With the CPI being released yesterday showing a lower than expected inflation rate investors have decided that there are interest rate cuts coming–of course only a week previous many had decided there were no rate cuts coming for quite a long time. Honestly it takes more than 1 month for a trend.
Regardless we have interest rates (10 year) now at 4.35% and this downward trend was friendly to preferreds and baby bonds yesterday–most were nicely higher and who of us can be unhappy about that?
Today we have many mostly somewhat minor economic releases. There will be a couple housing numbers (building permits, housing starts), the Philly Fed manufacturing survey, industrial production and capacity utilization and 1st time unemployment claims.. To me one of the most important is the short term indicator of 1st time unemployment claims since I personally believe the Fed is focused on employment–the number was showing softening numbers last week as claims were higher at 231,000. Can we even string together two weeks of softening numbers?
CD rates are holding in the 5.35-5.4% area—which should remain for weeks or months to come. Let’s just say rates on CDs and money markets remain fairly attractive and fairly competitive to higher income security prices. As interest rates (i.e. 10 year treasury) move lower there appears to be a slow (turtle like) movement out of lower yielding fixed income (CDs, money markets) into higher risk assets (preferred stocks, baby bonds)–NOT a stampede, but a slow movement. We will see how long that trend remains.
Not all………….
With SLV GLD CPER etc making major moves up…THAT has to get the feds attention!!
Silver up 6.25% in one day to a multi decade high. Gapping up.
Relative to CDs, I think the Agency bonds with 6 month call provisions make a lot of sense. I think I prefer the 6.3% yielding ute preferreds that Grid and Dick Whitman post about, which in my opinion are more attractive given the ability for some capital appreciation if and when rates come down.
New Baby Bond from Chimera CIM
9% 2029
I am curious why you have not mentioned the attractive yields that have been and continue to be offered by New Issue Government Agency Bonds. As a New Issue there is no cost to purchase at Fidelity. Yields on 10 year bonds were at 6.45% back in fall of 2023 and are currently at 6% . They are callable, usually after 6-12 months. AAA rated.
Take a look at Simplify Asset Management ETF: $MTBA
https://www.simplify.us/etfs/mtba-simplify-mbs-etf
https://www.convexitymaven.com/wp-content/uploads/2023/11/Convexity-Maven-MBS-Strategy.pdf
I can’t follow the article. Why is an MBS like a 10-year T-bond plus a three-year call option?
I think the callable feature limits their usefulness a bit – a lot get called and, if rates fall, a lot more will. The 1-year agencies are no better than a CD. But, you can get a 2044 bond in the 6.3-6.4% range for example . It likely won’t last for the duration but be called 6-12 months out. I show AA+ rating. So you can take on the duration going in knowing it probably won’t last?
That said, it is still attractive to get say 6.3% for a year even if called – add that to the fact that no state taxes in taxable accounts and you can treat them like a CD with state tax-free interest.
I have had a few of these in the past and still have one, a 5.25% coupon FHLB bond, that I bought 5/8/23 that matures 6/5/24. I may roll it over into one of those 6%+ ones. Thanks for the reminder.