The rally in prices here seems to be occurring for a number of reasons. First off it began on the last days of Q2 so apparently there is some new money coming in here attracted to 6 percent yields. The second could be anticipation of another round of distribution increases, which of course is what MLPs are really all about. Just keep the distributable cash flow growing and keep the payout ratios above 1.10 to 1. Third could be what appears to be a bottom in natural gas prices at $2.00 and the rally back to the old wall of $3.
But I believe the most important reason is what we see happening in the 10-year yield, which is at 1.46 percent and has threatened to break below that level.
The wrong trade for years now has been to short bonds. And every time we come to a point where yields just can’t seem to go lower..they do. The 10 year is signaling deflation in my opinion and if u have an asset throwing out wads of cash, it becomes that much more valuable. So we have a pile on in anything that has significant yield. Defensive issues are making new 52-week highs. So MLPs with yield spreads holding around 450 -500 basis points continue to draw attention. Still one has to wonder at some point whether this pile on will come to an end as the economy continues to sputter. Can MLPs continue to grow distributions ifdemand is shrinking globally? All food for thought as the summer rolls on with hot days, warm nights, and most traders trying to keep their heads above water in their swimming pools.