After January and the tremendous gains most of us experienced these ‘red’ days, which while not severe, are chipping away at some of those profits. I guess we won’t have 5-10% gains every month (big surprise). The S&P500 futures are off just over 1/2%–we will see if that holds or we get a reversal up during the day.
The 10 year treasury yield is popping a bit and now is at 3.71%up 3 basis points. Not much economic news to drive this today–we have the University of Michigan Inflation Expectations reading and a couple of Fed yakkers, but that is it.
I had noticed folks talking about the Bell South CORTS 7% resettable (KTBA) tender offer that is out there–very interesting. So we have 745 Capital LLC making a tender at $19–a slight premium to current price of $18.20. I couldn’t find out who is behind 745 Capital, but it makes sense to me that wealthy people might set up a company to buy under priced debt–hell if I had an extra billion or two lying around I would do it. I note that 745 Capital made a tender for shares of Ladenburg Thalman 6.50% debt last summer for $15/share–so two tenders at the opposite ends of the quality spectrum.
I haven’t done buying this week–but I have sold some of the specialty finance company term preferreds (i.e. Oxford Lane (OXLC) and Eagle Point Capital (ECC)). After vacillating for weeks I simply decided I didn’t need to hold these shares. Technically they should be ‘money good’ because of the need to have a 200% asset coverage ratio–BUT if there is a recession ahead there will be trouble in this sector. With higher interest rates the net asset values (on a common share) had tumbled quite a bit (although rising last month) in the last year. If the portfolios experienced larger downdrafts in a recession it will take quite a bit of ‘slight of hand’ to continue to hold 200% coverage. I simply don’t want to have to worry about my holdings. I maintain minimal holdings in these.
Well let’s get this day going!!
We most likely will have an odd CPI this coming week. It is very likely to pop. Some saying in the .5 to .6 range for last months reading do to various factors. Yet CPI is figured annually and there is a big number coming off this month too. So its likely yearly CPI drops while monthly increases. This month should help rally the IBond cycle and get it off the floor mat for this cycle.
Grid….As you have stated in a previous post, hopefully the fixed rate component for the next reset of I bonds will be higher than the present one, and present a good long term hold opportunity. Have short term c.d.s with maturities falling in the date range eligible to purchase the next reset on I bonds. With short c.d.s paying something now, seems to make sense to shoot for the later part of the eligibility period.
Lucky, I personally think its what one wants out of these in terms of their total stash. I have 3 overriding issues. Getting a meaningful amount in, trying to have a fixed rate attached to them, all while not having to accept a punitive low yield. But my tolerance may be lower. I remember myself and 2WR piling in on the 3.5% cycle almost 2 years ago.
I went ahead and bought this 6.88% cycle knowing CPI next cycle really only has to claw back to 1.75% to get a 4.5% yearly. That is competitive enough with 1 year CD to capture the fixed component. And if we get another fixed at or better in May I will get a 10k gift purchase and buy more. I can always peel off the Ibonds I bought a couple years ago after they run through a low 3 month cycle before redeeming to pair that trade up if I so desire.
Grid…I bought a few of the current rate I bonds. With a real yield of .4%, it is interesting to see how that looks historically. Nice chart at https://www.longtermtrends.net/real-interest-rate/. In your comparison to a 1 yr. c.d., any potential sale incurred penalty of 3 months interest on the I bonds would change the YTM, right? I plan to keep my few as a small hedge against negative real rates.
Yes if your intent was to sell after a year. One can mitigate a bit by purchasing last few days of month being you get credited for entire months interest. Now for me I wouldn’t be worried about the penalty because I will hold the fixed purchased one indefinitely. If I was just buying for a one year hold, then definitely just buying the CD or one year Tbill makes more sense.
Well, that 1/4% fixed seems pretty puny to me while I’m holding some ~20yo 3% fixed ones.
Now, if they go to say 1% or better, I might perk up. OTOH, a large May drop in the rate will likely see me exchanging my ~1yo newbies for, oh I don’t know, more EPD?
EPD is flowing excess cash, has leverage down below 3x, a 7.6% tax-deferred yield, distribution raises for 25 straight years, and just guided to 5% future increases. A SWAN for sure, or ‘no sweatidah,’ as we used to say when stationed in the Orient.
