The S&P500 traded in a range of 3065 to 3097 before closing around 3093–a gain of just less than 1%. At this time all news is good news–at least this is what equity markets indicate—party on I guess.
The 10 year treasury traded in a range of 1.75% to 1.97% before closing at 1.93%. We have seen rising rates knock preferreds and baby bonds down a bit so it will be interesting to watch rates this week. Every year, for the last 4 years, we have seen income issues sell off hard at some point between November and February so it wouldn’t be surprising to see that happen again–maybe we will get a chance to buy some quality issues at lower prices.
The Federal Reserve balance sheet grew again last week, this time by a hefty $20 billion–the balance sheet is now solidly over $4 trillion–$300 billion higher in the last 10 weeks.
Last week we had 4 new income issues.
Insurer Allstate (ALL) priced a new non cumulative perpetual preferred with a paltry 4.75% coupon. The issue is trading under the OTC Grey market ticker ASTLZ. The issue closed the week at $24.77. The issue is investment grade.
Storage giant Public Storage (PSA) sold a new issue of cumulative, perpetual preferred stock with a 4.70% coupon. The issue is trading under the OTC temporary ticker of PBLSZ and closed on Friday at $24.83. PSA preferreds are the highest rated preferreds available with a A3 rating from Moodys and BBB+ from S&P.
SynchronyFinancial (SYF) sold a non cumulative preferred issue with a coupon of 5.625%. Now trading under OTC Grey market ticker SNFI the closing price last Friday was $25.03.
CIT Group (CIT) sold an issue of non cumulative preferred stock with a coupon of 5.625%. The B+ (junk) rated issue closed last week at $24.93.
Unlike previous new issue the current batch are having trouble gaining traction–if interest rates hang in the 1.90% area we likely won’t see too much movement upward in the low coupon issues. Remember, while stocks will trade on Monday, bond markets will be closed.
I see that Chad has been making some changes this morning–we had met yesterday for discussion on some changes. To see the changes you may have to clear your cache.
Some changes are not meaningful to functionality (such as the blue colors instead of green), while others are changes that I hope help the function.
You will see that when I post a link now most of them should show up underlined – like websites of old. The problem I had before is I could only bold a link–then you couldn’t tell if it was a link or simply something that needed emphasis and thus was bold.
Some other changes you will see are on the security detail page—here. Chad will add a ‘variable’ option under the ‘qualified’ box–this will be helpful for the CEF preferreds for instance which are may be qualifed or not.
Additionally we will add a 1009/K-1 box on the security page–just to clarify.
There will be other changes–but I won’t mention them, because maybe they aren’t even possible–sometimes I want changes that can’t be done (old sucker that I am).
Early Retirement Advisor (AKA kaptain lou) has penned a new article of Seeking Alpha.
ERA had previously brought us the U-haul Investors Club which we have written on in the past here–disclosure–we (wife and I have IRA accounts with U-Haul).
In the new article ERA covers a couple of alternative investments to money markets and CDs. I have not personally looked at all the details of these alternatives, but I will be checking them out closer.
I note a number of people are talking on the site in various spots about interest rates–more specifically about the 10 year treasury pop.
Today the 10 year traded as high as about 1.97% before settling in the 1.93% area. The question is where are we going with these interest rates–sure seems like they want to challenge 2%–we’ll see.
I think what is best known by us that have been investing in preferreds for many years is that the high quality, low coupon issues are most likely to fall the most when rates rise. Certainly they haven’t gotten any love this week.
Some of the newer high quality, low coupon issues have backed off quite a bit this week. We had been used to these issues rising in spite of their dreadfully low coupons–not the case this week
The new PS Business Parks 4.875% (PSB-Z) perpetual which was sold on 10/24/2019 and traded as high as $25.10 has moved lower and now on the NYSE traded as low as $24.46 today before closing at $24.57.
The Northern Trust 4.70% perpetual (OTC Grey NTREL) held up better closing today at $25.10–and has traded only as high as $25.25–it remains on the OTC Grey market so we will see what happens when it moves to the NASDAQ.
The new Allstate 4.75% perpetual (OTC Grey ASTLZ) which only began trading 5 days ago has not reached $25 yet–closing today at $24.77.
