Well once again we had some wild swings in equity markets and then end the day with equities down and interest rates popping back higher. Almost without doubt there is more pain to come in equities.
The 10 year treasury traded around the 1.78% yield mark until the last hour of the day, when Fed Chair Powell did not back off rate hike plans or at least didn’t give markets a reason to believe he was backing off. Then the 10 year treasury yield popped to 1.85%–I suspect on the way to 2%—hopefully it will take a couple months to get there (fingers crossed)–remember that ‘speed kills’. Markets can tolerate higher interest rates if they come a few basis points at a time—but fear will set in quickly with 10 and 12 basis point jumps in a day.
Keep your seat belts fastened–they will be needed.
The preferred canary portfolio of low coupon yield, IG issues finished down -3.2%. Overall the median preferred was down -0.53% and babys/terms were down -0.37%. Worst day since Covid Crisis start in Feb/Mar 2020 IIRC.
Personally we are NOT a buyer of these low coupon issues even after today. They are off -6.65% YTD, so today was about half of it.
Really wacky day. S&P down only about 0.5%, and yield on 30 year treasuries actually down 8 basis points. Yet SPPREIG down ~1.8% and SPPREF down ~1.6%. Make any sense?
How did I make $2000 today? Had to check to find out. SLMNP listed price went up nearly 20%. Phoney baloney number.
At least we saw that 250 shares traded at $993.75 and TDA shows a Bid-Ask of $1,017 to $1,130. That is of interest to me and reaffirms my conviction to keep the faith.
That bid/ask is probably stale data from many months ago.
It looks legit serious bulk buy… 6,000 shares in 2 blocks of trades. Serious cash purchase!
xch/Mkt
01/27/2022 13:15:30 EST 993.75 250 OTCBB
01/26/2022 12:43:12 EST W 997.50 3000 OTCBB
01/26/2022 12:42:22 EST W 995.00 3000 OTCBB
The Fed has dumped about $25B of MBS https://www.federalreserve.gov/releases/h41/current/h41.htm
Fasten your belts, folks, it’s begins.
Looks like the yield reset is starting on the low coupon preferreds. HBANP closes at $22.92, down 6% on the day. Pretty big gap down on a 4.5% pfd.
I feel like something else is going on here. Does not make much sense for such a dramatic drop. Is someone being forced to raise cash? Something being liquidated due to using too much leverage?
At 22.92 that is almost a 5% yield.
HBAN reported earnings last week that were a bit disappointing but nothing out of the ordinary. I agree that it smells like forced liquidation somewhere, 410,000 shs traded.
looks like natural gas feb contract had a short squeeze today. woo doggies. what a spike. That must have hurt someone(s). I doubt it is connected in anyway but we can tell now that some folks are being forced to cover somewhere in a major way. I wonder what else will leak out over time.
https://seekingalpha.com/news/3792858-apparent-short-squeeze-briefly-lifts-natural-gas-prices-70
Free markets go up and down. The Fed has worked overtime over the past 13 years to assure markets only went up. But with corporate profits stalling, their last refuge is to utilize the Covid crisis to raise prices. Thus inflation. Thus market volatility with the actual possibility of a sustained market drop.
For those who have substantial cash reserves, the key is not to buy in too heavily too quickly. Assume the market will drop 40% over the next couple years, and permit ~15% price gaps in between price entries. I’m not predicting this drop, but those of us who lived through 2000 and 2008 remember buying at “bargain prices” only to see it drop another 30+ percent before hitting the bottom. Patience is the key, as always.
Hope for the best, prepare for the worse.
Rarely does anyone help me out on this site but I will tell you all that Bank of America is coming out with a new preferred. Its a 4.75% coupon and all the normal things you think of. Call protection to 2/17/2027. Iam not going to buy it myself but will just say atleast its a well known name that most people can be comfortable with. Very well capitalized.
My only worry is my MER-K that has been pressured by the last preferred they issued and now this one. I do not own a lot but still… As for the 4.75% I would expect that to be cumulative now days and high IG. Like a utility for me to buy it. It is a great name but I am being a lot pickier now days. I own some that is similar but I already capped myself mentally from buying more like them.
FC, The banks get the benefit of the doubt because of the fact they have to by regulations issue non cumulative for capital purposes. As fas as that illusive 5% IG ute, a marker would be 5% ALP-Q. It was issued in 2017 when 10 year was 2.2%. I watch CMS-C sink. If it can ever sag to $21, I may start toeing around there.
Grid, Yes I am aware why banks are all non-cum now days. Maybe others did not so as always you are a learning experience for all readers. So please keep assuming I know absolutely nothing and keep on preaching! The choir is listening. Thank you.
