While I don’t see many ‘bargains’ out there in shorter dated maturities I did add to one of my current holdings today to help me toward my 7% goal (and you can be certain 7% will be plenty difficult in the next year).
I doubled up my position in the MidCap Financial Investment 8% notes due 2028 (MFICL). The issue goes ex-dividend the end of this month so I had to pay more than is optimal ($25.55), but at least I capture the 50 cent interest payment. It should be noted the issue has a 1st call date in December, 2025. It should be noted that with the early call date and the maturity in 2028 pricing on this issue should be close to $25 (stripped price) most of the time over the course of the next couple years.
MidCap just released their earnings last night so one can get a good update on the company in the release. This is a pretty large BDC (relatively speaking) with assets of over $3 billion after merging with 2 Apollo fund last quarter.
Of course I will add this to my ‘laundry list’ of holdings.
I added to my position in the XAI Octagon 6.5% term preferred (XFLT-A) @ $25.02–this matures inMarch, 2026. This issue keeps trading down below $25 so I also have a GTC order @ $24.85 to buy more.
For the time being that should be all my selling–we will see where interest rates head before making further decisions, although I will be looking for issues trading at or below $25 that mature in the next 6 months–hiding spots for money at rates above CD and money markets rates.
I have not had the opportunity to update my ‘holdings’ page yet, but will get it done yet this week.
As I mentioned previously on Monday I lightened up on a number of preferreds and baby bonds that I held–primarily higher quality issues. I did not sell the entirety of any holding. Those I sold are—
Note that a few issues were sock drawer issues and certainly they are extremely safe, but in the interest of preserving capital lightened up on on them a bit.
I put some of the proceeds from these sales in this very short duration security.
The Atlanta Fed GDPNow model is currently showing Q3 estimate of GDP at 3.4%–certainly higher than most economist are forecasting. Of course the forecasting is just ‘guestimating’ a number and we can all do that with about as good of accuracy as most of these folks.
Regardless of the forecast the question I have is how much are income investors on a global basis going to punish debtors (the government) for having too much debt now–and more importantly into the future.
There is little in the way of poor economic news in all the stats we see everyday–employment remains decent while inflation is kind of stuck at current levels. Of course the world is a dangerous place and circumstances could change at any time with the various wars going on, but generally the need for interest rate cuts doesn’t seem dire. Are the equity markets reacting poorly to the potential ‘push back’ Fed Funds rate cuts or are they sensing much higher longer term rates based on the inability of the government to get spending (thus debt) under control?
It seems to me the answer to my question is yes.
Regardless of why markets are acting the way they are currently I believe that it is a good time to rearrange some of my preferreds and baby bond holdings. Given that I held capital gains in virtually everything I held and my own personal view that longer term rates are going higher over the course of the next 6-9 months I see no reason to incur large potential capital losses.
Yesterday I trimmed back many holdings (I will give more detail when I have time to compile my data)–either in baby bonds with low coupons or low coupon perpetual preferreds. I did not touch my holdings in floating rate or high yield issues (i.e. BDC bonds) or term preferreds. This has driven my cash position up quite a bit in 1 of my accounts–where the money will ‘wait’ drawing 4.5-4.7% which should hold until at least the next FOMC meeting in November.
I will await opportunities–preferably high yield at better pricing. We’ll see where we go from here.
Today I went ahead and initiated a new position in a business development company (BDC) baby bond.
I bought the Trinity Capital 7.875% (TRINZ) issue at $25.29. I currently hold the 7% baby bonds from Trinity (TRINL), but this issue matures in January and this could be considered a replacement. The TRINL issue already experienced a call for 25% of my shares (bonds)
I did review the company financials from August and didn’t find any glaring issues–in particular payment in kind holdings (PIK). Of course it is a BDC so there will always be issues of one kind or another–but I didn’t notice anything of unusual concern.
I continue to shop–although once again I don’t feel pressure in particular in light of the 10 year treasury yield backing up–now stuck at 4.03%. The CPI on Thursday could push the rate higher or lower (of course) and then I will see if I want to add more shares of a preferred.
