Another Fly in the Interest Rate Ointment

We all can look at interest rates and the economy and make a reasonable guesstimate of where rates are heading–we all are about as good as the most highly educated economist.  We do this all the time as we try to formulate the type of investments we want to hold (short maturity-term preferreds or perpetual securities).

But the items we can’t predict or have a good guesstimate about are ‘what are foreign buyers doing?’.  We can get data on some buys and sells by foreign governments etc. but why do they do what they do?

Here is a decent article on what is currently occurring in the short end of the marketplace where the yield curve has inverted.  It enlightened us to more complications in enticing foreigners to purchase our debt.  This is another fly in the ointment of trying to figure out which securities are best to hold.

The Reuters article can be found here.

17 thoughts on “Another Fly in the Interest Rate Ointment”

  1. Tim I finally got a chance to read the article on the decreased UST demand. This brought to mind an interesting supply-side chart showing the tremendous growth in the supply of Treasuries at the front end and an actual slight shrinkage in those USTs with 10-19 years remaining. USTs with 2 years remaining have increased 23% from Oct 2017 – Oct 2018 while USTs with 10yrs remaining have shrunk 1%. Here’s the chart -> https://pbs.twimg.com/media/Dt0Ow-9WsAAIced.jpg

    “The growth in private marketable Treasury supply has been skewed towards the short end over the last year, thanks both to rising deficits & Fed balance sheet rolloff. May be exaggerating curve flattening.” – Ernie Tedeschi

    Perhaps there’s less economic forecast in the yield curve flattening and more reflection of supply/demand imbalance. Food for thought…

    1. Thanks Blue–a person should have days and days to go through all the data–of course we never do have that kind of time.

  2. Hi Tim, would anyone know why GDV-D and GDV-A dipped today in concert approx. at same time by same percentage amount ? XD is Dec 17th so thier net share price were slightly under par considering dividend payment. GDV-G (lower coupon) did not experience similar dip. I looked at their website, EDGAR, and Moody’s and did not spot a cause. Moody rating remains Aa3. Could it be that institutional investors may be projecting a call ? TIA

  3. I tried to alert for a couple of reasons:

    1 – Only 2 of the 3 GDV series was hit. None of the Gabelli’s were hit. So this was a fund dumping 80k shares. Price insensitive sellers create opportunity. This was a fairly rare event.

    2 – This movement was ripe for a trade, given that ex-Div is on Dec 17th. So far the price has bounced back from $25.32 to $25.52 (5.95% cash yield) with bid/ask back to 25.48/25.87

    3 – As you know these are about as 1940 Company Act safe as you’ll get in a preferred with a large constituency of people that are happy to own them. The price is fairly stable throughout history. At these levels you aren’t going to lose a lot.

    4 – My portfolio margin only makes me hold 6% against these. This attests to the perceived risk.

    5 – Finally I just needed some chat room or forum to say DAMN! … and maybe get someone to say “atta boy” on my trade of the day. 🙂

    1. ‘atta boy’ Bluejoseph–it is a good catch. That volume really stands out for sure.

    2. GGT-PE are also “1940 Company Act” safe, the coupon is only 5.125% but they are trading down at 23.10 which is 5.55% effective.

      I don’t trade, I don’t use margin, I just look for guaranteed income, 5.55% seems pretty good to lock in on these?

      1. Larry–I think most of the CEF preferreds are pretty decent folks–I hold a number of them.

  4. What a great site, Tim. I am relatively new to Innovative Income Investor and am finding it very useful. I noticed that there is often an III Rating on individual securities. I couldn’t find on your site an explanation of your rating. Could you direct me? Is there a spreadsheet that lists the ratings or are they only shown under the individual security? Thanks!

    1. Hi Alan–glad to have you here. The III rating is my own rating based upon a very quick survey of the company and it indicates ‘dividend safety’–just safety of the dividend being paid.

      We have on the ‘to do’ list to add the ratings, but it has not happened yet.

      1. Thank you, Tim. I am new to baby bonds. Do municipalities issue them? If so, do you include them in your database?

  5. Gabelli GDV-A & GDV-D massive volume and 1.45% price drop.

    At $25.32 YTM (assuming 10yrs) is 6% and cash yield is 6%

    1. Thanks BlueJoseph for the heads up. Near a buy point maybe for long term extra conservative folks.

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