Illiquid Securities

On this page folks should comment and write about illiquid securities–preferreds and baby bonds. By Illiquid I am talking about those issues that seldom trade–or only trade in very small volumes.

We have a lot of discussion on the site about these types of securities–normally $50 and $100/shares issues and the commenting gets scattered about–by using this page we can keep this topic more centralized.

A caution to all investors, but in particular those will little experience in illiquid securities. Tight limits must be used on all of these securities–if you don’t use limits you will butchered. Also while some of these issues have been outstanding for more than 50 years they can still be called–it happens and if you overpay (pay more than liquidation price) you may be setting yourself up for a loss. Always do your own due diligence–always double check the facts–everyone makes errors (certainly I do) and you need to know the facts.

Investors should know that illiquid securities will drop like a rock if there is a large move higher in interest rates. One of my current and long time holdings has been a $50/share issue from CEF Tricontinental (TY-P or TY-) with a 5% coupon–very high quality. This issue is now trading around $56, but in its life (issued in 1963) it has traded as low at $18/share–so there should be no doubt they can move sharply.

831 thoughts on “Illiquid Securities”

  1. Just a heads up for any NSARO holders.

    Someone is bidding $84 for 500 shares of NSARO. By my calc, that’s only a 5.7% yield.

    1. That might very well be the going rate to get someone to sell. It is a A3/BBB+ preferred compared to a PSA-x which is not QDI yet also yields around 5.7%ish currently. So to me.. that bid is not really really strong. A month ago it was.. but not today.

      1. I agree on an absolute basis. Many other better rel value opportunities existed when I posted.

        This includes NSARP at 69 for a yield of 6.2%.
        Also, lots of opportunities in Connecticut light issues at 6%+.

        1. Maine—I bought 566 shares of NSARP today at $69 for a 6.16% yield. A3/BBB+ With a 4.25% coupon, I think it has some decent capital appreciation if rates come down in 2024 or 2025. If they don’t, I can certainly live with the yield. It was trading above $80 in late June.

          1. Randy. I like it. As you know the illiquids tend to lag in big up/ down swing markets, creating opportunities. And then we have some selling for tax reasons.

            I was able to snag some more UEPEP . Some lucky investor was able to snag CNLPL at 51.20 today. Opportunities exist!

            1. Yes, sir. Precisely why I have used the past month or two, to nail down a very high relative amount of these in the 6.5% -6.7% range. They are the perpetual YING to my CD stash of YANG. I have been historically more comfortable in owning these anyways though. Outside of GLP-A, KTN, BANFP, CSWCZ, and a smidge of WAFDP the rest of my preferreds of ute illiquids. Oppps, I did just recently got back into hopefully yet another profitable battle with a chunk of a PCG-B when it was brushing next to 8% the other day.

            2. Maine and gang, also just my opinion, but I personally find CNLPL and CNTHP the least desirable of the illiquid utes. As they have less room to appreciate if market situation would ever present itself, while not providing really any more current yield either. And I also forgot I have a pretty big chunk of KMPB still. But overall I have considerably more in the illiquid ute section.

                1. Randy a lot of it has been I have really racked up the cap gains buying in $17s and selling in $19s over and over. But now with long end dropping its hard to let go of them now. Its present yield is a market ave give or take now being it is 7.8% or so. But in less than 3.5 years when it resets if 5 year is at a lowish 2% it will actually go up in yield to 8.1% at current price. So it provides long term yield protection if rates go down or go up at this price point. And capital appreciation as it approaches reset cannot be discounted either. Its one of my lowest quality issues, but I dont need everything IG.

              1. Grid, I don’t disagree with you regarding the $50 issues. With that said, if a slug is offered at $51 again, I will gladly take it away.

                Like it or not, these tend to have have better support around the $50 level. Plus, CNLPL goes ex in a few days. It’s a similar dynamic with some of the MREIT prefs. AGNCO is a better investment mathematically compared to AGNCN, but AGNCN just has better demand. Same with NLY-I vs. NLY-F.

                Yeah, I have some KMPB. Strange it’s stayed low so long. I think tax loss pressure is real, also for names like WAFDP. I have also re-purchased TFINP. I re-listened to some calls, and got comfortable with the CEOs assessment of their credit risk.. the common has done decent as well.

