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PCE As Expected – Not Giant Reactions. NewTekOne Baby Bonds Trading

Well I guess getting news that was neutral on inflation is better than getting a hot surprise–PCE inflation right one forecast. At least we have gotten interest rates a little lower in the last 2 days–the 10 year now at 4.51%-off about 5 basis points. This is helping to keep equity markets fairly quiet for now–just how I like them.

So I am not looking to do anything today UNLESS the new NewTekOne 8.50% baby bond (NEWTG) starts to trade then I will try to pick up a little nibble on it. Whoops I just checked Fido and it is trading there–bought a nibble at $24.75. I will watch it throughout the day and take another nibble if it moves lower, although I don’t want to get too much given my interest rates outlook (maybe higher in the fall).

19 thoughts on “PCE As Expected – Not Giant Reactions. NewTekOne Baby Bonds Trading”

  1. Took a 1/3rd position in NEWTG at $24.75…will watch. Meanwhile, my overall portfolio equity value reached an all-time high going into this weekend. Sweet.

    1. Tim
      you and several others on this board have bought newtg and I would be interested in you thinking on it as it is neither cumulative nor qualified. Under these conditions, not sure why there is so much interest. Any insights would be valued. tia SC

      1. Qualified doesn’t matter to me in this case as it’s in a tax-deferred account. Since it is now a bank holding co., by law, it has no choice but to be non-cumulative so you just have to look at its financial merits and balance the higher risk against the yield. I would not pay more than par, however, and I only went with a 1/3rd position. This is all my rationale.

      2. NEWTG is a senior NOTE, NOT a preferred. It pays interest, not a dividend, so, just like all other notes at any company, it is a contractual obligation to pay and, therefore is neither cumulative or non-cumulative – it is a contract… non payment = default… and interest payments on bonds, as opposed to some dividends received, are not qualified. There may be an occasional exceptions, but I believe they are few.

        1. 2WR, doesnt everyone know there is an unwritten rule here that no one ever questions your baby NEWT! Ha, just teasing again, I will lay off for a day or two since I own NEWTG also.
          This isnt directed at SC, but to anyone owning income securities. It is very important to understand what one owns. This helps in risk management and tax efficiency. Well stated btw, as it must be understood before buying. QDI is not a bonus cherry on top. It just means its capital stock dividend, not more efficient than a common stock dividend, because they are both capital.
          For me, the senior note status is not really the reason I bought as in a worst case scenario banks largely blow up anyways leaving little to nothing unless a generous partner comes in to save the day. The biggest allure to me is the higher yield, shorter duration income play.

          1. Grid, you’re not going to hold it long enough to reach maturity or have it blow up. Just a flip for you!

          2. Ha! Anybody on here who lives by that unwritten rule is on the wrong track. Questioning is a must.. More than anything else my relationship with both NEWT and CUBI are more a function of stubbornness and inflexibility than it is one of overwhelming support….. Certainly NEWT at best can be considered a love/hate relationship because it’s my belief that they are skirting the intent of the 1940’s Act BDC protection that still remains in effect for NEWTL and Z. They demonstrate this by purposely no longer reporting updated asset coverage ratios and not acknowledging its implied importance when issuing pari passu debt without the same coverage… It just smacks to me of them finding a way around the spirit of the protection they are not proud of (I’m not implying they are currently at a violating the ratio – I don’t know that) and therefore do not wish to disclose or be questioned what they’re doing… They seem to be so open with shareholders on just about any other subject but not on this… I should be continuing to be a noodge or I should be moving on… I’m doing neither… That being said, I also believe because they come from a recent BDC background, they are misunderstood as a bank and carry lesser risks than either a pure BDC or an established BHC… So as far as NEWTG is concerned, for a relatively small issue, it seemed imho to be mispriced.

            CUBI is the other bank I seem to be wed to… I have never really understood how they can at least up until recently consistently report higher than their established target numbers and remain a Rodney Dangerfield regional bank….. There are cracks in that pattern of beating their targets now, but from a PE basis, they are still so lowly regarded that market price remains attractive imho… As far as the F/F preferreds, they pay so much, it’s surprising they remain outstanding…. They are the poster childs for pinned to par issues and with current yields on either side of 11%, if you’re looking for income but not appreciation, I think it’s tough to think of a better risk/reward combo…. IMHO, their other parameters vs potential bank run conditions should not be putting them in the doghouse where they remain.

  2. Chimera’s new 9% baby bond, CIMN, is now trading at $24.75 or so. As you may know from my prior posts, I think Scott Kennedy is one of the best mREIT analysts around. He took a small initial position in CIMN this morning at $24.67. When he bought, I did. I wasn’t planning to because of possible risk, but I also wasn’t expecting his purchase. I’m mentioning this just because a number of you have done favors for all of us in posting over the years. As usual, do your own due diligence.

    1. I bought some selling CIM-C. Not much with ex-div coming up Monday maybe I’ll buy more then if i get a good deal. But CIMN is less attractive now at 24.90+ I don’t expect rates to go up so not willing to take lower rate for a maturity date when the perpetuals have possible upside if rates go down. Curious why mREITs are all selling short term issues with their high underwriting fees and why they are more popular at lower rates with no upside.

      1. Martin.

        Many of the new mREIT baby bond issues are used to pay other bonds maturing soon.

        In terms of why buy w only 2 years potential, it’s simply a matter of safety. The probability of default is much lower for the bonds. And getting 9%+ for a couple of years isn’t too shabby.

  3. NEWTG not trading on Schwab’s regular trade ticket, not found in search there or on TOS web, but- I bought some with TOS web– what a mess.

    1. I was able to pick NEWTG up on streetsmart edge, but not on schwab.com. I guess one of these days I will have to start tinkering with ToS.

      1. I dabbled in it (ToS) starting last week, now I find myself watching CNBC way too much, ha

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