What will 2017 hold for income investors?
Let’s sort through the current hysteria regarding interest rates, Trump and inflation. Thanks to some first-level insanity, there are once again pockets of value that pay meaningful dividends of 6%, 7% or better.
And many have some price upside to boot! Why?
Because Rate Hikes Will Probably Disappoint
This time last year, the Fed was promising four rate hikes over the next twelve months. The “smart money” crowd (via Fed Funds futures prices) was betting on two. And both parties were too aggressive as we saw just one rate hike in 2016.
Today we have Yellen & Co promising three hikes in 2017, while the futures markets say just two:
The Smart Money Bets 2 Hikes in 2017
Given their track records, I’m inclined to take the “under” on both predictions. But it doesn’t really matter if we see one rate hike or two (or even three) next year.
The income investments I like best have already been discounted well in excess of their rate hike risk. I’ll highlight a few in a minute – but first, let’s address the long-term rate boogeyman, too.
The Long Bond Needs a Breather
The 10-year Treasury rate has nearly doubled off its summer lows. It pays 2.5% today and, quite frankly, needs a breather:
The 10-Year Yield Won’t “Go Parabolic”
When everyone believes long-term rates have nowhere to go but up, you know what happens – they drop. Get ready for a pullback that will surprise everyone.