Last Minute Interest Rate Pop Spooks Investors

In the final 5-10 minutes of trading today (Friday) the 10 year treasury popped up to 2.65%, the highest yield since 2014. This spooked traders (not investors) a bit and must have set off some sells as the average preferred share and baby bond which was flat to slightly up most of the day ended off a nickel. This puts the losses on the average share at about 80 cents from the peak. Of course averages aren’t worth much as it includes massive losses in the AmTrust Financial and Maiden Holdings issues etc., but in general we know prices have been slowly moving lower.

Another somewhat meaningless stat that we follow is simply how many issues are trading under $25. At the peak prices earlier this year we had between 60-70 issues trading under $25. In our current universe of preferred shares we now have over 160 issues trading below $25.

Investors are seeing erosion in the higher quality, low coupon issues while the junky high yield issues are holding up well. Nothing new here and all seasoned preferred holders know that this is how it plays out time and time again. Additionally today term preferreds actually rose in price today by a nickel or dime as maybe (just maybe) investors are going to try to move to shorter maturity issues. This could help to maintain prices of the term preferreds and short maturity baby bonds.  More research and observation of this will be required in order to determine whether this is occurring now or not.

We had written an article over on the site that lists a few of the shorter duration issues with higher yields that might hold up well if we get higher interest rates next week (of course who knows which way rates will move).  That article can be found here.

As we get this new site further along we will build some spreadsheets to help us find and buy the higher yielding junky issues more readily.

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