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Weekly Kickoff

Well how are we going to end the year– can we get a late year rally or will we see the continuation of some profits taking? Of course no one knows–but there are plenty of unknowns for the year ahead so maybe we will simply tread water for the week. On the other hand it is likely interest rates will be in the drivers seat and with the 10 year closing last Friday at 4.62% I am concerned that we could see a push higher which would likely torpedo any rally chance

Last week we had the S&P500 move around in a just less than 3% range but ended the week up from the previous Friday by just under 1%. The index continues at just around 2% below all times highs–while it feels painful to some obviously a 2% setback is nothing.

Interest rates climbed higher once again closing at 4.62%–10 basis points higher than the close the previous Friday and 22 basis points above 2 weeks ago. We are at the highest weekly close since Friday April 24th which closed at 4.65%. This week is another quiet week as far economic data is concerned with no real market moving data on inflation slated to be released.

The Federal Reserve balance sheet contracted by another $4 billion with the Fed leaving the ‘run off’ in place at the last FOMC meeting.

Once again the average $25 preferred stock and baby bond took a fall last week. The average share fell by 21 cents to the lowest level since the week ending 6/28/2024. Investment grade issues fell by 32 cents, banks fell by 21 cents with CEF preferreds off 3 cents, mREIT issues 20 cents with shippers off just 2 cents.

Unemployment Claims Remain Tame

Yesterday we got 1st time unemployment claims which came in at 219,000 which is relatively tame compared to a forecast of 224,000 BUT continuing claims came in at 1.91 million which is up from last week which was at 1.87 million. As I have mentioned I watch the employment numbers very closely–they are the ‘canary in the coal mine’ relative to the overall economy. It is tough to see the economy falling off a cliff if everyone that wants a job has a job.

Interest rates right now seem to be ‘stuck’–right at 4.60% (more or less). What is going to push rates higher–or lower? GDPNow from the Atlanta Fed is showing 3.1% as of 12/24/2024–if this is close it will be no help for lowering rates. Employment is not looking to be of much help for lower rates. The scariest thing from my perspective is we have no real idea on what government spending will be down the road (actually we all have opinions for sure)–are the bond vigilantes going to take over and ‘force’ discipline on the government? I don’t know the answer, but I am certain that there are some money folks out there that are licking their chops at the possibilities for making a killing in the debt market if something goes wrong.

Speaking of Bond Vigilantes here is a Pimco article from 12/9/2024.

Interesting Reading on Leveraged Loans

The CLO owner company’s – Eagle Point Credit, Oxford Lane etc, hold portfolios of leveraged loans–loans to company’s rated BB or lower. As such I watch the data on the overall collateralized loan obligation (CLO) market whenever I can find it.

Here is an article from S&P Global on defaults etc in the leveraged loan sector. It is one of the best overviews of the market that I have seen in quite a while.

Headline of Interest for Holders of Preferred Stock and Baby Bonds

News is always slow until earnings season, but today (and likely tomorrow) are incredibly slow–I think everyone has taken an extending holiday.

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Mortgage Rates Continue to Rise

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Hyperscale Data Completes $50 Million of the Aggregate $75 Million Preferred Equity Investment from Ault & Company

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ARMOUR Residential REIT, Inc. Announces Guidance for January 2025 Dividend Rate per Common Share

Bought Some OFS Credit Term Preferred

I bought shares of CLO Owner OFS Credit 5.25% term preferred (OCCIN). While the coupon is rather low the yield to maturity is pretty good at just under 8% (maturity is 12/31/2026).

OFS is a rather small closed end fund–just $240 million in assets. They use term preferreds as their sole leverage. Their asset coverage is near 2.61 times (as of 10/31/2024)-which is a bit lighter than I would like, but adequate–of course I always watch coverage ratios closely. Their most recent report can be read here.

This yield to maturity is a good step up in return from those issues I sold earlier today–I expect it will work well and should arrest some of my capital losses (of course nothing is 100%).

Now on to see where I might do some more swapping of low coupon issues out for higher total return issues.