While equities have been soft today with a sell off in the 1.17% area (S&P500) treasuries have been kind of strong.
The 10 year treasury has been hanging right in the 2.78-2.79% area all day–3 basis points below yesterday–a somewhat strange place right before a 75 basis point increase in the Fed Funds rate.
Tomorrow is such a big day that CNBC is counting down the hours (we really need to know how many hours).
Tomorrow we may see ‘knee jerk’ market reactions at 1 pm (central)–equities may shoot up 500 points or drop the same amount–interest rates may move–but I don’t think nearly as violently as equities might move.
Oh well–I will be watching, but of course doing nothing whatsoever in terms of buying and selling.
I did some nibbling today–same old issues, but I did add a little of the Arbor Realty perpetual (ABR-D)–current yield of 8%–I already own this issue. I also nibbled–again–some insurance issues mid to investment grade. All total 100 shares–no rush as I think we have plenty of time (and I will need it) at this pace.
The eight who will / will not declare a recession – in the future. After the fact?
https://www.washingtonpost.com/us-policy/2022/07/27/who-decides-recession/
You’ve got to love the markets.
The Fed raises rates and what happens?
The markets go up.
Gold and Silver go up. (Shouldn’t combating inflation make them go the other way?)
The Euro and British Pound go up. (gee I thought higher rates would strengthen the Dollar?).
The only thing going down is the yields on treasury bonds. (Hmmm. Do I really want to buy 10-yr bonds when rates are going up?)
Predictably everything is upside down, at least for the very short term.
Since there is 3.2 trillion from commercial banks depositing money with the federal reserve and another 2.5 trillion of reverse purchases with other financial entities, the US treasury (funded by the taxpayer) will have to lay out another 380 billion in interest income to banks and other financial entities due to the three quarter point raise multiplied by the 5.7 trillion in reserves and reverse purchases. Last month the three quarter point raise increased income to the banks and financial entities by 380 billion to result in 760 billion more in interest. Hopefully, the banks can continue to pay us their preferred dividends after the executives take their huge compensation packages despite huge losses to common shareholders in Chase Bank, etc
Unfortunately, for Jamie Dimon, the board of directors rejected his request for a 40 million bonus to add to his 1 billion dollars of net worth. Meanwhile, Jerome Powell, commented that it concerned him that people are buying less food implying that many people in the USA are food challenged. As Marie Antoinette famously said when there was no bread, let them eat cake.
Was awaiting to see what the 0.75 bp Fed Funds increase would do to municipal bonds; the answer is not much. So I just bought some insured Fort Bend County Texas Muni Util Dist No 182 Unltd Tax Rd Bds 4.0% due 9/1/2039 Callable 08/29@100 – BAM insured at 100 CUSIP 34682BJB6. YTM and YTC 4% tax free. The muni market has tightened up a bit as there is little issuance in higher quality insured bonds, but I’ll take my 4% and pray I’m alive to see my principle someday.
Invest for the long haul. Don’t get too greedy and don’t get too scared. I believe the best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.
I am Azure
PS, Tim any thoughts about have a municipal bond posting area of ideas 💡
Hmm…I’m pretty sure you were one of the scared people on here in the past 2 months insisting that people NOT invest in bonds or preferreds until the Fed is done hiking rates. So now AFTER the 10-year yield has dropped 70 bps from the peak, you tell everyone else to not be scared? Thanks for the advice.
Karma, if you look at my posts I was/am a great bear in the equity, junk bonds and crypto markets since January 1, 2022. I’m sure you know I spent 24+ years primarily managing institutional money on Wall Street after law school and have been witness to many of the “smartest minds on Wall Street” that were wiped out. I still sit on many boards of directors and steering committees that manage incredible amounts of assets and free cash flows. You need to look no further then Bear Sterns, Lehman, Washington Mutual, WorldCom, GM, CIT Banking, Enron, Canseco, MF Global, Thornburg, Indy Mac etc etc ETC. Many of these were clients and personal friends of mine at one time or another before they blew up and many of the individuals have never recovered. I see the same Las a Faire attitude I saw at many of these companies and their “brilliant” management teams that would not listen to anyone like me that sounded the alarm of runaway debt, meretriciousness and unchecked free spending. In Latin we say to you, tu es smarter quam mihi ut possis esse rude.
I am Azure
Azure, i may not agree with all your conclusions but i value them. Your experience gives you a unique perspective and it has helped me immensely — as many people here have helped with their info and insights. I see no need for negativity toward any of your posts. anyone can consider your viewpoint and make their own decisions so please keep posting.
All I know is that you’re one of the guys that comes on here and touts credentials, but then proves that you don’t understand the most basic concepts of market efficiency by claiming that long-term interest rates HAVE to go up if the Fed is still hiking rates. Unlike some others, I give zero credibility to what people say about their own brilliance; you either say things that make sense or you don’t.
