Monday Morning Kickoff

Well is the bottom in for now? I don’t really know–no one knows, but there is plenty of speculation by the talking heads expecting a 10% bounce in common stocks at this time–of course with the 6.5% bounce last week it may be near over.

Last week the S&P500 rose by a healthy 6.5% in a holiday shortened week of trading. The index started the week at 3675 and closed on Friday at 3912–right near the high for the week.

The 10 year treasury yield was at 3.24% the previous Friday traded as low as 3.01% during the week before closing the week at 3.125%. Recessionary fears appear to have a grip on the market–for now. Friday we will have another inflation indicator–the PCE index will be released on Thursday and will be closely watched by markets as it is said to be a key indicator for Fed Chair Powell.

Last week the Fed balance sheet rose by $2 billion to $8.934 trillion.

Last week we saw some strength in the average $25/share preferred stock and baby bond with prices rising by 35 cents/share. Investment grade shares were very strong with gains of 54 cents/share. Bank issues rose 43 cents, mREIT issues rose 40 cents, while CEF preferreds rose just 10 cents.

As has become typical in these times of volatility no new income issues were priced.

Consumer Confidence Crumbles But Markets ‘Party’

The final readings on consumer confidence for May were released today by the U of Michigan and the 50 reading was the lowest on record dating back to the mid 1970’s.

While the consumer is crumbling under the weight of high energy prices and skyrocketing food prices the markets are ‘partying’ today with the S&P500 up 2.56% at this moment.

The 10 year treasury yield is up a bit today–about 5 basis points to 3.12% and it looks like we will be treading water on rates for a few days–maybe until next week when inflation numbers are released.

With all the current cross currents in markets I am just sitting tight–I have between 20 and 30% cash dry powder but am looking for lower prices in preferreds in weeks and months ahead so no hurry on deployment this cash–of course who really knows where common stocks, preferred stocks and baby bonds and interest rates are going–NO ONE. Of course the trick is to invest the last dollar on the day preferred stocks hit the bottom–good luck accomplishing that trick.

Interest Rates Drop on Recession Fears

If it isn’t one thing it’s another–always something.

So as income investors we watch interest rates–which are the primary driving force of share price movements. On the other hand both macro economic factors as well as company specific financials certainly have effects on preferreds and baby bond share prices.

This week we have had a sharp downward movement in interest rates. On Tuesday (Monday was a market holiday) the 10 year treasury closed at 3.31% which was 7 basis points above the close from the previous Friday–then the 10 year yield fell by 15 basis points on Wednesday and another 8 basis points today to close at about 3.07%. This close is 40 basis points under the high from the past month at 3.48%.

In theory with rates moving this much lower we should have seen a rally of some magnitude–but it was meager – about 1% thus far. It is obvious that fears of a recession and the resultant damage it would do to corporate profits is outweighing falling interest rates. Of course falling rates for a couple of days means little as it is highly likely they will pop back up soon.

Next week Wednesday we will have the PCE (personal consumption index) Inflation numbers for May released and it is said that the Fed pays attention to this inflation indicator more than any other. You can be certain that if this number comes in above expectations interest rates will re-inflate quickly.

mREIT Two Harbors Investment to Purchase Preferreds in Open Market

Mortgage REIT Two Harbors Investment (TWO) has announced the potential purchase of up to 5 million shares of the company’s preferred stock in open market transactions.

As has been discussed on this site mREIT preferreds have been rocked hard by rising interest rates.

TWO has 3 issues of preferred stock outstanding–those issues can be seen here. These issues have over 25 million shares outstanding in total.

The company announcement is here.

Denard and I spotted this one.

Adding Another Insurer to My ‘List’

I am adding the 2 perpetual preferred stocks from Enstar Group (ESGR) to my watchlist.

The 2 issues are the 7.00% Enstar Group perpetual non cumulative preferred (ESGRO) and the 7.00% Enstar Group fixed-to-floating rate perpetual non cumulative (ESGRP).

While non cumulative (I would prefer cumulative) both issues are now trading in the $23.80 giving them current yields just over 7% which is respectable for BB+ rated issues (1 notch under investment grade).

Enstar has had a rough year as insurance companies invest in both fixed income securities as well as common stocks and obviously these have both been losers. On the other hand the company has very modest debt (debt to equity of around 25%) and with a strong balance sheet they will do just fine over time.

It is likely I will ‘nibble’ a little this week, but will wait longer before making any significant purchases.

