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Plenty of Irrational Behavior In Preferred Arena

Almost daily I look at many preferred stock issues that I might want to own–some are for ‘flips’ but some are for long term holding.

My own searches and comments made by folks on the site usually lead to some preferreds with really interesting behavior — most of it appears to be ‘herd mentality‘ related.

This morning I was looking at the SL Green 6.50% perpetual (SLG-I) preferred as shown below.

The issue went ex dividend on 12/31 and was marked down by the dividend amount–in the $25.40 area–6 days later the issue is trading in the $26.40 area–$1 higher.

This pricing is crazy–at least if you are a rational investor. This issue has been callable since 8/2017.

I hope that those on this site that had owned the issue are now exiting–my guess is that some readers have nice profits on this issue on short term trades–that’s great, but now is time to exit. This is but 1 example of irrational behavior by buyers at $26.40–there are lots more.

Waiting on A Big Economic Number

We all know that tomorrow the monthly employment report for December will be released.

Is it likely to be meaningful to markets? No, I don’t think within a reasonable range it will be meaningful for longer than 2 hours–then the stock market will move higher.

But really–the expectation is for 160,000 new jobs being created in December. ADP showed over 202,000 new jobs in their report on Wednesday–of course no one really pays much attention to ADP. Just the official government report has power to move markets–occasionally.

Of course I have no idea what the number will be, but any huge outlier number could move markets. By huge outlier I mean something like 50,000 on the low end or 300,000 on the high end. When the number has missed by a fairly large margin (20,000-50,000) recently there have been almost no reaction after an hour or two of digestion So tomorrow if the number is 50,000 nervous nellies will yell ‘recession’. If the number is 300,000 interest rates would move up by a few basis points and folks would yell ‘higher interest rates coming’.

In the end it is highly likely the stock market will end higher Friday and interest rates (measured by the 10 year treasury) will move in a tight range of plus or minus 2 basis points (from the current 1.86%).

“Party On”–Everyday!!

Well the stock market is flying today as the “China deal” is the gift that just keeps on giving. Seems like this deal has given the stock market 10% of its gains this year.

Interest rates are just a tic or two higher–as high as 1.90% to now at 1.89%–maybe back in the previous trading range before the Iranian event.

Preferreds and baby bonds ($25 issues) are trading off 2 pennies today–for all practical purposes flat.

I have noticed a lot of activity lately on the “Canadian Chat” page. Seems there is more interest in Canadian preferreds now that we have fewer reasonable choices in the U.S. markets. Maybe I will need to bone up on this market–and maybe others should as well.

We had a pretty sizable REPO today by the FED. They took $49 billion in the overnight (1 day) market and $34 billion in a 14 day deal–a total of $82 billion. I believe there are some large treasury auctions this week so it will be interesting if the Fed has to do bigger deals in days ahead to provide more liquidity to the primary dealers–we’ll see.

This morning I bought a modest position in Brookfield Property REIT 6.375% perpetual preferred (BPRAP) for $25.33. Issue is now callable (since 2/2018). The most recent dividend was paid 1/1/2020 so now it is accruing for the next payment–assuming typical 30 day notice before a call there is about 15 cents at risk in event of a call (calculated off the top of my head for those checking with a calculator). My intention is to simply hold this issue–not flip–I need cash deployment.

The new MetLife 4.75% perpetual issue is now trading at $25.24 on the OTC under ticker METFL. Folks obvious are scratching hard for a little yield.

$25 Issues @ or Near Early Redemption-Replay

This is simply a replay of the note I posted on 11/23/2019 and previous to that in September.

The number of opportunities in the investment grade arena has fallen since that time–i.e. issues are trading TOO HIGH.

I will work on a new listing for the next week and will include non-investment grade issues as well.

This is from 11/23/2019

About 2 weeks ago I posted this spreadsheet which is Investment Grade Preferreds and Baby Bonds Now Callable.

I am reposting–I did not update the dates as little changes over a 2 week period (although since the original post 6 issues have been called for redemption), BUT prices do change and I see a couple I don’t own that are in the list which I may pick up.

Currently I own the following off the list–

Axis 5.50% preferred (AXS-D)

WR Berkley 5.625% baby bond (WRB-B).

Vornado Realty Trust 5.40% Preferred (VNO-L)

So I now see a couple others that I will look closer at for potential purchase.

1st is the DTE Energy 5.25% baby bond (DTQ).

2ndly is the Kimco Realty 5.50% preferred (KIM-J)

The idea is that if interest rates don’t move too violently up or down these issues should stay relatively closely tied to liquidation preference ($25) while providing high levels of safety. I don’t really want to deal with any issues under 5%, because the redemption likelihood is small thus exposing the issue to bigger share price moves (down).

Here is the list again.

Note that the yield to worst DOES NOT include accrued dividends so the actual yield to worst is slightly better than that listed.

For those wanting the full investment grade list of baby bonds and preferred stocks you can click here. You can toggle on the bottom for investment grade.

Putting This Day to Rest

So stocks ‘partied on’ and interest rates spiked up to as high as 1.88% before settling a bit lower.

I though when I tallied the numbers today I might see a little give back in income issue prices–but NO. The average price of all preferreds and baby bonds moved 4 cents higher today.

The new MetLife 4.75% closed at $25.10–goes to show that investors are getting almost desperate to buy a little yield.

Even the Uhaul Investors Club has cut their short term coupon issue to 2.50% (2 year term). For the last year the 2 year term issues paid 3%.

For me I guess this all means that I am going to have to ‘reload’ on issues that are in the redemption period and are pegged to $25 because of the call risk. Right now it is the most reasonable place for my cash.