                I’m honestly most excited about some of the $1000 names that haven’t rallied much. The enbridge and citi isssued a couple months ago, the ~10 year south Jersey, and the floater LNC trading at $66. This forum has been a great resource, appreciate all wisdom from you, Tim, and gang!

                Of course, I am giddy since prefs have been rocking and rolling. Let’s see how long it lasts. I am thinking we have a little more room to run (rates aside) esp if HY spreads continue to stay at current levels or grind lower.


                1. Maine, the largest reason why they have support around their par number is because the original par yield is generally more than 200 bps above the sister issues. With a slight bonus nod from having a tiny edge on a redemption notice.
                  But the reverse works against it for any cap appreciation. My personal angle is cap appreciation potential as I have enough in CD-TIPs-IBonds-TBills that have zero opportunity there. Definitely no hate with it or sis CNTHP as I have owned them off and on for over a decade. I just feel better a opp getting the 4% plus $100 preferreds in the $60s and $70s than ones at par already with same yield. I would suggest limited share count volume with increased interest (or disinterest depending on the issue and or day) dictates the illiquids pricing more. I dont have an extended chart of CNLPL, but I have one on 6.56% sister CNTHP. It was $39.50 in 10/2001 when 10 year was about 4.5%. While UEPEO was about $68 in 10/2001. UEPEO presently is about 4.5% above that price while CNTHP is presently 35% above. This is my reference to better relative value. But with these types you are possibly just a 500 share dump from changing any of these charts appreciably at least near term.
                  I really dont think KMPB is materially mispriced currently in relation to yields of that credit quality at the moment. Markets generally dont give a lot of attention to a reset yield until it gets closer to first call. Especially one that wasnt issued during the bloated Covid period.
                  I can certainly see why you would have interest in the $1000 bond issuances. Im not because I dont want to tie up anymore money in something that I cant get a good quick trade opportunity or look at bad pricing in my account. I was heavily in floaters for last 2 years, and have basically phased out of them over the past month or so. Leaving party a little early, but getting fixed issues at 20 year lows is appealing to me for now. Its the hard choices I have to make being one who has already been unfortunately eliminated for the richest man in the graveyard competition, ha!
                  Plus I have been saving some bucks for IPO flips. The game is back on there for a bit.

                  1. Alabama Power, Entergy, Indianapolis, OCES*, and maybe more I am forgetting prove, some what recently, that these old preferred really do get called and the gains can be obnoxiously good for a preferred if bought way under par. So giving up a tiny bit of yield makes a lot of sense for that lotto shot of a call in my book. Even better if higher yield if possible at that moment in time. Seems to me if they call even one of them the rest are going as well since they are putting in that effort.

                    These are not like PSA preferred where they are very methodical about it. They just kill them all off at once. I have been buying them but not as much as stuff like COF-N at 13ish for a ridiculous 7.8% yield or so recently. Just way too much tempting stuff available over the last couple of months.

            3. Maine, you have me tempted to sell the 75 shares I picked up of NSRO at 65
              Was hoping for another dump to fill out the rest of the GTC

            4. Maine – Don’t forget about UEPEO. It has a much higher call price than UEPEP ($110 vs. $102.47) and has been trading lower lately.

              1. Dick, somebody bought a little bit of UEPEO this morning and next thing it caused a seller to put an ask out for $70, so I pounced on a couple hundo. That was sweet, as it was one of the UE ones I didnt own. Somebody was buying AILLO out of the gate this morning, so I had to buy a hundred at ask at 65.78 before they were gone. I need more of those like a hole in my head. Almost have as much of those as I do AILLN.
                Here was the crazy trade of the day. NMPWP hadnt traded a 100 block since August. I finally got a seller to give me a 100 at $56.50 and instantly right after that someone bought 100 at $65.00. The illiquid illiquids can do that though. $56.50 was only 6.01% which is by far my lowest ute preferred yield. But NMPWP is a triplet sister to NMK-B and NMK-C which trade on NYSE and their yields are a ridiculous 4.28% and 5.03%. So 6.01% is not bad compared to that. Oddly enough NGG delisted NMPWP a couple years after acquiring Niagara Mohawk but not the other 2 sisters.

                1. Adventures in illiquid land. What a day! Congrats on your bounty. It is certainly getting weird out there.

                  I was able to get some UEPEO this morning. I also lightened up on UEPEP at 73.45. I need the funds. I don’t have unlimited stashes of cash like you all.