Monday Morning Kickoff (on Tuesday)

Well let’s get another week going–the past number of months have been grueling for all investors and it is likely it will continue to be difficult. With the exception of a move down in oil prices last Friday we just are not seeing sustained, observable moves lower in costs. Last weeks move in oil is almost certainly not going to last with the Russia/Ukraine war continuing.

Anyway the S&P500 moved lower by a giant sized 5.8% last week after the Fed funds rate increase of .75% was met with an initial relief rally before collapsing much lower.

The 10 year treasury which was trading at around a yield of 3.48% on Tuesday before the Fed rate hike on Wednesday ended the week at 3.24%—a full 1/4% below the weeks high. Seems like we should be set up for a short term bounce in prices.

The Federal Reserve balance sheet moved higher by $16 billion last week.

Last week income issues were annihilated with the average $25/share preferred and baby bond lower by 72 cents. Investment grade issues fell by 69 cents with banks falling 71 cents and shippers off just 31 cents. mREIT preferred’s were the big losers on the week cratering by a massive $1.45/share. These issues are now at their lowest level since 4/24/2020 (the start of the pandemic).

Last week we had no new income issues priced.

When (If) Preferreds Rally

So income issues have taken quite a shellacking this week–in particular perpetual preferreds.

The temptation of conservative investors is to sell out and put the money in a mayo jar buried in the back yard–there are many investors which are already doing this–there are always folks (nervous nellies) that ‘buy high and sell low’, in particular those newer to the markets.

I would suggest that we will get a bounce of some magnitude in the income issues over the course of the next week–likely not a lasting move higher, but one which can be used to the income investors benefit.

Below you see a chart of the Arbor Realty 6.375% perpetual preferred issue (ABR-D). You see the bounce from 5/24/2022 around $20.50 to as high as almost $23 on 5/31/2022–then settling to $22 – $22.50 for the next week. This is simply a ‘relief rally’–no new news of magnitude on the immediate horizon so buyers stepped in loving the current yield of around 7.75%. Here is where the bounce provides the opportunity to reposition the portfolio if you believe you are incorrectly in too many perpetual preferreds and are uncomfortable with the potential losses ahead.

We don’t know how large a rally might be (or if one will actually come), but this is the nature of the game. The point is that an investor has to sleep at night and if you are uncomfortable you need to lighten up and maybe move into some attractive term preferreds which have a ‘date certain’ redemption date. You may give up a little current yield moving to a term preferred, but it should provide a little bit of peace of mind.

mREITs Preferreds Get Hammered

mREIT preferred issues took a horrific hammering yesterday with almost every issue down at least 2% and many down 5-8%. Current yields in the 9%-10% area are very common.

I keep a list of all the mREIT preferred issues here.

While these yields are tempting I will not be buying any more mREIT preferreds now (I own 1 ARR-C and it has been painful) because like some other income issues the mREIT’s are difficult to understand and thus when interest rates are moving folks simply sell them.

Recall a few years ago when Covid hit many of the mREIT’s were forced to suspend their dividends (later reinstated) as liquidity dried up and lenders (mREITs borrow money to lever their portfolio’s) demanded more collateral. With interest rates moving higher it appears investors believe that this could happen again–and of course it can happen.

I will be watching these issues closely because at some point in the future stability will return to the marketplace and there may be some tasty yields and capital gains to be had in the sector.

Maybe Good for Your Watchlist?

As I keep searching for good buys I keep coming back to some old standbys, but on occasion come upon something I had missed.

Below are 3 issues that would be attractive to some who are looking for some price stability, although in some cases, maybe giving up a little yield.

One that I own and keep coming back to is the Oxford Lane Capital 6.75% term preferred (OXLCM) that has a mandatory redemption on 6/30/2024–about 2 years from now. The issues has fallen off 40 cents in the last week or so and today the issue has traded down to $24.90. As it trades below $25 the yield to call moves higher making this even more attractive.

The 2nd issue that is attractive is the RiverNorth Specialty Finance 5.875% term preferred (RMPL-) which is currently trading at $25.13 and has a mandatory redemption on 10/31/2024. This issue has traded down about 50 cents in the last couple of weeks making it attractive. I have owned this one before, but not at this moment–I will nibble today.

In theory any price around $25 or lower should be a great buy as I would fully expect redemptions on schedule–of course ‘shxx happens’ so I can’t guarantee this will occur.

The 2 issues above are closed end funds and so they have to have 200% asset coverage on the preferreds . RiverNorth has coverage in the high 200% area while Oxford Lane is in the 300% area (note I have not recalculated this most recently so potential investors should do their own due diligence).

