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Thursday, August 18, 2011


The 10 year yield has broken down to new lows for the move and now is poised to test the 2008 low of 2.02% and if that breaks then we will see a 1 handle on the 10 year. For those of you who have been asking what "1 handle means. Right now the first number on the 10 year rate is a 2. So we refer to that as a 2 handle. At 1.99% or lower than we would have a 1 handle. And did you ever in your life think you would see the day that the 10 year would yield under 2%? I say this remembering the day back in the early 1980s when the 30 year had a yield north of 14% and at the time it was the feeling by just about everyone that we would never see single digit yields ever again!

What are the implications for mlps? Well on the face of it the one handle on the 10 year only widens the yield spread which is a positive. However 2 things that may render that meaningless. First off is that the fall in yields comes with market stress and when your selling eventually you sell everything regardless. And secondly if the economy is going into recession, will MLPS continue to be able to grow distributions? I think they can unless we go into a deep recession. If you're of the camp that recession isn't happening than the table is being set for another buying opportunity. Frankly with the market this shakey, one should tread carefully and don't buy on the open.

Pre market action has EV Partners(EVEP) down 2, Kinder Morgan(KMP) is down 1.50 and Nustar (NS) is down 1.20. Look for mlps to gap down at the open along with the rest of the market. A retest of 10,600 looms ahead in my view though the MLP index may avoid retesting 310 for awhile since it had a much more impressive rally from last week's low.

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