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Pop Goes the 2 Year!!

Over 5%–the 2 year treasury has headed higher as Jay Powell was plenty hawkish–hinting that rate hikes could go back to the 50 basis point hike next time around—which is two weeks from today. The 10 year treasury is hanging in there at 3.97% (at 5 a.m. central).

This morning we see the JOLTS (job openings and labor turnover report) at the same time Jay Powell will start his second day of testimony–this time to the Senate. Once again–just like yesterday–equity futures are up a tiny amount early. Will the indexes drop like a rock when Powell starts talking? Doesn’t seem that we will get the same reaction as yesterday, but who knows for sure–I mean honestly will there be new news from him?

Isn’t it interesting how times change? I used to spend my time perusing spreadsheets for preferreds and baby bonds that are ‘bargains’. Now each day I spend my time looking at the CD & Bond page on eTrade and Fidelity. It was only maybe 18 months ago that I was thinking–if I could only get a nice safe 5% I would happy. Now that we are there I am thinking I would be very very happy with 6%. I have been mentioning that I have been buying CD’s in the 5-5.15% area (you can get a bit more if you buy ‘callable’ issues)–funded by CD’s that are maturing which carried interest rates in the 3.6-3.8% area bought sometime in the middle of 2022. My recent focus is buying issues that mature in 6 months to 2 years–I want some continual liquidity for the next year–I want to have plenty of dry powder to load up on the higher rates yet to come.

Have you noticed all the chatter around commercial real estate? I notice that Wework is looking for money–these folks will be ‘belly up’ soon. Barry Sternlicht (Starwood) has continued to scream about Fed rates hikes–which he has been doing for at least 5 months–here and here. They all ‘talk their book’, but from what I see the commercial space is a dangerous place to be invested in now. Looking ahead if you think we are heading to recession you should review commercial holdings–i.e. Arbor Realty (ABR), Ready Capital (RC), KKR Realty Trust (KREF) and many others–all have preferreds and baby bonds outstanding and we could see a real blood bath in these issues with a ‘hard landing’ – I have modest positions in many of these, but may either trim or exit as alternatives appear.

Well enough rambling–let’s get the show going.

41 thoughts on “Pop Goes the 2 Year!!”

  1. I am looking for a high yield savings account(s) that offers trust titling. I’ve called maybe 6 or 7 of them but the closest they’ve come to this is allowing one to make the trust the beneficiary. I have a Synchrony account paying 3.99% and would like something higher than that (if it exists). TIA.

  2. Look at Merchant’s Bank of Indiana, they have a Rising Rate (Flex CD) paying 5.15% now. Available in 12, 24 and 36 month term.
    As soon as the Fed announces another increase (which they will soon) the rate rises the same day. I got in last year in May when rates are staring and the increases come like clockwork. Very Happy with these folks, have banked with them for several years. You get to talk to a real person!!

    1. FWIW, poster BearNJ posted on March 5 2023 a link to an S&P webpage that included a list of the 20 largest US banks that exceed the CRE guidance. It included MBIN. Check Sandbox here in III.
      BearNJ, many thanks for that post (and all others)!

  3. With the US inflation rate at 6.4%, isn’t a 5% Treasury losing money? Or are you betting that the Fed will get inflation below 5% soon and you’ll make money on the difference between your Treasury rate and the inflation rate?

    1. Yes the value of your money loses purchasing power, however, it is a game of evaluating risk.
      And outside of putting the money under your pillow for no risk, getting 5% for FDIC no risk has not happened since before the Y2K scare. Think back when “Office Space” and “Wayne’s World” was all the rage.
      Interest rates being too low for too long have been a glitch. So like in Office Space the Fed by raising interest rates has fixed the glitch. So the problem with inflation should just work itself out naturally.
      For income investors, IMO, these 5% CD are like our sock drawer issues as we wait to pounce on opportunities. Just building a base.
      Apple is a strong company, high credit but common is flat for the past year and only .6% yield. To invest in all that high quality credit and only get that yield can be depressing if you evaluate it over a couple pints of your local brewed IPA.
      So what is out there that has 6.4% (after tax) yield of the same risk vs FDIC?
      For me, it’s not so much of a game of catch up but not fall too far behind. If I go by the balance sheet I only really get ahead if I lower my quality of life or if I start living with that special person who does not buy too many shoes.

      Stay Safe.

    2. > With the US inflation rate at 6.4%, isn’t a 5% Treasury losing money?

      It’s not really a helpful way to think about it.

      You want the best (risk-adjusted) returns you can find, regardless of what the rate of inflation is.

