Just looking at interest rates this morning it is pretty obvious we are going to see a decent move in the next day or two–we do have the consumer price index tomorrow and that is followed up by the producer price index on Thursday. The 10 year is at 4.29% this morning–we could easily see 4.4% or 4.2% tomorrow–just a tiny bit of a surprise read on consumer prices will move rates. We’ll see.
CD rates are hanging in there at the 5.5% to 5.55% area – I believe I mentioned last week I bought a bit of the 1 year callable 5.55% issue from JPMorgan–but now it will probably take 5.6% and above to get me into more. I say ‘probably’ because we never know what the future holds – maybe rates peak next month and one wants to lock in some safe money? Who knows?
Talking about interest rates peaking–and I have no idea whatsoever when that will occur—there is dramatic potential upside to so many securities (perpetual preferreds). These are the high quality, low coupon issues from quality company’s. The question is – does one buy these issues in anticipation of capital gains in the next year or two ahead? There is no correct answer because every person has a need for different levels of quality–you give up some current yield in anticipation of future gains, but you gain the peace of mind of holding a quality security. Just pondering.
Well equity futures are a bit soft right now–meaningless of course–I think we may tread water as we await the inflation numbers in the next couple of days.
My “A” list – high quality and low coupon.
They are priced lower that the market due to the low coupon. As rates eventually fall they should appreciately very handsomely.
EAI Utilities Electric
PSA-S REIT – Self Storage
MGRD Asset Mgmt
PRH Ins Life and Health
SOCGP Utilities Multi
SOJE Utilities Electric
BAC-S Bank Diversified
TBC Communictions
RZC Ins Div Finc Services
GL-D Ins Life and Health
MET-F Ins Life and Health
ALL-H Ins Prop & Casualty
WRB-H Ins Prop & Casualty
NEE-N Utilities Electric
WFC-D Bank Diversified
Cheers! Windy
Windy, thanks for sharing
FYI…the two below do meet the A list criteria.
RZC is high quality and high coupon. more a “B” lister
All-H issuer All has a moodys outlook of negative, dropping it a knotch below the others on the list. more an “C” lister.
Cheers!
windy—are these that you are then holding expecting interest rates to be near a peak?
Tim, no. .. good question.
I am a one of the few left in the recession is coming camp- These I plan to buy given a market pull back. Patiently waiting.
I have 4 list based solely quality, A B C D. The pffs on all list are one i feel safe owning. “A” list pff are the highest quality and are allocated max 5% of portfolio, B 4%, C 3%, D 2%. This reduces portfolio risk to a conserative bias.
As market conditions change – especially a recession – I expect the C and D list to get smaller. as their industries are subject to recession risk.
I expect all the A list preferreds to keep their place on the list.
What I really like about the A list is:
1) the capital appreciation potential over that of higher coupon pffs.
2) bought at a low price (than today) they offer very good yields at very low risk
3) Likely , they will not be called for a long-time proivding a steady income stream; but called at $25 represents appreciation bonus. Cant lose.
Cheers!
Windy, I am assuming by pff’ds on your A list you mean you would combine both preferred and Baby bonds ?
Also when you say your looking for a pull back in the market you’re looking for most of these to hit a 6% yield to buy. This gives you both income and capital gain as they recover. Something Tim and others here have set as a minimum yield.
Charles M,
The A LIst, and all of my list included Trups and ETDs.
The average current yield for the A list is 5.86% as of last Friday. A pull back of 10% on these would result in a average current yield of 6.5%. Most of these were 10-20% lower last October when the market bottomed, lower prices are not that far ways.
My base case is there is a moderate-to-deep recession, 10-20% market pull back. Also assume the the stock market will drag preferreds down, some selling to free up cash. Not knowing the depth of the recession, I plan on buying in 3-4 tranches, based on market volatility. My goal is 15-20% below todays prices which translates to average CY of 6.9% to 7.4%
Hope that answered your questions.
Cheers!
Thanks Windy, that does answer my questions. I have a few from last Nov. I would like to add to and honestly I wish I had bought more then. I was buying in tranches of 2 to fill a holding. My 1st was my entry point and the second was to either catch a lower cost or if it seemed the holding was moving up to try to grab it before it moved too much off the bottom. I did try for a short while to buy in 3 tranches but that didn’t work as well as the holdings didn’t stay near those lows. Putting out low ball bids to just set there works in market sell off’s which are not a regular occurrence. After I filled a core holding I may buy a 3rd or 4th and trade around it.
Charles, i was not prepared to take positions last november, but Im convinced I’ll get a second bite of the apple latter this year on early 2024. In the meantime I am content with guaranteed 5% money market returns on 90% of my portfolio. I am 10% short real estate (REK inverse ETF), which I’ll add to when the market clearly reversed course for a quick return before taking positions in preferreds. The challenge is most bear markets are not orderly – often volatile which requires prepartion, nimbleness and commitment.
Cheers!
I own 1/2 a dozen or so of the issues on your list as well as others in those groups. They’re low priced, they pay a dividend I’m comfortable with (5-6%), and should appreciate nicely if/when interest rates reverse. I swap aggressively.
