Interest rates have moved lower again after toying with the 2.50%’s the last number of days.
Additionally the FED FOMC minutes have just been released and the majority of FED governors believe no further rate hikes should occur for the balance of 2019. Of course we shall see where we go from here.
The average preferred stock and baby bond is off 1 penny this afternoon–you could call that pretty darned quiet. We do note some of the PS Business Park preferreds off 1 percent–no apparent reason–they just went too far, too fast I guess and someone wants to lock down some profits.
20 thoughts on “Interest Rates Move Lower”
Interest rates increasing again. 10 year at 2.55 this morning. Shocking (and I am being highly sarcastic), JPM and Wells Fargo’s beat expectations. I say shockingly because of the analysts lowering expectations to be negative growth. As companies report and growth is not negative, I expect the 10-year bond to stabilize in the 2.6% range.
Just my view of the world.
Anybody doing any investing in municipal bond ETF’s, CEF’s or mutual funds?
I am looking at BFK from Blackrock at 5.2% yield ( CEF leveraged) and ABHYX mutual fund paying 3.7% (no leverage).
SteveA, if you don’t mind I will take a crack at your (BFK) BlackRock Municipal Income:
-2.41% discount to NAV (good) but when the average discount the last 52 weeks is -7.92% it is (terrible)
39.19% leverage is too high (poor and too volatile)
Internal fee is 1.06% (decent) but when you add in the leverage cost of 1.24% for a total of 2.3% (poor)
UNII 0.0337 (not good)
Z Score 2.10 (horrible)
Total Return since inception average +6.32% (fantastic) but when you look at the last 3 years it’s averaged +1.51% (very poor)
5 of the largest 6 bonds they hold are in financially terrible states (and DC) Illinois, NY, Cali, NJ and DC (yuck)
260+ holding (good diversification)
Top 5 of 6 are financially struggling states making up 47.26% of the
Paying out 0.0585 monthly but earning 0.0563; not earning the payment (though close)
Municipal CEF (not great)
Pass on this Muni CEF at this time IMHO
Wishing you profitable investing, Nomad
I absolutely agree on the leverage issue of 40%. Seems like this is “the norm” of where most of the muni’s CEF’s have their leverage. I hate CEF leverage, so my plan was mostly a mutual fund with a small amount in CEF mini to get my yield up from 3.7% to 4%.
I may be wrong, but isn’t the criteria the Quality of the municipal bond offering more important than the state it comes from? For higher yielding Muni’s the credit quality of Blackrock looks reasonable to me. AAA 4%, AA 25%, A 51%, BBB 16%, B 1%, 4% unrated. This is from Morningstar
The gold rated Tprice Rowe fund equivalent to ABHYX mutual fund credit quality is AAA 1.09%, AA 2.39%, A 18.53%, BBB 35.2%, BB 13.6%, B 3.6%, Below B 1.32%, and Unrated 24.65%
I will continue to do more research.
Thanks for the input. It makes me think, hesitate, and look deeper. I really appreciate other people opinions especially yours. You seem to be dead on most of the time
Steve, my favorite is the VanEck Vectors HYD (ETF). A little better than 4%, pays monthly, no leverage and has a tight annual trading range. I have owned and traded this one for years.
I have owned this in the past. A very respectable choice in my view. Thanks
PFF rebalancing announced
PFF isn’t using that index any more, so next Thursday the S&P rebalancing won’t likely cause the same influence upon trading as in the past. PFF is using the ICE Exchange-Listed Preferred & Hybrid Securities Transition Index, which I believe is the cause for the heavy volume at the last trading day of each month. I think that will continue for several more months until PFF finally settles on the ICE Exchange-Listed Preffered & Hybrid Securities Index. On the third Friday in January, I tried staying alert for trades based upon the S&P rebalancing, and nothing interesting happened. There may be a few ETFs or other funds that still use the S&P, but PFF is the 800 lb guerrilla.