  4. 3 month LIBOR just cruised over 5% and I started to look for higher quality floaters. Look at WFC.PRQ the Wells Fargo & Co., 5.85% Dep Shares Fixed/Float Non-Cumulative Perp Pfd Stock trading at a discount to call of $25.00. YOU WILL GET approximately 0.73 cents between now and when this issue starts to float with a nice 3.09% plus 3 month LIBOR 9/15/23. Will be above 8% If LIBOR stays where it is today and if the issue is called you are buying at a discount to the $25 call price. PLEASE do your own deep due diligence and NEVER make decisions solely based on someone behind a computer screen that may not have your best “interest” in mind. Smile, Azure

    1. If you like higher quality issues that will be floating soon, you might also want to check out ENBA, ET-C, ET-D as well. NI-B will reset in March 2024.

    2. Azure – have you looked at USB-A? One of those minimum rate issues that has been floating for many years. BBB+ rated by S&P. Goes ExD at the end of this month, with divided announcement sometime next week. Should be annualized just over 7%. Close cousin USB-H looks to be trading around a 6.5% comparable yield. Don’t understand the difference except that A is a $1000 face issue. Currently my largest holding.

  5. Do you guys buy the treasuries on the auction or secondary market? Does it make a difference (other than the secondary seems to require enormous quantities)?

    1. Irish, If you hit the buy icon or whatever feature you have showing the purchase minimum, typically you can buy in a lot smaller quantities of that particular issue and only give up a few bps. This varies from issue to issue for sale though.

    2. I have been buying mostly on the secondary market lately. Greater selection of duration and sometimes get slightly higher yields, but I also buy at auction when yield/duration meet my needs.

      I have also been buying everything through the broker (schwab) and not from treasury direct, mostly because I am too lazy to move money back and forth.

    3. I like treasury direct, but some don’t. I have rolling 26weeks, and 52weeks bills. I started back in July. They are now automatically rolling. I also have some shorter term money there, from a big CD maturing. I want to think about where next with it, and short term Tbills are a fine parking place for now. TD doesn’t have much analysis for your holdings. I built spreadsheets to keep up with that.

  6. I have successfully moved the money I had at Discover (3.5%) and State Farm (3.5% guaranteed, could fluctuate higher) to FIDO and deployed most to 3/6mTs all over 5%, no CDs. These will mature from early May to early Sep and sweep SPAXX is paying 4.23% at this point. These big companies are behind the curve in paying market rates; brokered CDs show what these banks have to pay to get money.
    Nice balances in my SPAXX in all 3 a/c to do the nibbles.
    I see JOLTS was down about 400,000 openings, some ‘good’ news anyway.

    1. Yes, my Sallie Mae savings isn’t impressing me anymore, so I’m trying to decide if I want to try mysavingsdirect again at 4.35, bask at 4.25, or something else. I’ve never done treasuries before but if I can set up a rolling ladder of treasuries that sounds reasonable too. I don’t have state tax, so is there anything else I should consider?

  7. Just bought a 2 year NON Callable CD from Wells Fargo at 5.25%. Will add a 3 year when it gets to 5.

    1. Scott, UBS (Utah) came out with a 3 year 5% noncallable today. I bought a little bit myself.

  8. HA! Same here that I’ve now focused on the CD and bonds page of my eTrade account. I will retire at the end of this year and, for now, am laddering T-Bills/Bonds and even FHLB bonds with various maturities in at 5-5.5%. Not all my reserves yet, in anticipation yields may run higher. I still have a nice portfolio of preferreds but have jettisoned most of my common divvy players in favor of the bills/bonds.

  9. I have a ladder of 1 mo Tbills that are 1 week apart. I’ll take the 4.65 ish % smaller return vs 1-2 year. I want to react quickly if the opportunity comes. Each week i have cash coming back and can re-buy another 1 mo Tbill or react to some buy activity with a short window. Some of the ideas posted here are good for a day, so I need to react quicker and cant have cash tied up for 6 months, or 1-2 years. Was nice as I was able to buy some things like All-b, chscl, tannz. A missed opportunity to me can be several % pts being missed.

  10. “if I could only get a nice safe 5% I would happy. Now that we are there I am thinking I would be very very happy with 6%. “…..Ah, The intersection of emotion, economic tea leaf reading, and relative greed….Im with you, Tim.
    I want 6% CDs, too! But Im willing to keep slowly buying as they climb to avoid missing the boat. If they keep climbing I will keep adjusting and buying more. Im ready to buy another modest 10k but will watch a few days to see if we get a small lag updraft in CDs from yesterdays short end treasury spike.
    Only thing I personally am not looking at is perpetual fixed preferreds. I only have 2. … I want CDs and treasuries to go up and perpetuals go down, so at some point I can bottom fish there in due time.

    1. Grid–I think we are in lock step on this. My maturities are in the mid to high 3’s in the next couple months with replacements at 5% – this is working well, although I am not a very astute CD or bond investor like you are–never bought them at etrade or fido until this year.

