Tag Archives: Rising Interest Rates

Stunning Move in Interest Rates…..Can the Economy handle it? We think YES!

Two weeks ago we mentioned here in our “Move over Equities Fixed Income is the Boss” post that Equity/Stock markets have taken a back seat to Fixed/Bond/interest rates. Little did we know what was about to happen!

Interest Rates are in Total Control at the Moment

After Big Ben pulled the punchbowl  (which he really did not, only stated the obvious, that stimulus cannot go on forever) last week, investors have become fixated on rates, rightly so. Here is what the 10 year treasury looks like today (2.55% up a whopping .95% from just a few weeks ago.)

10 Year Yield 6-24-13

Can the US Economy take Higher Rates?

  • Higher borrowing costs
  • Higher Mortgage rates
  • Lower Profit Margins especially in heavily debt ridden companies

These are just a few examples of the effects of higher rates.

we think the economy can handle higher rates!

Our belief is that the economy, in more of a tortoise than a hare form, can handle the higher rates. IF RATES DO NOT GO TOO HIGH TOO FAST…..We will be closely watching the economic numbers but if correct, lower equity prices may present a more reasonable entry opportunity.

Break In: Did Bernanke have the Data?

I  write these posts a day or so in advance. With this week being very heavy on Economic numbers, inquiring minds want to know if Bernanke had the economic data from this week early as it has been very positive. No matter, an adjustment will be necessary by companies to accommodate the rate headwinds, again, we think we can do it!

Have a Great Day!

John Kvale

http://www.jkfinancialinc.com
http://www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225

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!Summer Weekend Beach

John Kvale

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

http://www.jkfinancialinc.com
http://www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225

Bonds Can Lose Money….Out for the rest of the week

Over the most recent weekend during several family, client, and friend gatherings, I had the opportunity to visit several times about investing….a recurring theme kept happening, such the article.

Bonds Can Lose Money

Multiple times over the weekend the subject of bonds not losing money arose. While there are few certainties in investing, if you hold a long-term bond AND interest rates rise, YOU WILL LOSE MONEY IF YOU SELL EARLY….Who really wants to lock in a 30 year bond at 3% today ?

These topics come up as everyone is beginning to search/stretch/reach for yield. DO NOT DO IT! It does not end well.stretch for money

We have no idea when exactly rates will rise or even if they will. If rates rise, and as an investor you are stretching for yield, you will very likely be hurt. When the music stops there may be a fight for the exits.

Safer Investing in Bonds Today

Here are a few keys to help keep losses to a minimum if rates rise. Even in this scenario, losses may occur, although they should be minimal.

  1. Stay in shorter terms (1-5 years, 7-10 MAX)
  2. Favor higher quality over lower
  3. Diversify (Corporate, Muni, Foreign)

On the Road Again

With a flight out tonight, I find myself out of the state and happily, lightly tethered via electronics. I will be back in the saddle in full force next Monday!

Have a great Day and rest of your week!

John Kvale

214-706-4300

http://www.jkfinancialinc.com

8222 Douglas Ave # 590
Dallas, TX 75225

5 Reasons Why Interest Rates Might Be Rising!

We have crowed often and repeatedly about the fear of rising rates only to see interest rates continue to fall. Suddenly, after QE2 was announced (reminder that QE2 is an attempt to lower rates by the FED making purchases of fixed instruments) rates began to rise.

Rising Interest Rates

 5 Reasons Rates Might be Rising?

No one knows for sure why rates are rising, as there are many hands that make up the prevailing interest rate pie, but here are a few possibilities in order of our most logical possibility, in our opinion only of course:

  1. With the announcement of QE2, investors feel the economy is going to grow and are pricing bonds appropriately.
  2. Rates have been abnormally low and are reverting to the mean.
  3. Investors, who have been pushing tremendous amounts of dollars into fixed income investments are finished with their allocation adjustments and may be moving into stocks.
  4. Foreign investors are not buying as much of our fixed income investments.
  5. Inflation is upon us and rates are rising in expectation of future inflation.

Our order has been carefully stated with much greater possibilities, in our opinion, of the early items than the later.

In closing, if you get the feel we are happy with rates rising slightly, you are correct. However, we do not wish for a sudden rate increase, rather an adjustment like seasonal changes, gradual back and forth but in a higher direction. 

Have a Great Day!

JK