On downswings, I add more at 3-4% lower and on upswings, light up on these DCA issues. I’ve lowered my cost basis enough to be comfortable with another large downswing. All I have to do to reap the benefits is live long enough :->)
TD still carrying a 5.7% JPM CD, 15 month. I’ve recently jumped into the 5.4% Wells Fargo CD, 18 Month, Monthly, Non-Callable. Bit of a sucker for the monthly payments.
In addition, up until 1:00 Eastern, a TD Bank 5 yr Bond 6.35%., A rated, Quarterly is available. I’ve put a few bucks into that one. Have created a TD Bank bond ladder here in last 6 months or so. Hasn’t quite worked out as prices head lower immediately but I keep telling myself that is not why I did it, lol.
Thanks pig pile – I have a small TD acct, but not enough in there to by CDs – maybe I should up the balance.
I’m interested in those Canadian bank bonds too. I’d love to hear more medium and long duration suggestions to add to an already colorful fixed income portfolio.
jb,
Quick check of the TD new offers page;
Royal Bank of Canada – 10yr, 6%, Rated A
– 15yr, 6.15%
Bank of Montreal – 10 yr, 6.15%, Rated A+
The TD Bank previously mentioned was pulled at 1:00, but they are on a regular rotation offer every so often. They have a 1 yr, 5.75% offer they run through every month lately.
I like those maturities and issuers and don’t know if it is worth it to try to get the extra 100ish basis points from baby bonds. I like some of the BBB pile too…Main capital, for example. Appreciate all the commentary here and have learned a lot from reading through the archive.
jbosch–Always good to have another participant here.
Thanks again and appreciate the chance to review what you guys are doing and bulk up some of the feeler positions I’ve created mirroring some the favorites mentioned here. I have a lot sitting on the short end of the curve and am comfortable extending some duration…still have a fair amount to learn but have grown comfortable clipping coupons and sitting on the bid for a while and enjoy the slow and steady approach. it’s beneficial to me to plot out future liabilities (parents medical, kids college, household). if anyone has an opinions on the Connecticut power series or other perpetuals I’d be glad to hear. my uncle fester portfolio is able to accommodate anything that has a reasonable cash flow and I like utes, mlps and cefs for broad diversification and benchmark myself against historic (%5-7) returns for the overall market. Compounding really is the most powerful force in the world.
jbosch everyone has an opinion and a different way of doing things. I think the impression I have is you have some time to build up your nest egg. What I might of considered If I could do it again and had 20yrs time horizon I would have done a mix of growth and income. Knowing what I have learned here and other places and being somewhat conservative I might of bought both the common of a company to get a combination of growth and income and also the preferred of the same company for one step up in safety and income. Also it makes it easier to follow how a company and your holdings are doing.
Not meant to be a recommendation but as an example ENB is at a all time low and so are several of the preferred.
Go to Yahoo finance and pull up the stock symbol and under comments under the symbol read what a few Canadians had to say about the company.
thanks Charles. I bought half of a position of enb over the last month but didn’t get the preferred partly because fido charges 50$.
I buy lumps of Conn Power whenever they go on sale compared to their peers. I am waiting for those low yield at issue ones to hit > 6% to start snagging more. If ever redeemed it would be quite the pay day. Problem is some rarely trade and having bids sitting out there for months at a time is not a super great strategy to get cash working for you. Sometimes a person wants to commit to a concrete plan versus hoping and waiting.
Ask any questions on the ill page. We also tend to share information on a good value if we do not buy it for ourselves. Or some left over. I feel we are getting really close to the time to start stocking up on these types of preferred. Illiquids and sock drawer are my two favorite areas of this website. It also helps to have the encyclopedia gridtannica to refer to as well.
Wonder if it’d help to learn how to speak Gridbirdese at https://scripophily.net/
and use the workbook at https://cdn.zlibrary.to/v1/files/8fcdf008-65df-4ddd-99fb-302e69b9db85/download?t=y4sm2iifKL8SpnT1SDGt2mxy06Lqkncp
?
Caw, if we had old school stock certificates we could actually say we own something instead of Cede owning our stocks. But then again, I tend to lose stuff anymore, so maybe I shouldnt possess any stock certificates, ha.
my uncle fester portfolio includes paper ee bonds with 10000 written on them. that’s probably the closest we’ll see to those days. Ive been tempted to buy a piece of the 100 year Austrian bonds to complete the motif but it’s 2023 not 1923. with kindest regards and an appreciation of your outlook. jbosch
I tend to agree with you in practice, as I have striven for years now to digitize/automate the mundane things that used fill shoeboxes upon shoeboxes with slips of receipts that seemed to be written in ink apparently formulated to disappear before the return-by-date or warranty expired. That only became viable for me since GPUs and screen resolutions finally caught up with the brilliant work of Donald Knuth, but, it only became desirable when the aqueous jellyballs started losing elasticity. Old ways die hard, but, barring EMPs and Sun Spots I should be okay …? Anyway, seems a shame, now that screens can easily display the old scripophillisilliness scrollwork in excruciating detail, that the artwork doesn’t make a comeback. If only for cool screensavers on hi-rez large-screens. Looks like the issuers are missing an opportunity to attract the attention of idle eyeballs to further fortify and colonize investor mindshare … the final frontier.
pig pile are you seeing the JPM CD in your TD bank log in or is it available in some other place in TD