Lastly I have taken 2 nibbles on the Cowen Inc 7.75% senior notes (COWNL) this week–the issue has tumbled hard in the last week or 10 days to now be trading in the $24.87 area. This issue has a maturity date on 6/15/2033 and as such will tend to have more share price movement with a maturity date out 11 years. On the other hand as it moves below $25 the risk/reward goes toward 8% which is fairly tasty. COWN is not a high quality investment banking firm and their business has been hurt substantially in the last year as investment banking has slowed dramatically.

Once again these are just a few ideas–and not a recommendation.

Buckle Up – Ready for a Rate Increase

It is that time (or almost) we have waited for this week–time for a Fed Funds rate hike of some magnitude–how much we don’t know. Seems that either 50 or 75 basis points would be somewhat neutral. A rate hike of either 25 or 100 basis points would be a total surprise and would create plenty of turmoil in the markets.

The big question is if both stocks and bonds will rally to the increase? I have no idea nor does anyone else–and in the end it doesn’t matter for today since I wouldn’t react to 1 piece of information on 1 day.

Today I observe and shepherd what I already own and let the markets play out.

Tomorrow maybe I nibble something–we’ll see. No rush to act as there is lots of time for buying.

Eagle Point Income and Eagle Point Credit Company Post Monthly Updates

Collateralized loan owners (CLO’s) Eagle Point Income (EIC) and Eagle Point Credit Company (ECC) have posted there normal monthly updates.

The Eagle Point Income update can be found here.

The Eagle Point Credit Company update can be found here.

Both company’s have either baby bonds outstanding with short maturities or term preferreds outstanding.

Maybe Good for Your Watchlist?

I watch everyday for items to buy, or at least ‘watch’. To me something close to 7% and investment grade is a real bargain (not to say they won’t be better bargains in the future).

Here are some most recent potential bargains.

All of the issues from Apollo Global Management (APO) are looking fairly good. This includes Apollo Asset Management issues and those that were originally issues by Athene Holdings, which Apollo purchased in January.

All of those issues can be found here under parent ticker APO.

The current yield on these 6 issues are between 6.41% and 6.84%–pretty dandy yields for all investment grades issues. All issues are perpetual and are a mixture of fixed rate, fixed-to-floating and fixed rate reset–so something for everyone. All of these shares have fallen $1.50 to $3/share in the last 3 or 4 days.

Please note that these are all non cumulative and some are not qualified dividends.

Apollo Global Management has pretty much transformed into a good sized asset manager–$262 billion in assets under management–much which came to APO with the Athene acquisition.

Disclosure–I bought a nibble of the AAM-A 6.375% perpetual this morning for $23.50 or a current yield of about 6.8%.

The other investment grade issues (investment grade from Standard and Poors and 2 noctches less from Moodys) I am watching are the issues from Brighthouse Financial (BHF), which was spun off from Met Life a few years ago and is primarily an annuity manager.

There are 4 perpetual preferreds outstanding, along with 1 issue of baby bonds with current yields of 6.7% to 7.21%. There issues can be seen here.

Once again a current yield in the 7% area is great–but maybe it will go to 8%–who knows? The share prices have gotten hammered down by around $2/share in the last week.

Disclosure–I own shares in the BHFAO issue 6.75% perpetual.

As always I am not recommending any of the above–it is what I am doing, but I can’t make recommendations to anyone, because I don’t know suitability.

Bloody Monday

After the very weak trading in all equities last week it is no real surprise that today is extremely red.

Income issues–preferred stocks and baby bonds are getting hammered as well–more in the investment grade perpetuals than in the shorter term baby bonds and term preferreds–as expected with the 10 year treasury yield spiking up to 3.27%.

Lots of the investment grade issues are down 2-4% and on the surface look like good opportunities to buy–of course it is likely in a month they will be better opportunities. There remains no hurry to deploy “dry powder’ into this market.

Investors should be identifying target buys–i.e. pick out investment grade issues now providing good current yield–of course we all are different so it depends on you risk tolerance .

If you haven’t already you might want to download the Google Sheet that has all the income issues on it. This sheet is sortable by sectors, credit ratings etc. This sheet is the one I like to look at because of the ability to sort for what I am looking for. You can find the sheet here.

Monday Morning Kickoff

A wild week is on tap for the coming week. Futures markets are off around 2% this morning as there is more talk of a 75 basis point Fed Funds rate hike on Wednesday after the FOMC meeting. Also, notably, crypto is getting crushed with bitcoin in the $24.000 area.

Last week the S&P500 got clipped by 5% grinding lower all week as inflation numbers released showed no ‘peak inflation’. Friday was a particularly ugly day with losses of 2.7%.

