Once again mortgage REIT Redwood Trust (RWT) is coming to market with a new issuance of baby bonds. This will be the 3rd issuance by this company in 1 year. Previous issues were sold on 1/17/2024 and 6/13/2024 with 9.125% and 9% respectively. The company also has a 10% fixed rate reset preferred outstanding (RWT-A).
I have not reviewed the company financials lately, but on the surface they are certainly racking up a lot of high yield 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.
We got the number that we were hoping for–at least I did. A producer price index that was either on target or maybe a little cooler than forecast. It helped equities and interest rates for an hour or two–but now equities are red and nearly 1% off the high. Let’s face it–for now the bloom is off the rose and folks are loving money market funds.
The balances in money market funds just keep climbing—for the week ending January 8th MM funds increased by $66 billion. With MM rates now in the 4.2% to 4.45% area it is easy to understand why folks are parking cash there. I hold the Gabelli US Treasury Money Market (GABXX) and it has a 7 day yield of 4.39%–I am happy at that level and am guessing it will be available for many months to come.
Money market fund balances historically have been relatively steady, but ever since the pandemic they have gone into hyperdrive mode–pushing ever higher. The dry powder to push baby bonds and preferreds higher is massive, but can’t/won’t happen with the Fed Funds at current levels–it needs a spark to ignite that move and with short term rates remaining at current levels there is no spark.
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.
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.
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.
