What rate spike? One group of stocks is signaling lower bond yields 

Remember when investors were worried about rising rates?

The yield on the 10-year hit a five-week low on Friday, and the price action in a number of rate-sensitive stocks suggests even lower rates to come.

“Ultimately I think this is going to benefit the REITs side. We have sustainable growth in the economy right now and REITs are a great place to be,” Bill Baruch, president of Blue Line Futures, told CNBC’s “Trading Nation” on Friday.

Real estate investment trusts, or REITs, are highly sensitive to moves in bond markets and typically outperform when Treasury yields are low. Lower yields encourage more investors to turn to REITs for their high-dividend payouts.

“I do believe that rates peaked,” said Baruch. “I think there’s a big cap around 3 percent, 3.25 percent in the 10-year. Right now I think we could potentially be in a wave down in the 10-year to see about 2.6 percent.”

Yields on the 10-year Treasury hit 3.128 percent on May 18, their highest level since July 2011. The yield on the 10-year has not traded above 3 percent since late May. Prices and yields move inversely.

Bond yields had spiked earlier in the year on expectations for a Federal Reserve more aggressively hiking rates. Those expectations now come with an asterisk – members appear willing to increase rates to temper inflation, but have raised concern over the economic impact of President Donald Trump’s trade policies.

Aside from rates, REITs should also get a bump from the GOP tax cuts which passed in late 2017, said Gina Sanchez, CEO of Chantico Global.

“You have to consider REITs are pass-through businesses so they’re going to benefit from the recent tax cut,” Sanchez said on Friday’s “Trading Nation.” "If you’re a REIT investor you can now deduct 20 percent of that dividend income and that’s why most people invest in REITs, because of that dividend income.”

Baruch sees the VNQ Vanguard real estate ETF getting the biggest windfall from a run to REITs.

“I think there’s another 3 percent to the upside,” Baruch said. “A lot of momentum behind it right now. It broke out above a previous consolidation pattern at the end of June and now it’s steadily above the 100-week moving average.”

The VNQ ETF closed out Friday with a weekly gain of 1.9 percent, its best in a month. The S&P 500’s REITs industry group is up nearly 8 percent in the past three months.

Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more