Monday Morning Kickoff

The S&P500 moved in a higher range of 2798 to 2932 last week and clsoed the week at 2930-right near the high for the week and up around 3.5% on the week.

The 10 year treasury moved in the normal range of .62% to a high of .71% before closing the week at .68%

The Fed Balance Sheet moved higher by only $65 billion last week to now stand at $6.72 trillion.

It appears that further rises in the average $25 preferred stock and baby bonds will be much slower as prices last week moved at a reduced pace–overall the average share ended last week 9 cents higher. The only sector with substantial movement was the mREIT sector which moved 74 cents/share higher. Investment grade moved 8 cents higher, utilities 1 cent higher–most other sectors moved 1-5 cents highers.

We had 2 new income issues floated last month–this after a long dry spell with no new issues sold. Of course company’s are selling low coupon debt like never before, which they may come to regret–but that is another story.

Regional banker OceanFirst Financial (OCFC) has sold a new fixed-to-floating rate preferred. This one is trading under the permanent ticker now (ticker OCFCP) closed Friday at $25.13 after trading as low as $24.70

The coupon will be set at 7% until 5/14/2025 after which it float at a rate of 6.845% plus 3 month SOFR (secured overnight financing rate).

The issue will be a small one with 2.2 million shares sold, with another 330,000 available for over allotment.

The issue is unrated by the big 3 ratings agencies, but rated BBB-(medium) by Kroll.

Community banker Wintrust Financial sold a fixed rate reset preferred last week.

The community banker will sold a fairly large issue of 10,000,000 shares (with 1.5 million for over allotment) of new preferred with an initial coupon of 6.875%.

The coupon will reset in about 5 years to a rate of the 5 year treasury, plus a spread of 6.507%. Thereafter, resetting at a new rate every 5 years.

Of course the issue will be non-cumulative. The issue will be rated BB by Fitch, a bit shy of investment grade, while Dun&Bradstreet has a rating of BBB.

The issue is still trading under the OTC Grey Market ticker (WTFNL) and closed last week at $25.06–it traded as low as $24.94.

We will start the week in equities lower as equity futures will trade around 1% lower this morning–where it goes after that only God knows.

15 thoughts on “Monday Morning Kickoff”

  1. Tim,

    Just wanted to thank you for the plain vanilla data on the world of exchange-traded income securities, etc. we get every Monday. (The numbers and the charts.)

    I find them very useful.

  2. Just checking over my portfolio during the mid-day checkup and noticed that “MS+K” is trading at $25.60 right now. I consider this a very good value as its a 5.85% coupon and has call protection until 4/15/2027. Thats 7 years that you can own this baby. Iam not overly scared of these huge bank/brokerages. I think it would take alot before they actually go under. I own a ton and then some of this one along with most of the others. Its becoming quickly tougher and tougher to find any real bargains in my humble opinion.

  3. Mnuchin was on CNBC to say that Treasury will take advantage of low or near zero rates to sell longer treasuries. He said that the proposals for 30 or 50 year bonds met with inadequate interest. The only announcement I have seen about 20 year bonds was a proposal for $20 B of new bonds. I can’t imagine the existing range of 70 to 130 basis points surviving any substantial effort by Treasury to sell 20 year bonds, can you?

    It would hurt the corporate bond market but bank stocks would jump?

    1. What an archaic thought, George…. NOTHING makes bank stocks jump any more, don’t you know? lol

  4. Just a few interesting comments this morning. Paypal came out with a new 30 year bond this morning with a coupon of 3.3%. Last week AAPL issued a 30 year bond and the coupon was 2.65%. Starbucks followed suit with their 30 year bond and a coupon of 3.25%. Do you see a scary pattern here??? We are headed down the road of getting really paltry types of returns if you want to stick with High Quality Companies. Corp. Bond new issuance totaled $262 Billion in March and $285 Billion in April. The Treasury has now issued over $5.2 Trillion in new paper. Just another FYI that Boeing bond last week of $25 Billion actually had demand of over $70 Billion. I have read over the weekend where Guru’s are predicting that 10 Year Treasury thats at 0.68% is going to go to 0.25% before this nightmare is over. I bought another 500 shares of EPD this morning as well. Iam very comfortable with it.

    1. ChuckP- I have noticed that some of the 30 year bonds have incredibly low yields right now. Based on ones you just mentioned, they will barely beat inflation. If held in a taxable account, investors will probably lose money after taxes and inflation.

      Based on current bonds, I may do some small buying over the next few weeks with some higher-grade preferreds in the 5-6% range. It may still be too early to buy, as I believe the market still has downside potential, but could be good purchases down the road if the virus contained.

        1. dlcnws – No, personally I don’t like the MReit sector and don’t invest in those types of securities. However, they may be right for other investors.

    2. Chuck,
      No, not that worried at all – at least re: the reasons why they are borrowing. The current rate environment almost makes it silly NOT to borrow to refinance/pay down costlier debt. Check this from Barrons:

      A flurry of companies that drew down their bank credit lines to survive coronavirus lockdowns have been refinancing that debt by selling long-term bonds.

      Several companies were selling bonds for that purpose on Monday. They include online-payments company PayPal Holdings (PYPL), financial-technology firm Fiserv (FISV), and even Regency Centers (REG), a real-estate investment trust that owns shopping centers. The REIT has an investment-grade rating, and focuses on grocery-store-anchored properties.

      An array of companies have drawn down part or all of their credit lines with banks in the past two months to ensure they would have enough cash to continue operating through the coronavirus shutdowns.

      Strategists at J.P. Morgan estimate that companies drew down around $350 billion of their credit lines with banks during the market turmoil. They estimated on May 6 that companies had repaid $13.5 billion of their credit lines.

      1. Affinity; Have you been watching the absolute craziness in AAPL which is now over $315. I thought when it hit $300 it was crazy. It just goes to show you what MO MO can do for a stock price. LOL Or maybe I should say FOMO.

        1. Chuck,
          Yup, watching it go higher and higher along with my XLK. Can’t say I am eager to jump onboard, as you know. Placed my chips on my JPM commons today and will buy more tomorrow. Also, looking to pickup more SBUX this week. Looking forward to later in the week though. Don’t really want to buy too much in front of the economic numbers being updated later this week.

          I think all of that buying last month has left your mouse finger lonely and hankering for some action!

      2. Message from CUSIP bureau this morning…
        Interesting note about the CD’s.

        Much like March’s activity, CUSIP Global Services data shows that CUSIP requests for corporate securities increased in April as borrowers continue to mine for liquidity. CUSIP identifier requests for the broad category of U.S.- and Canada-issued equity and debt jumped 12.1% from last month, while municipal securities climbed 12.6% month over month.
        CUSIP Global Services also saw a 10.4% monthly increase in requests for bank certificates of deposit with maturities greater than one year. International equity CUSIP requests decreased 11.5% versus March and International debt CUSIPs fell 17.8% on a monthly basis.

  5. West Texas Intermediate futures are right at $25 this morning, with Brent crude around $30.50…which is kind of amazing considering how low they both got at the end of April.

    1. If you and I had a spare oil tanker near a delivery point for the recent oil contract we could have mAde a good arbitrage profit by getting paid to take delivery (negative price) and selling the oil for Summer delivery. THat’s why tanker rates went through the roof this Spring.

    2. CW, I was playing with matches last couple of weeks, making day or two-day trades in ERX, leveraged oil price ETF, as WTI made some recovery gains. Made a couple of steak dinner hits, small positions, you have to watch closely, it can be done, just lucky I didn’t get burned.

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