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.