Monday was a chaotic day for many traders and investors. Due to news out of China, the market had one of its worst days in recent memory. The Dow Jones collapsed, dropping roughly 1,000 points in a day’s time.
At the same time, many investors, sensing that the long-feared bear market was finally near, looked long term. The yield on 10-year Treasury notes dropped to 1.595 percent, the lowest since Fall of 2016. The yield on 30-year notes fell to around 2.12 percent, also close to 2016 lows, which were record lows at the time.
The assumption is simple: if stocks aren’t safe, bonds are. Investors think, “if I’m not going to make money on the stock market, at least I won’t lose it if I place my savings in bonds.” But the panicked rush to turn to such bonds collapsed the yield curve. Bonds yield more with lower demand, so naturally, such a mass emigration caused much lower yield.
A Better Opportunity
But some analysts believe that yields are not the smartest longterm investment strategy. Steven DeSanctis, a Jeffries’ strategist, explained that there may be a better market: real estate.
“For the first time in my career, we are moving to an Overweight on Real Estate, as interest rates around the globe are NOT going anywhere and US rates are tethered to the global markets and thus heading lower.”
What does this mean? it means that interest rates are not competitive with the value of real estate at the moment, meaning that investors can purchase real estate for less than its worth.
“Yes, valuations are expensive on an absolute and relative basis but again, with rates this low valuations for the group should be higher,” added DeSanctis.
What the investors do with the real estate is their own decision. But for many, renting housing properties could be a good alternative to low yield treasury notes, especially for those investors that are looking for additional income. Low yields damage the value of bonds. As a result, the return for the investor is diminished.
But with interest rates for real estate undervalued, investors can capitalize by turning capital into an income-generating investment. Real estate is a valuable part of any portfolio, but right now, it may be a particularly hidden gem.