Do Rising Interest Rates Put Investors Behind the Curve? It Ain’t Necessarily So.

Sheaff Brock | rising interest rates | Dave Gilreath Sheaff Brock | income-bearing investment strategies | REITs | Preferred Stocks

Do Rising Interest Rates Put Investors Behind the Curve? It Ain’t Necessarily So.

Rates are rising. They will likely keep rising; accept that and adjust, is the message astute investors should be receiving. Rates are rising. They will likely keep rising; accept that and adjust, is the message astute investors should be receiving.

When we compare the rates on U.S. Treasury bonds now to those of one year ago, Sheaff Brock Managing Director Dave Gilreath observes, at every maturity, rates are higher now by 60 to 95 basis points. Actually, he adds, U.S. 10-year yields have closed higher each year for three consecutive years. That’s no Cassandra-like warning to investors. It simply means our economy is moving steadily along, with a recession unlikely in any near-term time frame, in his opinion.

What rising rates have meant is this: As the rate curve slope has moved upwards, high-quality, long-term bond prices have gone the opposite way. Over the past twelve months the 20+ year Treasury Bond ETF is down more than 9%. Conversely, preferred stocks, although those qualify as fixed income investments, have benefitted from the rising economy: the iShares U.S. Preferred ETF gained slightly over 4%.

History tends to repeat itself, Gilreath muses. Back in 2010 (have seven years really gone by that quickly?) Financial Times had this to say to investors after rates on government bonds had jumped: “Alas for the panic-mongers … What is happening is a move towards normalisation. That is excellent news. What is astonishing is not that rates are rising, but how low they remain.”

In addition to this lesson from the past, investors might look across our northern border, where investor panic caused by Bank of Canada’s first rate hike in seven years is being soothed: “Low rates will be here for a long time to come. Neither our government nor Canadian consumers can afford too much of an increase too fast—they are both in far too much debt.”

So what’s the next move for income-hungry investors in a rising-rate climate? Several income-bearing strategies, as Sheaff Brock’s Gilreath points out, can actually benefit from an improving economy, including:

Do rising interest rates put investors behind the curve? It ain’t necessary so!

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