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Interest Rates Up Again This Morning

Yesterday the 10 year treasury yield rose by 10 basis points from the close last Friday to 3.58% and once again this morning yield is up by 8 basis points to 3.66% This is a significant move if it holds, but of course who knows where we end. Preferreds and baby bonds were off a little yesterday as you would expect, but losses were modest–maybe 1/2%–although that is more than enough.

We just have some housing economic news today with building permits and housing starts on tap shortly–obviously they are expected to be soft, the question is how soft? We’ll know in 10 minutes.

Yesterday I sold some Priority Income Fund 6.625% term preferred (PRIF-F). I had to sell something to redeploy into some other issues. I continue to hold some of the PRIF issue, but had very little cash available and this was my best option as I am diversifying holdings even further. I have holdings of over 50 issues.

I noticed yesterday that the Vornado Realty (VNO) preferreds have really gotten hammered recently. These issues used to be favorites of mine, but I have held any in recent years. Obviously office properties in New York are totally out of favor. The VNO-L 5.40% perpetual is trading at $16.25 for a 8.3% current yield. At the right price these become interesting–but I need to look closer at their financials and see how bad they are before even thinking seriously about a taste of these shares.

26 thoughts on “Interest Rates Up Again This Morning”

  1. Curious observation on CDs. With Fidelity I have a 3 month CD with a 3.350 yield that matures on Dec 29. What is curious is that todays price of $99.982 is less that the purchased price of $100. Seems to me that the last price should include the dividend that will be paid when it matures on Dec 29. What am I missing?

    Conversley, what if I bought the same CD today for $99.982 would I recieve the original $100 plus the one quarter of the dividend of $3.350?
    Somethine in my thinking is not right.
    Cheers!

    1. No, you’ll pay a commission which I believe is .010 making the total 99.992 for a capital gain of .008. It’s not like preferred stocks you’ll pay the accumulated dividends up to today and recieve the 12-29 dividend which will be 8 days worth higher. A tiny gain but is it worth the trouble? Several boxes to fill in at tax time.

    2. The prices that you see for both CDs and Bonds have nothing to do with the market price. In fact, Fidelity purchases this information from a third party which is merely their best guess of what a CD or Bond is worth.

    1. I read/skimmed the article. I always find researchers/historians from England love their gloom because that it pretty much all they have known most of their lives. That was how they were taught. Pessimistic, passive students who conclude that the world is a hopeless place as England has trouble with almost everything from industry to irrelevance. Even the weather is gloomy. The great English empire still slowly crumbling to this day.

      On top of that I find that historians and especially economic historians rarely agree on anything. It is almost like their background beliefs color their thoughts completely. But this is just my opinion.

      Live life, save, spend, and be happy. Do the best you can with what you have. Vote accordingly. Increase your knowledge and wisdom. Find happiness for yourself and then others. Life goes on.

  2. I wanted to vet a PFD; the company is annaly NLY.
    The preferred is NLY-PF; it is fixed to float starting 9/20/22. The rate is 4.993 plus 3 month libor which is currently 4.77; so overall yield just under 10%.
    It is currently trading at 24.20. Market grader loves this company rating it #1 out of 252 REITS in North America. I know Libor is on it’s way out and the rate won’t stay that high more than 6 months or so.

    1. NLY is rated somewhat safer than most unless the whole sector implodes. NLY-F is popular because of the current float dividend. I like NLY-I better they both float around the same rate beginning July 2024. F will pay a total of maybe $1 to $1.20 more in dividends until then so I figure it should be priced $1 higher. Apparently many investors don’t think that way. NLY-I has been closer to $2 cheaper tho it went up the last couple days.
      LIBOR will be replaced by SOFR plus an offset. Might not be worse tho it’s less predictable.

      1. I have no idea if this is true, but I read somewhere recently that the LIBOR replacement is going to be SOFR + 25 or so basis points. Big discussion here awhile ago prolly covered it.

        JMO

      2. Gary, thanks for that link; I hadn’t seen that one.

        What I like about it (and adding to camroc’s and Martin’s comments above) is that it also cites the ‘LIBOR fallback rate’ (3ML + the ‘overnight fallback spread’), about which (as camroc mentioned) there was quite a bit of discussion and observation recently here on III.

        Of course, who knows how institutions actually will implement LIBOR replacement on their LIBOR-based paper–I’m sure there will be a wide variety–but the offset is as good as we have now, I think.

        As an added bonus, it has https://www.sofrrate.com/cessation-countdown. Love it.

    2. As you likely know, NLY is a Mortgage reit. Some here shy away from them but I don’t. NLY and AGNC are the two MREITS that have the highest “safety” factor . They are solid. I own a number of MREITS, including NLY-F and NLY-I

      1. Maverick61–I have a taste of the NLY-F as a yield enhancer–I won’t go crazy but in limited size I will endure the risk.

      2. Maverick,
        AGNCL has an ex-dividend coming up and over sized payment since it will be a partial and full quarter for its first payment. I expect dividend chasers will see just the juicy payment and not realize it will drop on the next payment. Good for a quick flip and then buyback after the 1st of the year

        1. I swapped AGNCL for AGNCP when the price difference was over $2. Will swap back if and when the price difference is low enough, They’ve moved around a lot but may stabilize soon.

  3. Avoiding office properties, I bought 100 shares:

    SAUL CTRS INC 6% DP SH PFD E
    (BFS/PRE)

    Looks like they target higher income areas with grocery anchored shopping centers. Lots of properties in DC/MD/VA area. I don’t see “big government” cutting any jobs in a recession.

    1. I also own 300 shares of BFS prD; if the grocery stores go under there will be nowhere to hide.

    2. Just bought a little more E….My, how times change… Bought some in Dec ’20 at 23-24, then tried to sell in ’21 when in 28s, as YTC was ~ 0. Was too greedy and could sell only TWO shares at my ask. Now it’s near 19. These swings make me more appreciative of plain old bonds, and now CDs, where I know what I’ll get and when, assuming the company doesn’t default.

  4. The market is always forward looking Tim, but I don’t see office REIT’s coming back for at least 6 months. Especially in certain markets. NY, Seattle, Portland, San Francisco. Grocery anchored REIT’s and community shopping centers seem to be doing good at least the ones here with Target, Trader Joes, Costco, Safeway, Kroger, Home Depot etc

    1. I wonder Charles if this will be ‘opportunity’—the time to buy is when there is ‘blood in the street’–may not quite be there yet.

      1. simple question, Looking at the preferred of several of these office REIT’s.
        On the ones I follow they are still above their 52 week lows.
        I have to ask myself if the economy is better off now then earlier in the year when they hit those lows?
        Do you expect the economy to get better in the next 3 months? I want to see what the 4th qtr. earning report are for a lot of these office REIT’s

      2. Tim – We are either extremely close or we are in for some sort of black swan event.

        We shall see how the flows change in the coming weeks with tax loss selling possibly adding to the carnage in office reits.

      3. Tim,
        For myself on office REITs I went with EQC-PD right now if you put in a bid you may get it just below par in the next week or two

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