Category: General News

Early this morning (around 5 a.m. central) Bank of England announced a ‘temporary’ return to quantitative easing and suspension of asset sales.

BOE said the markets had become dysfunctional and their intent was to stabilize markets.

Both equities and interest rates immediately turned higher (in price) in the U.S. – whether this holds is anyone’s guess. At this moment (5:30 am central) the S&P500 is off just a bit and the DJIA is flat (from off 280 Dow ponts). The 10 year treasury is at 3.88%–down 8 basis points.

Ugly numbers reign as year over year consumer prices rose by 8.3% compared to an expectation of 8%. Most certainly this makes the 75 basis point increase in the Fed Funds rate later this month a certainty.

The S&P500 dropped by about 2% on the announcement. The 10 year treasury yield jumped by 12 basis points–ugly.

This news was not needed–but we play the hand we are dealt.

Well there has been chatter in the comments today and through the power of the group I think we have figured it all out.

As most of you know Libor (London Interbank Offered Rate) will go away on 6/30/2023. This brings the question of ‘what happens to the fixed to floating preferreds that have their coupons tied to 3 month Libor?’

Note that virtually all the issues that have been sold in recent months are using the ‘fixed rate reset’ terms—when they move into the reset periods they base the rest rate on the 5 year treasury plus a fixed ‘spread’.

Additionally the fixed to floating rate issues sold in the last year or two have qualifying language which states that if Libor is unavailable (doesn’t exist) a substitute will be chosen.

Believe it or not congress passed a bill on 3/15/2022 (Adjustable Interest Rate Act).

What this bill does is ‘punts’ the decision on what will be used to reset these floaters to the Federal Reserve. The info is here. (Thanks Roger and nhcoast for digging)

The Federal Reserve opened the topic up for comments–comments could be made up until today.

So the bottom line is we don’t know yet and the decision has not been made–BUT the strong opinion of many (and I think the most likely answer) is that starting 6/30/2023 3 month SOFR (Secured overnight financing rate), plus an adjustment of .2616 basis points will become the floating portion on these issues (the current 3m libor floaters and fixed to floating).

Thanks to everyone who chimed in on this discussion—I’ll be able to sleep tonight knowing that we know we have no answer–which is better than thinking there is an answer but you don’t know what it is.

Wow–528,000 new jobs. Of course interest rates shot up–by 10 basis points and stocks dropped. Could be an interesting day (aren’t they all?).

Once again we await on important economic stat–seems like there is something every week.

The consensus forecast is an addition of 258,000 new jobs in July with an unemployment rate remains flat at 3.6%.

Whether this number runs hot or if it comes in short it will not change anything I personally do investment wise, but it will give cover to future Fed moves–if the number runs hot the Fed has one more arrow in the quiver to continue rate hikes. If the number is soft it is a chance to soften the tone of their statements and potentially pave the way for interest rate hikes of say 50 basis points or just 25 basis points late in the year.

We’ll know more in 15 minutes.