Round and Round We Go–or Is It Up and Down We Go

Equity markets remain pretty wild as everyone trys to figure out the longer term effects of the corona virus.

For us income investors it means a little more time to try to find some bargains. It seems everyone is trying to play the same game–maximize quality coupons with a little call protection. Quality issues over say 5.25% with a few years until potential calls are trading over $26 or $27–or even more and I have trouble pulling the trigger on these–but maybe there will be no choice.

I went ahead and added a little bit of the MVC Capital 6.25% baby bonds (MVCD) yesterday at $25.29. I did this with the knowledge of the partial call on 3/26–I already held a position so just added to it–I see it popped late yesterday to $25.56.

I am watching mostly (not all) investment grade issues right now–will try to add a few hundred shares here or there–hopefully with a little call protection, but it seems reasonable given my cash situation I may park in some issues without much financial call risk even if they are currently callable.

22 thoughts on “Round and Round We Go–or Is It Up and Down We Go”

    1. I bought TWO-D for the slightly higher yield. before E fell. Less profit if called in exchange for a few extra pennies earnings.

  1. It is looking like all the macro picture can do is worsen- a lot. Once businesses are closing shop, and saying work from home ( yeah, right Amazon), schools close, manufacturing and public gatherings are curtailed, and on and on- who’s going to get paid or not? Parents staying home because they can’t afford daycare–( that is also closed ). Hotels going empty, airline seats not sold. Clinic & hospitals will be overburdened with real or non-real Covid cases. Already the entrances to Dr’s offices are posted to notify them immediately upon entry if having symptoms, or just bugger-off to emergent care. It hasn’t quite sunk in yet- I was getting my annual eye ck at the Opthalmoligists office- they had cookies & scones for patients! DUMB But they had good hand cleaner! They also use a touch screen for check-in. It won’t be pretty- no wait, it’s not pretty now.

    1. Yes Gary–any closure has a huge trickle down affect in particular with daycares (of which we have too few of already). This could put at a minimum a pretty heavy hit on the economy–but of course no one knows for sure which is a big problem.

  2. Tim.. This is a real stress test, for Perf. and BB… so far , only a few weak links… Ty. for I.I.I.

    1. Tim- question concerning PBB baby bond. If it is callable now, must Prospect give notice (say 30 days) as to when it will be called so that it will earn interest up until that date?

      1. tomastv—it varies, but the info is always in the prospectus. In this case it says “upon not less than 30 days notice, nor more than 60 days written notice”.

        So yes you would have at least 30 days.

  3. Mostly dog days only for energy names, unfortunately.
    Oh, I forgot infrastructure names were badly hit too. I did just notice the weakness in FTAI. I did not catch the falling knife (A preferred) last week. Probably it’s one to keep an eye on since the business model is profitable due to stable cashflows, no near-term maturities, deleveraging ongoing and a BB- rating (just upgraded last month by Moody’s)

  4. Plan on holding until I get IG at 5.25% or above close to par.

    Might be a mistake but staying the course

      1. I am too with increasing amounts of cash waiting. I guess patience is the name of the game here, especially in these volatile times.

        The question is, where to place all this cash while we wait? In various accounts I have the following:

        – Broker’s cash account paying 0.01%,

        – Various money market funds like pvoxx, tmcxx or vmmxx, with 7-day yields of 1.71%, 1.65% and 1.6% . (Some of these require minimum of $100K, others are “closed” to new investors, but the broker may “open” them for you).

        – Online saving accounts like marcus , american express or capital one (1.7%)

        All these yields are likely to go down soon.

        How safe are these vehicles? How do you compare the risks of the broker cash account vs. the money market funds vs. the online savings accounts?

        How resilient would these be if we are hit with harder times? I still remember when the Reserve Fund broke the buck in 2008….

        Where are you knowledgeable III investors placing your cash?

        Thx!

          1. Marc,

            Thanks Marc! Yes, other alternatives I did not mention in the post above, probably less safe, and with fluctuations in their value, are:

            “short-term bond ETFs such as SCHO, JPST, ICSH, GSY, or PULS”,
            as Mikeo suggested back on last Oct. 25.
            Also there is FLOT.

            WIth the 1 year treasuries below 0.5%, I am not sure how these will behave.

            1. Dan, this past Monday, 3/2/20, was ex-div day for PULS which usually results in the lowest entry price for the month and I bought in at $50.01. I was a little surprised to see it drop down Tuesday to as low as $49.96, recover to a high of $50.03, and is 50.01 as I type this. So there is just a little volatility in PULS.

              1. Just sold all my prime money market and funds and will stay in cash until better times, don’t feel like hoping to earn ~1% and take any risk. I still remember how in 2008 the Reserve Primary Fund “broke the buck”.

        1. Marcus is still offering 11mo no-penalty CDs @ 1.90% – seems better than any other bank or MM product if you want flexibility + rate lockin.

        2. Careful choosing funds for a little extra yield. It has been a while but I still recall I had decent chunk of my cash in my main brokerage account in ‘Strong Money-Market’ fund. This was the infamous big Money-Market that broke the buck and then followed the 2007-2008 financial crisis. My fund was frozen with no info available from my (not so friendly) broker for 45+ days.

          The only good thing was that having my cash frozen I did much less of bottom-fish buying! Most went even lower before I sold when I was unable to bear the losses beyond my stop losses…

          I currently have some of cash in etfs like MINT or LQD but rest in new broker sponsored Money-Markets (1.2-1.5% yield, likely lower after last week)

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