A Drifting Day–But Next Week Will be Exciting Again

Today both stocks and bonds are drifting–we LOVE IT. Sometimes when you have most of your net worth in the markets there is an underlying bit of tension always present. Thanks to the President for taking the day off of Twitter.

The 10 year treasury yield is off 1 basis point and the average preferred stock and baby bond ($25 issue) is flat.

Consumer sentiment fell off a bit last month and likely reflects only a moderate economy–not ultra strong for sure.

Job Openings for February we also reflecting only a moderately firm economy as job openings were off a bit from consensus.

The Fed balance sheet for the last week was announced at LOWER by $3 billion–a meaningless amount relative to interest rate levels, but directionally in the quantitative tightening direction.  The minimal amount of tightening turns the spring tighter on what kind of runoff the Fed will need to do in the next month or two as they are behind the curve on the $30 billion/month runoff plan.  Maybe they have changed the plan and didn’t tell us–or maybe it is simply timing.  We are most curious how this plays out over time and it is our opinion that the economy is NOT strong enough to drive interest rates higher BUT the Fed runoff and huge issuance of the treasury will move rates higher.


Just a random note on the GDL Fund Series C $50 preferred (NYSE:GDL:C). Shares have been bumping up against  $52 today and we decided to exit with about a 3% profit in the last week or two (this was a personal holding). We had only gotten up to 300 shares but at near $52 we doubt there is little upside left. The issue has a 4% current coupon and is puttable to the fund at $50 in 2 years. We bought it for safety and will look to re-enter somewhere under $51.  We had not originally thought about exiting (just weren’t paying attention), but a note from Gridbird got us to consider the move as he exited–and he follows this issue closely.

10 thoughts on “A Drifting Day–But Next Week Will be Exciting Again”

  1. Noticed today 3m US$ LIBOR is at 2.35% about what 2yr Treasuries are yielding.. that’s pretty flat to me.. “QT” ( Quantitative Tightening) on top of the massive deficit, corp borrowings for mergers like CVS/Aetna etc. on top of already high short term rates seems to be putting pressure on credit.

    Banks, Credit Unions etc. in my area are tripping over themselves in CD/IRA renewal seasonality to outdo each other on new money rates.. PNC alluded to pressure on the deposit end compressing the spread in their earnings report today.. fun times in yield-ville huh! Bea

    1. Bea, that is the problem for me…In the past I have always “went long” on the yield curve and it has worked out fine…But now to a layman like me, the risk/reward or “relative value” is now at the short end. Its tough for me to mentally accept that (assuming I am even correct), but I have recently hit the short term treasuries and will buy more (or short term secondary CDs) next week. …

      1. Grid–I still believe that investors are going to ‘pay the piper’ for holding all these perpetuals. Not the sock drawer stuff necessarily but the 5-7% REIT perpetuals etc.

        Of course perpetuals have lost 4% in the last year–but it would be so easy to see them down 10-20% with any sort of blip in long term rates.

    2. HI Bea–yes as Grid and I know since we both own NSS (Nustar baby binds) that libor is giving us big resets on the floating rate.

      I do like getting a little return for excess capital in my accounts from Fidelity–heck of alot better than 10 cents a month or whatever silly number.

      I do notice folks buying CD’s–after CDs being where they were current rates look kind of tempting.

      1. Tim, though I dont like the leverage, the fact NSS Libor based and past call, creates very unique circumstances not normally available. The market has this issue by the tail and doesnt quite no what to do with it. The rising Libor is going to keep it at least near par for the near certain increasing yield. The past call feature will not let is sink appreciably below par to avoid someone getting a free ride on a call. ALLY-A has had the same benefits…But just in past couple days it rocketed to close to 3 interest payments above par. I had to sell half just to lock in gains. Will think about the rest.. If it gets back to under 2 payments with one in the bag, I will reload.

      2. Tim I am experimenting a bit also with some funds… The past 6 months of continually staying in the illiquids, but also adding the “Should be called but havent” preferreds along with Libor issues have been positive trades avoiding the modest downturn some preferreds have had… With options dwindling I am moving up to chase even higher yield with higher safety. Bought 600 shares of WFC-J. I suspect it will get called this time…Yet it didnt last payment either. If I am wrong Im out 17 cents, not counting the fact I can write it off against a cap gain trade. So minimal loss to chase 8%. I got one other in my sights of lower quality, but higher yield approaching call with a little meat on the bone still, even if they do call.

      1. Nah–I have learned to blame only the guy in the mirror for anything stupid I do.

    1. Rick–that is why I have always given lots of props to all the message boards around the web–no commissions–just props.

      There are a lot of people out there that have some experience to share. None of it exactly matches my needs, but one can pick up bits and pieces and pretty soon you have some worthwhile knowledge.

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