Lots of Red Today

With about 65% of baby bonds and preferreds being down today there is no doubt that investors in income issues are taking a bit of pain today.

It is always disappointing to have a losing month–but I am focusing on the improved current yields on some issues that I would like to own for the long haul–quality issues (or mid level issues that are technically junk, but decent junk). Think about all the 5% coupon issues that none of us wanted to buy—honestly they are still too high, but approaching more tolerable levels.

Many of these low coupons issues are way down from the end of December. Here is a 4.70% coupon issue (PSA-J) from Public Storage (PSA)–it touched near 28 in December and is now down $2.50 from those levels.

The only question is how high will rates go? Of course no one knows the answer to this question—so I always suggest that if one wants a new position during rising rates that you ‘leg in’ to a position. If you want 500 shares buy them 100 shares at a time–with no commission costs to speak of there is no harm in multiple transactions.

39 thoughts on “Lots of Red Today”

  1. What are people buying? Looking for ideas. 5% yields and higher. Thanks.
    I added some AMH-F today at $25.33

    1. BAC-L the almost non callable, IG rated yielding 5.3%+ went ex-divd yesterday and snagged a few near lows.

      Would buy more of this and similar but waiting for lower prices as ^TNX seems to be still headed higher (say to 1.9 where it was last Jan/Feb)

    2. GSLD Global Ship Lease, Inc. 8.00% Senior Notes Due 12/31/2024 1st call 12-31-21. Disclosure I own GSLD

    3. OXLCM Oxford Lane Capital Corp., 6.75% Cumulative Series 2024 Term Preferred Shares past call. Trading at 25. Disclosure I own OXLCM. Also, thanks to Grid yesterday TDJ selling at 25.30 distribution coming up in a few weeks .4375 I own TDJ

  2. This may have been brought up before. It might be nice to have a new link possibly titled pinned to par issues or short term mm/cash equivalent issues?

  3. I’ve sold some of the illiquids such as CNLHP and ALPVN. Also sold a large position in EP-C on that spike I posted about at the end of January.

    Now finding some replacements. Bought BHFAN today. A split investment grade issue trading below par and has an oversized ex dividend on March 9. Also bought more DCUE…I’m underwater on this but like the 7.6% yield and think the common will be higher next year.

  4. Tim.. there are some buying bargains,, out there , all new A- Rated offering are 4% ++ at $25 ++

    1. As it always with behavioral investing, if everyone here doesn’t want to take duration risk AFTER a big move higher in rates, it’s more likely than not to be a good time to take duration risk.

      1. I suppose it depends on ones goals. I moved off these before rates jumped in hopes to sell out the call anchored issues back into some roached out high quality issues that would drop. Im still waiting as switching out now to me is more of a “buy on the dip” than it is buying on finding good values in low yielding IG issues.
        They havent come close to matching the 2013 and 2016 price drops experienced in rising rate expectation market. I dont think enough people have moved to the other side of the ship yet. Of course if ones base rate expectation is rates to stabilize here or even reverse, then yes I see the value.

        1. Not a single person on this website knows whether rates will stabilize, go higher, or go lower. Most are responding to what has already happened – prices went down, so now it’s time to sell and move to lower risk options. Could that work out this time? Sure, but not a great game plan if you ask me.

          1. KC:

            Since I depend on dividends and interest from my investments in order to pay my bills (for 12+ years now), I have the opposite approach. I have lots of cash to still put to work and with the recent spike in rates I am finally finding more opportunities to buy income securities at favorable prices.

            But safe income first and foremost is my goal. I don’t worry as much about the total value of the portfolio.

          2. That is why it all depends on your own personal base case scenerio. Or if you dont even have one and dont care what the price does and are just purely income investing.
            I dont think they have moved downward enough yet. To me its a “buy the dip” not a total pricing reset. Take AGM-F… It is a 5.25% coupon issue when 10 year was 0.65%. Now 10 year is almost 1.50% and AGM-F is still above “par” at $25.20. That doesnt seem like a deal to me. But if you are coming from where it got overbidded to at $27, maybe so.
            Agree totally on no one knows interest rate trends. Daily let alone yearly. But I know capital preservation wise holding a 7% issue at par compared to same
            sister 125 bps lower at same price is going to protect my backside $4-$5 bucks a share if things go bad.

