Let’s Get the Week Going!! Monday Morning Kickoff

I can’t wait to get this week started. The stock market was a bit soft last week for whatever reason–personally I think the corona virus was a good excuse to sell stocks down–they had gotten way ahead of themselves at values that were historically very high.

This in not to say the the corona virus isn’t potentially very serious–because I think it is, but wouldn’t the stock market have been off 10% or 15% or more if the marketplace actually thought the virus was going to cause a recession? Really with the S&P500 closing at 3225 after opening the week at 3247 can we say this drop of less than 1% in the week is a significant move? I don’t think so. Sure the market has dropped 3% from the record highs–but really -just 3% lower–big deal. It is only a big deal in the context of what might follow.

The 10 year treasury dropped to close last week at 1.52% after opening the week at 1.61%. After trading in the range of 1.80% to 1.95% late in 2019 we are now seeing trading at levels last seen in September. What this portends is for others to figure out.

In the end I never try to seriously predict economic activity–why waste the time? There are plenty of highly paid people to get the numbers of wrong. On the other hand I tailor my investing to what I think is occurring–for now that is simply uncertainty–keeping some dry powder and staying in shorter maturities when possible.

The Fed Balance Sheet grew by a measly $6 billion last week and if one didn’t think otherwise you might believe that the Fed was taking away the ‘punch bowl’. As you can see below Fed assets have not grown in 6 weeks–they are at about the same level as mid December. Maybe the stock market fall is related to reduced liquidity.

Last week we had 1 new income issue sold. This was a perpetual preferred from small community banker Dime Community Bancshares. The shares are trading on the OTC Grey Market right now and opened for trading at $25.40 and now are at $25.68.

The average share of $25 preferred and baby bond did rise 3 cents last week, but most sectors were essentially flat.  We do note that shipping preferreds and baby bonds were down about a dime.

The average current yield on $25/shares issues of preferred stocks and baby bonds stands at 6.28%, while the current average yield to worst is around 3.21%. We will chart this data when we have more data recorded in the future.

8 thoughts on “Let’s Get the Week Going!! Monday Morning Kickoff”

  1. Thanks for the posting Tim. With a 6.18% current yield and a 3.21% YTW it would suggest that 3.07%, i.e. about half of the current yield, is compensation for redemption risk. The credit risk over Treasury’s is APPROXIMATELY only 1.6-1.8%. Whether or not that is sufficient is for the individual to decide.
    With a current yield of 6.18% and a current price of $25.97 that equates to an AVERAGE coupon of 6.42%. With current market yields for new issuance, it would suggest that there are potentially a lot of preferred’s that are potentially callable presently or in the future which correlate with the 3.07% income premium for call risk. That of course could change in a flash if/when long term interest rates change either up or down.
    Only my opinion from a pea brain. Nothing more.

    1. Dave–yes there are over 200 issues currently callable. I have ll this data and am working to get it charted etc in the future, but I just started putting it together last week when you brought it up so it will be months before we start to see any trends etc–and years to get solid historical data.

  2. I’m “Keeping my fingers Crossed” but as of today I have not gotten an email from Schwab that my “COF+P” was being called. Schwab has been perfect over the years in sending me an email if Iam having “anything” called. Thats the 6% issue that you guys were joking about last week that I bought one of you’re guys shares. LOL Its callable at “anytime” with notice. It pays a distribution on March 1st and like I say I have gotten no notice so who knows maybe they will and maybe they won’t. Its actually been callable now for over 2 years.

      1. Well I’ll be damned. Schwab never sent me an email or anything. I guess they are too busy with their acquisition of T D Ameritrade. Thank You Tim.

        1. Chuck–I have found that will all things related to preferreds data from brokers or really anyone is sparse and not necessarily timely.

          1. Tim; Yes, is that ever an understatement. LOL In just now looking at things I was considering buying Iam now seeing prices sometimes priced so high that you would actually lose money. Let me explain. I have been watching “DLR+G”. Its callable now. It pays .3671 cents per quarter. When I checked a minute ago it was priced at $25.86. So whoever buys it today at that price and if the company decides to call they lose about .50 cents a share. Not sure why people do this???? I learned my lesson on COF+P as Iam not going to pursue crap thats callable at anytime.

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