Monday Morning Kickoff

The S&P500 had a low last week of 3420 and a high of 3502 (just 2.5% from a 52 week high) before closing the week at 3465 which is a loss of about 1/2% on the week–on a relative basis, a quiet week, as investors play the stimulus and election guessing game.

The 10 year treasury continued to creep slowly higher hitting a weekly high of .87% on Friday before backing off a bit to close the week at .84%. Back in June the rate had a spike high in the .90% area so certainly we could see rates bust through this area soon. The range for the week was .76% to .87%.

For some of us this is a bit of a dicey time–low coupon issues would be hurt the most if we were to see rates move above 1%. Remember that ‘speed kills’–a move higher, which is slow–a few basis points a day (or some such move) would be better tolerated that a spike of 10-15 basis points in a day. We don’t ever know the tolerance of income investors for higher rates–but these fast moves can set off some selling. Additionally, it is my understanding that there is a lot of speculation in the interest rates markets based on potential outcomes of the elections–these trades can always be reversed to send rates higher or lower.

The Fed balance sheet grew once again last week with assets expanding by $26 billion after growing by $18 billion the week before–the balance sheet is now at a record high of $7.177 trillion –the previous high of $7.168 trillion was back in early June, before assets dipped down to $6.920 trillion in early July.

The average $25 preferred stock and baby bond rose by 8 cents last week. CEF preferreds were off 7 cents, utility issues were up 11 cents, banks up 4 cents and investment grade were up 9 cents–no giant sector movers last week.

Last week was a bit more active in the new issue marketplace as we had 4 new issues come to market, with an additional preferred issue from Gladstone Land being listed.

Quality banker U.S. Bancorp (UBS) sold a 3.75% non cumulative preferred which is now trading under OTC ticker UBKPL and closed last week at $24.68.

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Banker Wells Fargo & Company (WFC)  priced their new issue of preferred stock at 4.70%. The issue is trading under OTC ticker WFCCL and closed the week at $25.17.

Leasing company General Finance (GFN) sold a new issue of baby bonds to refinance an old issue. The issue priced at 7.875% and as of yet it hasn’t traded.

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Pennnsylvania banker Fulton Financial (FULT) sold a low investment grade issue with a coupon of 5.125%. This is the star new issue of the week as it came out of the gate hot hitting a high of $25.70 on the 1st day of trading before closing at $25.67. Shares are trading on the OTC grey market under temporary ticker FULPP.

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4 thoughts on “Monday Morning Kickoff”

  1. Could use some help on this: I’ve never done a Preferred with a Mandatory Conversion so that’s confusing in itself. But in this case where the stock is splitting (today I think) and the equity parameters are now irrelevant….what happens?
    NextEra Energy, Inc. 6.219% Equity Units Due 9/1/2023
    Ticker Symbol: NEE-Q CUSIP: 65339F739 Exchange: NYSE
    Security Type: Mandatory Convertible Security

    NextEra Energy, Inc. 6.219% Equity Units stated amount $50 per unit, initially consisting of Equity Units which include a stock purchase contract and a 5% undivided beneficial ownership interest in a NextEra Energy Capital Holdings, Inc Series L Debenture due September 1, 2025, issued in the principal amount of $1,000 by NextEra Energy Capital Holdings, Inc.

    The stock purchase contract requires the holder to purchase for $50 a variable number of shares of NextEra Energy, Inc. (NYSE: NEE) common stock no later than 9/1/2023 and pays a contract adjustment rate of 5.71% per annum. The stock purchase settlement rate will be 0.1353 shares per unit if the then current market price is equal to or greater than $369.63 and 0.1691 shares per unit if the market price is equal to or less than $295.70. For market prices between those values the settlement rate will be $50 divided by the market value. Prior to the IPO of this security, the last reported sale price of the common stock on 9/15/2020 was $295.70 per share. The stock purchase contract may be settled any time at the holder’s option and the company will deliver 0.1353 shares of common stock for each purchase contract.
    The Equity Units pay quarterly distributions of 5.71% ($3.1095 per annum or $0.777375 per quarter) will be paid quarterly on 3/1, 6/1, 9/1 & 12/1 to holders of record on the record date which is one business day prior to the payment date while the securities remain in book-entry form (NOTE: the ex-dividend date is one business day prior to the record date). Distributions paid by these securities are derived from interest paid on the underlying debt securities and therefore are NOT eligible for the preferential 15% to 20% tax rate on dividends and are also NOT eligible for the dividend received deduction for corporate holders.

  2. Thanks for your work Tim. I still expect SPX to trade down to 3054 by the end of the year and that will be a great buying opportunity. As far as rates, the fed is trying to play the yield curve control game right now. I’m not sure how high they will allow the 10 year yield to rise to but I’m sure the printing machine will be working overtime soon. The bond market is so large I’m not sure they can control it. ATB.

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