Karma, if I could suggest you skip over all of my posts as you find them too rudimentary and unsophisticated for a person of your genius, panache and gravity. I post here because I truly am trying to help in some small way (as others have helped me) of making some sense of these volatile markets and privately many of these kind investors on III have asked me to post my trades and any random market thoughts I might have. Truly, your sagacity and wisdom must only be exceeded by your incredible amiability and I truly wish you well on your journey and hope you will no longer reply to any of my primitive investment posts.
I am Azure
Keep ’em coming, AB, keep your posts coming…………
Azure – while I don’t always agree with your outlook and opinions, you typically always provide a thoughtful and respectful perspective. Certainly nothing that would warrant the negative cheap shot at you – but consider the source as that is more on him than you.
Ignore the noise
Azure, you are no mad man; I appreciate and thank you for your posts. You typically qualify your posts with asking folks to do their own “deep due diligence.” I also enjoy your philosophical sign offs, even when written in Latin! Many here have benefitted from your posts through the course of time. The ten rules of investments (still on my cork board but with some additions) was a classic. Thank you for always being cordial and polite!
Now if you allow me to plagiarize from one your sign offs (and one of my favorites), I will end with: “time flies over us and leaves it’s shadow behind.”
Best regards, No. 12 (though I should have found a punter’s number for my pre amble)
I truly am touched by your kind and thoughtful post. I’m sure most of us are here to help each other and I’m glad I could be of any assistance. One of my favorite saying I will post here in Latin;
Omnibus videtur
contra te eat;
memento quod scapha
contra ventum aufert;
non cum illo.
Truly wishing you peace and good health, Azure
Looks like the Fed is working on it’s balance sheet as well.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20220727a1.htm
TIM**********
PLEASE remove my comment of 8:07 pm on 7/25
I’ve shut-down my email, so please remove it.
thanks
How should one evaluate ABR-D v/s ABR-F ? Issued by same parent, slight difference in when first callable in 2026 but the BR-F is fix-to-float after 2026 but yields a bit lower at current prices…
You answered your own question. Slightly better dividend now vs floating rate in 4 years. I think F has a good float rate but no telling what rates will be in 2026. You could split the difference and buy some of each. For a shorter term trade I would buy whichever had the better daily price fluctuation which are often based on daily news blurbs guessing what the Fed will do.
I like ABR-F better. You give up a few basis points in current yield. But with 3 month SOFR + 5.44%, you get protection against higher interest rates, even with float 4+ years away. I think SOFR + 5.44% is compensatory for ABR. Playing the longer game, that would seem to imply that that the price should get near $25 as 10/12/2026 approaches. There should also be a better chance that ABR-F will be called. If not, you would be getting a yield of about 10% based on present 3 month SOFR and the present ABR-F price.
Of course, you have to some faith in ABR. I do.
I noticed an Oct 28, 2022 back / forth with Grid re 3 Mo Term SOFR.
I have found a daily quote for the 3Mo. SOFR on the CME site, yet they only display current & 4 prior days …. can’t seem to get the older data.
I was interested in tracking the 3 Mo. LIBOR vs. 3Mo. Term SOFR to have a data grip on the coming possible switch.
I have the data starting Oct. 24 …..
Any source site for older ##’s ? ? ?
Enjoy your site inputs. Thanks, Jim ( Illinois )
SOFR is more volatile, on average it’s lower but not always by a similar amount. . Libor moves more steadily as if it were based on a moving average.
Martin is correct. Don’t know if this helps, but 3ML has generally been about 20-38 bps above 3 month term SOFR of late. ARRC will do what it does.
Yes, I dont have any historical info either. In fact I have no clue when 3 MO term SOFR even came into existence. Like Martin said it wont move in tandem, but stays “in the ‘hood” though. A few weeks ago 3 MO term SOFR plus the 26 bps adjustment add on was actually higher than 3 ML. But it appears to be trailing about 10 bps now.
https://www.cmegroup.com/market-data/cme-group-benchmark-administration/term-sofr.html
I like ABR-F better. You give up a few basis points in current yield compared to ABR-D right now. But with 3 month SOFR + 5.44%, you get protection against higher interest rates, even with float 4+ years away. If SOFR3 is where it is now in 2026 (who can tell?), then in 4 years ABR-F would yield about 10% based on the current price. SOFR3 would have to get below 1% for dividend on the F to drop below the D.
Further, I think SOFR3 + 5.44% is generally compensatory for ABR preferred. If correct, then playing the longer game, that should mean that that the price on ABR-F should get near $25 as 10/12/2026 approaches, whatever happens with interest rates (keeping in mind too that F coupon cannot go below $1.53125).
I added a little more ARGO-A and rounded out my SCE-L shares to 1K. I don’t know why, I just did. I guess I am thinking somewhere down the road the Fed will have to lower rates and these two work their way back towards $25. In the meantime the income from them is pretty good and not too risky.
I’d like lower rates also, but when the Fed seems to be promising 4 more rates hikes, including today’s, before the end of the year, it seems to me a little more prudent to with short term instruments (3-6 months) until the dust settles.
Time is treasure.
Indeed, Original D, one of the great rules of the worlds of money and value.