Innovative Income Investor | Innovative Income Investor

A Tweak Here and a Tweak There

Well equity markets are a bit ‘goosy’ today–can’t decide and what they are believing–are interest rates going higher or are they going to drift back down. Almost unquestionably they are awaiting news on the producer price index (PPI) tomorrow and then the consumer price index (CPI) on Wednesday.

In the mean time I did a little buying and a little selling. I let go of a chunk of the super safe Tricontinental $2.50 perpetual preferred-$50 issue (TY- or TY-P or a number of other tickers depending on the quote source). The reason I choose to sell a bit of this sock drawer issue is because it can move kind of violently if we were to see interest rates move higher.

I chose to buy (add to) a couple of my CLO holdings. I added some of the Eagle Point Institutional Income Fund 8.125% term preferred (EIIA) at $25.05 and a few shares of the Carlyle Credit Income Fund 8.125% term preferred at $25.72 (CCIA).

Now I know some think I am getting a bit aggressive but I continue to research and research on the CLO baby bonds and term preferred issues and I am having trouble gathering any info that says they have the huge risk that they are perceived to have—nothing says they are extreme risk. Does that mean they won’t go down? Of course not – I think the biggest risk is they are not well understood and what investors don’t understand they sell off in times of uncertainty. I am closely watching the net investment income and the net asset values of the issues–both will give me substantial indications of where the asset class is going. Of course I monitor the asset coverage ratios closely.

I will be publishing my tweaks to the laundry list page of holdings before the day is out.

Weekly Kickoff

Are you ready for the week?? I don’t know if I am–but I guess it starts today so ready or not here we go.

Last week we saw the S&P500 setback by around 2%–precipitated by strong employment numbers released on Friday. Interest rates were already elevated from the previous week by about 10 basis points–but then the employment numbers sent the 10 year Treasury up another 10 basis points to the 4.80% area.

The 10 year treasury closed up 18 basis points from the previous Friday at 4.78% although the yield hit 4.80% earlier in the day. Quite obviously investors are concerned with strong employment which is coupled with $113 billion in new Treasury money being raised and now they want to be paid more to fund the debt of a deteriorating situation.

Of course there is never a let up in this tense economy in data. The coming week we will see little economic news on Monday, BUT then we have producer prices (PPI) and the Beige Book on Tuesday and then consumer prices (CPI) on Wednesday. Retail sales get added to the mix on Thursday which will give us another read on economy. Looks like the making of another potentially wild week. We’ll see soon enough.

As one might expect the average $25/share preferred and baby bond fell in price. The overall average fell by 41 cents with investment grade issues falling hard by 68 cents. Bankers fell by 47 cents. Closed end fund issues fell by 17 cents, mREIT issues fell 18 cents with shippers moving 2 cents lower.

Note that lower quality, higher coupon issues fell the least. Additionally CEF issues were reletively stable because a large percentage of the issues are short duration baby bonds or term preferred.

Last week was a relatively busy week in new issuance in income issues. None of the issues below are investment grade, but the 2 insurance companies are just a notch or so below investment grade–in a stable market the 2 insurance issues would be excellent buys for most investors with coupons that pay nicely. Obviously with interest rates threatening to go higher it is anyone’s guess whether they go up or down in share price.

Wow!! Hot, Hot, Hot – Employment Numbers Drive Interest Rates Higher

You all know already that the December jobs number came in way hot–I was fearful of that occurring. With an expectation of 155,000 new jobs markets are not taking kindly to 256,000 new jobs. Of course on one hand it is good news–lots of folks should be employed which is always a good thing, but on the other hand interest rates are soaring with the 10 year treasury at 4.77% after trading as high as 4.79% just a bit ago.

For holders of income securities we will see some pain today–but looking at the bright side of things we may be able to maintain short term interest rates at current levels–or even a bit higher, which should bring us continued ‘decent’ rates on money market funds–and maybe CDs.

It is getting closer to a time to do some bargain hunting in perpetual preferreds–I don’t think the time is here–but it is closer. The strong economy and government debt demands are going to keep moving interest rates somewhat higher, but where that exact peak is isn’t known of course. One is going to have to ‘leg in’ to buy some bargains.

Headlines of Interest to Holders of Preferred Stock and Baby Bonds (Exchange Trade Debt)

Below are press releases from companies with preferred stock and baby bonds outstanding. Additionally, news of a more macro economic importance may be posted.

Until earnings season (2nd half of January) arrives news may be relatively sparse.

Mortgage Rates Continue to Trend Up

Brookfield Asset Management Announces Renewal of Normal Course Issuer Bid

Lincoln Financial to Report 2024 Fourth Quarter and Full Year Results on February 6

MetLife to Hold Combined Earnings and Outlook Conference Call

Reinsurance Group of America Announces Fourth Quarter Earnings Release Date, Webcast

Pinnacle Financial Partners Announces Dates for Fourth Quarter 2024 Earnings Release and Conference Call

Hudson Pacific Properties Announces Date for Fourth Quarter Earnings Release and Conference Call

Arch Capital Group Ltd. to Report 2024 Fourth Quarter Results on February 10

NGL Energy Partners Announces Earnings Call

Just a Clarification

I just wanted to share that what I write on the website will now show up as from ‘Innovative Income Investor’ instead of my name. This is because Google News does not allow for an individuals name to show up on their Google News. So as a continuation of changes on the site I am making this change to get broader distribution of what I write and thus more traffic.

In my 16 years I have written 100% of the content on the sites (The Yield Hunter and Innovative Income Investor) and I suspect that will continue until the day I die (hopefully that is a long time away).