This week is about jobs–and after yesterday obviously it is about cost of jobs as the employment cost index came in hot.
The ADP employment numbers have just been released–the forecast was for the creation of 183,000 new jobs in April. The number today is 192,000 – so somewhat hotter than forecast–not helpful to interest rates, but not super hot. The 10 year treasury is now at 4.68%–pretty much unchanged. In the past ADP was looked at as the ‘fake’ jobs report (versus the official government report), but in the last year ADP has come to be viewed as the likely most credible jobs number.
Now we will await further data–construction spending, ISM manufacturing report, JOLTS (job openings and labor turnover) and of course the BIGGIE for the day is interest rate decision at 1 p.m. (central) followed up by the chief FED yakker presser. A plethora of potentially market moving data.
Today I will be buying some Annaly Capital 6.95% fixed to floating rate perpetual preferred (NLY-F) which is currently in the floating period. Shares have a ‘spread’ of 4.99%–plus 3 month SOFR. Current yield is in the 10.2-10.3% area. Shares are at $25.29 which includes almost 2 months of accrued dividends. Shares are currently redeemable and I would expect the issue to be called in the next couple of years (if not sooner). The redemption possibilities should keep the share price at $25 (plus accrued dividends). This is going to my high yield, high risk ‘bucket’. Now I will move on to balance the purchase with a safe bucket purchase (TBD).
I see biggest risk to M-Reits is sudden drop in rates ” a la Covid ” , when the hedges went against their and most suffered huge paper losses . It’s broke their debt covenants and had to deliver quickly taking big losses or go under
No rate chg
https://www.cnbc.com/2024/05/01/fed-rate-decision-may-2024-.html
10 yr off 6¢ already
The market obviously agrees with you in characterizing NLY-F as high risk, as the yield indicates. I would appreciate views on the level of risk, which I view as much higher than major banks or CEFs, but perhaps lower than some smaller banks (that take credit risk, often in commercial real estate) or other issuers. NLY is a $9 billion market cap agency mreit. Like all mreits, it is highly leveraged, but also hedges that risk. NLY constantly issues new common (which is not great for common shareholders, but nice for preferreds). It didn’t miss a preferred dividend payment in the last crisis that drove the price of NLY-F below $15. Appreciate your thoughts.
My portfolio was barely positive yesterday- somewhat surprising given the size of mkt drops. Up today.
Employment cost index rising, producer prices paid increasing and Powell’s too soon dovish Pivot is yet another mistake to add to his repertoire of Transitory inflation and bumpy path to 2%. Inflation and higher for longer but he’ll play his usual word games this afternoon so as not to admit his mistakes and to keep appeasing his adoring Wall Street crowd. He deserves a Nobel prize in obfuscation.
A Nobel prize in obfuscation is a prerequisite for the job, isn’t? That being said, I’m betting on Pennyless to be the next Fed chair…
Rolled most of my maturing treasuries into the 5.35% Merchant Bank’s 8/9/24 CD. Staying cautious.