Monday Morning Kickoff

After a strong finish last week to the income security markets what will the week ahead bring us?

Last week was a shortened trading week because of Presidents day, but when the week did get underway on Tuesday it looked like interest rates would hold fairly firm in the 2.90% area. Wednesday brought the release of the FED minutes from January which sent the 10 year rate higher–to the mid 2.90’s based upon nothing new at all—no information that was not already known or believed. Thursday rates held firm in the lower 2.90’s. Friday saw rates fall into the 2.85% area before finally closing at 2.87%. All of this 10 basis point range movement was based on no new economic information, but rates (and traders) will drive prices around anytime it suits them.

This week we see the 2nd estimate of 4th quarter GDP on Wednesday and this is not likely to be a market mover as it is likely to be just a tiny bit plus or minus from the previous estimate and barring a total screw-up this won’t be a mover. On Tuesday the Durable Goods Order report is released, Wednesday is the Chicago Purchasing Managers index (PMI) and on Thursday we have Personal Income and Outlays report and the ISM Manufacturing Index. None of these items has historically moved markets–but who knows.

Fed Chair Jerome Powell will be testifying to the house and senate this week on Tuesday and Thursday and this has some potential to move markets if he testifies to congress in a manner that conveys information that is contrary to popular belief.

With the fall in the 10 year treasury yield on Friday of last week prices bounced in the income market. The average price of a preferred share moved up by 12 cents to $24.99/share and there are now 204 issues priced under $25/share compared to 212 last week. REITs moved higher the end of the week and the beaten down issues, such as KIMCO (NYSE:KMI) move nicely higher off of very low levels.

We only had 1 new issue last week and that was from tiny, newer insurance company 1347 Property Insurance Holdings (NASDAQ:PIH). The new 8% cumulative preferred is supposed to be trading now but we can find no evidence of actual trades taking place. This is one which much be checked very closely by potential investors before deciding to take a position as PIH is a very small company with limited operating history.

We made purchases in both the High Yield Income Portfolio as well as the Medium Duration Income Portfolio last week.  The High Yield Portfolio is at 54% invested while the Medium Duration Portfolio is at 77% invested.We will add to the High Yield Model this week, but likely will hold off on the Medium Duration Portfolio.  We will begin earning some dividends and interest in these portfolios in March which will help to alleviate losses caused by higher interest rates.

Also this week we will have our fixed-to-floating rate preferred table posted.  In conjunction with short/medium maturity securities, fixed-to-floating rate issues are where we think the best values lie–or at least where investors need to look to combat rising interest rates.