Preferred Share Strategies – Earnings: PEY, IPL, TRP, ENB, EEP
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Last week's 25 basis point notch up in the US Central Bank rate was not accompanied by similar increases in 10 and 30 year US benchmark bonds. The 10 year declined from 2.20% to 2.15%, the 30 year version to 2.78% from 2.86%. It was short term rates that moved higher, indicating the US central bank's enthusiasm for raising interest rates is not a long term situation.
The US central bank is out on a limb intending to curtail the risk that improving employment data will spill over into inflation rates. The reason for their focus on employment data is it's the only piece of data to date, that supports any need to raise interest rates. The biggest contributor to inflation over the past decades had been rising energy costs, this has changed more than anyone had anticipated.
Central bank interest rate strategy at this juncture is more about gaining a comfort zone allowing more room to drop rates should a crisis appear. The outlook for interest rates is exceptionally important to investment values, including those held for both yield and capital appreciation. Central banks are now quick to talk about raising rates after cutting them over the past four decades, and more recently to recover from the Global Financial Crisis.
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