JMO
Give me a time machine, Camroc I will get some too at 3%, otherwise I am just playing the modest hand I am dealt. I have warm memories of EPD too. You talked me into it and I made $4 a share quick money profits and ran when it went over $28 late last spring… Now the taxman wants a piece of it too! Was about to send a nasty note to you because I havent heard from you in a while.
To my way of thinking, although there’s certainly an element of timing involved to maximize what you get out of IBonds, and that timing aspect was exemplified by being able to start ownership with the great compounding level back when we bot on the 3.50% cycle, even now there’s a certain potential “set and forget” aspect to IBONDS that I find appealing. That has to be said with a willingness to believe that the Govt provides us with accurate measures of prevailing of inflation rates when they calculate IBond’s rate. But if you’re fortunate to be OK with no longer having to be a wealth builder but want to preserve your dollar’s buying power under all circumstances, then there’s always a place for IBonds, particularly if you’ve already started on the IBond train…. Think about it – so many of our purchases in the fixed income world recently target acquiring income streams that almost by definition are below the current level of inflation. They also open us up to principal risk (or reward) as well. Granted, there’s an element of possible price appreciation involved too and the possibility for inflation to come down while your income stream does not, but still there’s risk…. That risk does not exist with IBonds. The guaranteed matching of income stream with inflation rate acquired coupled with zero risk of principal forever appeals to the “Safety Joe” in me (see John Prine – https://www.youtube.com/watch?v=fEPcG1KjoY8&ab_channel=MoonLitWater). IBonds are the ultimate sock drawer candidate imho – not a wealth builder but a great base to be able to chase wealth building with cash from other drawers.
And yet timing does have impact worth paying attention to…I’ll probably wait until April to decide on when to purchase this year’s allocation to IBonds.. Maybe we will have an ability to buy this 6 months’ going rate while still getting a peak at what’s in store for potential increases in the fixed rate portion of IBonds. That’s what I’ll be looking for.
Boy, I sure can be long-winded, can’t I……..
2WR, You are the perfect candidate to buy 20k more now, and gift 20k more in May if the fixed component comes through. You can always cull the 3.5% original herd to counter balance the purchases. Otherwise you are just leaving money on the table hanging onto to the zero fixed ones and not buying the ones issued with a fixed.
BTW, Im looking for a Roger Staubach Hail Mary on the lowly EE bonds. If they would jump them to 4% Im in there, too. They went from .1% to 2.1% last cycle.
Grid – No need to even considering culling the herd given the total headcount is mandatorily so low due to Govt regs….. And as far as gifting, it was the thing to do back then, but the benefits now seem to be marginal, don’t they?… Assuming I understand the process correctly, I know some people have gifted enough to take care of maximum amounts you can give a single person for as much as 5 years. That never made sense to me – here we are wondering about whether or not to trash in the near future some that were bot in the good old high flex rate but non fixed rate environment and yet those who gifted 5 years out are required to eventually give them no matter what the future rates are… I did set up matching gifting for wifey and me last year, but discovered I screwed up her banking info so was never able to fund her gift to me… I’m still trying to work that out so for now can only gift in one direction anyway…
I have heard from a couple of sources who did it you can dump the gifts onto person. But if you want to buy 10k you need to do it first. I am trying it after November cycle and clean up our gift boxes. It kind of makes sense thinking about it. A left and right hand thing….
Are you aware that TreasuryDirect now allows online changes to bank information?
Just go to ManageDirect -> Update my Bank Information
Tried that, David, but it didn’t work for me…. I didn’t try circumvention methods such as adding a new bank account and then changing that to the primary bank, but when trying to change two unknowingly inverted numbers in the originally listed account, I was led to the find a medallion signature authorized banker and sign your forms in their presence and mail them in routine… Lucked out on finding a banker, but now we’re waiting out TD for their processing..
2wr, As you know even IBond returns are sub-inflation as the interest is taxed. IBonds may offer us a good ST hedge, though I think there’s an underlying assumption in each 6% preferred we buy that the fed will prevail – and at some point in the future we’ll be enjoying a spread over inflation – not afforded to our IBond holdings as those rates will adjust down if the fed is successful, which seems more probable than not.
