Well we got lots of decent economic news this week and while common stocks moved around (mostly higher) more than I like to see, preferreds and baby bonds have traded pretty steady without crazy pricing (either up or down) and average prices are up a bit on the week (of course the collapse of B Riley issues wasn’t helpful).
The 10 year treasury is down about 4-5 basis points from the close last Friday, which is the way I like it. 0-10 basis points moves are nice and digestible, while 25 basis point moves are kind of scary—I’ll take boring rate moves all day long.
I had lots of dividends and interest hit accounts this week which has kept the portfolio moving gradually higher–just like interest rates I am happy with gradual moves higher–anything green is always good. All accounts are at all time highs (remember that we have not ever withdrawn a penny from a retirement account so comparisons are easy for us) and while returns pale in comparison to the S&P500 we are really happy with just hitting our meager 7% goal which is where we are at now.
Today I started a new position in the Rithm Capital fixed to floating rate preferred (RITM-B). This issue became callable yesterday and is now fixed to floating–at 3 month SOFR plus a spread of 5.64%–a current yield of right around 11%. I paid $25.03. Rithm also has another fixed to floating issue with the same call and floating date that would provide a slightly superior coupon (around 1/8%) trading at $25.20–the spread on that issues is 5.802%. Really a toss-up on which to buy, but I wanted to pay close to $25 in case of a ‘call’ soon (although a call would very much surprise me). Rithm is a mortgage REIT, but has a huge mortgage servicing business and they are spreading their wings a bit with various other asset management businesses. We’ll see how my entry position goes and determine in the future if I should add more shares.
Generally, a good year so far. My two largest accounts with BBs, preferreds, treasuries this year are up 7.23% and 8.60%, respectively, YTD. Not bad. They are a mixture now of all sorts of yields, maturities, etc and 95%+ are investment grade. I have a smaller account only up 4.82%. My trading account, very nominal, is up 28% but that one is just “spending money” for luxuries and such.
I expect the appreciate may continue as interest rates gradually come down – we shall see.
Yaz, you sound like you have reached that point I would like to be at. Even if there’s a 10 or 15% drop in the market you will still be collecting your income and any losses you see could be a lot less than the market average.
Yesterday IIPR.PR.A dropped under $25. Anybody knows why?
Everyone seems to think IIPR will be issuing new shares of IIPR.PR.A at par value.
that’s why. thank you. anyway I haven’t read anything like that anywhere.
RILY is the tip of the iceberg on any real downside in the markets.
The current environment is probably the most complex that I’ve been exposed too with a lot of overlapping and conflicting data. Regardless of what you believe, I wouldn’t want to be holding high yield outside of energy related issues.
Real estate, not so much. Eventually rate cuts will help, but the initial reactions could be very painful.
Legend maybe not even energy. Energy can tank along with the economy if demand goes down or over production happens. I keep hoping oil and banks have learned their lessons. I prefer utes for safety, but you’re not going to get higher returns with them unless they are higher risk.
legend—I own a lot of IG, F2F, high yield. I’m comfortable with them. Unfortunately, I also own some mortgage reits which are still underwater. Hoping for lower rates so I can dump them without serious pain. Starting to slowly take some losses now to preserve most of the capital I have in them. If the commercial RE market does not get some relief soon, a lot of mreits could go belly-up.
I like ritm-d amongst the ritm prefs
ytm somewhere in the 10.25-10.5% range if you want to lock in something that isnt callable, and a portion of the return will be cap gains, until 11/2026
I own that, it goes to the U.S. five-year treasury rate on the applicable fixed rate calculation date plus 6.223% if the don’t call it on 11/15/26
“Rithm Capital Corp. formerly New Residential Investment Corp Fixed-Rate Reset Series D Cumulative Redeemable Preferred Stock, liquidation preference $25 per share, redeemable at the issuer’s option on or after 11/15/2026 at $25 per share plus accrued and unpaid dividends, and WITH NO STATED MATURITY.” Are you talking about YTC not YTM? And it is callable
ytc
my bad
RITM-D is my biggest holding. Also have a fair amount of RITM-B. Good company. Should’ve loaded up more fully on RITM-B when the price was lower now it’s fully priced. Used to trade back and forth with RITM-C but lately the price got too high.
Don’t remember why I chose it, but I entered RITM in May with a modest amount @ 24.60. I guess I figured it’d have the biggest bang vs A should they elect to call on first available date and felt comfortable to hold longer if they didn’t….. I see the rationale for owning D as well
Tim, I think you made a type in the ticker, it should be RITM-B.
I earlier this month swapped the commons for this preferred.
I also hold RITM-D but am considering a swap for the RITM-A ones.
Thanks PierreK–corrected. This 70 year old can’t seem to get anything posted without at least 1 typo.
I’m sticking with RITM-D over RITM-A. When rates were low the T rate has been more closely aligned with Libor and possibly next with Sofr. So I expect it will eventually be the best floater. Enough below par now to make up for the lower div until then. RITM-A has call risk though I don’t expect a call soon you never know what the future holds.
Everyone,
In RITM’s July 31 conference call, one of the analysts asked the CEO (Mike Nierenberg) on his plans for RITM-A and -B.
From his response below, it sounds like they PLAN to let them float for at least a little while:
“I think $400 million is resetting now. But at some point, we’ll take those out, quite frankly. But for now, I think they’ll likely stay there as the markets — as the yield curve steepens and the Fed cuts rates, we’ll either do an exchange offer or come back to market to take those out over time. ”
When he refers to the $400 million resetting, I assume he’s referring to RITM-A and -B, which has a combined liquidation value of $436.52 million (source: 10-Q for Q2 2024, filed Aug 12. Note 23. EQUITY AND EARNINGS PER SHARE, on page 65).
After reading the Q&A, I did buy some RITM-B. When I looked, -A was trading ~25.20 and -B was in the 24.80s. At those prices, -A had the slightly better floating yield but -B had a much better YTC. I went with -B. The longer they remain outstanding, though, I think -A’s YTC disadvantage will narrow. I only looked at the current YTC, which assumed a worst-case call of 30 days from today. Still, -A had only a slightly better floating yield, and I liked more the sure cap gain on a call v the cap loss from buying -A above par.
Here’s the specific question and his answer, in it’s entirely.
Stephen Laws
Thanks. And lastly, I think the Series A and B for us float this quarter or back half of the year. Any thoughts to taking those out or how you think about managing your — that part of the capital stack in the coming months?
Michael Nierenberg
Sure. So one of the things when you look at our business overall, whether it be at the mortgage company, whether it be at the bond portfolio, the mortgage company, for example, could have — just using rough math, $10 billion to $15 billion of escrow deposits. If the Fed cuts rates, SOFR is 5.33, we get paid for SOFR or SOFR plus a fee on our deposits that we have with the large banks. So if you think about it this way, those are floating rate. I think $400 million is resetting now. But at some point, we’ll take those out, quite frankly. But for now, I think they’ll likely stay there as the markets — as the yield curve steepens and the Fed cuts rates, we’ll either do an exchange offer or come back to market to take those out over time. But the point is, if you look at the broad business model and how we think about duration and how we think about hedging, this is just one piece of the overall pie.
The other thing, just a quick note on hedging, we’re not going to fight the Fed here. We’ve added a significant amount of hedge to our MSR portfolios where I would — where we could tell you that the overall protection of that book is probably at the highest level that we’ve seen in years. When the Fed was raising rates, quite frankly, we were biased the other way for higher rates and short the bond market, here we’re neutral right now. So just to give you a little bit more color on the hedging strategy.