Movements of the 10-year yield could be quite volatile despite technical indications of an easier phase. Although the Federal Funds Rate (FFR) is set to move higher, traders and market players are likely to battle it out based on views of whether the recessionary phase or soft patch persists versus those who think inflation is likely to spiral out of control. At present, the recessionary phase may stay the hand of the Fed.
Yields on the 10-year US treasuries have eased. Technically, the chart of the 10-year yield shows a series of lower highs and lower lows as the 10-year yield falls below supports and its moving averages. This weakness could be positive for interest-rate sensitive securities such as bonds, hybrid securities such as perpetual securities and, of course, S-REITs.
For S-REITs in particular, REITs with sound capital management strategies, diversified assets, diversified tenants, good tenant covenants, and strong and committed sponsors are likely to be the most resilient. At this point, traders and investors may be sector agnostic, as falling yields could lift the asset class. However, as with market structures, blue chips move ahead, and the equivalent of penny stocks could lag.
