MLPs: Yield Retreat No Holiday For MLPs

MLPs sold off after two straight positive weeks, as choppy, uncertain trading continues despite what appears to be certain strength in commodities. The interest rate on the U.S. 10 Year (down 55 basis points YTD) increased 13 basis points this week, spooking all yield-oriented investment.

Commodity price strength (and a lack of MLP equity offerings) helped MLPs outperform utilities, but not by much. MLPs are still trailing utilities YTD and over the last 12 months, even thought oil prices are up 34% this year.
The yield trade appears to be over. Utilities, as measured by the UTY index, declined for 10 straight days until a small uptick Friday. MLPs didn't participate as much in the yield trade when it was a positive thing, but got caught up in the negative unwind this week.
Clearly, the market is skittish ahead of the Presidential election next month and is looking for any reason to sell things that have worked. Donald Trump's latest implosion may be a short-term positive for the market, but it may also raise concern over the congressional balance post-election.
Commodity prices have rebounded, onshore drilling activity has returned, capital markets have thawed somewhat, and big M&A is happening. But there's always another boogeyman. Uncertainty on interest rates, winter weather, the extent of the implosion of the Republican Party and its impact on energy policy, etc.
It was a relief to see OPEC not screw up their latest meeting, it was a... Read more