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Interest Rates Keep Shooting Higher

Again yesterday we had interest rates shoot higher – this time by 11 basis points (on the 10 year treasury) and these spikes are getting kind of painful. After having nice gains in October and November income issues have seen those gains evaporate–oh well nothing I can do about these movements except work my plan. Of course December is a big dividend and interest month so we can take some solace in that fact.

Yesterday income issues ended down by 9 cents a share–which was off the low of the day by a penny or two. The sp500 fell by just shy of 1/2% – volume was around 25% lower than the norm as we move toward another holiday weekend. Futures, which probably mean little, are up by 1/3% at this moment. The 10 year treasury is at 3.81% which is off 5 basis points from yesterday and with only pending home sales on the economic calendar maybe we will see drifting rates for the time being.

For those looking for a stable 5.875-6.5% a review of the 5.875% RiverNorth Capital and Income Fund term preferred (RMPL-P), which matures in October 2024, should be on your list. Additionally the XAI Octagon 6.5% term preferred (XFLT-A) has traded very steady. Each of these issues has traded right near $25 because of the short date maturity. Both of these issues are closed end funds so they are required to maintain a 200% asset coverage on senior securities. I am overweight in both of these issues.

18 thoughts on “Interest Rates Keep Shooting Higher”

    1. I read the whole article, let me tell you fascinating . Im a 72 year old newbie here, but I think everyone on this board should read this. It’s fair and balanced as they used to say ,about the 6:00pm news. But it has a ton of info, thanks for posting.

  1. Sure feels like a mudslide of worry out there, which means it’s time to add to positions. In addition to Tim’s references above, I want to add to CHSC, MS, some Girdbird bonds, and start a position on OZKAP, but will I’ll be greedy and wait…Will we get back to some June and Oct prices? I hope!

    Feliz Ano Nuevo to all…

  2. when I read your weekly summary I noticed that the FED was way behind the 8ball in their 95B QT runoff this month and I wonder if the rate pressure in the 10yr is what has to be achieved in a slow week with a lack of buyers so they can meet their monthly goal by yr/end. The Treasury market is weak as it is with foreign buyers pulling back.
    Yr end volatility is a good time to nibble, have to look at my lists. Maybe some NXDT-PA which covers its div 35X w little debt; a controversial name but good coverage, about a 9% yield; I have some in the ‘scarier bucket’. Oh well..

    1. My understanding is that the 95 billion QT runoff is a cap number, not a target. They won’t cut more than 95 billion off the balance sheet every month.

      If so, unless they announce a change, the Fed is at leisure to cut the balance sheet by $95 billion in January, $50 billion, or not cut at all. At this point, I believe they are content to let Treasuries run off the balance sheet as they mature, and not sell into the market. Ditto for MBS, as the interest payments include a return of principal, and that leads to a natural run-off on the balance sheet.

    2. Hi Bea–I wondered the same thing–we’ll see soon I guess. donocash below states it is a ‘cap’–guess I would have to go back and read the fine print.

      1. I had to laugh Tim… Mark Zandi of Moody’s pretty much said the same thing after 5pm when interviewed..said it is all noise..oh well!

      1. The comments at SA on the last article written on the company will give a lot of hints. It is definitely not the “safest” equity out there.

        1. I added tiny bit to NXDT-PA at 15.20 and started a position in NXDT late today at 11. ‘controversial’ in that it, along w ‘sisterwife’ HFRO generate a lot of commentary on SA. I am adding to risk in small bites and have been w an intermediate term view. DYODD.. ((I like ofc in 2023 and beyond..contrarian in me I guess. Bot some more SLG today under 33. NXDT has a trophy beauty classA ofc development in Dallas among its assets. Bot some BSRTF under 13 as well. ))

          1. Once again, I suggest due diligence on any and all follow on companies that came out of Highland Capital. James Dondero is CEO of NXDT and IIRC, he was involved in a nasty lawsuit with Highland. Also IIRC, they had one fund that either went belly up or came close to it. Anyone previously associated with Highland is tainted IMO. Not quite to the level of being associated with SBF/FTX, but not quite in the Warren Buffet category.
            Nothing Can Stop This Hedge Fund Soap Opera

            But even by the standards of exceptionally litigious investment firms, Highland Capital Management stands in a class by itself.

            The Dallas-headquartered alternative-investment firm has been slugging it out in the courts since the financial crisis with investors, investment banks, and a pair of ex-employees who allege the firm fraudulently transferred assets to avoid paying out judgments that the courts ruled they are owed.


    3. Bea, NXDT-A has intrigued me but I never have quite understood the thing. A commenter in past week posted this on PST’s article about it on SA. Nobody responded to it since it was posted well after article was written. Do you have any insight to accuracy or its impact on the commenters thoughts?
      ….”according to their latest investor presentation, they have more than 1 billion off indirect debt through their share off debt in sub companies. Total debt is 1,2 billion. Average cost off debt is above 7%.
      In this way company is highly leveraged with a loan to value around 55%. I will not dare to touch it….”

      1. there are intertwined relationships of course Grid– you are in Trapping Value and PST’s service, maybe ask them…when I was in TV’s CIP (as a guest before I left a while ago) it was one of his recommendations -but he sold it correctly anticipating FED tightening and not seeing enuf yield. I am ok w my small bets..I did not buy at 22 but 15.20 and common at 11. I guess we’ll see. I never participated when it was recommended in that higher range..but kept it on my radar. He offered it up as a place holder and somewhat safe cash alternative in small bites for income needing folks back then..TV probably would understand you could ask in his chat.. NXDT is certainly not REXR or PSA that’s for sure!

        1. It was a more recent PST article Bea, maybe last month probably around this present price point. Its on SA. It didnt mention the entanglement debt, so I didnt know if your coverage ratio included that or not. Or even if that commenters post was even accurate since no one commented on it.
          ….BTW, I get your various risk level bucket thing….I do it myself!

  3. https://schrts.co/DSavMFGx

    10 year yield – weekly – I keep hearing the talking heads say the yield on 10y has peaked. Possible but not probable. Usually when yield breaks above the 18 period moving average it goes to the top of the Bollinger Band. We shall see. ATB

    1. If the fed can’t slow down the economy with rate hikes, don’t be surprised if they decide to sell treasuries outright in addition to monthly run off. That will get yields higher.

  4. In my humble opinion the 10 year will test the mid 4’s again. That will be the opportunity to buy high quality long corporate bonds at attractive yields for income investors. But of course, I could be wrong. 😎. Here is to a successful 2023.

    1. Scott–you are not the 1st (nor last) that would suggest that. With the deficit spending out of congress anything is possible.

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