Bond yields took a break yesterday from their relentless four-month plunge. (A brisk 104-point rally in the Dow lured investors away from Treasuries and back into stocks.) So have interest rates finally bottomed for the year?
I’m not ready to bet on it quite yet, but we’re getting close. The 10-year Treasury note finished yesterday’s session at a yield of 2.64%, a huge 23% deviation (on the downside) from its 52-week trailing average. Today we’re still hovering around 2.60% intraday for the 10-year T note.
Over the past 20 years, less than 1% of the weekly readings have shown such a wide negative gap from the average. The principle of “reversion to the mean” tells us to expect the pendulum to swing sharply in the opposite direction soon.
Why not sell T-bonds short right now? Because a key piece of the puzzle is still missing. The stock market probably hasn’t seen its final low for the “correction” that began in late April.
With the economy in a no-man’s-land between inflation and deflation, what’s good for stocks is bad for bonds, and vice versa. It looks as if the stock market is embarking, at the moment, on a little technical rally that could last a few more days, perhaps into next week.
After the rally burns out, concerns about the health and longevity of the economic recovery will again push their way to the front of investors’ minds. That, in turn, will drive bond yields back down — probably to “the” low for the year.
When it happens, investors should be looking to go short on bonds via the exchange-traded PowerShares UltraShort 20+ Year Treasury Fund (NYSE: TBT). But the time isn’t now.
Meanwhile, I’ve got a superb income opportunity for you that pays more than triple what you could earn on a 10-year T-note. Broker Bob Condon has located a block of Corporate Property Associates 14, a non-publicly-traded real estate investment trust that owns institutional-quality office buildings, warehouses, industrial facilities and shopping centers.
Like the other CPA programs I’ve recommended over the years, CPA 14 leases its properties for the long term on a triple-net basis, which means the tenant is responsible for insurance, taxes and maintenance. This structure, together with the Carey organization’s rigorous screening of tenants, has historically kept default rates low.
Over its 12-year lifespan, CPA 14 has never cut a dividend. (For the complete record, click here.) Occupancy as of June 30 stood at 95%.
Thanks to Bob’s aggressive search, you can now buy CPA 14 units in the resale market at a juicy 8.3% yield, including his commission. Minimum purchase: $10,000. I’ll give you a few business days to place your order; then I’m going to place mine!
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