Equity markets are down sharply–not a giant surprise with personal consumption expenditures numbers which were a bit hotter than expected–not supportive of interest rate cuts ahead.
On the other hand interest rates fell fairly sharply–the 10 year treasury is now off 8 basis points to 4.29%. I am not certain why rates should move lower. We did have University of Mich consumer expectations and sentiment come in soft, but that same survey come in with higher inflation expectations.
Strange market at the moment–but one never has to do anything at all investment wise if you are well positioned.
I have been watching the investment grade closed end fund preferreds-some are getting really close to a buy zone for me. I am talking about primarily the Gabelli family of funds (this includes the Bancroft Fund (BCV) and the Ellsworth Growth Fund (ECF)). I’m targeting at least a 6% current yield to be a buy–also this with dovetail with a potential for a 5-15% capital gain in the next year–so let’s say 11-20% total return IF we can get the 10 year treasury down around 3.75%. Of course this is the million dollar question.
I own the GAMCO Global Gold 5.0% perpetual preferred (GGN-B) which is trading right around $20.80–I paid an average price of almost exactly this price so I have just been collecting my measly 5% (6% at my cost). Here is a multi year chart of the issue.
I think it is pretty easy to imagine a 5, 10 or even 20% capital gain if interest rates moved down 25 or 50 basis points. Current yield is 6.01%.
Just now bought a few more shares at $20.78. If I am going to tiptoe into a few perpetuals they will be high quality shares with potential for some really substantial capital gains. This is one of the best in my opinion to get some upside if rates move lower–note the coverage ratio is over 900%.
I also own a bit of the Bancroft Fund 5.375% perpetual (BCV-A) although most of it was sold 80 cents higher back in December. Current yield is 6.02%–maybe next week–I’m in no hurry.
Was BK new 6.15% preferred discussed here? I can’t see it mentioned. I find it interesting.
BK-K
https://www.quantumonline.com/search.cfm?tickersymbol=BK-K&sopt=symbol
The 6.15% coupon is okay if you can get it. The reset spread of 2.161% is low.
nicolas and r2s,
I picked up some on Friday for 25.49, when it was down 13 cents from Thursday’s close. If it gets added to PFF, I expect the price will rise.
https://seekingalpha.com/article/4771017-bkprk-a-6-15-percent-investment-grade-ipo-from-the-bank-of-new-york-mellon
It’s amazing how well BK credit is priced and has held up.. I appreciated they are one the safest banks/custodians.. but am finding better value in other high quality names.
Even their instl names are priced rich. I hold a small position of Series F (prospectus link below) in the 98.6 range…but even that is rich w a YTC only in the 5’s. But at least it has much better downside risk w a floating spread of LIBOR + 3.1% + SOFR adj. *I assume it will switch from LIBOR to SOFR… my assumption is I verified this before buying.. just don’t recall and too lazy to re-look now!
BTW, I played SOJF for a PFF bump last month end, and I was the one who got “played.” It traded down into close, despite PFF adding a boatload. i.e. PFF traders aren’t always stupid..
https://www.sec.gov/Archives/edgar/data/1390777/000119312516658060/d198500d424b2.htm
https://www.bny.com/corporate/global/en/investor-relations/fixed-income.html
Maine, thanks.
Understood – no guarantee BK-K gets added to PFF and if it does, then no guarantee it rises.
I verify the Series F will use the 3mSOFR (+ tenor adj) as it’s floating benchmark reference rate.
The Series F CUSIP = 064058AF7.
I got the CUSIP for Series F on their site:
https://www.bny.com/corporate/global/en/investor-relations/fixed-income.html
Here’s the BK press release that identifies the Series F CUSIP as one of the issues that will transition to SOFR.
NEW YORK, May 24, 2023 /PRNewswire/ — BNY Mellon (NYSE: BK) today announced that, after June 30, 2023, CME Term SOFR will be the benchmark replacement rate for all outstanding floating rate and fixed-to-floating rate debt securities and preferred stock issued by The Bank of New York Mellon Corporation and The Bank of New York Mellon for which three-month U.S. dollar LIBOR serves as the reference rate used in connection with the calculation of the applicable interest or dividends payable (the “USD LIBOR Securities”).
