Treasury Rate Breakout Reflects on Utilities
Carlos X. Alexandre submits:cDespite the confusing unemployment numbers — a huge drop in the rate coupled with the extremely low number in new jobs created — 10-year treasury rates catapulted past the 3.5% level to close Friday, February 4 at 3.65% after spending the better part of the last two months between 3.25% and 3.5%. The ramifications as far as housing, bonds, and precious metals are concerned are obvious, but there’s one other element that is often overlooked. As the market spent a quiet day, literally going nowhere for most of last Friday, the same wasn’t true regarding the Dow Jones Utilities Index, which is available as an ETF, the iShares Dow Jones U.S. Utilities Fund (IDU).As one looks at the chart for the 10-Year Treasury rate, the increase between October 2010 and December 2010 was swift, yet it didn’t completely derail the DJU — although a pull back took place — because the rate was still below the great majority of dividend yields sported by the individual stocks in the index. In the last three days, the rate moved up 20 basis points and is now starting to erode the dividend advantage of utility stocks. In addition, utility companies are among the most capital intensive industries and higher rates will pressure their profitability.
SymbolNameClose on 2/4/11Change Dividend YieldAEPAmerican Electric Power Company35.62(0.56%)5.17%AESThe AES Corporation12.42(1.11%)N/ACNPCenterPoint Energy, Inc16.14(0.12%)4.89%DDominion Resources, Inc. Common43.61(0.18%)4.52%Complete Story »
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