Well we are seeing higher interest rates this morning with the 10 year treasury now at 4.66%–with economic news being released today who knows where it goes to.
Equities are flattish this morning–yesterday equities were down about 1% most of the day before a fairly furious rally the last 90 minutes of the day which brought the S&P500 index to be slightly positive. So we certainly can see some crazy things happen – whether we see more of that today is anyone’s guess.
I was looking at my U-Haul Investors Club accounts yesterday and am pondering whether this vehicle has outlived its usefulness. For the 1st time in many years their securities being offered are not being oversubscribed. Their coupons are obvious inferior (4.75% to 5%) as measured by risk/reward. They are illiquid and uninsured and they have substantial competition from other income issues–whether it be CDs, treasuries or even corporate bonds. Thinking I might begin to build some cash in those accounts and then transfer to my brokerage accounts where I have more alternatives at fairly decent rates.
Well this will be another ‘do nothing’ day for me–just hanging out and watching.
For what it’s worth the deals look like they are in the agencies.
Looking at 3 issues:
Fannie Mae 6% MBS Bond trading well below par 01F0606A8
FHLB 7% of 2033 3130AXD62 trading very near par this one has a monthly call option.
FFCB 6.7% of 2033 3133EPXK6 is interesting, however. Trading slightly below par with first call date in Jan 2024.
Not pulling the trigger today as I am timing cash flows, but agencies are interesting at these prices and all 3 seem well priced to compensate for the embedded call options. IMO.
How weird – The Fido description of FHLB 7% of 2033 3130AXD62 claims that interest on the issue doesn’t even begin to accrue until 10/30/23…. Could that be accurate? It says 10/3 on FFCB 6.7% of 2033 3133EPXK6 which seems more believable
Good catch – I didn’t note that, but that drops the YTW below 1 month TBill.
Look at the first settlement date—10/30/23. Basically, it’s a when-issued security.
And yet it doesn’t show up in Fido’s list of New Issue Agencies.. Go figure… So when you think of it, this is a pretty slimy thing FHLB is doing. You commit to this now but you don’t pay for it or get any accrued until one month later. That means you get whatever you’re getting paid in money market funds for the funds set aside for the next month as to what you’re getting….. That also means that if you’re at TDA or Schwab, you have to jump thru some work around hoops otherwise they take your funds out of your mm accounts earning something and put it in cash earning next to nothing for a month. If I remember correctly someone told me that once you’fe confirmed and have taken your funds out of you mm, you can then reverse it the next day and just sell back into your mm until the day before the settlement date. I’ve not tried it, but I think that works. I’m passing on both of these..
1. Enter a “MM sell order” for the amount you intend to buy so that TDAm enables submission of the “buy order” (in a non-margin or non-taxable account).
2. Submit the “buy order.”
3. If the settlement day of what you are buying is not the next day, such as a CD, immediately thereafter cancel the “MM sell order.” Note that you must cancel before 4 PM.
4. Re-enter the “MM sell order” before 4 PM one the day prior to the Settlement Date of what you bought in Step 2.
You will see a cream-colored rectangle warning of “Cash Debit Call” at the top of your Positions page expressing to “take immediate action.” The warning persists for days but goes away on Settlement Date (if you entered MM sell order day prior to Settlement Date).
Green—there is another problem. If one does as you describe, it works. However, if you sell another security during the interim period, those funds will be allocated to the FHLB when-issued security. You will not be able to invest them in a MMF until the FHLB issue settles and they will be used for that purchase. The proceeds basically remain in cash.
Randy, you are right. As I recall, I had that situation once and the workaround was to repeat Step 1 (re-enter MM sell order for CD amount), enter buy order that uses proceeds of sale. Immediately thereafter cancel sell order Thanks for bringing this up. Best regards
Folks – my only point was to note the prices and the coupons.
One can dislike the call features and settlement dates and that’s fine.
I don’t recall the last time I have seen rates like these on Agency credits. Yes they have funky call provisions, the question is – is the value there in terms of incremental yield? In some cases it is and in some it isn’t. If I am getting an incremental ~220 bps on a callable vs non callable note with same maturity and credit quality (nearly) is that 220 BPS worth it?
I just think that Agency notes have value in here. Not all of them, but certainly some of them. Some of them might be the best value in the market, but as always you have to be selective.
My question to myself is – Would I rather have a 6.7% YTW on a 10 year callable agency note or a 7% current yield on a callable BBB bank preferred stock (trading above par)?
Has anyone looked at the 20 year bond? Almost 5%.
Next auction October 18.
If 4.74% is almost 5% then I agree with you, but it looks as though that’s right in line with a more normal yield curve with 10 year at 4.65% and 30 year @ 4.77%….. Obviously short yields remain extremely inverted, but long yield curve seems to be normalizing just a bit doesn’t it?
Hmmmmm, the Fido Fixed Income chart is showing 20 year issues now being offered at or above 5%….
Cusip 91280RB6 is an example, offered at 5.026% – 2.875% due 5/15/43
Apologies Eladio for bad info…
yeah, it hit 5% this morning.
Was looking to buy some more short term treasuries this morning through eTrade like I always do. However, the minimum purchase for almost ALL of the T-bills is listed at $400,000 (!). Is this just an eTrade thing or is it in the Treasury market itself?? I have had zero issues buying at $10K (and lower) increments on most before today.
UPDATE: It must have been a short-term thing…the issue has disappeared.
I opened an account at Fidelity earlier this year and I was migrated to Schwab from TD in May so I don’t remember at which one I saw this back then. The Treasury page lists a high minimum purchase amount but if you place an order for a lower amount, many execute anyway.
Yeah, I have learned to enter limit orders too, even on treasuries, and they get executed the majority of the time. Thanks.
TLT all the way down to 87 and change this morning…starting to get very interesting. I may look to pick some up south of 85 down to 80. Not sure what the equivalent yield is at those levels but, technically, the charts look good.
Or TLTW maybe? The buy-write ETF that sells calls against its TLT position to juice yield. Pays monthly and last payment was 18% equivalent. Fund has only been around for a year so not much track record.