Sure we can purchase a few 4.8% treasuries with spare $$, though we do so knowing there is significant reinvestment risk – as they only run for a year or so, and again, we have no idea what the investing landscape will look like at maturity.
Strategically, seems not trying to time the market, temporarily ignoring inflation and focusing on continuing to grow low-drama, high-quality holdings means we’ll have plenty of reliable firepower through a continuously growing dividend stream with which to adjust course as the investment landscape changes.
Good points, A…. I bet your transcoastal move makes your IBonds all that more worthy to you, though, doesn’t it…. I get it, and of course the odds are in your favor barring the Fed’s success does not come at the cost of some unexpected defaults or it’s thwarted by MMT…. And that’s why my phobia about perpetuals or long duration issues has me underperforming on the upside year after year…..certainly not an aggregate path recommended for most anyone to follow. I try to enhance my overall with a concentration on stories that will work out, if they work out, with outsized yields while still acting like short duration issues. As long as they are repeatable over time, and there are always stories or situations developing, that at least evens out the road and theoretically helps with risk adjusted returns…. Again, not a recommended strategy, but as the great philosopher, Ricky Nelson, once said, “you can’t please everybody so you got to please [and/or know] yourself.”
2wr, Another Ricky Nelson quoteable: “Today’s teardrops are tomorrows rainbows” – which ties in nicely with what you, Lucky and Grid are saying here re staying in and staying diversified. One never knows when coal will yield diamonds.
Didn’t know that RN song but I see it was actually written by Gene Pitney…now that guy could actually sing.. Roy Orbison supposedly recorded it also… But the quote does remind me of another whimsical Capt. Beefheart non-sequitur that I’ve always loved: “A carrot is as close as a rabbit gets to a diamond.” It’s a self reminder that I’m probably a rabbit investor.
alpha….Agree with many points you bring up, but disagree with the idea that Ibonds are at best a short term hedge. As you say there is the assumption that the fed will prevail, and fixed rate instruments will outperform over time, but to me safer portfolio management is achieved by hedging fixed with variable rate instruments. For example, if relations with China deteriorate, which seems like more than a remote possibility, the resultant onshoring or near shoring of manufacturing and the supply chain in general could lead to chronic inflation. Excessive govt. debt could easily lead to a lot of money printing to monetize the debt, also inflationary. With a mix of fixed and variable, both pay, and as we have seen in the past year, last will be first and first will be last. They hedge each other.
Lucky, I love me some adjustables now too! It’s not so much that I have so many but I piled hard into a few of them.
Lucky, Good points! Especially appreciate your broad and deep view of possiblities and diversified approach in response. We just do not know right!?
Sharing your thoughts, we’ve stayed 100% invested/reinvested with existing accounts, and yes also maxed the IBonds including gifts and set up the full UST ladder as ballast and hedge against the possibilities.
Hey Alpha. Those IBONDS originally bought are a two year 6.68% bang out not counting compounding. The 2022 purchase will be near it for two years also. Some good risk adjusted returns! Going forward I can always change my mind. But I like your 6% rule of thumb. Collectively I’m presently 6.8% but that goes from 4% ish CDs up to almost 12% nasties. But..That is why I bought plus 6% CNTHP also.
Grid…Have been looking at CNTHP myself lately. The only sticking point for me is the premium to call price. On the one hand I think, “it’s been around for so long, if they haven’t called it yet, why would they call it now?” OTHO, APRDM, APRDP, etc., kind of came out of the blue recently.
Lucky, For your consideration:
CNTHP recent price: $53.15
CNTHP par plus accrued: $51.74
At-risk premium to redemption: $1.41
CNTHO recent price: $48.50
CNTHP Div premium to CNTHO/share/equiv $ invested: $0.389
At-risk breakeven period: 1.41/0.389 = 3.62 years (Sep 2026)
All else being equal, if buying CNTHP for additional yield, and if CNTHP is not called, compared to sister CNTHO, the at-risk premium of $1.41 will be fully recovered/neutralized at Sep 2026 (via Nov 2026 distribution).
