Move over Stocks……Fixed Income is the boss right now!

Yes…it is the summer doldrums….Yes….ALL MARKETS trade thin this time of the year…Yes…many of the big boys are at the Hampton’s or at least not present……However, the baton has been handed to the Fixed Income Market!

Fixed Income/Interest Rates take center stage

All eyes including ours are squarely focused on interest rates. Right now just as the equity markets have run up without much proof of economic steaming growth (or at least as much growth as the market is signaling), fixed income markets are doing the same, trudging higher in rates, lower in value on the possibility that QE may be tapered.

• Mortgage rates are climbing…..3 something percent 30 year rates are barely hanging around
• High Yield bonds have been taken to the woodshed (spanked handily)
• US 10 year treasury is being whipped around like crazy (again thin trading)
• Emerging Market bonds are feeling pressure
• Municipal bonds are sitting this one out…..not worry they will have their day

Bad news: Loses as rates climb (Lose less please)

In the short-term as rates climb pressure will be applied to the principal of those bonds…i.e.  As rates rise, actual bond values go down. As we have long said favoring short over long and higher quality over lower quality will HELP but not completely avoid losses in the very short-term.

Good News: Yields may relieve pressure on savers

Many may be saying “FINALLY” I can earn a yield/cash return on something safe….We may be approaching this moment. Let’s not get too excited, a more gradual and contained move is by far best, unfortunately, it does not always work this way, we will be watching closely….so far so good!

Have a Great Friday and a Super Weekend!

John Kvale

PS Oh yea…Don’t forget to enjoy another wonderful summer weekend!