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Nibbling More Here and There

Wow what a crazy day yesterday turned out to be–I thought we would see a strong move and then a reversal–but that second reversal was brutal.

Today I started off nibbling some of the usual suspects–Spire 5.90% perpetual, CMS Energy 4.20% perpetual (CMS-C) and I picked up a few Consumers Energy bonds with a maturity in 8/23 yielding about 4.6%–rated A1/A.

I noticed for those wanting something with a little more risk there are Blackstone bonds out there with 6.33% yields to maturity–BBB-/Baa3 rated–maturing in 2024.

Now I will sit and wait for this damned market to stabilize. The 10 year treasury yield dropped late yesterday, but is popping this morning–up 15 basis points. No use using all the dry powder at this time–although one never can be certain of when things will reverse–but don’t think it is now and with 3 month to 2 year treasuries paying us to wait why go crazy.

13 thoughts on “Nibbling More Here and There”

  1. I do like your NLY-F idea given it starts floating 9/30 – but the rate if calculated today would be 8.593%

    That said it becomes callable 9/30 at any time – and given that its trading at a 1.40 discount to par, I agree with you on risk / reward and dumped another Mreit to harvest some tax losses to swap into this

    1. There does seem to be a disconnect. NLY-G trades at a current yield of 7.60, doesn’t float till March 2023, and has an inferior spread. NLY-I trades at a current yield of 7.5%, has a slightly lower spread, and doesn’t float till June 2024. Assuming 3mL is constant till 9/29, if NLY-F’s price doesn’t go up, it’s current yield on 9/30 would be 9.07%. I could see NLY-F trading at a somewhat higher current yield than NLY-G or NLY-I because of the uncertainty about future changes in 3mL/SOFR, but that gap seems too large.

      1. Roger, let’s compare NLY-F to NLY-I. NLY-F closed at 23.55 today, and NLY-I closed at 22.44. On 6/30/2024, both issues should trade within a penny or so of each other, since NLY-F will yield 3M Libor + 4.993% while NLY-I will yield 3M Libor + 4.989%. Both issues are already ex-div for the 9/30/2022 payment. I’m assuming that NLY won’t call NLY-F before 6/30/2024.

        From 12/31/2022 to 6/30/2024, there will be seven dividend payments for both issues. NLY-I will pay .421875 seven times, or $2.95 rounded to the nearest penny. It should also gain $1.11 on NLY-F since they should trade at the same value on 6/30/2024. $2.95 + $1.11 = $4.06. Divide that by the seven payments on NLY-F to get $0.58. So, if the current pricing is right, the market anticipates that NLY-F will yield 9.28% over the next seven dividends. At 3M Libor + 4.993%, this means that 3M Libor will need to average about 4.29% across those seven dividend periods. Right now, MarketWatch tells me that 3M Libor is at 3.604%. It would need to go up another 60 basis points and stay there for 7 quarters for NLY-F to be worth as much as NLY-I. My take is that NLY-F is currently overpriced compared to NLY-I. I’m not sure if you think the same, or if you think NLY-F is underpriced compared to NLY-I.

        As always, my assumptions and/or my analysis could be flawed. I welcome other points of view.


        Retired Sailor

  2. 2.5 year note close to 7%, well secured AIC with ?$1.00 of Cap Gain upon maturity?
    Maybe t-bills make more sense on balance at 4+%?
    Risk on, Risk off, is still risk.
    “I’m up on a tightwire, one side ice the other fire…”

  3. FBRT-E now a preferred of a CEF, but…it is:
    – The old CMO-E, no longer has the 200% coverage, was supposed to be called, was in original merger plan so potential 30% Cap gain IF called at some point
    – well covered by big payout common
    -almost all senior secured loans, see website Franklin, great quality, prob better than most bank loans
    -closing in on 10% yield, so okay for MAYBE a perpetual hold, (I think it will be called so good pat-to-wait)
    -very modest leverage
    – great handler/managers with great track record
    -Common, yielding 11+% has big discount to NAV which should narrow and bring up pref which is down with sympathetic move down

    1. Thanks for that one Joel A

      Looks like FBRT is a REIT now. I see that one of the directors (audit committee chair) purchased 5900 shares of the preferred on Sept 7-8, at prices ranging from $19.60-$19.82. Seems like most of the loans are ARMs that are guaranteed. But borrowing costs for FBRT also go up with rates.

  4. Just buying TLT and layering in. Getting very down there Eventually we get the Fed Bazooka again.

  5. If you are buying preferreds you should also look at high quality corporate bonds. Very nice opportunities out there and you are one rung up from a preferred stock position.

  6. MBIN going out today. Talk is ~8% QDI, than float! I’m getting shares through MS. Got HIG.G @$24.85. Thanks for the tip!

  7. With another 1.25 to 1.5% rate increases this year. 2 year bank CD’s or treasuries may be paying 5%

    1. Right SteveA. I did pick up a 3.9% CD yesterday as well. Keeping short for now–but at 5% in the future I can roll my treasuries when the time comes–laddered most from 3 months to 1 year with a few 2 year notes.

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