So with another day of tumbling stock markets and concurrently falling interest rates we are finally starting to see a bit of a bite into preferreds and baby bonds.
The average price of a $25/share issue is off 12 cents this week thus far. This is just the overall negative sentiment starting to move even the income market a bit lower–nothing dramatic.
Obviously newer investors ask–with falling interest rates why are preferreds and baby bonds falling? In our opinion it is simple the negative sentiment overwhelming the logic of lower interest rates. Interest rates in general are only 1 piece of the pricing puzzle for these securities–and over a short period of time–a week or month–sentiment can easily overwhelm interest rates.
It will be interesting to see the outcome of the Chinese trade talks. I would bet a dollar that the tariffs scheduled to kick in tonight will be postponed because of “progress” in talks. If this happens both rates and stock markets will turn and head sharply higher.