NEW YORK ( ETF Expert) -- The 10-year Treasury flirted with a yield of 2.75% as recently as last week. That was before Federal Reserve Chairman Ben Bernanke did the Texas Two Step, clarifying the central bank's intention to suppress interest rates for an extended period.
Bernanke's habituated partner in the rate dance? The yield-hungry investor who is addicted to low investment grade yields in order to profit from ownership in high yield (junk) bonds, preferred shares as well as real estate investment trusts.
Now that Bernanke is emphasizing easy money for the foreseeable future, the 10-year is back down around the 2.5% level. This has offered market participants the opportunity to bid up the price on their favorite income producers once again. In particular, REIT ETFs have been attracting the lion's share of enthusiasm.
|REIT ETFs After the Pullback In 10-Year Yields|
|Approx 5-Day %|
|iShares FTSE Mortgage REIT (REM)||4.8%|
|PowerShares KBW Premium Yield Equity REIT (KBWY)||3.3%|
|iShares FTSE Retail REIT (RTL)||3.0%|
|iShares FTSE Residential REIT (REZ)||3.0%|
|First Trust S&P REIT (FRI)||2.9%|
|SPDR Dow Jones REIT (RWR)||2.8%|
|Vanguard REIT (VNQ)||2.7%|
|S&P 500 SPDR Trust (SPY)||1.7%|
Another way to look at momentum in REITs is through a price ratio. For instance, the SPDR DJ Wilshire REIT (RWR): S&P 500 price ratio shows REITs bottoming out near June 21, when Ben Bernanke last stood by the notion that monetary stimulus would be reined in by the end of 2013. The S&P 500 logged its worst drop in roughly 18 months in that trading session. Shortly thereafter, however, weaker-than-expected GDP data as well as hints from other Fed officials began casting doubt on a Fed tapering.Ever since, funds like RWR and PowerShares KBW Premium Yield Equity REIT (KBWY) have had price momentum in their favor. Another reason for optimism that the REIT recovery will hold is the asset grouping's ability to hold above a 200-day trendline. For example, First Trust S&P REIT (FRI) fell below its long-term moving average in June, but reclaimed an uptrend a few trading days later. FRI has held onto that uptrend for three weeks already, currently residing 6% above its 200-day moving average. Virtually all of the different REIT subcategories have responded positively to the Fed's change of heart as well as the pullback in the 10-year yield; retail, residential and high-yield equity have rebounded as robustly as the broader asset class. The one exception? Mortgage REITs. Funds like iShares FTSE Mortgage REIT (REM) and Market Vectors Mortgage REIT Income (MORT) are still coping with the possibility that short-term borrowing costs have already risen too high, damaging the spread between those costs and mortgage debt. What's more, the value of the mortgage bonds in current portfolios may have declined substantially, requiring many companies to cut their lucrative dividends. Follow @etfexpert This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV