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Hallelujah – Rates Back Off

Looking for a little relief – any relief – albeit probably temporary.

The 10 year treasury which hit 4.31% earlier this morning appears to be backing off a bit–now trading around unchanged at 4.23%. You would think after the run-up we have had in the last 10 days a little ‘backing and filling’ might be in order.

Regardless of market movements today I won’t be nibbling. I see some tasty buys out there (don’t we all)–but maybe we will see better (lower) pricing next week. On the other hand no one will ‘ring a bell’ when values bottom, stabilize and start moving higher. A bottom will only be known when we look in the rear view mirror and say ‘damn I should have bought more there’—of course with my minor cash position I couldn’t do dramatic purchasing.

34 thoughts on “Hallelujah – Rates Back Off”

  1. waiting on start of todays nfl games a question for the group? at what interest rate on “lets say the 10 year treasury ” would you go “all in” with as much assets as you could muster assuming they continue to rise till they pause?

    1. Gradually. Essentially dollar cost averaging the increases. Not treasiuries, other dividend paying issues. I’m mostly in now and soon will be out of money to add. I’ll always be trading between them no matter what.

    2. Mike, 5% is the target rate when which I will evaluate several variables and determine where I think rates are going. Consider, inflation (especially employment and housing) , fed stances, US recession indicators, world economies, geopolitical (Europe winter energy crisis), cost of oil. If these indicate higher rates then I’ll set the next target rate and evaluate. The path to 5% seems pretty clear, but what happens next is murky at best.

      Ultimately is the Federal Reserve committed to 2% inflation

      1. windy, I’m voting your’s as best answer. Tbe fact is no-one has any idea. We can all predict today what should happen tomorrow, and tomorrow explain all the reasons why we were right even though it didn’t happen. I got out of the prediction business a long time ago.

        I’m pulling on the same oar as mike r and Martin G – steady proportionate buying, keep averaging down. Not stopping and may accelerate into a capitulation.

        As for “losses” on positions – not seeing it that way and won’t even look. It’s just not relevant and not worth the time. Not flipping these things unless the market begs like it did a few weeks ago when we rolled back a few 1000 shares at up to $1.72 gain/share then bought back at an even lower re-entry a few days later.

        Buying safe, reliable income – that’s the focus. If they’re a better deal tomorrow, will be thrilled to add them. If they’re never called – great. Not stopping – buying every day the market hands over yet another prize.

    3. Mike – I think yields are fantastic now for any type of fixed income. Why wait and risk this opportunity to lock in a solid return/yield for a while. That’s how I think about it.

      1. Maine, Putting you in the boat with mike, Martin, windy and myself.

        Stopped off today to buy a thank you card for the fat-fingered folks over at PFF for the indiscrimate dumping over last few weeks. I’ll send it around so you all can sign it.

        Maybe also a Wine Country Gift basket to keep them distracted.

        1. thanks guys for today”s discussion. taking my mind off my Colts continued demise. gift baskets to all but I’ll have a cold brew,, thanks all

  2. Tim,
    This site is an oasis of rational thought. Thanks again.
    When time permits, could you repost your thoughts on the CHS shares?

  3. In general I very much agree with holding off until a week from next Wednesday. Days like today in the equities market make me wonder if the Fed might go even higher than 75 basis points just to make a point. Regardless, there are still some intriguing offerings out there. Just picked up a slug of NYCB-A to yield 7.90%. NYCB is a $60mmm bank earning well over $600mm annually with an equity base in excess of $7mmm. Yes, it will probably go lower over before the end of the year , but with a solid credit I’m fine with that kind of yield today.

  4. Added some HPP-C and started VNO-N today near daily lows..before Mary Daly backed off subsequent .75% hikes.. shut up fed offficials is my take..but these are true gifts.. 9%+ on Baa3, 8.5% from VNO ..these will be streaming income to me for years..waiting when everyone was saying cash was trash let me do some great intermediate long term buying. Debit Suisse , I mean Credit Suisse, upgraded HPP common w $16 price target from 12. Looking at what SLG did to re-jigger its situation and variable debt shows these REITs have a lot of levers to pull and ClassA building office is not malls. A volatile day w a lot of pfd selling guessing it is etf or fund disgorgement willy-nilly which provides opportunities. BeaHappy

    1. I also added some HPP-C near the daily low before someone woke up the market.

      Also added a little TRTN-B at its low and TRTN-A
      A small amount of BIP-A
      And I swapped some DCP-B for DCP-C

      All before someone sparked the market

      I looked at Vornado preferreds but being New York real estate scares me some on that one

        1. huh?? I dont get the stay on topic I was sharing some ideas and holdings

          re Baa3, I did miss the grade -it was downgraded along w unsecured debt.
          I have access to Moody’s..

          anyway to clarify for folks, Moody’s downgraded the pfd to ba1 stable on 8/29 due to upcoming development and NY market conditions

          An issue rated “ba” is considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class.

          Fitch has them at BB stable.

          VNO has 1.5bil in cash on the books, Roth has been preparing for this a while in commercial r/e and he also refi’d some pfds for modestly lower interest but locking in a low rate last year.. I have no problem holding it, DYODD.. btw I also am long the common of sister co Alexanders ALX which has 500mil on the books in cash.

          re the other comment made below…are they closed off in the capital markets? r/e firms always have access and levers to pull .. SLG alluded to possible jv sale of its trophy One Vanderbilt which is fully leased and gets 220/ sq ft w over 1mil tourists a year to The Summit observation outlook. they own 71%, value is at least $3bil. If they sold 20% to Korea, Singapore, Dubai or MetLife, whomever would step up and there would be many, they could fetch 600mil for it and still contol at 51% and collect mgmt fees and Summit income.. tourist income is incidental to the overall picture but not unimportant to the vitality and value of buildings in the area which they have many. They had no problems placing swaps to contain variable debt on the books as per the conf call.

          So capital markets aside, the levers are many for strong REITs. I am comfortable w REIT and r/e common and pfds now w low basis near mkt lows on most.

          NYC is booming again in class A, office attendance picking up weekly post labor day, tourism, transit counts, theater etc. See you at the Times Square Casino!! GLTA Bea

          1. Hey Bea – obviously you are bullish on Vornado, but is NYC really booming and is office attendance really picking up?

            I mean look at these news stories:




            On the second article, hasn’t VNO made a huge bet in the Penn Station area? When competing Hudson Yards is struggling with occupancy.

            And then looking at SA, one of the biggest reit bulls, Brad Thomas, views VNO as speculative

            I guess I am trying to figure out what I may be missing

            1. I am going off of what SLG said in conf call and Kastle turnstyle updates which are positive. They show 49% trending up since labor day but that is not the financial firms or other co’s, but a metric anyway. https://www.kastle.com/safety-wellness/getting-america-back-to-work/

              A will be fine, B-C not so great although Empire is seeing some leasing in its fancy B upgraded LEED compliant buildings. SLG leased almost 1mil sq ft of space. Booming is an exaggeration but shifting probably more accurate. Big increases in inquiries and tours by r/e managers into strong properties, especially financial services, law firms etc. I expect law firms are booming!! lol. T-W-Th ofc attendance around 75% in SLG bldgs and improving. https://www.yahoo.com/entertainment/almost-famous-kimberly-akimbo-prove-194516721.html

              Tourism certainly is
              We’ll see what Roth says on the conf call and questioning.. NYC could benefit also from the decline in London, EU, HK financial hubs as more ‘stable’ although Singapore and Luxemburg do benefit somewhat.

              If I paid 45 for VNO and 75 for SLG I’d be very upset..at $22 and $39 avg cost I am ok and especially on the pfds which are keepers for me. the common trading around a core LIFO has benefited my avg cost.

              I always say if you have doubts dont buy. I felt that way about GMRE and DOC and MPW when services and pundits were pushing them and cash secured puts on them and avoided.. Actually have been out of reits since 2018 and pfds..just back in 2022 and via nibbles.

              there is certainly a lot of reasons to be cautious!! so that is most appropriate depending on your risk tolerance. Position sizes for me are always 1-3% max. DYODD…bests Bea

              1. Bea

                Thanks for the detailed response. I will dive in a bit more for more research.

                I am not one to shy away from some stocks when everyone hates them (shoot I posted a few weeks ago on several greatly unloved common stocks I started nibbling on). Just want to be sure I have all angles covered when I do. I have had a lot of success buying unloved stocks like where VNO is now (trading even below Covid-19 panic levels). I guess I have tended to take more risks with the common stock of very good companies that are out of favor vs doing so with the preferreds. So my initial glance is I think the risk / reward may be better buying VNO common vs the preferreds.

                Like you, I agree that when you do to keep your position sizes low and make sure it fits your risk tolerance


              2. Bea said: “I am going off of what SLG said in conf call and Kastle turnstile updates which are positive.”

                Bea, the turnstile data is showing strong 2022 growth, but it is about 55% lower than pre-Covid numbers. Based on that alone, it is not clear to me that NYC is “back.” If you have less than half the folks commuting in every day, it has to affect nearly all of the commercial properties. You can understand “A” level properties will be stronger than B/C ones, but they do not exist in a vacuum. I agree that One Vanderbilt is a trophy property, but Roth has not done a great job of allocating capital for at least the last 10 years if not 20, and obviously that predates Covid. So I would tend to discount any optimism that both SLG/VNO say about NYC prospects. I am not suggesting VNO preferreds will stop paying out, but I sure would not touch their commons at this point.

                Latest NYC turnstile data

                1. If folks are interested in VNO but want something safer than the preferred, I’d suggest looking at their 6/1/26 bond (cusip 929043AK3), which is on offer at 82.517 for a YTM = 7.814%.

          2. Hello Bea, Thank you for sharing. Hope Tim doesn’t mind we talk about REITS in this section of his site.
            At this time, I am only looking at the preferred of the REITS and I only own a few.
            In 2020 I had owned a few hotel preferred mainly for the dividends they paid as I was trying to build a portfolio of stocks for retirement at the time. Then Covid hit and took them all down even the good quality ones and exposing the high risk of some.
            With the opportunity that has come with higher rates, I am once again looking at them and have purchased a few.
            I have a few of EQC-D a commercial REIT and am looking to buy more. It’s not giving me the 7% income I have been looking for, but it’s been incredibly stable in price.
            I have a full position in GMRE-PA for medical and realize it’s in my high-risk bucket. Yes, I bought it for the income. One thing people should know, MOB’s ( medical office buildings) for small centers do not have a high barrier to competition. Any developer can turn an office complex or commercial building into a medical building. I just worked with a Landmark rep who was turning a unit in one of their retail centers into a doctor’s office.
            I got UBP-H as a retail REIT, has grocery and other well known stores anchoring its centers and is in better suburban locations I know its family run and not going to grow like other REITS but that is the tradeoff for the higher income.
            Now I am looking for a preferred of an industrial REIT any suggestions Bea?
            I want to be cautious, as I think the last 10 to 15 yrs has led to an overbuilding of properties and if the tide went out, the ones with high debt or leverage could be in trouble

            1. Charles, In your industrial REIT search you may want to take a look at TRNO.

              Occupancy >98% and increasing, growing AFFO, unrated like most REITs but strong balance sheet and fairly low debt/capital at under 30%.

              Recent price adjustment from nosebleed levels to now below last 10-years average AFFO multiple. Current 3.05% divvy with average growth rate >15% over last ten years.

              For what they are worth, the 10 or so analysts covering the company are thumbs up with the last call indicating increasing/accelerating growth for the company.

              I have a starter position at 54.20 and will be adding consistently and proportionally on any weakness. GL!

              1. Thanks alpha,
                I see what you mean about the positive reports looking at articles on SA
                But for the time being I am focused on preferred and bonds that are offering 6 to 7% or better returns on IG companies that we haven’t seen in the last 15 to 20 yrs.
                I want to lock this in while I have the chance because it might be a long time before we see this again.
                Plenty of time to look at growth stocks as I really feel we haven’t seen the bottom in this market or seen any recession reflected in the price of some of these growth stocks.
                I haven’t seen any panic or despair in the US market that tells me its time to start nibbling on growth stocks yet.

