Monday Morning Kickoff

Last week we saw a relatively large range in yields on the 10 year treasury as European financial issues came front and center after lying in the weeds for the last 1-2 years.  Recall that 5 years ago European countries were the topic of almost daily concern in the U.S.  This time it was Italy that with debt concerns which caused a huge spike in their interest rates while the ‘flight to safety’ caused the U.S. rates to tumble.  The 10 year treasury closed on Tuesday (after a holiday Monday) at 2.77%.  By Wednesday Italy was in the rear view mirror and U.S. rates started moving higher closing the week at around 2.89%.

For this week we don’t have a single Fed President scheduled to give a speech–yea to that–we don’t need more information that simply muddies the waters.  Few economic reports due this week are likely to move the markets.  On Monday we have Factory Orders being announced and while an important report as part of the larger puzzle, it is unlikely to move markets. Tuesday we have the JOLTS (Job Opening and Labor Turnover) report and this important as it shows how many jobs are available and it has been standing high around 6.5 million.  This may convey in a minor way the amount of pressure which will continue on wages, which is a key inflation indicator.  We also have the Purchasing Manager Index (PMI) and the Institute of Supply Management (ISM) reports on Tuesday and neither will move the markets.  On Wednesday we have the Mortgage Banker  Association release of applications for new mortgages.  On Thursday and Friday we have a few minor reports, but nothing of significance.

We have announcements on Thursday of the amount of bills and bonds that the treasury will sell next week.  This is important only in that it gives us an indication of what the market will have to absorb as the country has a huge projected deficit that has to be financed.

The Fed Balance sheet contracted by $10 billion last week as they let the ‘run-off’ occur.  With demand strong (and interest rates falling) last week for bills and bonds it was a good week to let billions run off the balance sheet.

Last week we had MetLife (NYSE:MET) priced a new issue of non cumulative, fixed rate preferreds at 5.625%.  The issue is investment grade and is trading on the OTC Grey market under ticker MTLLP and is pricing right around $25.00.

Additionally BDC Prospect Capital (NYSE:PSEC) sold a new issue of baby bonds which priced right at 6.25%.  The company already has an issue of baby bonds outstanding with a coupon of 6.25%.  The new issue which will trade under the ticker PBY is not yet trading.

Last week the trust preferred shares of Glacier Water Services (acquired by Primo Water) with a coupon of 9 1/16% were finally called for redemption at the end of June.  Shares had been trading at $26.70 the day before the call and promptly fell to trade around $25.14 on Friday.  We estimate the value of these shares to be $25.27 which is $25 plus 1.5 dividends (they pay monthly).

The week ahead has the potential to be a relatively quiet week with the biggest potential issue being the North Korean summit being cancelled again which could cause a rush into bonds.  The summit is scheduled to happen a week from tomorrow in Singapore and hopefully the parties can be civil to each other and not cause further consternation.

6 thoughts on “Monday Morning Kickoff”

  1. Tim, interestingly on same vein as GWSVP you mentioned, another trust issue from Hillman (HLM- ,11% par, long past initial call date) mentioned in SEC filings same initial refinancing “hint” Primo had. And HLM- has dropped over $2 in past week, but still trading over $28. This could be a big beat down loss coming also.

    1. Hi Grid–I recall that old issue, but going to look closer at it. I think holders get a bit complacent and then take a bath on redemption (or at least a loss that they didn’t have to take).

      1. Good heads-up Grid. Don’t own it and worried for those who do.

        An another note, Tim, I’m not sure how to bring ‘off topic’ items up except to post in one of the latest threads.

        Lots of discussion here about the SPKE/SPKEP issues.

        I was reading today about the heat waves hitting the US lately.
        ———————————–
        I.E.: June 4 (Reuters) – * Homes and businesses in Texas set a
        daily electricity consumption record for both May and June last week as consumers cranked up their air conditioners to escape a brutal heat wave, according to the operator for most of the state’s power grid.

        * The Electric Reliability Council of Texas or ERCOT said demand peaked at 67,887 MW on June 1, the most so far during the month of June, after earlier reaching a high of 67,271 MW on May 29, which was the highest peak in May.

        * ERCOT, however, forecast demand would only rise to 63,014 MW on Monday as a thunderstorm passes over parts of the state, providing some relief in the middle of what has already been a week long heat wave that is expected to last through the middle of June.

        * Temperatures in Houston, the biggest city in Texas, have peaked over 90 degrees Fahrenheit (33 Celsius) every day since May 26, and are expected to keep breaking 90 degrees daily through the middle of June, according to meteorologists at AccuWeather.com.
        ——————————————————–
        We saw what the high cost from suppliers did to SPKE recently with the unusually cold Winter (if I recall correctly), so shouldn’t we expect rough times ahead for them with a hot Summer?

        Not trying to induce and FUD and I’m long the SPKEP paper, but this does worry me a bit more and has me wondering about lightening up even more on SPKEP.

  2. Grant, I either made some more easy money today, or increased my butt kicking. Snagged 100 more shares of EGRKM at a buck under redemption price. They still havent gave any official notice of redemption let alone the next dividend. …..I own so much Entergy Ark, I think I need to move down there and hook up to their grid!

    1. You’re the king of having lowball order hit, Grid, that’s for sure. You move in and out of things like a stealthy Ninja!

      1. Well my success will depend on Entergy following through with its plans…If not I got a big basket full of 4% plus perpetuals. I actually snagged 107. Tried a little trick and flushed a few more out of the weeds. I see HLM- lost another dollar today sitting at $27.55…The people in the know have been dumping these and yield suckers are buying and walking right into a huge call loss.

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