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Monday Morning Kickoff

In a continuation of the melt up in equities the S&P500 traded in a range of 3032 to 3212 last week before closing Friday at 3194–a huge gain on Friday capping off a gain on the week of over 5%.

The 10 year treasury moved much higher last week closing at .9%–the highest closing level since 3/20/2020.

The Fed balance sheet moved to a level of $7.17 trillion which was up $68 billion from the week before.

The average $25 preferred and baby bond moved higher by 66 cents–2.5%. As you can see below mREIT preferreds moved $1.61 higher, lodging REIT preferred were $2.89 higher while investment grade, which had already been much higher over the last number of weeks, moved just 13 cents higher.

Last week we had 3 new income issues announced (as well as 1 reopening).

Virginia banker Atlantic Union Bankshares (AUB) priced a new non-cumulative issue with a coupon of 6.875%. The shares are trading on the OTC grey market under ticker AUBKL and last traded at $25.

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United Community Banks (UCBI) priced a new non-cumulative preferred issue with a coupon of 6.875%. Now trading on the OTC grey market under ticker UCBKL and this issue also closed the week at $25.

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Lastly annuity provider Athene Holding (ATH) sold a new issue of non-cumulative preferred that is a fixed-rate reset, with coupon reset every 5 years. The issue carries a 5.97% spread which will be helpful in the out years.

The issue is trading on the OTC grey market under temporary ticker ATHHL and last traded at $25.40.

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Athene Holding LTD Pricing Detail

Below is the pricing detail for the new Athene Holding LTD (ATH) fixed rate reset preferred.

Until 9/30/2025 the coupon is fixed at 6.375%.

The coupon will reset every 5 years starting 9/30/2025 and will reset at the 5 year treasury plus a spread of 5.97%–a pretty decent spread on an investment grade issue. This spread becomes the floor rate for the future coupon.

This issue is redeemable starting 6/30/2025 for a period of 90 days (until 9/30/2025). Then is only redeemable for a 90 day period in a coupon reset year (every 5 years) from 6/30 until 9/30.

The pricing term sheet can be read here.

Shenanigans in the Commercial Mortgage Patch?

You know it is happening–I know it is happening–the question is to what level phony mortgages are being written in the commercial mortgage market?

We all have our own thoughts and opinions on subjects like this, but to truly get to the bottom of it you would need to work 24 hours a days for months on just this one topic. Since none of us have this type of time we depend on others to do the legwork.

Here is an article–I can’t vouch for how accurate it is, but typically where there is smoke there is fire–is it a backyard bonfire, or a ranging wild fire?

Check out this article if you haven’t seen it already.

Interest Rates Creep Higher and Higher

Only 3 months ago we had the 10 year treasury touching in the high 1.40%’s.

Today we see the 10 year treasury trading at 1.93%–a full 4/10th’s of 1 percent higher.

In general, we have not seen substantial damage to preferred stock and baby bond pricing. Sure we see some of the high quality very low coupon issues having trouble with ‘traction’ in moving higher, but the evidence shows that interest rates are having very little affect on pricing–so far.

Only today mSquare wrote on the new “Flipping and Dividend Capture” page that he/she bought the new AT&T 5% perpetual preferred for $24.9x on the OTC Grey market and just sold it on the NYSE for $25.6x. This shows that there has been hunger yet for ‘yield’ –even low yield.

Today Newman mentioned that he/she was getting a bit concerned with the 10 year treasury moving higher.

As income investors we all need to be concerned with higher rates, BUT one can not ‘run for the hills’ because there is no one that can predict what rates will do tomorrow and we all need some sort of income stream–it has almost always been true that money buried in the back yard earns little interest.

As the old commercial on the television used to say “speed kills” (of course talking about driving), but we know that interest rate movements can be fairly well tolerated if the movement is slow–2,3 or 4 basis points up one day and down 1 or 2 basis points the next. The move from 1.4x% to 1.93% took 90 days or so–and this move has been well tolerated.

At this point in time if we see a 1/8% spike higher 2 days in a row–that would be a bigger concern. The low coupon issues will act very badly if we get these kind of moves. Additionally the low coupon issues will act poorly even if we get slow moving higher rates–month after month after month.

Lastly we can never predict some major moves. A few years ago the markets threw a ‘taper tantrum’ simply because the FED suggested a reduction in quantatative easing. The 10 year treasury rose near 1/2% in 2 weeks–simply based on a ‘suggestion’ of a tapering that never happened.

So in summary I would encourage investors to do what makes them feel comfortable. If rates do pop and you lay awake nights – make some sales–store some dry powder–or if you fear the future–next week or next month–sell a little and hold the cash until you mentally feel better. I have made a few sales recently and am in no hurry to reinvest–more because I am hoping for some better pricing ahead. In my 15 years of purely preferred stock and baby bond investing every big sell off has resulted in the opportunity to buy good issues at low prices–so keep a little dry powder.

Monday Morning Kickoff

Opening the week at 3142 the S&P500 moved lower to 3126 on Tuesday before moving higher to close the week at around 3169–short of a 52 week high in the 3183 area.

The 10 year treasury opened the week around 1.83% and drifted plus and minus a few basis points before taking a run all the way to 1.92% on Wednesday based on never ending Chinese trade rumors. Rates then drifted lower as the trade ‘deal’ turned in to not much at all–closing the week at 1.82%. We shall see the veracity of Chinese ‘deal ‘ claims this coming week – I would not be surprised to see rates drift through the week.

The FED balance sheet grew again last week–this time by $30 billion for a 3 week total of $65 billion–this non-QE, quantative easing is really quite the joke as FED explanations make little sense and as some on the site have posited–Who is in trouble? Is it the German derivative king Deutsch Bank (DB)? Or is the FED simply monetizing the massive debt of the U.S. Government? Sooner or later we will find out what the hell is up–but for now ‘party on’ -ignorance is bliss.

Last week we had a number of new issues priced.

Insurer WR Berkley (WRB) priced a new baby bond. The issue is not trading as of yet.

Closed End Fund Gabelli Equity Fund (GAB) priced a new 5.00% perpetual preferred which is now trading under OTC ticker GBLQP and last traded at $25.26

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Self storage giant Public Storage (PSA) priced a new perpetual preferred issue with a coupon of 4.75% which is trading under temporary OTC ticker of PBSGZ. The issue last traded at $25.10.