Monday Morning Kickoff

The S&P500 traded in a range of 3065 to 3097 before closing around 3093–a gain of just less than 1%. At this time all news is good news–at least this is what equity markets indicate—party on I guess.

The 10 year treasury traded in a range of 1.75% to 1.97% before closing at 1.93%. We have seen rising rates knock preferreds and baby bonds down a bit so it will be interesting to watch rates this week. Every year, for the last 4 years, we have seen income issues sell off hard at some point between November and February so it wouldn’t be surprising to see that happen again–maybe we will get a chance to buy some quality issues at lower prices.

The Federal Reserve balance sheet grew again last week, this time by a hefty $20 billion–the balance sheet is now solidly over $4 trillion–$300 billion higher in the last 10 weeks.

Last week we had 4 new income issues.

Insurer Allstate (ALL) priced a new non cumulative perpetual preferred with a paltry 4.75% coupon. The issue is trading under the OTC Grey market ticker ASTLZ. The issue closed the week at $24.77. The issue is investment grade.

Storage giant Public Storage (PSA) sold a new issue of cumulative, perpetual preferred stock with a 4.70% coupon. The issue is trading under the OTC temporary ticker of PBLSZ and closed on Friday at $24.83. PSA preferreds are the highest rated preferreds available with a A3 rating from Moodys and BBB+ from S&P.

Synchrony Financial (SYF) sold a non cumulative preferred issue with a coupon of 5.625%. Now trading under OTC Grey market ticker SNFI the closing price last Friday was $25.03.

CIT Group (CIT) sold an issue of non cumulative preferred stock with a coupon of 5.625%. The B+ (junk) rated issue closed last week at $24.93.

Unlike previous new issue the current batch are having trouble gaining traction–if interest rates hang in the 1.90% area we likely won’t see too much movement upward in the low coupon issues. Remember, while stocks will trade on Monday, bond markets will be closed.

4 thoughts on “Monday Morning Kickoff”

  1. 4.75%… I didn’t think I’d be buying sub 5% preferreds but it’s really hard to put money to work these days. I bought a whole bunch of JPM-Js as the chance JPM would suspend payment let alone fail would be something cataclysmic. Wrongly I’ve come to think of them as my safe bucket because I’m going to keep them till redemption and if they never call, 4.75% is plenty good enough for me.

    1. Sam–thats the right attitude. It is always a tradeoff between low coupon for safety versus potential capital loss when/if rates rise–there is NO right answer–just what is right for you.

  2. Thank you Tim !
    PSBLZ is non-QDI.
    Hoping that I am not mistaken, a QDI rated that high (A3, BBB+) would only need a 4.3129 yield to net same dividend for one in the 22% income tax bracket. Without considering state tax, the conversion from non-QDI to QDI should be 0.78/0.85 (i.e., inc tax rate/ cap gain tax) for the 22% tax bracket. For the other tax brackets: 24%, 32%, 35%, 37%, the QDI-equivalent yield would be respectively: 4.2023, 3.76, 3.594, 3.4835. Other III visitors here can comment as I may be missing something or made a mistake.
    But if by chance I am in the ballpark with my calculations, ALP-Q does have those exact ratings, A3/BBB+, as of 28 Sep 2019/12 Sep 2019, and seems to be a better buy for its YTC (stripped price).
    My $0.02,
    No. 12

    1. Yes aarod–all REIT Preferreds are non qualified. Since the ALP-Q isue dropped by $1.50 in the last 10 days it certainly is more attractive. On a stripped yield basis YTC They seem pretty close (just eye balling it).

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