Interest Rates Jump, Income Issues Fall

The 10 year treasury jumped by 10-12 basis points today, while REIT’s, preferreds and closed end funds took a bit of a tumble.  The fall in these securities was mild compared to what could have happened. One never knows from month to month how markets will react to rising rates so todays 1/2% loss in many income securities was a pretty mild reaction. Whether rates head up or down from here is anyones guess, but don’t be surprised if we get a more severe reaction to any further interest rates jumps.

So with rates appearing to head higher we have to ask–are you prepared? For those that are not concerned with capital preservation maybe there is not much to do to be ready for higher rates. For others (like us) we prepared by positioning a good share of our funds in shorter duration debt issues. This paid off really nice today as we gave up only 1/10% in all of the portfolios–and we can handle that level of losses.

At this moment we would resist committing new money to REIT’s, perpetual preferreds and most closed end funds. Likely REIT’s will head higher again soon, but at this point in time they are showing weakness with the higher interest rates.