In spite of a blow out employment number on Friday – 50% more jobs created in February than anticipated, the 10 year treasury only moved up 5 basis points to 2.92% before closing the day in the 2.90% area. In spite of the huge job creation hourly wages barely moved higher and being in a “all news is good news” phase the DJIA shot up over 400 points and while the norm would be that with employment way higher and stocks sharply higher interest rates would move much higher, but alas, there is no sense in trying to figure out day to day logic and thus market moves.
Talk of tariffs has slowly become more rational without wild claims being made by all sides and with new news on the tube, in particular North Korea, folks are moving on as we suspected they would after a few days.
Overall the 10 year treasury moved in a range of 2.83% – 2.92%, which closely mirrors the previous weeks range of 2.80% – 2.92%. The Fed balance sheet grew by $3 billion last week after contracting $26 billion during February. The balance sheet runoff doesn’t run in a straight line, but it appears they are actually in the $20 billion a month runoff mode. As noted we view this as putting a floor under interest rates–at a minimum.
The average price of a $25 preferred jumped a sharp 10 cents last week to $25.12/share while the number of issues priced under $25 fell to 187 from 205 the week before. I guess in some ways this is nice as we personally benefited from higher prices, but on the other had we have waited for some bargains to appear and it seems that we could be waiting a long time!
Arbor Realty Trust 7.375% baby bonds (NYSE:ABRN) will likely be called soon as the company has done a private debt placement with the stated intention to call in our favorite baby bond, which we have held for years. Likely we will forfeit about 20 cents a share with the call as it had about that much premium built into the share price. Additionally NuStar Logistics (NYSE:NSS) baby bonds took a large swoon on Friday all the way down to $24.60 before recovering to $25.30–exactly where it opened. NuStar Energy, the parent of NuStar Logistics, has performed poorly, although the company continues to have very substantial free cash flow of $400 million. A large seller moved in Friday morning and drove 1st hour volume to 10 times normal volume and it took the rest of the day to recoup the 70 cent loss.
We had a couple of new issues priced last week. Michigan utility CMS Energy (NYSE:CMS) priced a new issue of 5.625% baby bonds.
The ticker is CMSA and the issue should be trading tomorrow (Monday). This issue doesn’t mature until 2078.
Data Center REIT QTS Realty Trust (NYSE:QTS) priced a new perpetual preferred at 7.125%. The issue is trading at on the OTC Grey market at a price of $24.75 with a temporary ticker of QTTRP.
New preferred shares from Compass Diversified (NYSE:CODI), which are fixed-to-floating with an initial coupon of 7.875% are now trading weakly at $24.20 on the OTC Grey market.
We didn’t make any purchases in the model portfolios last week as we are on a “pause” letting some of the market gyrations pass before moving to the next purchase. Both portfolios are at the 74/75% invested level. The Atlas Financial Holdings 6.625% baby bonds (NASDAQ:AFHBL) which had been knocked down 2 weeks ago on a write-off bounced back as did the Spark Energy 8.75% preferred (NASDAQ:SPKEP).
There are no economic calendar items that should be overly important–although you can’t tell what is going to be important to the market in any given week. The item with the most potential to move markets would be the CPI (Consumer Price Index) on Tuesday as a hot number would once again reaffirm the need for the Fed to raise short rates while a cooler number would start the debate of need to raise in the out months (we think a March hike is ‘baked in’ already).
Equity futures are very modestly higher this morning while the 10 year treasury is trading right at 2.90%. We will see if interest rates take a run at 3% this week as news rolls out. We think it may take a month or two to get through this level–similar to what is happening at the 2.90% level–some natural technical resistance.