Interest Rates Spike with Strong Employment

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The day is interestingly quiet after the very strong jobs report (including huge revisions in prior months). Whether you believe the number–or just take them with the large grain of salt, as we do, you have to be cognizent of the effects they have on interest rates.

The 10 year treasury jumped 10 basis points on the employment news which continues to signal rates have bottomed. REITs and utilities are taking a drubbing today as the potential interest rate bottom may also signal the end of the perpetual rally in these 2 segments. From this point forward capital gains in these areas will likely be much more difficult to attain.

Remember as we have learned over time it is not necessarily the directionof interest rates, but the velocity of the move that will determine the movements in income securities. A slow movement of 2, 4 or 4 basis points in a day will not be very meaningful–you lose a couple pennies on our holdings–over time it is meaningful, but since it is a slow drip interest and dividends received make it appear as if you have not lost much money–meaning seemingly less pain.

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So we are crossing out fingers that rates move at a measured pace which will allow one to sleep better at night. There are plenty of problems on a global basis that will make investing dicey for the year–so if rates move slowly it will simply make our life more bearable.

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