The 10 year treasury was relatively tame for a week with ‘bad news’. Closing the week at 3.15% which was 20 basis points above the previous Friday close, but 1/2 of that increase occurred on Friday. This could have been much worse–but just maybe that has been reserved for this week? We’ll just have to wait and see–although at 5 a.m. (central time) we see the 10 year treasury up 10 basis points to 3.25%.

The Fed balance sheet showed a $3 billion increase.

The average $25/share preferred stock and baby bond fell by around 2% or 46 cents. Investment grade fell by 60 cents, banking issues by 57, mREIT issues fell by 37 cents with shipping issues falling just 17 cents.

The average $25 share remains 22 cents above the 52 week low of $22.72. We will see new lows in these issues today.

Last week we had 2 new income issues priced.

Horizon Technology Finance Corp (HRZN) priced a new issue of $25/share baby bonds with a coupon of 6.25%. Being debt there is no OTC trading and I am not aware that this issue is trading yet–but will in the next couple of days.

Oxford Lane Capital (OXLC) priced a new issue of term preferred shares with a coupon of 7.125%. This issue is now trading OTC and last traded at $24.24. This is a monthly payer. NOTE the ticker is now OXFCP.

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Ugly Day for Virtually Everything

Watching the futures markets after the release of the Hot CPI numbers this morning I was confounded that the S&P500 was off just 1%–but now about an hour into the day it is off 2.50%.

Interest rates which actually moved a little lower after the inflation numbers were released are up 7 basis points now to 3.10%–more in keeping with what I thought would happen.

I note today that a couple of the Oxford Lane Capital (OXLC) issues are getting hammered. OXCLO which is a 6% 2029 term preferred is off about 2%, while the 6.25% 2027 issue-OXLCP-is off over 1%.

The OXLCM term preferred issue has traded stronger trading at $25.15–this is a 6.75% issue. This issue has a mandatory redemption in 2024.

The lesson is that the higher coupon issues trade stronger–in particular with a mandatory redemption in 2024. Note that the new Oxford Lane 7.125% term preferred is trading on the OTC market at 24.64 (of course not buyable by us ‘non experts’).

Hot Inflation Numbers Will Resurrect 3/4% Rate Hike Talk

With year over year inflation at 8.6% you can be certain that talk of a need for a 3/4% hike in the Fed Funds rate will heat up and will likely temper talk about a rate pause in September. So much for reaching peak inflation earlier this year.

The 10 year treasury is now trading at 3.02%, down from 3.04% yesterday,which seems very muted, as the futures markets show stocks falling over 1%.

What does this mean to me in terms of investing my dry powder? Very little. I have plenty of dry powder and will continue to nibble a bit on a weekly basis—no hurry as we have plenty of time to deploy that dry powder. I continue to look for 6% or so in investment grade and over 7% in junkier issues..

Oxford Lane Capital Prices New Term Preferred – Ticker Update

Closed end fund, Oxford Lane Capital (OXLC), has priced there previously announced term preferred stock issue.

The pricing is 7.125% with mandatory redemption on 6/30/2029.

This is a monthly paying issue.

OXLC has numerous term preferreds and baby bonds outstanding which can be seen here.

Neither the permanent ticker nor the OTC ticker have been announced–I will updated this when tickers are known.

The pricing term sheet can be read here.

Horizon Technology Finance Prices New Notes

Business development company (BDC) Horizon Technology Finance Corporation (HRZN) has priced their new issue of baby bonds.

The bonds price at 6.25% and will have a maturity date of 6/15/2027, with an optional call available to the company starting on June 15, 2024.

Note that the issue is rated BBB by Egan Jones. This is not to be confused with rating from Standard and Poor’s, Moody’s or Fitch. Generally Egan-Jones is considered to be ‘easier’ with ratings (although everyone has their own opinion).

The issue will have a permanent ticker of HTFC when it begins to trade in about a week—being debt there is no OTC trading.

The pricing term sheet can be read here.

BDC Horizon Technology Finance Corporation to Sell New Baby Bonds

Business development company (BDC) Horizon Technology Finance (HRZN) has announced they will be selling a new issue of notes with a maturity date in 2027.

The company currently has 1 other issue of baby bonds outstanding which has a coupon of 4.875% and can be seen here.

The preliminary prospectus for the new issue can be found here.

J was right on top of this one with EarlyBird chiming in.

Oxford Lane Capital to Offer New Term Preferred

CLO owner Oxford Lane Capital (OXLC) has announced a new term preferred issue.

The issue will have a mandatory redemption in 2029.

The preliminary prospectus can be found here.

OXLC has numerous preferred and baby bond issues outstanding and they can be seen here.

