So we got through the last week without much excitement at all–the most excitement being provided by rumors of Bank of Japan tweaking their QE program which sent the 10 year up by 6-8 basis points. GDP Friday at 4.1% was apparently about what was expected as it didn’t do much of anything to the stock or bond markets. The 10 year treasury traded in a range of 2 basis points on Friday–as we expected there were excuses for traders to credit “one offs” for the strong growth numbers and thus the strong number was somewhat ignored. Apparently strong soybean shipments to China accounted for near 1% of growth getting ahead of the Chinese tariffs–I guess if that is the case it would signal a shortfall next quarter (or so it would seem).
This week we have Pending Home Sales on Monday–month over month is expected to be up a tiny bit and year over year is expected to be down 6%. Tuesday we have Personal Income released–it is expected at .4% month over month and the Case/Shiller Home Price Index which is expected to be up 6.8% year over year–of course we know it will be plenty high, but our bet it is at/near the peak as potential buyers are running out of juice to fuel these increases–not enough income growth. On Wednesday we have the ISM (Institute of Supply Management) Prices Paid which will give us an indication of potential inflation moving through the manufacturing sector. Also we have the Purchasing Manager Index being released. On Thursday we have Factory Orders being released and on Friday we have all the Employment Reports being released. Consensus is looking for 195,000 new jobs being created with an unemployment rate of 3.9%. Year over year hourly earnings are expected to be up 2.7%–which is part of the reason housing is softening as those in the middle and lower income simple don’t have the money to get into houses.
We don’t think that any economic reports will have the ability to move markets this week (much) until the employment reports on Friday–and even those numbers likely won’t move markets for longer than 6 hours or so–since that seems to be how long it will take before a new topic will capture the moment.
The Fed Balance Sheet fell by a fairly large $14 billion last week which is an above average “run-off” of government bonds and mortgages. This serves to help keep interest rates from falling much from current.
Last week we had 2 new income issues priced. 1st off regional banker KeyCorp priced an investment grade issue (per Moodys–1 notch below IG from S&P) with a coupon of 5.65%. Now trading on the OTC Grey market with a ticker of KYYCP. Shares are trading quite weakly at $24.72 as we thought it might.
AT&T sold an issue of baby bonds with a coupon of 5.625%–with a maturity date out in 2067. The new issue sent the older TBB issue which carries a 5.35% coupon tumbling.
The ticker for the new issue has not yet been announced.
The average share price of a $25 preferred fell last week by 8 cents to $25.17–we didn’t analyze this move lower, but it is possible that ex-dividend dates played a role. There are 161 issues now trading below $25/share.
Lastly we had 2 calls by Bank of America of preferreds. The BML-I issue, left over from the Merrill Lynch acquisition, with a coupon of 6.375% has been called and the BAC-D issue with a coupon of 6.20% was also called. Also Wells Fargo has finally called the WFC-J issue which carried a 8% coupon–this issue was left over from the Wachovia merger and was 1st redeemable 12/2017.