Monday Morning Kickoff

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.

10 thoughts on “Monday Morning Kickoff”

  1. Tim, I took advantage of an old friend of yours (and mine off and on) sliding below par and bought 500 shares of KYN-F. If rates rise more this 3.5% term dated issue will out total return below 6% perpetuals until its maturity. QDI is always good for me tax wise.

    1. Hi Grid–am doing a short blurb on it when I have a chance I have such a pot load now (maybe 1500 or 2000) and certainly if it moves much lower will add more. Being overweight is never a problem.

      You would think it was going to get called–but I have reviewed their financials and debt and other preferreds and they would be best to let it run to mandatory redemption–but at $25 am not concerned.

      1. I suspect this is the end of the road for public consumption of their preferreds when it gets redeemed/matured. All of them now besides F are private placed issuances. Their previous public one that was redeemed was replaced by a private issuance.

        1. Yes–both Kayne and Tortoise seem to be going the private route. I just tallied mine and I have 1942 shares–kind of an overweight for me.

          1. One doesnt have to be a balance sheet genius to figure out the word “safe” can be correctly applied to this issue. I bet most dont realize there is about a 100 basis point penalty increase in yield if its Fitchs rating drops down to BBB+ and a 75 bps increase if it “collapses” to an “A-“ debt rating.

      2. Tim, you better bring your “A” game when writing this. As I will be judging it to your original article on it written long ago that lead me to buying it in the first place years ago. 🙂

        1. haha–yes I wrote on SA many years ago on Kayne and the Tortoise issues–they have served me very well and like an old friend I hate to see them go.

      3. Tim, I will be eager to see why you guys have such a keen interest in KYN-F when it pays such a puny dividend (3.5%, right?). Is it because of the mandatory redemption in 2020?

        Any interest in KYN? It pays a mouth watering 9.6% dividend!

        1. Leonard, for me, its just all about balance. Yield isnt everything for me in all issues. I invest for yield, but I keep a keen eye on mark to market. That is just me. For me its nice to have some issues you get what you can and have almost zero worries over the capital invested. I dont chase yield in common stock, but will with some that sit above their common brother. For example, I wont touch NS, but I have a decent dose of NSS. But yes the term date is the key for KYN-F. If it was a perpetual, I would have no interest in the issue. But on a relative basis where can you find “A” rated “debt” with a 3.5% yield for a max 21 month maturity?

          1. Gridbird, sounds like a solid way to park some cash and beats CD’s, etc., so this morning I set a GTC buy order for KYN-F.

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