Interest rates continue to march higher with the 10 year at 3.63% this morning and the 2 year at 4.27%. Yesterday, and for the last week or two, we have had some very calm equity markets irrespective of the move higher in interest rates–this won’t last forever–we will reach the point soon when common equities AND preferreds and baby bonds will react in a negative way. We had the Silicon Valley Bank crisis in early March and income issues fell very hard. Since mid March preferreds and baby bonds have climbed 4% from a panic selloff–more than ½ of losses have been recouped–how long will this bounce continue? My guess is not much longer.
Yesterday, as I mentioned I added a very small amount of 3 regional/community banks preferreds. I added to Merchants Bancorp, Bridgewater Bancorp and Heartland Financial. These were all small positions and remain small, but their 7-8% current yields help to balance the 5% CDs and treasuries. All of these report earnings next week so I will re-evaluate after we see the latest data. My laundry list of holdings is here.
We had earnings yesterday from bankers First Horizon (FHN), Fulton Financial (FULT) and Western Alliance (WAL) all of which have preferreds outstanding. As noted above next week Customers Bancorp (CUBI), Merchants Bancorp (MBIN), Bridgewater Bancorp (BWB) and Heartland Financial (HTLF) all report earnings next week. A few items to note is that most of these banks do not have huge security portfolios thus the discussion of losses on holdings is minimal. Also I note that we are seeing increased losses on commercial loans and as you might expect banks have had to pay a large FDIC assessment.
Also of interest Lincoln Financial (LNC) and Jackson Financial (JXN) both report in early May.
Big banks US Bancorp (USB) and Morgan Stanley (MS) reported this morning and earnings were good (as expected). USB did show a jump in problem commercial real estate and I suspect we will see major issues in this segment when (if) we see a true recession.
Today I won’t be making any new purchases–not feeling the motivation today–plenty of dry powder resting in money market at decent rates.