Category: Monday Morning Kickoff

Well markets have been wild the last couple of weeks with giant sized gains in equities 2 weeks ago and then last week with surging interest rates the S&P500 gave back right around 2%. This week will be interesting (as they always are) although we will not have any of the major inflation, GDP or employment reports to drive prices around

The 10 year Treasury closed last week around 4.43% which was up 12 basis points on the week. Inflation numbers were mixed with CPI coming in right around forecast while the PPI came in somewhat hotter than forecast. Right at this moment ( 6 a.m.) we have the 10 year Treasury trading up by 4 basis points at 4.48%.

The Fed balance sheet continued its trip lower as $27 billion in assets were run off last week–now assets are firmly under $7 billion.

The average $25 preferred and baby bond got knocked down last week by 29 cents meaning that the gains realized in the previous week were lost—making making on capital gains is difficult as the average price closed at the lowest level in 2 months. Investment grade issues fell by a giant sized 43 cents, banks fell 24 cents, CEF preferreds fell by 28 cents while mREIT preferreds fell 11 cents and shipping preferreds were off 1 penny. Once again prices moved as one would expect with high quality, low coupon issues got hit hard while junkier issues with high coupons held fairly firm.

What a week! The S&P500 lifted off on Tuesday and never locked back all week long. The index closed up 4.7% on the week and now is at all time highs.

The 10 year treasury backed off from the high of the week of 4.47% all the way back down to a close Friday of 4.30%. We will have to see if the late week rally in bonds was simply a bounce or if there is more upside to bond pricing. We will have to wait another day to find out as the bond market is closed on Monday for Veterans Day.

This week we will have a continuation of economic news (it never ever stops) when we have the CPI being released on Wednesday and PPI released on Thursday. The we will have retail sales released on Friday. The case for a December rate cut (or pause) will be being built. Right now the expectations remain for a December rate cut of another 1/4%–we will have to wait and see if the data backs this expectation or if we get a pause.

The Federal Reserve balance sheet finally reached $6.99 trillion with a fall of $14 billion last week–this 1st time under $7 trillion July 2020.

The average $25/share preferred or baby bond moved higher last week for the 1st time in 3 weeks–share prices moved up by 25 cents. Investment grade issues moved up by 33 cents, banks moved 27 cents while the lower quality issues moved less. mREITs moved 11 cents higher while shippers moved up 2 cents.

Finally election week is here and it can’t come soon enough–I have had my fill of political ads.

Last week the S&P500 continued to move lower as it had the week before–last week by about 1.4% versus 1% the previous week. With many, if not most of the earnings from big tech being released already maybe we will see some relative calmness in the marketplace. On the other hand I don’t know what the election results on Tuesday will do to markets.

Interest rates are the big question for this week. Last week rates moved sharply higher with the close Friday at 4.36% which was essentially the high of the week and 13 basis points higher than the close the previous Friday. Economic news was mixed as has been the case most weeks. Jobless claims were very low and new jobs created in October were also minimal. JOLTs showed a large drop in job openings. While jobs are showing some weakness the PCE (personal consumption expenditure) showed a bit of inflation with the core rate at 2.7% versus forecast of 2.6% and last months reading of 2.7%.

Last week the Fed balance sheet fell by $16 billion–we will fall below $7 trillion this week for the 1st time since Augusts, 2020.

This week we have the double whammy of the election on Tuesday with the FOMC meeting starting on Wednesday with a rate decision, announcement and press conference on Thursday afternoon.

As one might expect we had the average $25/share preferred and baby bond move lower in price last week–by 18 cents/share after moving lower by 19 cents the previous week. Investment grade issues fell by 25 cents, banks by 20 with mREITs off just a penny. On a relative basis income issues remain a little over valued – (maybe around 1%).

Last week, once again we saw common stocks moved higher by 1.1% (the S&P500)–doesn’t matter whether the economic news is good or bad–there remains almost a never ending pot of cash available to buy common shares—because they only go higher (sarcasm intended). Well it is always better when common equities move higher (or remain flat).

The 10 year Treasury yield closed the week at 4.07% which was 11 basis points higher than the close the previous Friday. Inflation was slightly hotter than anticipated as measured by the CPI, but a bit cooler as measured by the PPI. Longer rates are continuing high regardless of Fed Funds rate cuts–simply the Fed can move very short term rates–but longer term rates will be determined by the marketplace. This week should be a bit quieter–the bond market is closed on Monday.

The Fed balance sheet was virtually unchanged last week. There has been no change in the monthly runoff target–it remains at $60 or $65 billion (forgot which it is) a month. If the Fed wan’t to take some pressure interest rates they could consider reducing this runoff.

Once again we had a preferred stock and baby bond market remained fairly flat with the average $25 shares moving 1 cent higher. Investment grade issues moved 1 cent lower, banks moved 5 cents higher, CEF preferreds were flat, mREIT preferreds moved 2 cents higher while shippers were 5 cents lower. All in all for a week that saw the 10 year Treasury moving 11 basis points higher a break even week was just fine with me.

Last week we had one new income issues price. Eagle Point Institutional Income Fund (untraded) sold a new term preferred with a coupon of 8.125%.