                1. Charles, I need to read a little slower as I missed the preferred-only part of your note about industrial reits!

                  Couldn’t agree more on this window of opportunity to stack these preferreds as we just do not know how long the party will last.

                  Holding the other side of your UBP via the K issue (and still adding), and rode the RLJ-A hotel rollercoaster through covid and still holding.

                  Can’t help on the industrial REIT though you might consider Industrial bonds with preferred-type time-frame left on the maturity. Higher in the stack and might find pricing opportunities on volatile selling days.

                  Not an industrial RE, though you might like A2-rated Duke Energy Carolinas 6/1/2037, cusip 26442CAA2, 6% coupon for cash-flow but also YTW is well-over 6%. Longer maturity than typical preferred though locking for longer is gaining appeal. I recently added to a tax-deferred account, but it’s already given up a few points so you can acquire at an even better price. I might buy more with you. GL!

                  1. Alpha I am still learning on the bonds, but I agree with you if rates keep going up and cost basis on some of the lower yield bonds allows me to lock in a better yield I would consider going as far as 20 years out as I doubt they would be called in my lifetime.
                    Thanks for the suggestion on Duke
                    Lots of investors don’t look favorably on family run businesses thinking they don’t look out for the investors, but if that company is paying dividends UBP, EPD, BFS, UMH, etc you can be sure its in the best interest of everyone the company does good
                    One of my best customers is a family business with branches nation wide. The branch managers call wanting their invoice as soon as their order gets delivered. I found bonds listed for the company but unfortunately they are listed 144a restricted to the experts

            2. well it’s a general article ”within the day” and such I was noting what I did in light of the action in the markets on Friday.. just talking about trades in that respect, not REITs specifically. I added to a gold miner or two also which I would not post here. I always maintain extensive watch and hot lists including pfd/cefs etc.

              The only somewhat industrial REIT pfd I own is GOOD-O now just got the other day.. and am looking hard at REXR-B and C which sold off a lot and yields 7% / 6.75% or so now. Beyond safe unless the big one hits California. None of the common stocks on the industrials appeal to me now.

              It will be interesting to see what Zell does with his EQC 2.5bil of cash now w all the selloffs. He put the remaining ofc property sales on hold feeling they would not sell well. It is basically a cash company now since he was thwarted on Monmouth. At least he is earning something on the cash. B

              1. Thanks for the response Bea,
                In my own Ira I have a somewhat eclectic collection of stocks that is still up about 18% YOY with flipping M & A companies and Bio tech. around a core of preferred stocks.
                In my own Ira I have a somewhat eclectic collection of stocks that is still up about 18% YOY with flipping M & A companies and Bio tech. around a
                My wife’s account that I finally took over is going to be more conservative and so far about 5% is devoted to all preferred stocks and about 5% open orders I am waiting to hit. This account in the IRA is down about 1% paper loss for the last 30 days not counting future dividends. I am still working on investing this.
                Trying to invest in a mix of preferred of REITS, Ute’s, Cef, Banks and energy.
                The one you mention REXR has been on my radar. I am putting the preferred on the list for the next drop in the market.
                Next couple weeks I am going to spend investing about 10% of the fund in BBB- to Baa bonds with 3 to 15yr call

    2. Hi Bea –

      Are you at all concerned about parts of distress in the fixed income credit markets? Per the SLG call, it seems parts of the capital markets are closed off making it hard for them to borrow cheaply? I am getting a bit concerend overall.

      Much appreciated

  5. Temporary indeed. Follow the bond market for answers. The fed follows the bond market. Higher rates are coming. Let’s see where we are after the December rate hike. Thanks Tim, ATB

    1. I am also staying really short, or with the floating rates issues, waiting for capitulation on the effective rates for the perpetuals with very high IG fundamentals. The only exception is hydrocarbons. When even Exxon can make money you know its going great. “… I don’t think the heavy stuff’s gonna come down for quite awhile.” C. Spackler

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