          3. Karma, I was busy at time and didnt really complete and clarify my thoughts and then I was teasing Camroc today and it made me remember. Im generally overall in total agreement with you and also Camroc though I was teasing.
            Generally for me I am discussing “last in purchases and portfolio tilt”.
            But for newbees I may be giving false impressions overall as its to mundane to repeat the rest of the stuff over and over…
            But even though I have over past several months tilted stash to buying issues like TDJ, UZA, QRTEP, CEPQ-, etc. I still have a very healthy amount of IG issues and illiquid IG issues that I am never going to abandon. I may flip and rotate out of maybe say an AILLM to a NSARO as an example to goose returns a bit (or minimize losses depending on interest rate trend) when opportunity occurs, but I am not selling out all my IG issues just to go all crazy in high yield.. I also play the 2WR game, too.. For example two of my biggest holdings right now are PPX and WTREP which are hanging by a thread call anchored in anticipation of a strong possibility of a redemption notice this year.
            Like you said, this is all unknowable concerning future rate hikes (or stabilization).

  5. I made a couple of comments about the 10 yr and its direction over the coming yr….Pesonally I don’t think the preferred asset class is a very good spot to be in over the next yr….two days ago I sold all of my preferreds and plan on going a different direction for now…after losing a years worth of dividends in a weeks time I just didn’t feel like this is over by a long shot….best of luck …craig

    1. Craig, you probably had too much in perpetual ones, or low coupon investment grade. When these sub 5% ones came out, I never bought into them. There are too many above 5% to invest in. That is why you mix in pinned to par issues. These are best guesses that they will be called in short term, and mandatory called. When people panic and sell, it is a great time for me to be greedy. When the market goes up and up the last few months, I have rotated out and was fearful.

      Still being invested in preferreds and baby bonds, just rotating within the various types. Keeping the dividends and interest payments flowing in. I have started slowly rotating some back and letting a few pinned to par ones go and started buying ones that folks are dumping. It is a great cycle. Fear and greed is a powerful thing. This is why it is also good to read other sites like SA. This is to get a sense of fear and greed. There was way too many war hero stories on gains, buys, great buys and sells, and a lot of greed in stories the past few months. My sons telling me their friends are making a ton in the stock market and not knowing what they are doing. Greed….

    2. Craig, if your plan is to move from one asset class to another, then sell out every time the new one drops, you may not have a very good investment strategy.

    3. Craig,
      Just curious, how did you lose your dividends ? Unless a company is in trouble, dividends will be paid on time regardless of what the market says your issue is worth at the moment. I guess it depends on why you are buying preferred’s.
      I am buying for the income myself. Some have maturity dates, some will be called and some will go on paying 6-7% pretty much forever regardless of current price.

  6. I was back in the market yesterday for Wells Fargo’s recent WFC-C. Now that WFC is almost out from under the Fed’s thumb in terms of growth restrictions I’m betting the dividend is completely safe.
    As far as being long or short duration based on inflation expectations, other then the US Congress I can’t think of an organization with less credibility then the Federal Reserve. At the very beginning, Powell seemed like a promising guy and the second he raised rates and said what he thought, I can only guess that a very powerful threat was made and he’s never been the same since. And thus, while we have to play in the same pen as these baboons, I wouldn’t put much stock (no pun intended) in their forward guidance.

    1. Lots of RED I guess? recently commenting in” knocking on the door” 1.20% I proposed taking a “poll” who would buy treasuries ? Well now we are at 1.5% 10 year and cnbc’s Rick Santelli stated yesterday was the worse 7 year treasury auction he could remember. Attached is a link and opinion of Peter Bookvar https://www.marketwatch.com/story/10-year-treasury-yield-surges-above-150-after-awful-debt-auction-2021-02-25. I guess we have our answer to at least one poll. I could offer several others for a vote. I also discussed a “mutual fund muni ladder” now also in the full blown rate correction. At least this morning I heard they called off that minimum wage non-sense, as if we don’t have enough to deal with.