If rates go up like we think they will and if BAC has to now issue just a few months later 4.75 versus 4.25… great chance that preferred will sink below par after a while. So if I am going to go after a 4.75% today I want it to be something like a utility. Where I can almost completely forget I own it and not have to worry about a possible bank crisis like we had in 2008. I cannot recall a time enough people stopped paying for electricity to cause an high IG utility to not pay their preferred in most regions of the USA (I do not count CA. That place is crazy. 😉 ).
So just commenting out loud here. Time to get pickier and picker in this env. In six months we might see JPM issue a 5.25%! Who knows.
FC, BTW, Thanks for ruining my day mentioning MER-K, ha. That previous BAC preferred you referenced dropped MER-K down to 25.80 and it was only a few weeks from going exD too. And I KNEW the prospectus clearly showed MER-K was not being redeemed from it. It was a lay up gamble and I blew it. I got greedy trying to get it lower and wound up getting zip!!!
I chickened out from adding myself to MER-K. I was staring at it.. but did not pull the trigger because I told myself I would limit any possible losses to a certain degree by not buying too much of these odd ball trust preferred. Even with it still lower I have not added anymore.
FC, Ute debt 5.625% SJIJ has sunk under 52 week low to near par. This one can dance more, so Im not touching it yet. But I remember getting this in the $23s frequently a few years ago (pre covid) and trading often. This is another one Im tracking but just watching.
The preferred canaries are gasping for breath today. (Portfolio of low coupon, IG issues.) They are down -1.43% TODAY which is a staggering amount. Overall all preferreds are down -.40%, so NOT a good day to hold low coupon prefs. The canaries started the day singing merrily, aka they were up, but some bad winds blew in. . .
Picked a fine time to stop drinkin. . .
Tex, Definitely some caving going on. In just 3 weeks I bought SR-A at upper 26.70s and low 80s. Flipped over 27.20 before exD, and now I just reentered at 26.04. It is exD since my sale but still its at 52 week plus low. Would really like it to spill to par and then buy a bigger slug.
Maybe it’s time to be like the Pen man and only be concerned that the income he’s receiving is what he wanted when he invested so all’s good and meeting expectations… You think??? huh? huh? huh?
2WR, The main diff I see with Pendynuts picks is they go down immediately even in a bull market and sometimes cut or suspend the income too! A charter member in the Hall of Shame investing club.
It is like the movie purge right now. So much dumping going on. Almost to the point of recklessness. Why folks did not sell off their lower yielding preferred a month ago is beyond me.
VNO-O last trade was 22.76. That is brutal for an example.
Im trying to use the 2013 Taper as base case to assume worst. You had then newer issued IPL-D ute (recently redeemed) at a 5.1% coupon cratering into low $20s….But 10 year shot to 3% also while Funds were still 0%. Trouble is I dont have an assortment of 6% ute illiquids this time around to laugh at the tantrum. So Im having to be more creative to keep my blindside covered a bit.
Tim.
Your the best , after the corona Dip ,bought down all my $25. preferred stocks..below Par, 95% green……..with…………Binden Dip…… Thank You..Georges
Big bear market rallies and drops should be normal with the S&P 500 trading below it’s 200 day moving average.
It really has nothing to do with a moving average. We are getting wild swings both directions because the VIX is at 30. ATB
I wouldn’t be surprised if markets drop another 10% from here….it’s what the fed is hoping for. Just look at yesterday when the meeting notes came out sending the markets higher. Powell saw that, then ran out on the tv to spread doom and gloom and drop those gains as fast as possible.
“I’m going to punch you in the nose!”
“I don’t feel like punching you today. But I’m thinking about punching you later this year a few times.”
And this is bad news? If the Fed wanted to raise rates they could’ve started today. They didn’t.
I don’t invest based on daily news blurbs. I’m more likely to play against people who do.
Agreed. I argue the market dropped because they didn’t raise rates as the market was expecting. The market doesn’t like to be surprise even when it doesn’t like what they are ‘expecting’.
I still think the Fed is scared to raise rates, despite what they say.
LTVS, what on Earth are you talking about? No one was expecting a rite hike yesterday. Or, perhaps, you were the only one.
Forget about the 10-year yield and pay attention to the 2-year, which at the moment is about 16 bps higher than it was before the Fed’s announcement today. In other words, the market is seeing the Fed as much more hawkish than before and this is a massive tightening move in an 8-hour period. You can act, or not act, based on that however you want…but expect a lot of volatility in the near term.