Tim McPartland | Innovative Income Investor

Plotting My Next Moves

I’ve continually wrote of my current belief that interest rates (long rates) may go higher–simply because of the supply of Treasury debt that has to be sold for the foreseeable future. Thus far I see no real reason to change my thoughts on this topic. Yes I have heard lots of political bluster, but will any of the talk translate into to action? I guess I am at the point where I am going to have to see a sustainable drop in longer term rates to convince me that we are heading lower.

With my 7% annual goal I am going to have to continue to cut some low coupon, high quality perpetuals from my portfolio and opt for riskier issues–there may well be no other way to reach my goals. By nature I am very conservative person, but I am going to force my self to lower the overall quality, while raising the coupon, but shortening the duration (certainly compared to ‘perpetual’). Most of us know that short duration baby bonds or term preferreds will be less volatile than perpetuals and the closer they get to redemption the nearer they will will move toward $25 (up or down).

I will be selling some, or all, of the Bancroft Fund 5.37% (BCV-A) perpetual preferred which is trading at $22.82 with a current yield of 5.82%. This is rated A1 by Moodys so is a very highly rated issue–but highly susceptible to capital loss with higher interest rates.

Additionally I will sell some (or all) of the RiverNorth/DoubleLine Strategic Opportunity 4.875% perpetual preferred (OPP-B). Again A1 rate and highly suscepectible to capital losses. Currently the issue is trading at $19.08 for current yield of 6.22%.

The risk of swapping issues is that the money doesn’t get reinvested soon enough and one leaves it in money market for months–it is my plan to get the proceeds of the sales invested before the week is out and I will get the purchases posted as soon as they are made.

My portfolios are off their highs by maybe around 1/2% and I would like to nip the slow downward trend in the bud now. After executing these moves I will sit back and see what happens in the economy and interest rates.

Merry Christmas and Happy Holidays to All!!

Well, it is that time of year for holidays. For some of us it is a time of memories of years gone by and family members who are no longer with us. For others it may be a time when families gather together and share small talk, gifts and a hearty meal. Maybe it is both a time for past memories and a celebration when gathering with others.

We no longer have any parents alive so we get to do the hosting of our 5 kids and spouses and 9 grandchildren (from ages 3 months to 21 years old). The adults no longer buy boat loads of gifts for each other–instead opting for a modest gift exchange determined by rolling dice. Of course the grandchildren get more gifts than one should ever expect, but regardless of my ‘old time’ values I can’t begrudge the overindulgence of money spent on grandchildren. I do ‘mourn’ those that have adversity in their lives right now–to those folks I hope they can find some solice and peace in this important season.

To all I wish you a Happy and joyous holiday as we all look ahead to the start of a new year.

Headlines of Interest for Holders of Preferred Stock and Baby Bonds

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

ICE First Look at Mortgage Performance: Delinquencies Hit Highest Level in Nearly Three Years; Prepayments Drop on Higher Rates

Freddie Mac Issues Monthly Volume Summary for November 2024

CION Investment Corporation Announces Year-End Special Distribution of $0.05 Per Share

Hyperscale Data Enters into an Agreement for a Financing of up to $25 Million

Terreno Realty Corporation Announces Lease in Hialeah, FL

New Report Reveals Utility Bills on the Rise as Consumers Spend $362 Per Month, Up 3% Since Last Year

Visa Analysis: U.S. Rings in Holiday Retail Spending Growth

Trimmed Back a Little on a Perpetual Preferred

I own 2 different issues of BrightHouse Financial (BHF)—I own the BHFAP 6.60% issue and the BHFAN 5.375% issue. As I surveyed holdings this weekend I said to myself ‘what the heck were you doing buying that issue’? This was in reference to purchased the 5.375% issue on October 1, 2024. I already was highly suspicious of owning perpetuals at that time and I paid a price for this ill advised trade taking a loss that could well have been avoided.

I have no problem with Brighthouse fundmentally, I simply want to own fewer perpetuals with inferior coupons (inferior at this time). Moves lower in interest rates in the next month or two are maybe not likely (of course we have to see the data)–with a new administration everything is hazy in this regards.

I noticed today that CD rates continue to drift very slowly downward–most at 4.30% – 4.40% on the 3 month at Fidelity and eTrade. Still a reasonable rate to hide out in until other opportunities arise–hopefully in short duration issues.

Weekly Kickoff

It was kind of a ‘wild’ week last week–so are we going to have more of the same this week? Actually this week could be a bit quiet with the Christmas holiday dead in the middle of the week on Wednesday–actually equity markets will close early on Tuesday at 1 p.m. (eastern time). Just remember that when volumes are thin movements could be exacerbated–but I am not expecting giant moves.

Last week we saw the S&P500 lose right at 2% on the week–but at the low the index was off by 3.75%. Of course we saw the big plunge on Wednesday as stocks fell all afternoon as Jay Powell gave what was perceived as a hawkish press conference. I personally didn’t see it as hawkish, but I didn’t have my rose colored glasses on–obviously I was in a minority. The index remains just 2.8% off of the all time high–it will be interesting to see if this index can set new highs–we may well see some folks locking down some profits in early January as we get closer to the new administration coming to power and bringing with it all sorts of uncertainty.

While equities were taking a tumble the 10 year Treasury yield was jumping–as high as 4.59% before settling down and closing the week at 4.52% which was 12 basis points higher than the close the previous Friday. Of course interest rates reacted to Jay Powell–investors had their expectations ‘reset’. The personal consumption expenditures (PCE) were released on Friday and were fairly tame which kept the situation from growing worse.

This week most of the economic data to be released,while important, is not likely to move markets much–if any. More likely is that the lack of faith in our Congress could set off selling–the CR passed late Friday doesn’t inspire great faith in the ability of politicians to begin to cut spending.

The Federal Reserve balance sheet fell by $8 billion last week at $6.89 trillion.

Last week, as one might expect, the average $25/share preferred and baby bond fell in price–by 28 cents. Investment grade issues fell by 37 cents, banks by 24, CEF preferreds by 46 cents, mREIT issues rose by 14 cents and shippers fell by 4 cents.