Investors are demanding a higher and higher ‘reward’ for holding U.S. Treasury paper–right now the demand is for 4.74% on the 10 year treasury. All the talking heads on the business channel are flailing away trying to identify why rates are moving higher while the economy has ‘cracks’ in it. Honestly the cracks in the economy have not been deep yet–employment remains extremely strong, although maybe very slightly weaker, but to call employment weak is just silly. Let’s face it – with the amount of new ‘paper’ coming out of treasury why should rates be lower? Huge supply and lack of faith in the U.S. government to control spending–period-enough said.
Yesterday was a slightly painful day for income issues–even with a pretty large allocation to CDs and treasuries in our accounts it has been fairly difficult to gain much ground–lots of interest coming into the accounts, but the modest preferred and baby bond allocations are neutralizing the gains as they tick lower. At this point in time I am looking for CD rates to move higher–but now I am looking at the 6 and 9 month variety–the more time that passes and the higher rates move the more I want to make sure I have some dry powder available to buy at interest rate peaks (as if I can successfully identify that peak).
I posted info on a new baby bond from SWK Holdings yesterday–a very interesting company–specialty finance. This company started off as a software company back in the 1990’s–and slowly morphed into a specialty finance company. They own royalties rights in various drugs and make term loans in the health care sector. Very interesting company and if their financial statements are trustworthy their net income is somewhat lucrative. I have no interest at this point in time, but will study it further.
Continue to sit tight and see where we are headed–equities are soft this morning as rates rise–could be a very tough month.