Other considerations:
1) CNTHO has a higher probability of surviving a call if we return to ultra low rates
2) If CNTHO is called, it will yield an additional $1.49 premium v. CNTHP.
Are ya feeling Lucky?
Alpha, you forgot something… At CNTHO is basically at best ute sector common market yield while P is above sector market yield. If yields go higher the 5.44% O is more susceptible to spilling since P has more “yield to give”. For a simple math analogy (is has to be simple for me), if market would ever demand a 6% ave. sector yield CNTHO would have to drop close to 10% to sniff that while P still has plus bps in the pocket…
But…That being said, friendly bantering aside, I personally dont view it as an either or proposition. I also this week bought UEPEP Friday at $82 some 20% under par and a 5.56% current yield and HAWLN around 20% under redemption price and a yield below 6%. I bought illiquid P because of the yield, but others as mentioned above I didnt. The overall importance for me is getting some illiquids at a decent relative entry point because they serve as an uncorrelated asset with the same asset class. I view that as important as I like owning things that will ying when other ones are yanging. And as long as treasury short end yield curve is stiff and or rising, I like a bit of 100% snooze fest sleep at nighters too.
Grid, My GF (wife) has a standing joke that I always ask her if she remembered to bring my wallet and my phone. It’s good for a well-worn laugh every time.
Not forgotten though is we’ve already established CNTHP’s yield premium v CNTHO comes at an up-front cost that will not be fully “amortized” until Nov 2026. This is advantageous to CNTHO in declining rate markets and sideways rate markets. I also see CNTHO as the superior option in a rising rate market – here’s why:
Some month’s ago, Bea, with other-worldly prescience, talked about the impact of rising rates on the PSA clan, even specifying the future pricing. I recall reading her note thinking, “one can only hope this is true”. It was. As rates rose, PSA plunged, and was hoisted upon a whipping post where is was disparaged, trodden upon and branded with the letter A for it’s lower coupon. Confused by this, I took the opposite view and accumulated 1000s upon 1000s of the PSA clan, with up to four buying rounds per day being triggered, every round further lowering the basis of the hold for the then 6.50% yields. Maybe counter-intuitively to some, I was thrilled with that lower coupon, in fact I “targeted” the lower coupons for their superior call protection. It was a risk-management consideration. Fast forward 6 months – just had to unload the highest PSA coupon held, PSA-H, as the YTC got too low and the call risk too high. This is the same risk I’m seeing in the CNTHO/CNTHP match-up.
As you point out, if rates rise, the lower-coupon CNTHO price will drop faster than CNTHP. This to me is a “huge” plus. Already less callable, CNTHO will now also be offering me a larger price discount than CNTHP to add more shares and further lower my basis – creating an even wider distance from redemption price, and growing distance in price from CNTHP, while CNTHP will have a tendency to hover around redemption price.
On price and holding value, I find it near impossible to provide equal weight to considering the price of an issue and the yield income of an issue. For price gains, I’d buy a growth stock, in preferreds, I’m laser-focused on income – that is my number. Literally, day-to-day I have zero idea what my preferred account balances are doing – I don’t look – I’m not even interested. I do know the account’s annual income, want that number to rise every single day, and do everything I can to make that happen. A big part of that is managing call risk. A falling price in CNTHO would be fabulous to that end. Like it at $48.50, would love to add more at $45.00.
Now you wouldnt expect me to see it any other way but a different one would you, Alpha…So I do of course, ha! If you look at the 2019 -2021 too low interest environment you saw CNTHP consistently trading in the $59-$62 area so it never had that call anchoring phenomena.
As far as you being happy an issue is dropping, my preference is a different option. Instead of watching CNTHO drop and be happy and buy more. I would sell CNTHP which normally would have little price degradation and then rotate into CNTHO and out of CNTHP. Preserve capital and increase income at same time. This has worked over and over and over through the years. Staying in the game yet mitigating downside risk while being able to rotate into something with a better return on a drop. But I dont think you have a desire to trade as much which is fine.