  7. Thanks Grid
    I think inflation has really picked up. Anything made if steel has gone thru the roof.Also price any treated lumber. Yesterday at Lowes a 6X 6 treated post 16 feet long was 85.00Groceries have also taken a giant leap.
    This may just be the start of much higher interest rates.

      1. Twin, No one talks about it, but the 30 year bond is acting even worse. You have to go back to 2019 for a higher yield and has been pulling away quicker than 10 year.
        No one really does, but perpetuals really should be eyed to the movement of this issue.

        1. Thanks Grid
          I think inflation has really picked up. Anything made of steel has gone thru the roof.Also price any treated lumber. Yesterday at Lowes a 6X 6 treated post 16 feet long was 85.00 Groceries have also taken a giant leap.
          This may just be the start of much higher interest rates.

          1. TJ,
            No kidding. If this keeps up some projects may get put on hold and right now things have slowed down compared to this time last yr.
            One of my customers who does steel doors and frames said last June he paid .48 S/F now one supplier is quoting .78
            I bid a job 6 months ago with Fire rated ACX 4 x 10 and job was to price to order last week and we can’t find 4 x 10 in either FR CDX or ACX to cost job.
            Another MOB wanted 5/8 4 x 8 quiet rock with lead and I about fell out of my chair when supplier said it was 70.00 a sht.

            1. Welcome to my world. In the window replacement business for 40yrs since 08-20 to 02-21 most manufacturers up over 20% some over 30%. Not even figuring job incidentals coil,caulk,lumber, insulation it’s all up.

              1. And of course now Mrs. Mike D. is really getting serious about wanting to replace her 35 year old kitchen. 🙂

                To bring this back on-topic, I’ve been buying DLCMX, DoubleLine’s commodity fund. There are probably better plays though.

      2. Twinjet,
        Starting to remind me of 1979-1980. I sold a house to a young couple who obtained and FHA loan guarantee. Their rate went from 15% to 16.5% by the time it closed ! I had to knock off a bit on the price and their parents had to kick in a few bucks more to get the thing sold.

  8. Powell has lost a lot of credibility this week. Two days in a row his comments goosed the equity market and crashed the bond market. Maybe he should be Secretary of Commerce?🤔

    One thing that confuses me is whether increases in US rates are triggering higher rates in Europe or vice versa or economic prospects for both Europe and the US have improved at the same time. French ten year no longer negative.

    1. The old joke about how do you know when a lawyer is lying? is applicable to the Fed chairman, too. Long rates are going up because the economy is getting better he says. Right. I guess it’s that strong economy that has the dollar index down 12% as well.

      The 1.9 trillion of helicopter money has nothing to do with rising rates and doesn’t concern them. They aren’t building dams, or bridges, or highways, or anything with that money. Used to be that Congress could look to the Fed and the Treasury for a dose of economic realty. Now, they are nothing but a echo chamber for Congressional spending.

  9. Bought some BAMH @ $23.
    5% yield IG issue with a 5 years of call protection looks fine for me.

    1. Hi Yuriy
      Thanks for your reply yesterday. Had no idea that in the UK they do not have a withholding tax. There is a lot of rumours that the UK will be the next safe haven for europeans who are fed up with the EU tax policies. Point for me is thus to look at interest-related dividends to avoid the 15% tax. They can be found mainly in baby bonds and preferreds, but I should always look at the “Tax information” section.
      Any recommendation for my first purchase? Or should I wait with the interest rates going up now?
      Thanks for all the advice
      Should have studied economics 🙂

  10. I picked up some COF-G, under par and yields 5.2%, callable in 12/2021. Seems pretty safe given all things.

      1. I honestly did not do the math, saw it was under par and the other was over. I didn’t know how long it would last so I just bought.

  11. This is also an X-Div day as well for some investments.
    For some of you sitting on cash, I would let some of that fly…
    I sold some of my stalworts and have bought some that have dipped.

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