Yesterday interest rates took a bit of a tumble, but overall preferreds and baby bonds didn’t move at all. Patience is required at this time to see increases in pricing.
As income investors we all want our holdings to move higher when rates move lower, but the truth is that price movement, in particular in the high quality, low coupon issues, takes time. We have had days where prices have moved sharply–one way or the other, but normally (on average) prices just move a nickel or dime per day.
Earlier this year as interest rates rose sharply we had large downward movements in prices/share and now we have had a nice 5-6% increase in prices in the last few months as interest rates have reversed to the current 3.40% level (on the 10 year treasury) from the 4.35% area. Now we may be at the point where interest rates move in the 3.30% to say 3.75% range. Movement within this range will produce limited movements in preferred stocks and baby bond prices—and that is fine with me. Locking in decent current yields and yields to maturity is going to pay huge rewards – over time — not by tomorrow, but next year and the year after.
So my point is to simply keep your nose to the grindstone – find a decent investment every week or two and then lock in that 6.5% yield on investment grade issues and hold it for years. Lock in that nice 7-8% yield on mid grade issues and hold them for years. The current yields and the yields to maturity (at 10-15% on many issues) can make you pretty wealthy.