I had just looked at the overall picture of preferreds and baby bonds early today and ‘on average’ they were up 2 cents from last week. But on a day where interest rates ground higher (as represented by the 10 year treasury) to close at the high of the day – 1.41% – investment grade issues–lower coupon issues–were pretty much all ‘red’.
Losses were not deep–maybe a dime, but out of the 217 $25/share preferreds and baby bonds I track only 22 issues were higher–with the balance unchanged or lower.
So going back to the ‘olden days’—the days when interest rates used to move in both directions we know a couple things. 1) Higher coupon issues will trade firmer than low coupon issues when rates move higher and 2) issues that are near maturity (baby bonds or term preferreds) and those issues that are ‘anchored to $25’ with a call threat over hanging them will move little with higher rates, except in extreme conditions. In general this will occur irrespective of the quality of the issue.
It is kind of amusing that so much time was spent on speculation on Federal Reserve taper talk–maybe that was what was needed–so much awareness that there was no BAD reaction to tapering timelines in the equity markets.
The 10 year treasury is up 7 basis points to 1.40% right now–so we are seeing a jump in interest rates–but a manageable jump. Remember that the reaction in the preferred stock and baby bond sector will be very muted if changes in rates are slow–over a course of days or weeks. Speed kills–I don’t want to see a 1/8 or a 1/4% move in 1 day–markets will get spooked.
Right at this moment the average $25 preferred stock and baby bond is UP 2 cents from the close last Friday–no overall reaction at all to annoucements or interest rate increases.
With equity markets trading higher today it seems like investors/traders are looking for a dovish spin from the Federal Reserve today at 1 pm (Central time).
With the last soft jobs report, Covid 19 Delta and now Evergrande in China the chair has lots of excuses to put a dovish spin on a taper.
Interest rates have remained firm around the 1.30% to 1.35% area–obviously this crowd is not looking for any surprises in the tapering announcement.
Honestly it would be great to have a date to ‘hang our hat on’ relative to the taper—I hear the talking heads continue to harp on an interest rate hike immediately after the taper is complete–what crap!! We can’t even see next month let alone 2023–there is one hell of a lot of ground to cover before we get to rate hikes.
No, I am not talking about the REO Speedwagon song from the 1970’s, but referring to yesterdays stock market and interest rate action.
Long time preferred stock and baby bond investors know that when we have common shares taking a fairly substantial hit on a day like yesterday that the best action is to simply watch–no buying or selling.
Yesterday as I watched markets I was primarily watching interest rates. The 10 year treasury was down around 1.30% which indicated to me that the equity selloff likely was not going to last too long–a day or two. If the 10 year treasury would have fallen to 1.20% with stocks off over 1000 Dow points I would have more concern that we would see a deeper market follow through as it might have indicated a massive ‘rush to safety’.
Of course I didn’t do anything in our accounts yesterday—everything was ‘red’, but not harmful in a major sort of way. With a fall in equities of a couple percent we didn’t see the ‘throw the baby out with the bath water’ stage.
So for now I am waiting for the Fed statement and press conference tomorrow. We’ll have to see if we get an interest rate reaction–can’t imagine anything more that a few basis points movement.
The S&P500 continued to be a little weak last week falling by about 25 S&P points from the previous Friday–about 1/2%. While the index is seasonally weak it remains just 2% more or less from an all time high.
Interest rates which had been as low as 1.26% during the week ended up at 1.37% on the close Friday after being as high as 1.39% which we haven’t seen for a couple of months. Interest rate markets remain on edge as possibilities of the Federal Reserve announcing some near quantitative easing taper. With the Federal Reserve meeting starting on Tuesday and Fed Chair Powell having a presser on Wednesday afternoon anything can happen during this week in regards to interest rates–you know Powell is personally dovish, but he is no doubt going to be pressured to start some sort of tapering soon.
The Federal Reserve balance sheet had a relative explosive week of growth moving higher by $92 billion last week–the largest move higher in the last 2 months.
Once again $25/share preferreds and baby bonds were pretty quiet last week with the average shares moving higher by 4 cents. Investment grade issues were off 2 cents, bank preferreds were up 4 cents and shippers were up 6 cents.
We had 5 new income issues, all preferreds, priced last week. CAUTION–OTC tickers are changing on a regular basis
REIT Vornado Realty Trust (VNO) sold a new issue of 4.45% preferred which is trading under OTC grey market ticker VNOOV and closed last Friday at $24.99.
mREIT New Residential Investment (NRZ) sold a fixed-rate reset preferred with an initial coupon of 7%, which is fixed for the 1st 5 years. The issue is trading under OTC ticker NRZDP and closed last Friday at $24.88.
Non publicly traded REiT Modiv Inc sold a new issue of 7.375% fixed rate preferred which is trading under OTC ticker MOIVP and closed last Friday at $25.87.
Arizona based banker Western Alliance Bancorporation (WAL) sold a reset preferred with an initial coupon of 4.25% which traded up to $26.08 last week on the OTC market under tick WALPV>
Non publicly traded REIT INPOINT Commercial Real Estate sold a fixed rate preferreed which is trading under IPCRP, but quotes are not posted as it is restricted at this time and most of us can not trade this issue because of a lack of full financial information being filed with the SEC.
The permanent ticker will be HTIBP when it reaches the permanent listing on the NASDAQ. We will wait to see if the issue trades on the OTC grey market–being a non publicly traded company they will need to have full financials filed with the SEC for us to trade it on the OTC grey market. I believe they should qualify for trading.
J posted that The Hartford Financial Services Group (HIG) has pre-announced a redemption on their 7.875% fixed to floating rate debentures (HGH) which is not redeemable until 4/15/2022. Shares are at $26.36 right now. With 3 interest payments of 49 cents each at this price it is about a breakeven. Will be curious to see who forgets about this pre announcement and keeps the price in the mid $26’s until March. The ‘use of proceeds’ statement is here.
Just the same the ‘reset’ terms are preferred to the floating rate terms–a strong 6.223% spread is superior to the terms of the floating rate terms and the 5 year reset is preferable to the ongoing floater reset.
Arizona banker Western Alliance Bancorporation (WAL) has announced pricing of their new Fixed-Rate Reset preferred.
The issue prices with a meager coupon of 4.25% which will remain fixed about the first 5 years. On 9/30/2026 the coupon will reset to the 5 year treasury plus a fixed spread of 3.452%. After this point the issue will reset every 5 years with the fixed rate spread added to the 5 year treasury.
The issue is non-cumulative and qualified. It is rated Ba1 by Moody’s (1 notch below investment grade) and BBB by Kroll–note that Kroll doesn’t call this investment grade..
The issue trades immediately on the OTC grey market under temporary ticker WALPV.
Modiv Inc (Not traded) has filed to sell a new issue of perpetual preferred stock.
Modiv is a REIT, and not publicly listed. They own 38 properties which cover the span of office, retail, industrial and others–do your due diligence as this company is small and being non traded has minimal information available (until now)
Huntington Bancshares (HBAN) has announced the redemption of the HBANN 5.875% perpetual preferred issue. This issue originally was a First Merit issue which was acquired by HBAN. The redemption is for 10/15/2021.
Markets are sleeping–the issue is trading at $25.87—50 cents above value (redemption is at $25.37).