The S&P500 ended the week down just over 1% –trading in a range of 4060 to 4176–about a 3% range. We didn’t really have any massively important economic data, but we had the chief Fed yakker Powell in a Q&A at the Washington Economics Club on Tuesday which had equities gyrating quite a bit before closing sharply higher–before drifting off for the balance of the week.
The 10 year treasury yield traveled in a range of 3.57% to 3.75% and closed the week right near the highs. The continuing strength in the economy and hawkish talk from the Fed is keeping pressure to the upside on yields. We saw lows in the 3.33% area just about 10 days ago, but it has been continual upside since that time.
For the coming week we have lots and lots of economic news coming. The biggest, of course, is the consumer price index (CPI) on Tuesday and then the producer price index (PPI) coming on Thursday. These numbers best come in near the forecasts or we are going to have the 10 year treasury yield up to 4%.
The Federal Reserve Balance Sheet grew by $2 billion in the last week to now be at $8.435 trillion.
Last week the average $25 preferred stock or baby bond issue fell by 19 cents–so almost 1%. Banking issues fell by 14 cents, investment grade issues fell by a larger 28 cents. mREIT issues fell by 22 cents and shippers fell by by 10 cents
Last week we had 1 new income issue priced–by Associated Banc-Corp–a fixed rate reset subordinated note. The ticker has not been announced and there has been no trading that I can find–although 1 person mentioned last week it was trading?
After January and the tremendous gains most of us experienced these ‘red’ days, which while not severe, are chipping away at some of those profits. I guess we won’t have 5-10% gains every month (big surprise). The S&P500 futures are off just over 1/2%–we will see if that holds or we get a reversal up during the day.
The 10 year treasury yield is popping a bit and now is at 3.71%up 3 basis points. Not much economic news to drive this today–we have the University of Michigan Inflation Expectations reading and a couple of Fed yakkers, but that is it.
I had noticed folks talking about the Bell South CORTS 7% resettable (KTBA) tender offer that is out there–very interesting. So we have 745 Capital LLC making a tender at $19–a slight premium to current price of $18.20. I couldn’t find out who is behind 745 Capital, but it makes sense to me that wealthy people might set up a company to buy under priced debt–hell if I had an extra billion or two lying around I would do it. I note that 745 Capital made a tender for shares of Ladenburg Thalman 6.50% debt last summer for $15/share–so two tenders at the opposite ends of the quality spectrum.
I haven’t done buying this week–but I have sold some of the specialty finance company term preferreds (i.e. Oxford Lane (OXLC) and Eagle Point Capital (ECC)). After vacillating for weeks I simply decided I didn’t need to hold these shares. Technically they should be ‘money good’ because of the need to have a 200% asset coverage ratio–BUT if there is a recession ahead there will be trouble in this sector. With higher interest rates the net asset values (on a common share) had tumbled quite a bit (although rising last month) in the last year. If the portfolios experienced larger downdrafts in a recession it will take quite a bit of ‘slight of hand’ to continue to hold 200% coverage. I simply don’t want to have to worry about my holdings. I maintain minimal holdings in these.
Most that read the comments section already know that Brookfield Reinsurance has agreed to purchase Argo Group Holdings (ARGO) which has a baby bond and a preferred stock issue outstanding.
Argo has had plenty of financial issues in the last year and publicly announced they were searching for alternatively (i.e. selling the company) so this was not a major surprise.
I had held the 6.50% debt issue (ARGD) which I have now sold–1 simple reason–I want nothing to do with anything named “Brookfield”. I suspect the issue will be fine, but just the same I have no trust in Brookfield so to keep it simple I just sold. The various Brookfield companies have a history of not paying dividends on acquired company’s–and in the most recent case of Altera Infrastructure took the company into chapter 11.
If I were an owner of the 7% resettable preferred shares (ARGO-A) I would ponder the risk that Brookfield will declare and pay the dividend (it is non-cumulative). The share price is now $24.40 which is up from a low of around $18. Historically Brookfield will only pay dividends on a portfolio company shares if the portfolio company is “carrying its own weight”–they are not going to ‘chip in’ to pay the dividends. Company’s that are in financial distress may well have their dividend suspended.
This is simply a note to make sure that preferred share holders weight their options and go into the acquisition with a well thought out plan. I have no ‘dog in this fight’.
