Monday Morning Kickoff

The S&P500 moved higher last week with a low of 3214 and a high of 3283 before closing the week at 3265 a gain of over 1%.

The 10 year treasury which had been trading in a range of 1.87% to 1.94% for a number of weeks traded in a range of 1.76% to 1.90% last week before drifting lower into the end of the week to close at 1.84%.

The Fed Balance Sheet fell by a healthy $24 billion last week. While some have claimed this means the Fed is pulling the ‘punch bowl’ away I think it is simply a matter of timing. There is no way whatsoever that the Fed will stop or reduce QE. After taking the balance sheet up by $100 billion in December it was bound to slow down a bit.

Finally we have seen some new issuance of income issues with 2 new issues last week.

The Southern Company (SO) priced a new issue of Junior Subordinated Notes with a maturity date in 2080–the coupon is 4.95%–The ticker is SOJD

I have not seen this issue trade yet in normal markets–although I believe there has been some trading through the bond desk.

MetLife (MET) issued a new perpetual preferred with a coupon of 4.75%. The issue is trading under OTC temporary ticker METFL and last traded at $25.35–the hunger for safe yield continues.

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As I mentioned last Friday the average $25 issue moved a bit higher. Looking at the entire universe of preferreds and baby bonds prices were 4 cents higher. Investment grade preferreds moved 7 cents higher–while only mREITs remained exactly flat.

We have had no ex-dividend action to distort prices, so everything is ‘accruing’ dividends and interest which has tilted the average upward. Today we have 11 ex dividend issues and then we have over 40 tomorrow so average will likely move a bit lower for this week.

17 thoughts on “Monday Morning Kickoff”

  1. STHNP is still assigned to the SO issue, according to Merrill and QOL. I tried to trade it multiple times at Merrill and they keep canceling the orders.

    1. A4I–quite certain that schwab set it up in their system and others picked it up–FINRA cancelled it.

      1. Schwab has a note in their system that they changed the symbol to SOJD. If so it’s not active yet. They do show 546,000 shares traded. No prices shown.??

        1. That is my observation as well. Someone–mcg I think–saw a cancellation on the OTC symbol the day after it was announced.

      2. You are spot on Tim. I called Schwab within a few minutes of the STHNP symbol being announced and had them start setting it up. They got it in the system (could get a quote) but it wouldn’t work for a trade. I ended up buying it through the bond desk.

        My plan was for a quick flip, but I am still holding because it is apparently still only trading through the bond desk.

        FWIW – Quantumonline still shows STHNP, but that is obviously not correct.

        1. Private–so you are the scoundrel that did that – oh well they should have known better. Kind of funny that they set it up and everything.

    2. Fidelity says STHNP was dropped. They initiated an order for me using the cusip number and SOJD. The rep said it was trading around 25.15

        1. I bought some last week at TD-Ameritrade under $25 (though they still charge commissions for OTC 5-character symbols like this!).

          Looks like \one can still buy it there though I see dayRange of $25.28-25.35.

          Past month or so I have seen a sure earlier availability of such Preferreds compared to IBKR, Schwab & Fidelity

    1. Camroc, I know he has been pushing these for a long time. But I dont understand the relevance he is making here. What does the CEF have inside its wrapper that was purchased with leverage? Its those issues that he is comparing too. Seems like an odd comparison. As everything ultimately has leverage somewhere unless its a debt free company.
      I dont personally own these things, but I am in essence leveraged anyways. I have a home mortgage so Im leveraged in effect myself.

      1. Yes, I posted that in the comments section, Grid.

        I own a few CEFs & ETFs, but the largest are FEI and MLPA. Their top holdings correspond to mine, but they pay higher divvies due to the juice. I’ll take that since we’re eating the same cooking, so to speak. lol

        JMO

        1. I will have to check out your post, Camroc. I noticed he has quit chirping about the paired IG 4%-5% bond trade, since we chucked a few arrows over the hill at him on that.

      2. I have CEFs in multiple portfolios. And, have steadily built proportionate position sizes with them. In fact, they are upwards of 45 – 60% of total portfolio assets. Why??
        As everyone has observed, Preferreds, notes, and debt prices have risen into ‘nosebleed’ territory, and Yield%s have dropped significantly, if not massively. > ‘Its the New New Economy!’ Gross/ElErian. So, where to replicate Yield% decently, and still maintain some semblance of risk/reward balance?

        As mentioned in another post, there are multiple types of CEFs that focus on different asset classes. And, it is possible to get 7 – 8 – 10+ % distributions, monthly and quarterly.
        Have these CEFs also appreciated in Price? Yes. Many have. Yet there are also decent buys / finds that become available as markets shift. Preferred CEFs, Hi-Yield, non-taxed, tax-advantaged, buy-writes, emerging markets, domestics, energies, even S&P equities.
        For example – Pimco California Muni CEFs. I hold PCK, PCQ, PZC, among others. And, yes, sold most of PCQ around $19 that was purchased around $14.20. At $14 +/- it yielded around 7% I believe. So, Real after-tax Yield
        was appx. 9%+, w/ monthly distros. Yes, all of these have risen, so, Yields lower. still, when they drop, are very good to buy. Eaton-Vance CEFs like ETJ, ETV, ETY, etc…. are also attractive when prices come off highs. Some of the Global ones, VGI, CAF, EMF, etc… can still be had decently.

        As for Leverage? They are all diversified. This reduces individual company risk. And, I believe, like BDCs, or other funds, they must maintain 150 – 200% debt coverage.

        Are CEFs more volatile than Prefs? Depends. Yet, I have found that the volatility has been beneficial. If the fund providers, like Pimco, Eaton Vance, Templeton, Blackrock, Cohen & Steers, and others, are reputable, the CEFs typically will come back over time if they fall. Even the very popular ones that typically sell above NAV. So, not only do you receive Distributions, you can add to overall return by exiting portions at 25 – 50% Cap Gains over time. Then … re-enter on market drops.

        Now … The reason this might be useful …. With the struggle to find decent Yields in Preferreds, adding these to a portfolio mix could help average Yield overall.

        cefa.com is a good resource to investigate.

        just JMHO … of course ….
        Steven

    2. CEFs are interesting when there are huge corrections hammering their prices that fall much more quickly than the real value (NAV) of their underlying portfolios. In the current situations we are in the opposite situation. I still own only BWG, still cheap and offering an exposure to emerging markets fx and fixed income hard to achieve otherwise.

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