prices. For the market buy the UPRO on the 50 day, 100 day and 200 day, then wait for a new high to sell. If it ever breaks below the 200 day like now, assume it’s time for global panic and get ready to buy big as it keeps falling. Eventually, you’ll have a huge position dollar averaged to a very low price, then hold and wait for the 300% return as the SP500 returns to new all time highs…like it has always done.

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