The Public Storage (PSA) 4.875% issue sold in September was at $26.50 20 days ago–now it is at $25.60–whoops it got a bit ahead of itself.
Of course there are other examples–and I personally experienced small losses this week–very small–but losses just the same. I don’t hold the sub 5% issues, but holdings some CEF preferreds I am susceptible to some give back.
I would be surprised to see rates rise too much more–but only 6 weeks ago we were in the 1.5% area–and I wouldn’t have expected a 40 basis point rise then either.
Ag land REIT Gladstone Land (LAND) has announced earnings. The company has certainly been acquiring plenty of new farms in the last year. The company appears to be essentially covering their common stock dividend–but that is all I would expect.
LAND has a 6.375% term preferred outstanding of which I hold in a couple accounts. It trades up near $26 and is now callable. Obviously since it is trading at a fairly large premium I don’t think it will be called–but may have to rethink it having a full position–don’t want to be called a snoozer.
REIT Arbor Realty (ABR) has sold another fairly low coupon private placement convertible note issue at 4.75%. Over the years the high yield debt and preferreds from ABR have been favorites of income investors as the company has improved financials dramatically over the last 10 years.
We note this ABR sale because sooner or later they are going to ‘refi’ their high yield preferreds and one should be aware of the coupon the company can secure. With coupons of 7.75% to 8.50% on the preferreds these are ripe for redemption. The 3 issues outstanding total only around 3.5 million shares and all are redeemable. For now the company seems content to keep paying yield yields in exchange for the perpetual nature of the shares.
While we do not cover ‘equity units’ (in this case a 10% share of a $1000 convertible preferred and a purchase contract) at this time it is interesting to note that Stanley Black and Decker (SWK) is selling an offering of $100 equity units.
The interest in this issue is that again we have some snoozers as the company has stated their intent to call the SWJ 5.75% Jr Sub Debentures which have been callable for 2 years.
This time holders only got nicked for 50 or 60 cents. If this were a week ago they would have got hit for near a buck.
Once again the lesson is that if you hold an investment grade (especially investment grade issues with coupons over 5%) you need to be watching closely.
Thank to mcg and 2whiteroses for pointing this one out.
Synchrony Financial (SYF) will be selling a new issue of fixed rate, non cumulative preferred stock.
The issue will be non cumulative, qualified and I think it will be rated just below investment grade (maybe BB+), but right now I find no current rating. This will be the first preferred offered by SYF. SYF is a company that was spun off from GE Capital back in 2015.
This could be an interesting issue for yield hunters–we’ll see.
I’ve written just a bit about CLOs (collateralized Loan Obiligations) lately and was just doing some reading of a SEC filing by OFS Credit (OCCI)–another company with a business based on CLOs.
OFS Credit, Eagle Point, Oxford Lane and Priority Income Fund all have term preferreds outstanding–and from that fact stems our interest in the companys.
CLOs are kind of hard to explain–they are kind of black box investments. I ran across a chart that does a decent job of showing the structure of a CLO. Likely most everyone knows that a CLO is a package of junk rated debt that is repackaged and resold. The CLO starts off as junk and with some hocus pocus part of the package is turned into investment grade.
In this chart you can see the priority of payments to holders of the various tranches. Those at the top of the stack receive modest interest rate payments–but they have the least risk. Those at the bottom, what is called the equity class get the highest interest payments–but they are by far and away the class with out sized risk.
So the point is–know what you own. While I haven’t gotten into all the detail yet I can tell you most of the publicly traded holders of CLOs hold a large portion of the equity class–the riskiest class.
I know some readers will get tired of my writing about a particular subject–that’s ok. Part of my mission is to help educate newer folks to some of the risks out there. We have over 1,500 new visitors every day–they are googling for information–so if we can help even 5 people understand what they own we are successful.
Giant REIT storage company Public Storage (PSA) is coming with a new preferred offering. It is never a surprise when PSA sells a new issue in a refi transaction and it is highly likely they will call the PSA-A 5.875% issue which becomes redeemable on 12/2/2019.
PSA just sold PSA-I 4.875% preferred in September–so you know this one will be around 4.75%. The PSA-I issue has traded very strong–up to $26.50 before setting back to the $25.85 area.
The new issue will be cumulative, non qualified and investment grade.