The USD LIBOR Securities are:
Fixed-to-floating rate senior unsecured debt securities issued by The Bank of New York Mellon Corporation: CUSIP 06406RAB3
Floating rate senior unsecured debt securities issued by The Bank of New York Mellon: CUSIP 06406MAV0; CUSIP 06406MAU2
Floating rate preferred stock (held by Mellon Capital IV) issued by The Bank of New York Mellon Corporation: CUSIP 58551TAA5
Fixed-to-floating rate preferred stock (represented by depositary shares) issued by The Bank of New York Mellon Corporation: CUSIP 064058AB6; CUSIP 064058AF7
https://www.bny.com/corporate/global/en/about-us/newsroom/press-release/bny-mellon-announces-cme-term-sofr-as-benchmark-replacement-rate-for-outstanding-us-dollar-libor-linked-securities-after-june-30-2023-130335.html
Thanks mbg!
I love the PFF EOM game as much as anyone.. I’ve just been striking out and missing lately.. but I’ll play again tmmrw, no doubt.. esp with names I can live with if the jump never happens.
The last week.. there has been a few instances of large volume, associated with quick price drops then recoveries. So some of the rebalancing has already occurred.. and if I had to guess, it feels like there will be more sales than buys this month.. so I have a little more buying power than usual.
Many of my prefs haven’t sold off w this increase in general market spreads, so that’s been another reason to trim and wait for dumps.
My portfolio barely moved today. Maybe a few bips.
I picked up some more SOJ-C 6.05% @ 21.63 didn’t seem like it had yet caught up to the whopping move higher in long dated treasuries today.
The FAR stronger lever in inflation control is QT. Interest rates just move money from one pocket to the other (savers vs. spenders) which still works in the short term to reduce liquidity, but QT actually reduces the denominator. If inflation picked up the FED could use this lever as opposed to far more politically noticeable rates lever.
I also think this market is just exhausted – at some point the gas had to come out of some of these ultra-high PE, MAG7 type names. Healthy IMO. Of course, the Globalist would like you to think that is all the fault of Trump’s tariffs but come on, who is buying the S&P near P/E of 30?
Costco and Walmart were trading with forward P/Es of 50 to 60.
Pulling in middle and upper income into their stores was baked in the cake already.
What did people expect them to do for that forward multiple? Have fully sentiment robots running the stores ?
“I think it is pretty easy to imagine a 5, 10 or even 20% capital gain if interest rates moved down 25 or 50 basis points. Current yield is 6.01%.”
What if inflation rises and the fed has to combat inflationary spiral and raises short term rates? I think there is a stage set for rising interest rates. In any event the ‘Closed End Funds’ universe which are equity or bond, will be discounted even more by rising interest rates…I believe the Market has not fully digested valuation tariff impact come this April 2nd …Just my 2 Cents…
Just an FYI if anyone is looking for a pretty “decent value” I see today that Regions Financial preferred ( RF/F) 6.95% Coupon & not callable until 9/15/2029 closed at $25,17. I already own more than a full position but just thought if this helps anybody else. The reset rate in 2029 is 2.77% + 5 year treasury. Not a bad value.
With gold rocketed up, why is GGN & GGN-B dropping so much?
The preferred isn’t a qualified dividend, according to QOL
Gold miners are relatively undervalued and haven’t kept pace with the price of gold. Also GGN invests in energy which isn’t skyrocketing here either.
Gary,
I own a few shares of GGN. The CEF is up 15% YTD and pays an 8.25% dividend, not dropping.
Tim, 900% coverage, is that on the common or the preferred? I went with GGN at $4.15 and still in the black and approx. 8% on yield.
Charles – that is from their 2/28/2025 coverage ratio post–720,000,000 in asset with 78,000,000 in leverage (preferred stock). So this just says they could pay off the preferred 9 times with their assets.
Posted here before long time ago – GABELLI ASSET COVERAGE RATIOS – https://gab-misc-pdfs.s3.us-east-2.amazonaws.com/LevAnalysis.pdf
If the equity markets are down on inflation worries, why is the 10 year T yield down also? Is it possible that investors are selling stocks and hiding out in Treasuries? I don’t have any clarity on this at all. Any ideas?
Whidbey I like your observation. Demand drives the yields down as investors seek perceived safety and less buyers of stock make sellers lower their asks to get out of the trade.
Whidbey–seems to make sense to me.
Because there are multiple factors not just one, never listen to some pundit who tries to oversimplify it to just one cause.. Markets go down for various reasons. If the drop is overdone Fed might reduce rates and T goes down Also the bond “vigilantes” have different metrics than the Fed at times. Not always the same goals.
My best guess, also. Maybe adding in some recession fears…stagflation, anyone?