Another option which is also a personal preference is to get issues when they sell off like UEPEP way under par around $80 range and get higher yield and more upside room for cap apprec being CNTHO is considerably closer to par and a lower yield.
I will lay down the piece of chalk and let you go back to the chalkboard now. Nothing serious is going on until Super Bowl anyways. I still need to drive across the river to make my bet, but I dont know which way to go. The Eagles have made me some decent pocket change during playoffs and the Chiefs I totally avoided their Bengals game.
Grid, picked up the chalk, gone to the board and am circling this, “But I dont think you have a desire to trade as much”
Exactly correct. I’m seeing constancy of value in maintaining and growing the annuity from the holdings. Steak dinners have great value, though they require time to identify and a certain skill set that is not universal or necessarily teachable. I have tried the flip routine and don’t have the tempermanet for it – my lane is the in identify/acquire/lower basis/grow income.
Still, we all have our own parameters for trades/flips, mine relate to violating the thesis for the original purchase. For example, credit rating drops, YTC is too low, there’s a rate arbitrage for same risk. The trick as we always say – know your lane.
Your unnatural flipping/trading talent and near-encyclopedic knowledge of many of the nuances and particulars of the preferreds helps succesfully execute the flips. As a mortal, I have to rely on math, patience, S&P credit ratings and growing the income annuity.
Did ya hear the one about the turtle and the hare? hahaha
p.s. so we’re in HI and the beach-bar is having a soiree today with two menu options in the package…cheesesteak sandwich or ribs. We don’t regularly eat either so tough call on which to wager. Hope your team wins.
That’s (Philly) Cheesesteak or (KC) Ribs!
Right there with ya Grid. Have a full stack of the IBonds plus gifts (started with the 7.somethings in late 2021) and full 12-month UST ladder.
Lucky just made the point about APRDM and APRDP – I owned both and residing under the umbrella of “we don’t know” is why CNTHP was a sale for me. But still have lots of CKNQP, CNHLO, CNLHP, CNTHN and CNTHO all well under redemption. As you have said in the past, “I dare them to call them!”.
Of course, it’s also important to remember that not all of us can flip issues for $2 pop like you while between beaches on a booze cruise in St Thomas. HAHAHAHA…but am going to try in August.
Hmmmmmmmm, a trip to St. Thomas in August… What could possibly go wrong??? Better not take your yacht because your insurance will be null and void that time of year………
2wr, You know those waters better than most and yes, as newbie east coasters a novice move. Pricing over par keeps me up at night but daftly scheduled a caribbean soiree in summer. I mean, it’ s not as if the ocean has been warming or anything…er, oh yeh that.
CPI will be odd indeed. The BLS revised December CPI to UP 0.1% after being reported as DOWN 0.1%. so that’s a 0.2% difference. Market expects about 0.4-0.5% month over month for January but accounting for the revision the reported number will be 0.2% lower than that and the markets will say this is lower than expected and could fly higher. Foolish of course because it’s a fake beat of expectations in inflation due the revision. Inflation will stay high and the fed will have to keep raising rates to a higher terminal rate despite what wall-street is pricing and what Mr. “transitory inflation” and “disinflation has begun” Powell says.
Mcg you have a ticker for it?
While a bunch of pink sheet dark issues like LTS and Amtrust are tradeable on Fidelity now, KTBA is still not tradeable last time I checked
True…It’s got to be something one can live with… But Connecticut regulators did state CLP had no interest in redeeming a few years ago…And that could change no doubt. Right now illiquid wise I would rather chase the yield and risk the call than get the sub 6% unless it’s way under par like some have been in recent past.
Tim, I think the new ASB preferred should be trading today under its temp ticker. Anyone have the symbol yet?
At schwab it might be ASB/PRBCL, but I can’t access it.
that is not it. The CL means called. That is an old symbol for a called pref.
ASB is a note, and notes don’t get temp tickers.
Mcg you have a ticker for it?
Notes don’t get temp tickers. If you’re looking for its eventual primary ticker, it hasn’t been announced. Its cusip is 045487600
ASB5537459 ?
Tim, if the red continues today with people selling the market before the weekend then a few limit orders might be triggered. The big question then is if the selling continues on Monday after the weekend.