      1. Im not either, Tim! Im just trying to play the mushy middle of taking some safe yield, ride that wave, and yet stay partly liquid to take advantage of any possibilities…And still get some yield while waiting, like Mr. C just mentioned.
        I have a smaller amount of longer duration ute bonds mostly bought last fall. In fact I am very dissapointed that the long end of the bond market is not providing any real opportunities like it did last fall.
        Still riding some live adjustables to juice yield too. Have to have a some spice to liven things up a little bit.

        1. Grid, I am thinking of now each week, i will take the money that came in, and spend 1/2 of that and buy a 1 mo, and the other 1/2 buy a 2 mo since the auctions are every week. Then I extend my maturities out for 2 mon. Then in a month I will have a ladder of 2 mo Tbills every week. Then in a month I will only buy 2 mo Tbills. I still want that weekly cash coming in for “Grid Buys!” :-). The environment changes too fast. Last Nov/Dec, noone wanted to own fixed investments. Then in Jan, everyone wanted fixed investments. Now TBills and CD’s are climbing. Too much change and I want to be ready.

          1. Thanks for posting about your 2 weeks/2 month Tbill ladder. I’ve been laddering out 5 months with monthly maturities and I think that shortening up with cash becoming available more frequently appeals to me. I doubt that rates will turn on a dime and crash so extending out more months will be possible at a later date. If we approach 6%, I can revisit this.

          2. Mr. C – If you’re looking for so short, there is still the occasional called bond play to make.. ALL-G is called for 4/17 but for full coupon amount of 4/15. Even at the full offered side of 25.21 today, YTC = 5.625% approx, technically slightly less to make up for the Saturday coupon being paid on Monday.

        2. Grid – Eventually there will be that opportunity to pivot from very ST yield positions back to perpetuals. I have been buying the yield peak since October now, between 6-9 month durations. I also have several different ladders going as well starting as early as 1 month.

          I would urge folks to really take advantage of this current “glitch” – probably never see this again where such extreme short duration is absolute yield peak, not to mention tactically it is advantageous as your positions roll off, you are able to rapidly redeploy the capital.

          During peak years of QE and my levered strategies, I was doing the complete opposite in terms of trimming/dumping longest term fixed positions once they were trading at 15-20% > par and rolling down. Oh these were absolute glorious times.

          1. Yes, Theta, I am certainly being patient. Just not worth the risk. And I got a bit lighter in that perpetual area today as something bought 48 more shares of my BACRP at $200 today. I bought in total a little over 140 shares last month in lower and mid $130s and have now sold off about 100 in $200-$225 range. May celebrate by buying another little CD, lol.

            1. Grid – there is no greater feeling than that. Nice trading on BACRP. I recall you mentioning that one previously and I have it somewhere on one of my lists. Definitely I have too many watch lists. Need to consolidate and be a little more focused and start using more proactive alerts again. I would concur with what you suggested; live a little on the edge and take some of that windfall to splurge on a CD lol.

    2. I am still holding out for the 15% 1 yr T bill rate I got in 1980. Don’t laugh, could happen before this SS is over 🙂

  11. 3-Month LIBOR up about 10 bps and 6-Month up about 12 this morning.

    Federal employee wages are proposed to increase a little more than 5%. I guess their increases in productivity and efficiency warrant more than 2%?🤔

    1. NASA guy here – please don’t throw us all into the same basket!! I wish daily that NASA was not a Federal entity just for this very reason.

  12. I read CTO realty’s 1st qtr. report under your post headlines of interest and their mention of taking out a mortgage loan at fixed rate interest only payment for 3yrs at a higher rate than they wanted for a property in Texas.
    Sounds a little aggressive to me in the real estate space right now.

    1. Charles – think there may be big trouble coming in this space. On the other hand these REITs have done interest only for a long time–the big difference is all they knew was ‘up’ in values – then they sell and recycle the capital-the commercial space will be under severe pressure in a deep recession.

    2. Charles:

      The $15M mortgage you are questioning was originated by CTO to provide financing; it seems they are providing $15M in financing to the local Dallas investor who just bought the 274K sf Founders Square office property in downtown Dallas and plans to do major renovations.

      CTO gets 3 years of interest income on the loan (can’t find the recent sales price of the property but it is currently 75% leased) and if the local buyer defaults in 3 years when it matures, CTO will own one of the best located office buildings in all of downtown Dallas for a song ($55/sf).


      I see the fear-mongering on this site blanketing all of commercial real estate is really starting to heat up.

      1. Actually Rob still watching KIM, UBP and REXR preferred. I sold a couple weeks ago with a positive. Just sold my EQC D at a profit knowing there is going to be a panic in REIT land. Will wait for lower prices to get back in.

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