Well the 10 year treasury yield keeps popping with the current yield reaching 1.75% before closing the day at 1.73%.
Preferred stocks fell about 1/2% with some of the higher quality issues moving lower by 1%.
Obviously investors believe there is inflation around the corner and fear the Fed, who seems determined to let inflation rise without intervention, is a bit wacky. If we do see inflation at what point will the Fed act? No one has the answer, of course, and I no longer seriously attempt to forecast these things—just doesn’t pay.
It is interesting to watch the yield curve–obviously steepening. 1 month notes are now at 1 basis point–which is down from 3-4 basis points early in March–while the 10 year has risen from 1.45% to 1.73%. Bankers have to be loving the curve.
My next move here is to identify those high quality issues which are getting ‘beaten up’ with the increase of interest rates and likely buy a few of them–I’ll need to wait a few days and see if we are going to get a day or two pause in increased rates. I love quality issues–normally, but I don’t want to go crazy at this time. The better ‘junk’ issues work better here so I continue to hold those issues that are mid quality (not investment grade, but perceived to be solid).
I think the key to your comment is being on the lookout to upgrade the portfolio. Junk has significantly outperformed investment grade, I’m watching my high-yield YTC’s and looking to swap into higher quality. Not much yet, but we’re getting closer.
The second half of last year I bought a lot of leap calls on the big banks. Right now they are looking terrific as the banks love a positive yield curve. I’ve been selling some of them, but holding on to most as I think it might still be awhile until the Fed steps in to cap the longer rates. But—who knows? Not me, that’s for sure. At the same time, as preferred rates go higher recently, I’ve been using my high cash position to buy some preferred issues and not waiting for rates to go a lot higher. It’s such a guessing game.
Where do you trade the LEAPS?
Schwab
Call me when JPM/D hits 25. 🙂
Me think business channel acts like we are a week away from a 10% yr, geez.
Step back and look at 10 year from 1980. We are still in secular decline, we really need to pop 3% to say we are out of the secular down trend.
For goodness sakes we have liquid 4.5% issues still above par. Nothing has happened yet. Most preferreds I track without side issues are higher than they were a few weeks ago.
That being said, I am not in any liquid 4%-5% issues and havent for a great amount of time. Its been a great year so far, so steady as she goes. Tweak and adjust on the fly and stay one step ahead of the posse.
Grid, I show 95 issues that did not trade today. In addition, there were 8 that traded less than 100 share today. Total of 103, several of which are on the Grid list IIRC. No price deterioration on these. . .
Tex, if they aint tradein’ they aint droppin’ that is what I think, ha.
Since I am too dumb to create a spreadsheet I use a Yahoo plug and play version. I usually own about 30 preferreds but appears I have become a bit concentrated with 24. Anyhow 8 of mine didnt trade today. That was like making money today in my book because only 2 were actually up today.
Mark Grant has comment on this ( and the bonfides – professionally, FWIW):
https://seekingalpha.com/article/4414740-fed-not-tough-enough?mail_subject=mark-j-grant-not-tough-enough&utm_campaign=rta-author-article&utm_content=link-1&utm_medium=email&utm_source=seeking_alpha
Mark Grant seems to be missing the obvious. He leads with, “If the Fed wants to hold yields down, they will have to actually do something.”
The obvious: The Fed is not trying too hard to hold long-term yields down. And why should they? People complain when the Fed lowers rates and then other people complain when they let them go back up. Someone is always complaining.
Medium quality preferreds paying in the 7% range or more didn’t fall much. Some bounced back to even for the day.
I still think yield curve control is coming. “They” need political cover to do it, so letting the 10 year rate rise can lead to the panic they need for people like Cramer and politicians to beg them the Fed to “save” us again with yield curve control. The dip in price of high-quality preferreds and baby bonds that sell off as the 10 year goes up may be the last buying opportunity for decent yields in the next few years if indeed they do implement yield curve control or another operation twist. Everyone should be preparing their watch lists!
RJZ – I agree 99%. The Fed has it in its head that interest rates will not be market determined but Fed determined. Trump had to brow beat the Fed to get lower interest rates but no such action will be necessary given the present political alignment.
Operation Twist III is coming; it’s just a matter of what the trigger point will be. My instincts tell me 2.5% on the 10 year but my crystal ball is lousy.
The risks inherent in Fed determined rates are tremendous. The U.S. is not immune to the laws of economics.