The 10 year treasury is up 11 basis points at this moment at 4.11%—too fast of a move, although income issues are not getting hit too bad thus far–I’m surprised.
Equities which were modestly strong last night and into early today (futures market) moved lower all morning and now are staging a bit of a bounce–still off about 1%.
The building permit numbers this morning were fairly strong at 1.56 million units versus 1.54 million expected while housing starts were soft with 1.44 million starts versus 1.47 million expected. All in all not ‘hot’ but certainly not very ‘soft’. 30 year fixed rate mortgage are at 7.04% today per Bankrate–down 2 basis points from last week–likely will see these tic higher tomorrow.
I nibbled a few more shares of Liberty Broadband 7% preferred this morning–about enough of that one so will be looking elsewhere for more nibbling in the weeks ahead. I think I will likely go back to the banking sector–i.e. CUBI issues.
Tomorrow we have the Philly Fed manufacturing number, existing home sales and the Leading Economic Indicator for September. Any chance of softness? I doubt it.
Saratoga Investment Corporation (SAR) has announced a new offering of baby bonds with a maturity date in 2027.
The business development company (BDC) has 1 other issue current outstanding with a 6% coupon and a maturity in 2027 as well. This issue is trading around $23.65/share right now.
Equities are calm this morning (at 5 am central) after a 1% up move yesterday–the S&P500 futures are up 6 points. Of course we know this can turn quickly.
The 10 year treasury yield is up 5 basis points to the 4.05% area–unlike the last time yields hit the 4% mark this time it doesn’t act like it wants to fall back under that mark. Yesterday the industrial capacity index for September was released and it was much stronger than forecast at a +.4% against an expectation of +.1%–the previous reading was -.1%. Once again economic data isn’t matching the narrative of a soft economy. The NAHB home builders index did show a softening with the reading at 38 which was below the forecast of 44 as interest rates are biting into that business.
Today we have the building permits and housing starts numbers released at 7:30 am (central) so we will see how this important sector is fairing–as compared to the softening home builders index.
Yesterday I did nothing at all investment wise. Today I will nibble a little of the Liberty Broadband 7% preferred (LBRDP) as it was knocked down yesterday, once again, to a current yield of 7.83%. This is adding to a long held position.
Everyone has their goals for their investing—and every single one has their beliefs on how to attain their goals. My goals are simple–I would like to attain a 7% annual return by buying a blend of investment grade preferred stocks and bonds with some sprinkling in of some mid grade quality issues (I.e. BB and Ba1 – just below investment grade).
Some would like to attain a 6% or so annual return and they want to do it with ultra safety–impossible to attain the last few years–but now is a reasonable time to begin to lock in those yields and do it with high quality issues.
One of our newer website investors asked for some ideas on quality issues–so I though I would write on the topic on occasion so here is my thoughts on a quality issue which also provides a superb current yield.
RiverNorth Opportunities Fund (RIV) is a closed end fund which essentially is a ‘fund of funds’ holding near 1/2 the fund in other closed end funds , but also holding a large allocation to SPAC’s.
The fund has been around since 2015 and has attained a 8.7% annual return (through 7/31/2022)–not terrible, but significantly below the S&P500 return. The fund has assets of around $380 million, so not a large fund relative to other closed end funds.
As a closed end fund they need to maintain a minimum of a 200% asset coverage ratio on senior securities, in this case preferred stock. As of 7/31/2022 RIV had a coverage ratio around 281%. It is obviously less at this point.
The preferred stock (RIV-A) was issued 4/12/2022 and the company sold about 3.9 million shares (3.4 million plus the overallotment of 510,000 shares).
RIV-A is rated A1 by Moody’s – strongly investment grade.
A comparison of like rated issues shows that the RIV-A provides a current yield almost 3/4% above the Gabelli issues which are rated A1, A2 or Aa3–very similar. Why are Gabelli issues yielding less? In my opinion it is because RIV holds SPAC investments—additionally as many here know ‘names matter’ and Gabelli is a old manager of closed end funds and the funds are larger in terms of net assets and are more traditional common stocks.
So the bottom line for me is that the RIV-A issues has a very attractive current yield with fund performance that is adequate (not the best – just adequate). Would I prefer a more traditional issuer? Yes I would, but I would forgo the incremental yield and at an A1 rating I feel comfortable with this issue.
A reminder–if interest rates continue significantly higher the share price may suffer (i.e. it is perpetual)–but the safety remains.
Disclosure–I own a near full position in RIV-A and am not recommending this issue to anyone–do you due diligence–each of us is different. I may buy more of this issue depending on opportunities presented.