Roger – would you know where to get a listing of the new ICE preferred index? The ICE website is a labyrinth!
That is a great question. The answer is a long story. To make it medium, I finally called ICE, and learned that the components and weightings are given only to subscribers. I asked about buying a subscription, and they said “institutions only.” (Plus, it starts at $15K). I tried data resellers, and got the same answer. I noticed one of the GS ETF prospectuses says the index is not available to the public. I called iShares, and their answer was that they track the index, so just look at their holdings. (PFF publishes its holdings every day on the website.). I asked how I could know they were following the index if the components aren’t publicly available. After a 15 minute hold, a supervisor said I could compare their performance with index results to confirm. Of course, we are thinking with a trading mentality. What we want to know is how the index changes before it happens. Sadly, I haven’t figured that one out.
That’s one disgusting answer. If you want to follow an institutional index only then your ETF should be available only to institutional buyers. When you offer an ETF to the retail community, you should follow an index available to retail investors also.
I use PSK for my excess cash in my IRA accounts. Pays 5.6% follows the Preferred Investment grade index. I can recognize almost all of its holdings. When I buy individual issues, I look for 6.2% or above. Happy to buy the new issues at under 6.2% to get some capital gains like AIG-PRA.
Other than the fact that PFF is more liquid, I prefer PSK due to the quality of it’s holding (you need to be IG rated by either SP or Moody’s)
I agree. I don’t understand how the SEC allows this. How can you make full and fair disclosure of your fund when the index is not available to the general public? I thought about writing to the SEC. But PFF is a $14 billion ETF owned by Blackrock, and I just feel like I’d be tilting at windmills.
Agree. However, SEC is always very slow to act or they don’t act. In the end, you will probably not go wrong with owning PFF but still doesn’t make it correct.
As long as we are disparaging the SEC I will give you my long standing complaint about “institutional only” issues.
Many don’t know that the volume of institutional only preferred exceeds that available to retail. And that the terms and rates are (all else equal) better on institutional only. Hell, many don’t know that such a thing as institutional only exists.
I’ve just completed a deep dive on preferred CEFs. I invest a good part the the preferred portfolio there mainly for the reason that it’s the only place I can get the institutional issues. FPF, one of my favorites, is 88% institutional issues.
So, the SEC won’t let me buy those 88% directly, on an exchange, but they are 100% OK if I buy them indirectly through First Trust.
Thanks SEC for protecting me from NOTHING, and raising the cost of investing! How about thinking about investors now and then?
Thanks, Roger. So much for transparency. I’ll just trust. Yeah, right.
Going into the strength of mid year activity, rates could be moving higher especially as candidates position themselves for the election next year. The one things I’ve seen again and again is that the markets do not like to move into the unknown. Primary indicators and the ending of action by the bond vigilantes after the December raid could spell lower trending rates, as a follow through, if indicators show consumer weakness of any degree.
That would definitely point to a sideways trend for the time being until a firm solution is found to the trade difficulties.
Confidently submitted to SA as my first article!….JA
No one called bs on my article: higher, lower and sideways rates call?
Joel, I think absent unforeseeable event any moves won’t be much, one way or the other, for this year. For whatever it’s worth, the Fed appears to agree with me. In view of that I’m not personally making any trading decisions based on a change one way or the other. Of course things can change, but for now it’s my investing thesis, until it’s not. Good luck on getting $200 from SA for your article. Maybe Tim will start to pay $.02 per comment some day?
Joel, you sound like you got the bases covered. And like any SA writer you can follow up with a “victory lap” article claiming your excellent investing acumen! Kind of like Brad Thomas bragging up his perpetual reco of KIM, stating how its up 28% this year. But forgetting he is down 50% over his initial reco of this issue..
LGB!!!! Joel, I dont care what the 2-1 score showed. The Blues ass wiped them 3rd period and beat them down like red headed step children…On to game 2! Gonna be a tough fun to watch series.
I hope Y’all realize it was a CNBC talking heads joke!!