NOTE–the CPI has been announced today with a soft number of .1% increase versus an expected .2%. This should be of some help to interest rates for today and tomorrow.
Again we will be out of the office 50% of the day today and will miss the excitement in the stock market-but we don’t care as thus far we have escaped much damage and with the 10 year treasury falling in yield since late yesterday we do not see us doing any buying right in here.
The 10 year treasury auction yesterday was “tepid” and for a short time after the auction the 10 year spiked up toward 3.25%–then cooler heads prevailed and it tumbled to close the day around 3.18%.
Even though we will be out of the office we have all of our watch list on the iPhone–and that list is all term preferreds and short maturity baby bonds. It is highly likely too early to consider a major move into investment grade issues. The current yields of the investment grade preferreds are 1/2% higher than a few weeks ago and most are yielding around 5.75%–we want 7%–or something around there from an investment grade perpetual. We aren’t being greedy–but with a perpetual security there is plenty of interest rate risk and we want to be paid for the risk.
We actually do own a few investment grade preferreds (even though we know it is too early to buy them)–in spite of the knowledge of how they act when interest rates rise. We will write further on them as soon as we have a chance, but they are maybe 1% of our holdings. In the past we have written about buying something ‘experimentally’–and that is what we have done on a few hundred shares of various issues–1st hand knowledge on exactly how investment grade acts over the course of months and years.