Innovative Income Investor | Innovative Income Investor

Is The Interest Rate Drop for Real?

Yesterday we saw the 10 year Treasury yield drop by 13 basis points which is always welcome and gave a modest boost to preferreds and baby bonds. It had been some time since we got a little ‘pop’ across the board. Obviously there was more demand for government debt, but will the tumble to 4.28% continue? No one knows, of course, and the economic news just ahead will still be the major factors that will drive interest rates.

Today we have consumer confidence numbers being released and they are forecast to be up nicely from last month. Then later today we have the FOMC minutes released from the last meeting–we will see the details of the Feds thinking for Decembers meeting. Then tomorrow we will get the latest read on inflation with the personal consumption expenditures (PCE) release. Right now expectations for a rate cut for December have fallen off with just 59% of forecasters expecting a cut–we will see a move in this number when the PCE is released – will it be the move be back higher–. Personally I see a 1/4% rate cut for this meeting–partially because I think the Fed is political and the incoming administration wants rates lower.

Today I hope to be a buyer–I am honing in on a few issues with yields to maturity of over 8%–needed to bolster my performance toward my target of 7% since I continue to hold plenty of money markets and CDs. I will write further today on this matter.

Markets are mixed this morning with the S&P500 futures up and the DJIA down–all in all pretty quiet. Being a shortened week and many folks likely taking the entire week off we could have prices quiet all week long—we’ll see soon.

Headlines of Interest to Owners of Preferreds and Baby Bonds

Below are press releases from companys with preferred stock and/or baby bonds outstanding–or just news of general interest. Season is pretty much over so we will have slow news days for a month or two.

Diana Shipping Inc. Reports Financial Results for the Third Quarter and Nine Months Ended September 30, 2024; Declares Cash Dividend of $0.01 Per Common Share for the Third Quarter 2024

Old National Announces Pricing of Common Stock Offering

State Street Announces Issuance of $2.25 Billion of Senior Debt

Blackstone Mortgage Trust Announces Pricing of Offering of Senior Secured Notes

SITE Centers Announces Tax Estimate for Curbline Properties Distribution

Office Properties Income Trust Announces Entry into Private Exchange Agreement with Certain Noteholders to Address 2025 Debt Maturities

Highland Opportunities and Income Fund (HFRO) Announces Tender Offer for Common Shares in Exchange for up to $100 Million in Preferred Shares

CEF Highland Opportunity and Income Fund Tenders for Common Using Preferred Shares

Closed end fund Highland Opportunity and Income Fund (HFRO) has announced they are tendering for up to $100 million in common shares using a new Series B preferred issue. Details of the new preferred issue have not been announced, but they state they will be structured similarly to the Series A (HFRO-A) which is currently outstanding.

The intent of the tender offer is to try to move the common share price higher–it trades at a very steep discount to net asset value.

HFRO-A has almost always traded weakly–while A1 rated by Moodys there appears to be little confidence in the management of Highland Opportunity and Income Fund. A large share of their investments are in funds run by Nexpoint–which also is the advisor to HFRO. This company seems to have way too many incestuous relationships to be taken real seriously.

The press release from the company can be read here.

Thanks to J for posting info in comments earlier today.

Weekly Kickoff

Last week was a winner for the S&P500–not by a giant amount but by 1.6% which was essentially the amount of loss in the previous week. Daily we had moves of this size, but we had a couple days last week that started with really big losses, but each time traders drove the index back higher. The index is much higher on the futures market this morning–so looks like we will party for at least a few hours.

The 10 year treasury yield was off by 2 basis points for the week–closing at 4.41%. During the week was saw the yield as low as 4.34% and as high as 4.49%. This morning rates are lower–it at the 4.37% level–but all know that this is pretty meaningless as to where the yield will go during the day and where the day ends. This week we have a key piece of data in the personal consumption expenditures inflation released on Wednesday –the is the big piece of data on he week. We have the FOMC minutes from the last meeting released on Tuesday. Of course on the Thursday we have the Thanksgiving holiday and so there is no economic news being released Thursday and again on Friday.

The Fed balance sheet took a giant sized move lower last week–down by $47 billion.

The average $25 preferred and baby bond fell by 7 cents last week. Investment grade issues fell by 12 cents, banks fell by 9 cents, mREIT preferreds fell hard by 26 cents and shippers were off by 6 cents. The big winner on the week were CEF preferreds took a 32 cent jump as the surprise call from Priority Income Fund took all of the PRIF preferreds higher.

Last week we had 4 new income issues price. This is the busiest week for new issues in the last year or so.

The pricing term sheet can be found here.

The pricing term sheet can be found here.

The pricing term sheet can be found here

The pricing term sheet can be read here.

Sometimes You Get a Surprise Bonus

Sometimes you get ugly surprises–once in a while you get a capital gain bonus. For holders of the Priority Income Fund 6.25% term preferred (PRIF-G) the surprise came in the form of a redemption notice. The redemption notice is for 12/23/2024 at $25/shares plus accrued dividends from 9/30/2024. This issue became redeemable 3/19/2023 and had a mandatory redemption date of 6/30/2026. Shares were trading around $24.30 yesterday and closed at $25.04 today.

It is somewhat unusual for a term preferred of this relatively modest coupon to be called early in this interest rates environment–but the issue is only 1.28 million shares so the $32 million cost to redeem is minor to a $1 billion CEF.

Priority Income has an active ‘at the money’ common share sale program which can readily generate cash for redemptions such as this one.

The good part for holders is they got a 3% pop on their shares and they have plenty of other PRIF term preferreds to chose from to invest their proceeds.