Finally by midday Monday stocks began to recover from early losses to climb to a closing gain. The bond market was closed so we will need to await trading today to see if we can find stability in the interest rate arena. Our best guess is that rates will stabilize today sometime in the 3.23% area. By stabilizing we are talking about for the next couple of weeks–then there will be more news, more economic releases etc and we can proceed to move rates higher or lower–of course we hope at a slow pace of movement.
Yesterday was a decent day for many preferreds and baby bonds as many issues bounced by 1-2%. Also REITs bounced after falling 5-6% last week. Personally we picked up some Independence Realty Trust (NYSE:IRT) on Friday as it fell into the $9.70’s, but this was just a flip and we have sold the shares already as IRT closed at $10.10 Monday. We do note that while we had some bounce in many income issues others fell 1-3%. Those falling on Monday were mainly very thinly traded issues–they “trade by appointment” and if they don’t trade prices are not shown up or down.
We are watching as even the term preferreds and short maturity baby bonds have moved slightly lower. Issues like the new 6.375% Gladstone Investment (NASDAQ:GAINL) which has traded as high as $25.60 in the last month is now around $25.15. The safety play–Kayne Anderson 3.50% term preferred (NYSE:KYN-F) has been trading between $25 and $25.10–a great place to “hide out” as it has a mandatory redemption in 15 months.
Some of the issues we love are the CEF preferreds—mostly very highly rated–but also mostly perpetual. We can’t buy them–we love them–but we can’t buy a bunch of stuff that we know will be pounded lower as rates move higher. These almost all have coupons of 5-6% and most are trading at or below $25–unfortunately the current yields remain under 6%. So super safety still pays an inferior reward (for a perpetual security)–we will wait as we want more–say 7% and up. We are happy to hide out with too much cash and term preferreds a bit longer.
IF we were perpetual preferred buyers we would be watching the fixed-to-floating issues. We would be most interested in the issues with a initial coupon over 8%. This gives one a little cushion from rising rates as compared to fixed rate buyers. Of course we personally are not buyers of perpetual preferreds yet–but the time will come–probably some time next year.