Interest Rates Plunge and Quality Issues Rein

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Interest rates, as measured by the 10-year Treasury Note, have plunged to their lowest level in more than three years and now are trading for about 1.59%. Gold prices are spiking sharply with the yellow metal up more than $40 an ounce. Fear is rampant through the markets.

As we have mentioned numerous times in the last few months, quality preferred stocks and baby bonds have been performing the best as investors are fearful of the slowing economy and potential financial stress on the lower quality issues. We have received notes from readers because some of the junkier baby bonds (for instance the JMP Group baby bonds) have fallen off.

Investors understandably are concerned there are company specific reasons for the fall. We hold some of these less-than-investment grade issues and continue to do so as we see no real reason, at this point in time, to panic and sell out. The economy is muddling through and the issues we hold, while taking some hits, will eventually bounce back and probably do so this year.

Investors should not panic, but should NOT be buying low quality issues at this time. There will be a time for picking up some more bargains, but we don’t think that time is here yet.

Recall we picked up some issues that others sold in a panic (Ashford Hospitality preferred (NYSE:AHT-E), Prospect Capital baby bonds (NYSE:PBB) and Gladstone Capital term preferreds (NASDAQ:GLADO), but we will likely refrain from the bargain buys now until the markets stabilize a bit.

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