Category: Monday Morning Kickoff

The S&P500 moved higher last week with a low of 3214 and a high of 3283 before closing the week at 3265 a gain of over 1%.

The 10 year treasury which had been trading in a range of 1.87% to 1.94% for a number of weeks traded in a range of 1.76% to 1.90% last week before drifting lower into the end of the week to close at 1.84%.

The Fed Balance Sheet fell by a healthy $24 billion last week. While some have claimed this means the Fed is pulling the ‘punch bowl’ away I think it is simply a matter of timing. There is no way whatsoever that the Fed will stop or reduce QE. After taking the balance sheet up by $100 billion in December it was bound to slow down a bit.

Finally we have seen some new issuance of income issues with 2 new issues last week.

The Southern Company (SO) priced a new issue of Junior Subordinated Notes with a maturity date in 2080–the coupon is 4.95%–The ticker is SOJD

I have not seen this issue trade yet in normal markets–although I believe there has been some trading through the bond desk.

MetLife (MET) issued a new perpetual preferred with a coupon of 4.75%. The issue is trading under OTC temporary ticker METFL and last traded at $25.35–the hunger for safe yield continues.

As I mentioned last Friday the average $25 issue moved a bit higher. Looking at the entire universe of preferreds and baby bonds prices were 4 cents higher. Investment grade preferreds moved 7 cents higher–while only mREITs remained exactly flat.

We have had no ex-dividend action to distort prices, so everything is ‘accruing’ dividends and interest which has tilted the average upward. Today we have 11 ex dividend issues and then we have over 40 tomorrow so average will likely move a bit lower for this week.

Markets are likely to trade in a wider than normal range this week-stocks and interest rates.

Regardless of what fundamental data we see this week, the middle east situation will likely dominate the news and thus affect the markets. Historically these types of events have ‘blown over’ in a few days (or weeks), but I get the feeling this one may be with us for longer. When Iran says they will retaliate we simply don’t know if that will happen this week, next month or next year.

The S&P500 traded in a range of 3212 to 3258 before closing at 3235 which is just a small loss of last week. The 10 year treasury traded in a wider range of 1.78% to 1.94% before closing at 1.79% on a rush to safety.

The Fed Balance Sheet rose by just a small amount on the week, adding $8 billion worth of assets.

Last week we again had no new preferreds or baby bonds offered. After 2 weeks without issuance we will likely see a restart to normal issuance this week.

Pricing on preferreds and baby bonds continued strongly higher last week as you can see in the chart below.

Records continue to be set in the equity markets–even with a holiday right in the middle of the week. The S&P500 opened the week at 3226 before seeing a low of 3220, but turning higher on Friday and closing at 3240.

The 10 year treasury seems to have found a fairly “sticky” yield in the last few weeks–in the 1.85% to 1.95% area. Last week it opening at 1.91% before hitting 1.94%, but closed the week at 1.87% as it drifted lower last Friday. With the slow markets last week whether this is meaninfull at all is doubtful. I see that the yield has popped a bit this morning to be at 1.94% now.

The Fed Balance sheet popped again last week as it grew by $28 billion. This gives us total growth during December of an incredible $100 billion of Non quantitative easing (that’s what Powell says anyway).

Last week we didn’t have any new preferreds or baby bonds announced–probably will be the same this week with the holiday right in the middle of the week again.

Below you can see that pricing on shares of preferreds and baby bonds moved the tiniest amount higher for the week. Remember that ex-dividend dates occur during these period and distort the numbers a little, but with a larger sample size the distortions are minimized.

The S&P500 traded in a range of 3183 to 3226 and closed near the high at 3221 last week as stock traders and investors continue to drive prices higher.

The 10 year treasury opened at 1.85% before moving as high as 1.95% before closing out the week at 1.92%. The question is can the rate move above 2%? As long as we see a very slow move higher I don’t mind seeing rates rise a bit–it will eventually put a stop to these sub 5% issues.

The FED balance sheet grew by a giant $42 billion. With the new QE the balance sheet has now grown $378 billion since 9/4/2019–this is really a giant QE–$90 billion a month.

Last week we had just 1 new income issue.

Gabelli Multimedia Trust sold a new 5.125% perpetual preferred which is now trading under OTC ticker GABGP. Shares last traded at $25.35

In addition to the Gabelli issue the new 8% foxed-to-floating rate issue from Medallion Bank (a division of Medallion Financial-MFIN) began to trade.

After starting out very weakly early in the week–trading as low as $24.40 the issue got some traction as the week wore on and the share price traded as high as $25/share, before settling back a bit in the $24.90 area.

Disclosure–I bought a 1/2 position at $24.49 and finished the 2nd half at $24.65. I likely will exit this position soon as it was meant only as a ‘flip’.