Monday Morning Kickoff

Well a new week kicks off and we can only wish it would be as quiet as last week was in the various markets.  Of course with the U.S./North Korean summit happening in Singapore and the rocky ending to the G7 meeting in Canada there is more than adequate material available for some unsettling presidential tweets.

The U.S. 10 year treasury traded in a range of 2.88% to 2.99% before closing the week at 2.94%.  There was minimal economic news of consequence released last week excepting the JOLTS report last Tuesday which showed plenty of job openings meaning there is plenty of potential for folks to demand higher wages for their services.

Of course this is an important week since we have the FOMC meeting starting on Tuesday with the announcement of a rate hike on Wednesday (at least that is our prediction) afternoon.  We don’t believe this will have a large affect on markets as markets have already pegged the odds of a hike at over 90%.  Prior to the FOMC meeting occurring the treasury will release the budget statement on Monday afternoon.  April showed a very large surplus in the budget, but May is expected to show a deficit of $144 billion and any sizable deficit above this expected amount could move markets as it will forecast the need for higher amounts of treasury’s being issued.   Also we have the Consumer Price Index report on Tuesday and the Producer Price Index on Wednesday.  While the PPI doesn’t usually move markets the CPI has the potential to move things as the markets are always looking for an excuse to move rates higher or lower.  Beyond these reports we have Retail Sales being released Thursday and Industrial Production being released on Friday–it is highly unlikely that these will be market moving announcements.

The Fed Balance sheet fell by an additional $8 billion last week after falling $10 billion the week before.  It is interesting to watch this fall and when matched up with the treasury budget statement which will be released tomorrow we might have an idea of the pressure on interest rates that may lay just ahead.

Last week we had just 1 new income issue price and that was a baby bond from Cowen Inc which priced a new baby bond with a coupon of 7.75%.  The higher coupon as compared to the older COWNZ issue which is outstanding and has a coupon of 7.35% is primarily due to the longer dated maturity in 2033.  COWNZ (the older issue) is trading around $25.08 right now and has a 2027 maturity date.  Given the maturity date 15 years out investors can expect to experience some interest rate risk (meaning sensitivity to interest rate movements) in this new issue.

The average preferred share or baby bond has risen in value the last couple of weeks to an average of $25.09 with just 170 issues now trading under $25/share.  It is always amazing how share prices are hard to keep down–they get knocked down and over time crawl back up–of course memories are short, but we know from tracking these things that the average share price $1.25 less than were they peaked a couple years ago.

 

16 thoughts on “Monday Morning Kickoff”

  1. With the kind of annual budget deficit the US is running, no way that treasuries should be rated AAA.

    I wonder what the real rating is? Dagong in China has USA at an A rating which I tend to believe is more realistic.

    Nevermind that we have a president who has been involved in multiple corporate bankruptcies.

    1. Totally agree on the AAA comment only. Raters are scared to death to drop it due to retalliation.

  2. Gridbird,

    Glad you got out of PCG as a major ruling just kicked them in the teeth. They are catching the blame for substantial damages and loss of human/animal life.

    PG&E Corp (PCG) is down 6.8% to $38.62 after the California Department of Forestry and Fire Protection investigators found that 12 wildfires in October 2017 were caused by electric power and distribution lines, conductors and the failure of power poles.

    1. Grant those preferreds trade differently though…There is somebody wanting to buy 1000 at $20 which is about 30 cents higher than I originally bought at. If they do head south and head towards $15, I will have to buy them again.

      1. Pfd’s are down ~24% over the past year. Dividends still accumulating, though. Good luck if you get back in. This smells like VNR all over again to me and these guys have already gone the bankruptcy route before. We’ll see how much of this insurance is on the hook for, I guess. Nonetheless, the good thing is that they will be forced to make improvements that may mitigate such extensive damage in the future (hopefully). Then again, it is happening in CA so anything goes except the practice of capitalism, IMO.

        1. It just depends, I shouldnt say I will automatically buy….But utilities are a different beast…PCG went bankrupt 15years ago and all suspended preferred dividends were paid in full from an approximate 3 year suspension…PCG is saving a billion in cash flow with suspended common dividends. It depends on how many billions they are on the hook for and what they can pass on to rate payers. Dont get me wrong this is a low priority trade if I ever even do it.

          1. I hear ya, no worries there. One just has to count on them coming out of bankruptcy if they do enter it again. They aren’t the only ute in major trouble. SCG is also is a major bind and they’re far away from dealing with CA.

  3. For those who are interested, Gastar suspending dividends on multiple preferred offerings:

    Gastar Exploration Inc. Declares Monthly Cash Dividends on 8.625% Series A Preferred Stock and 10.75% Series B Preferred Stock
    HOUSTON, June 11, 2018 /PRNewswire/ — Gastar Exploration Inc. (NYSE American: GST) (the “Company” or “Gastar”) announced today that it has declared monthly cash dividends on its 8.625% Series A Preferred Stock (“Series A Preferred Stock”) and its 10.75% Series B Preferred Stock (“Series B Preferred Stock”) for June 2018.

    The dividend on the Series A Preferred Stock and Series B Preferred Stock is payable on July 2, 2018 to holders of record at the close of business on June 22, 2018.

    The Series A Preferred Stock June 2018 dividend payment will be an annualized 8.625% per share, which is equivalent to $0.1796875 per share, based on the $25.00 per share liquidation preference. The Series A Preferred Stock is currently listed on the NYSE American and trades under the ticker symbol “GST.PRA.”

    The Series B Preferred Stock June 2018 dividend payment will be an annualized 10.75% per share, which is equivalent to $0.2239584 per share, based on the $25.00 per share liquidation preference. The Series B Preferred Stock is currently listed on the NYSE American and trades under the ticker symbol “GST.PRB.”

    The Company has elected to suspend the declaration and payment of monthly cash dividends on its outstanding Series A and Series B Preferred Stock commencing July 2018 to maintain liquidity to support its capital investment program. Dividends on the Series A and Series B Preferred Stock will accumulate regardless of whether any such dividends are declared.

  4. We have a fiat currency that we can print more of at any time. So…the question becomes, was Dick Cheney right? Do deficits really matter? It seems we can do anything we want, even give huge tax cuts to the well-off during boom times. We could even fix our crumbling infrastructure and pathetic health care if we wanted to. And, as the theory goes, we’d control runaway inflation by raising taxes again. So, what’s not to like? Party on…

  5. Anyone know the symbol of the new COWN baby bond? I’m guessing it should start trading soon.

    1. Hi Leonard–still has been released. You would think they would release in advance of trading, but for some reason we all have to ‘keep our eyes out’ for the symbol

  6. Last week I noticed that one of the old Merrill Lynch preferred trust securities MER-P with a coupon of 7.375% was being called, so I started poking around for other Merrill Lynch preferred trust securities. Parent company is Bank of America (BAC) which has a prolific record of issuing preferred stock and notes. I found another Merrill Lynch preferred trust MER-K with a 6.45% coupon that was going ex-dividend on 6/13. It is investment grade (S&P rated BB+) and was yielding ~6.2% when I bought it. There is some call risk involved, but I wanted a Mar/June/Sept./Dec payer and am guessing that the security won’t be called in 2018.

    Any thoughts from the group on this one?

  7. Hey Guys,

    Alert on STAG.B preferred: It’s being called, effective today.

    On June 11, 2018, the Company announced the redemption of all 2,800,000 outstanding shares of Series B Preferred Stock at a cash redemption price
    of $25.00 per share, plus accrued and unpaid dividends to, but not including, the redemption date, which is July 11, 2018.

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