                  1. Maine, I promise I dont own a bank either! I am recycling funds all the time. Uncle Sam loves it, as he is getting a cut of the action too.

                    1. Tell me about it.

                      The ironic part is that I purchase these in taxable accounts to be smart with taxes, yet it doesn’t often work out that way. I guess a short term gain with a tax is better than no gain.
                      One can’t get over confident.. so the plan is always buy and be prepared to hold, not bank on the flip.

                    2. I havent been as tax efficient this year as I typically am. But after the big trading run up this early spring, I overloaded my tax free accounts with the CDs, and short duration stuff ensuring protection of that capital. At the time there was a bit of guessing and I was determined that if I lost anything going forward it was going to come out of taxable to offset the gains. It turned out I was too defensive, but I wont complain as it has been a great year. I just have to share a bit more with Uncle Sam now.
                      I share your same feeling on purchases, comcerning being ready to hold if needed. Alao, it shouldnt be, but I accept the fact investing has a portion of emotion to it. This is why my investing world is typically a small segment. I want to own for the most part issues I implicity trust to be able to pay and not worry about any company solvency or stress issues.

  2. Congrats……to the person who snagged 130 CNTHO at $37.22 today!

    Looks like someone unloaded 2k shares at the market.

    1. Damn – I had from a previous order that partially filled a standing order in for less than 100 shares at a better price that got ignored. Ugh.

          1. I am embarrassed to say I wasn’t able to snag as good a deal as the rest of you. I landed 200 at 38.85

  3. CTA-B is trading at a price point which offers an approx 7% yield for a BBB rated preferred in an industry that differs from the majority available. I just snagged some with a yield a touch above 7%. The OCESP replacement plan is coming along.

    It would be hilarious to have this called at a 120! bucks per share in a couple of years and have the same enjoyable problem of replacing it. It is trading at 64ish. I have to say I have always wondered if that was a typo and it is really 102 for a call. I will have to read up. Either way I would be happy.

    1. fc, I got a little victory lap on this one. I have traded and cross traded with A over time for some small grinds, but was out until a few days ago and thought I was getting a deal at $67 when I reentered when it dropped…Oops, not so much but undeterred I bought today a couple hundred in lower $63s and 100 more at $64. The spread between this and A is really high at the moment. This preferred has been tossed around to a couple variations of the old DuPont over the recent years, so I am not holding my breath for a call.

      1. It is an oddball duo with chances to buy/sell. The low today for B was 63ish and the high 69ish. Not sure what is going on but I am tempted to slap an ask of 69 on these new shares. I just tend not to trade unless it is a large pay day. Maybe I should reconsider that. Either way I am accumulating B below 64 at this stage so selling will be difficult for me to do when I want more.

        As for a call.. who thought Ocean Spray would ever redeem a 4% preferred? Not I. One never knows. But yes, I agree with your sentiment. A call is very unlikely.

        1. well Grid not as good a deal, but yesterday I snagged a couple 100 of the CNLPL at 50.95

        2. I owned OCESP for years… a cost of about $14. Never thought it’d get redeemed and most likely would find a way to go bankrupt. It was a welcome sign to see it get redeemed. In agreement on the Corteva B…..foolishly cheap, especially after the run-up of a few years ago to $108- $109.

    1. Same. The question is that OCESP was a pretty safe 7% I was getting on the price paid for the shares so what do I replace it with? Use all the money and go into something with even less risk yet still generating more income or try to replace it with something around 7%. No idea at the moment. Trying to figure it out. Or just toss the cash in a >4% online savings account or money market until an opportunity comes up.

      Offhand I cannot think of a QDI preferred share that offers 7% with the same low risk profile as OCESP. Maybe CHS but I am already in that and not sure I want to make the position even larger. Many of the ills we discuss here, the high quality ones, have not quite routinely broken the 7% barrier where one can make a purchase at anytime.

        1. I cannot buy SLMNP in my accounts as it is expert market. I imagine if I switched brokers I “might” be able to as it seems it is somewhat special compared to others. Either way I already own some and since dark I am ok with what I have.

        1. Ken,

          Great minds think alike. Added another 100 shares today of it. I also concluded it was a decent purchase. I was thinking to add more but there is no rush to buy it all in one shot.

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