For Whom the Bell Tolls…It Tolls for Bonds?

Joseph Cioffi |

Ben Bernanke, Federal Reserve Chairman

There was much made about yesterday’s action, which is screaming to investors to pay attention. We had a Fed meeting where perhaps Ben Bernanke indicated (gently of course) that it might not be a bad idea to get out of bonds. And it seems the Federal Reserve Chief is willing to give bond investors a little time (but not a lot of time) to exit before one loses a ton of money.

Yields on the 10-Year Treasury notes rose yesterday to five-month highs and it was coupled with overall stock market broking out sharply higher. The Dow Jones Industrial Average is over 13000 with the NASDAQ over 3000 and the S&P 500 is closing in on 1400.

(Click to enlarge)

Notably absent from the run yesterday were MLPs, which closed down and we have several MLP leaders like Kinder Morgan Partners (KMP), Plains All American (PAA) and Sunoco Logistics (SXL) now decisively away from their recent all-time highs. It is nothing out of the ordinary so far but it is worth paying attention to when an 10-year interest-sensitive group, which has been a leader for a long time, begins to diverge away from the rest of the market.

10 Year Treasury Note Yield Index(Click to enlarge)

Alerian MLP Index(Click to enlarge)

The MLP index is sitting right on its rising moving average trend line and you can see above that the head winds at 410 on the index correspond rather nicely with the spike up in the 10-year. Now granted five days is not a long-term trend by any means. Until the 10-year yield breaks above 2.40 percent, which is the October 2011 high, this may be nothing more than noise. But if you buy the notion that the economy is improving and Europe’s problems are not going to cause huge problems, you have to wonder whether rates are poised to at least normalize.

That process could drive money out of MLPs and into other things. Food for thought here as something maybe changing in the long-term interest rate picture. Note that this is not saying that one should get out of MLPs. Longer-term MLPs remain solid investments and yields have some room to run up without causing serious damage. Also, don’t forget the headwinds around the world remain even though no one is paying attention to them at this time. Its just that we may be at the point where the bull market in MLPs, which has taken the index from 145 to 410 in three years may be poised to take a breather.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


Symbol Name Price Change % Volume
ARCX Arc Logistic Partners LP representing limited part 15.07 -0.22 -1.44 13,983
PAA Plains All American Pipeline L.P. 32.45 -0.19 -0.58 2,116,560
SXL Sunoco Logistics Partners LP representing limited 27.69 0.01 0.04 1,073,146


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