MLPs are staging a bit of a recovery today after several days of losses amid rising interest...


MLPs are staging a bit of a recovery today after several days of losses amid rising interest rates, with key drivers Enterprise Products Partners (EPD +1.9%) and Kinder Morgan Partners (KMP +1.8%) showing the way. But as the move in longer yields was only about 60 basis points, 24/7's Jon Ogg shudders to think what could happen to MLP pricing if rates rose 150 or 250 bps.

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Comments (16)
  • Energysystems
    , contributor
    Comments (2086) | Send Message
     
    It'd be a buyers market for the fool's shares.
    6 Jun 2013, 02:40 PM Reply Like
  • moishep
    , contributor
    Comments (23) | Send Message
     
    The rollover in MLP's did not correlate directly with the move in yields. The move has had more to do with fear of the Fed "tapering".
    6 Jun 2013, 02:54 PM Reply Like
  • unclemike7849
    , contributor
    Comments (362) | Send Message
     
    Why would I shudder to see the 10 year treasury rise from 2% to 4.5%? I would still stick with the MLP's that I have that average over 7%.
    6 Jun 2013, 03:22 PM Reply Like
  • leftcoaster46
    , contributor
    Comments (35) | Send Message
     
    Do the MLP's not have their own fundamentals to justify their pricing levels or are they going to tank as the yield curve slowly changes?
    6 Jun 2013, 03:59 PM Reply Like
  • jack20
    , contributor
    Comments (498) | Send Message
     
    I agree with all these comments. Why in the world would you sell a growing MLP and buy a govt. bond?? But "fools and their money soon part" so sell sell so I can buy buy!
    6 Jun 2013, 04:13 PM Reply Like
  • deercreekvols
    , contributor
    Comments (9529) | Send Message
     
    Not a fan of Bonds.

     

    This "movement" to Bonds seems very orchestrated. Bonds fell out of favor for a reason. There are better places to park money, in my opinion.

     

    I am a fan of (EPD) and the REIT (HTA).
    6 Jun 2013, 04:42 PM Reply Like
  • peter623
    , contributor
    Comments (26) | Send Message
     
    Yields went up precisely because of the fear of Fed tapering.
    6 Jun 2013, 05:27 PM Reply Like
  • Groundhog666
    , contributor
    Comments (9) | Send Message
     
    I doubt treasuries will go to 4.5% overnight. You have got to watch all your investments
    6 Jun 2013, 05:29 PM Reply Like
  • eberkinc
    , contributor
    Comments (4) | Send Message
     
    Who, exactly do you suspect, are this week's sellers? There simply can't be enough individual investors to cause such a selloff in MLP's and other income vehicles. Shame on the institutions if it's them!
    6 Jun 2013, 05:29 PM Reply Like
  • jhollieb
    , contributor
    Comments (44) | Send Message
     
    Who said anything about a movement to bonds? Bonds got hit by the tapering talk more than any segment of the equity market. The price of bonds is directly correlated with interest rates.
    On the other hand, I do think MLPS, like REITs, utilities and some consumer stocks became overpriced and I took some profits in REITs and staples before the recent downtrend, but that was just rebalancing to keep my allocations among equity sectors in the percentages I want. The proceeds are in cash waiting for when prices get a little more justiifiable
    6 Jun 2013, 05:42 PM Reply Like
  • mironsa
    , contributor
    Comments (14) | Send Message
     
    I agree with Unclemike. Bonds will never return the 12+% for the year that my MLP portfolio produced. And incredible tax advantages. I must disagree with Jhollieb about an MLP becoming overpriced. You can always sell at a profit if you need the money. The only reason I hold any MLP is the yield, beta, % held by institutions, held in atleast 3 large ETFs (those guys are paid by the share holds to make decisions and they make them for me for free), and share price so that I can buy in multiples of 100. I gave up looking at and keeping charts when Cramer started talking about a chart with shoulders. A unit is overpriced when it only yields less than twice the 10 year bond. As Ebercink rightly points out the market for MLPs is so thin it's almost impossible for my broker to buy 500 shares from one source so there can't be many people selling. It must be institutions selling after the distribution date. Happens every 3 months.
    6 Jun 2013, 08:08 PM Reply Like
  • Songline
    , contributor
    Comments (7) | Send Message
     
    MLP's will no doubt have higher debt costs with increases in interest rates but keep in mind why rates are going up ( improving economy).
    I for one believe that oil and gas pipeline MLP's will continue to grow
    with the shale gas and oil boom.

     

    A balanced allocation is prudent.
    6 Jun 2013, 09:54 PM Reply Like
  • schek711
    , contributor
    Comments (12) | Send Message
     
    If someone could explain to me why people dived off of buildings (dumped KMP) because interest rates on 10 yr treasuries rose to 2.15% I would like to know. It's not as if Treasuries are "safe" with no risk of loss or 2.15% is somehow better than KMP's yield.

     

    Are KMP's contracts subject to reduction in rate /barrel with every change in rates? So why sell this stock unless the company's fundamentals go south.
    7 Jun 2013, 07:53 AM Reply Like
  • satyr
    , contributor
    Comments (1533) | Send Message
     
    There is no one right answer here. On the one hand, most MLP yields will be greater than Treasury yields for a very long time (or perhaps forever). So, if you are going to hold until your death, then none of this may matter to you. On the other hand, as Treasury yields rise, to the extent that MLP yields do not rise equally, there may be an outflow of funds from MLPs, which in turn will increase their yields. To the extent that anyone cares about capital appreciation, there could be some peril in owning MLPs under that scenario. Some would say that it is better to exit, then repurchase at a lower price. Furthermore, borrowing will become more expensive for MLPs, and hence the capital needed to make acquisitions. I think the larger/stronger MLPs will outperform the small fry once rates do begin to move higher as a result of QE winding down.

     

    I'm doing some very selective buying, but mostly holding and even hedging some positions with covered calls. Time will tell.
    8 Jun 2013, 01:13 AM Reply Like
  • jhollieb
    , contributor
    Comments (44) | Send Message
     
    The whole notion that you won't lose if you hold a high income producing asset, like bonds or MLPs to maturity or death is form over substance. Sure, if the market price of this asset goes down you won't realize a capital loss or reduced gain. But the fact is that as interest rates go up, had you sold the MLP when it became overvalued, the proceeds could be kept and used to purchase a higher yielding asset, like another MLP. Psychologically you may feel better that you didn't realize the loss or reduced gain, but the fact is you are financially worse off. It's what economists call opportunity cost.
    8 Jun 2013, 10:03 AM Reply Like
  • tomsum
    , contributor
    Comments (264) | Send Message
     
    Rising interest costs = rising expense for MLPs and Reits? Less left over to pay distributions?
    9 Jun 2013, 07:28 AM Reply Like
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