EarlyBird was right on top of this one.

OFS Credit Releases Semi-Annual Report

Specialty finance company OFS Credit Company (OCCI) has released their semi-annual report for the period ending 4/30/2022.

The company owns primarily the equity tranche of CLO’s (collateralized loan obligations). The equity tranche of the CLO is the highest risk portion.

OCCI has 2 issues of term preferred stock currently outstanding which can be seen here. Both issues have mandatory redemption in 2026.

Semi-Annual report for OFS Credit Company

Presentation for OFS Credit

Disclosure–I own shares of the 6.125% OCCIO term preferred.

Monday Morning Kickoff

The S&P500 traded in a range of 4073 to 4177 before closing the week out at 4109, which was down 1.2% from the previous weeks close. It looks like markets will move higher today at the open with futures up by over 1%—whether the gains are held, of course, is a coin toss.

The 10 year treasury moved in a range of 2.83% to 2.99% last week before closing at 2.96%. This was a substantially higher close than the Friday before which was 2.74%. It looks like we will get back above 3.0% this week which we haven’t closed above since May 9th. This week we don’t have economic news to speak of until Friday when we will have the Consumer Price Index (CPI) released—8.2% is expected year over year–most certainly a deviation of more than a couple 1/10th’s above or below will move the markets.

The Fed balance sheet rose by $1 billion last week

After some nice gains the previous week the average $25/share preferred stock and baby bond fell by 9 cents last week. Investment grade issues fell by 16 cents, while mREIT preferreds gained by 14 cents. Banking issues fell 25 cents while shippers rose by 17 cents.

I can’t post the price history chart this week as I am out of the office and my computer I am using doesn’t have the necessary functions to cut and paste the chart–I will update this note when I am back in the office with the new chart.

Last week Pacwest Bancorp sold a 20 million share issue of fixed rate reset preferred. The initial coupon is 7.75% with a reset in 5 years at the 5 year treasury plus a spread of 4.82%.

The pricing term sheet is here.

The issue is trading OTC under ticker PACWL.

Time for Employment Numbers

Well we had the ADP employment numbers yesterday–forecast was for 299,000 with actual coming in at 128,000. Of course no one pays much attention to the ADP numbers.

Today we have the ‘official’ government numbers which calls for the creation of 328,000 jobs which is down about 100,000 from last month.

With interest rates hanging in there at around 2.91% we could well see movement if employment is substantially off forecast–say 100,000 or more either way–but likely it will be a non event. We shall see!!

Monday Morning Kickoff (on Tuesday)

What a crazy week last week was–apparently peak inflation has been here and now is behind us–at least this is how markets traded last week. Common stocks as well preferred’s and baby bonds all exploded higher. Well I suppose everything will need to come back to reality this week.

The S&P500 rose by 257 points to close at 4158–almost a 7% rise on the week. Will it be maintained or is it just a bear market bounce? Whether common stocks go up or down I prefer movement at a slow pace.

Th 10 year treasury closed last week at 2.74% after trading as high as 2.87%. The close was 4 basis points below the previous Friday’s close. We had new home sales implode with 591,000 units being sold versus a forecast of 750,000 and pending home sales fell by 3.9%. Inflation was reported about as expected. This week we will have jobs data on Thursday (ADP) and the official jobs numbers on Friday—this could be a market mover. The 10 year treasury is up 8 basis points this morning (at 530 am central).

The Fed balance sheet fell by about $30 billion last week. QT (quantitative tightening) starts this week and it will be very interesting to see how this plays out relative to the movement in interest rates.

Last week the average $25/share preferred stock and baby bond moved sharply higher – up 3.3%. Investment grade issues moved even more sharply higher as they shot up 6%. This is a case of those shares which had taken the biggest poundings (high quality, low coupon) rose the most–I guess a bit of a panic to lock in high current yields in quality. Bank issues were up 5% and mREIT issues just over 2% and shippers 1/2%.

No income issues priced last week.

Waiting for Inflation Numbers

So we are at the end of a pretty darned green week–not only in common stocks, but in preferreds and baby bonds. The question is will it continue today with PCE (personal consumption expenditures) inflation numbers being released in a couple of hours.

Last month prices rose at a 6.6% rate (year over year) which was a 40 year high. Core (PCE less food and energy) PCE rose 5.2% year over year last month and expectations are for a number today of 4.9%. These numbers could certainly set the tone for the next few days with the 10 year treasury 2.73% right now substantial deviations from expectations will moves rates in a meaningful manner.

Monday is a holiday so there will be no trading as we head into the summer.