Innovative Income Investor | Innovative Income Investor

Monday Morning Kickoff

All in all a decent week for the Standard and Poor’s 500 with a gain of 1.6% over the previous Friday close. The range for the weeks was over 4% as we had a couple high importance economic news items – the FOMC rate hike decision and the release of a very strong employment report on Friday. This morning we have the S&P500 futures off about 1%–for what that is worth.

The 10 year treasury yield closed almost where it had closed the previous Friday at 3.53% (versus 3.51% the previous Friday). The strong employment report on Friday kicked yields up by 13 basis points we gave us a rare loss in income issues on Friday. We are starting off the new week with higher rates as the 10 year treasury is up 7 basis points this morning to 3.60%

For the coming week we have few economic reports coming out–one can never tell what will move markets though. Of course we have Fed yakkers–and any one of them can move markets.

The Federal Reserves balance sheet fell by 37 billion from the previous week–now at $8.433 trillion. So since April when the balance sheet peaked out at $8.965 trillion we are down about 1/2 trillion–another 10-15 years we will have a zero balance sheet–ain’t going to ever, ever, ever happen, but if we can get down a trillion or 2 we might have a shot of re-inflating the economy out of the next deep recession.

Last week was a decent week for income issues with the average issue up 13 cents. On Friday we saw a drop of maybe 1% though on the employment report and subsequent levitating of interest rates. Investment grade issues rose 18 cents, banking issues rose 4 cents and mREIT issues were up 14 cents on the week.

Last week we had one new income issue priced–a fixed-rate reset issue from mREIT Ellington Financial (EFC). The issue is trading on the OTC right now and last priced at $24.58.

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What a Blow Out Jobs Number!!

As might be expected when you have a ‘blow-out’ new jobs number (over 500,000 new jobs) interest rates have taken a pretty big jump higher–up 12 basis points on the 10 year treasury yield to 3.52%. While in years past a 12 basis point move higher would likely send prices of income issues tumbling hard–that is not the case now.

Overall prices are generally red, but maybe only by 15 cents or so – on average. My accounts are negative, but only by maybe 1/5%. There are still buyers out there stepping in to make buys–keeping losses pretty minimal. I do note that the investment grade AIG-A 5.875% perpetual preferred is off $1.50/share in the last 2 days and now yielding 6.10%–I assume it is off based on the sacking of the CFO a couple days ago. This is a decent issue if one can get it here at $23.98 or so.

The employment number sets Jay Powell and the FOMC committee for another rate hike on March 22nd (the end of the next meeting). We will have substantially more data , including more employment numbers, by the time the next meeting rolls around but I think it is highly unlikely that the FOMC will be deterred from further hikes.

So on to the weekend–I am looking forward to it – mostly because the temperature will rise here in Minnesota to the 30’s–right now it is almost 1 p.m. and it is still -4 degrees – too cold for old people like me.

Ellington Financial Pricing Info on New Fixed-Rate Reset Preferred

Below is the pricing information on the new Ellington Financial (EFC) fixed-rate reset perpetual preferred.

The issue should be trading on the OTC market today under ticker EFCRP.

The pricing term sheet can be found here.

Wrapping Up Another Week

Another great week is nearly in the books–and now we wait for the employment numbers to send us into the weekend. Forecasts are for 187,000 new jobs and an unemployment rate of 3.6%. Given that Powell continues to focus on employment as an important piece of data in rate hike considerations it would be nice to see a somewhat weaker number than forecast–say 150,000 new jobs–but who knows–we will know in 30 minutes.

Yesterday I noted I bought some UMH-D perpetual preferred–but I also sold 1/2 my position in closed end fund Royce Value Trust (RVT). RVT is my only CEF holding and I had held it for the better part of 6 months and had added at the lows–so I got a nice capital gain plus some dividends–I will re-buy at lower levels.

Today I am pretty sure I will do no buying today–don’t know about continued trimming–I thought this would end but as prices move higher more trimming opportunities arise.

Ellington Financial (EFC) did price their fixed-rate-reset new issue last night and the coupon is 8.625% for the 1st 5 years with the reset spread at 5.13%–pricing is for 4 million shares. The pricing term sheet is here.