I will be adding a new link titled “Sandbox” in the right hand menu.
That link will get you to this page.
I had originally set up the “Reader Initiated Alert” page for ‘alerts’. I was thinking this, for instance, might be when a preferred stock is undergoing a temporary selloff and someone wants to let the population know about it quickly. Of course we all (including me) use the ‘alert’ page for general messaging.
I am requesting that we start using the Sandbox page for all general talk, and try to preserve the ‘alerts’ page for ‘alerts’.
I have had a screen up on one of my monitors all week where I see all comments – no matter where they are posted–it is a great page and I wish everyone had a page like that–believe me we all benefit from all the knowledge being shared. I don’t want to stifle any of the exchange of knowledge, but hope to get things a bit better organized by adding the Sandbox page.
I hesitate to think what mislabelled , crazy stuff nobody has ever thought of before but which is posited as “normal” is coming in the Big Beautiful Bill.
Tariffs threaten the earnings and margins of some businesses. The usual response is layoffs. Yesterday, the brick dropped in the pond. Now the ripples spread. I’m not going to guess or predict or speculate where this is going because there are too many moving parts.
In the interview I posted yesterday, Brad Setser said tariffs will affect Q2 GDP, possibly in a big way. He was unwilling to speculate beyond that except to say a recession is possible.
Notable today: Crude futures had a nice rally going; today -7%. DXY (dollar index) big drop. Not normal. Financial markets don’t like being jerked around.
For all the hullaballoo in the market today I expected to do a bit of shopping in the fixed income realm. While I see some small sales I am not seeing K-Mart blue light special deals. I am kind of sitting here doing nothing.
I just bought some more PFLD. That’s my wild and crazy idea for the day. LOL.
Hard to believe, but market players are hiding out in STRF and STRK today.
I fat fingered a horrible sale in STRF after hours at 91.75 and was hoping to get my money back.
It was pointed out to me by someone in favor of the tariffs that cutting the trade and budget deficits is terrible for BTC.
Lt, get out of the gutter. You should be trading COST down 5.00 at open then up 7.00 a few minutes ago. Different groups trading different sectors of the market.
R2S – I’ll take a closer look at those 8s at market open. NGL looks very interesting. I currently have a decent position on the Argo 2042 notes.
Any predictions today on price action for PFFA and frankly a bunch of other individual preferreds to see if that last upper tranche of high credit quality 6%-6.45% (JPM-C, MER-K) issues fall below par.
I have that PSA-H you mentioned. Will add more for every 25-50 cent drop from here. PFF still holding the $30 handle here in pre market.
lt – are you running any convert/arb trades this week or do you only look at those end quarter windows?
Theta, those are great ideas, along with some others. But I use them as cash vehicles. I see them as pretty stable. Just look at the past years for them. I am now rotating out of them and buying 6%+ preferreds that are investment grade that have dropped $2 + and their past charts swing in the wind for cap gains. I have a laundry list like NEE-N, SREA, MGRE, SOJF, CMSC, and a few dozen others. I have 10 years to retirement and these are great for my personal investment. Depending on how the market has reacted to rates or if there is some scare, I switch back n forth between the 2 types, with many years with cap gains, and has worked well for my strategy over many years.
Mr. Conservative – Thanks for the heads up on that NEE issue. I have a good size position in MGRE now. I bought CMSC nearly a $1 higher, so I should add to that one today. I’ll check out SOJF.
To your point, I’m looking at higher coupon/quality this morning such as CHS Inc. For instance appears the 7.10% issue is now trading under par for the first time in a long time.
i meant SOJC and not SOJF. SOJC is what I am rotating into (dip) and SOJC is new and will probably have a more flattish trading range, which I will use in the future to park cash (will have to wait on that one to see what it is like in probably a year).
It has been great and profitable when fear hits the market and rotate back into these that dip maybe once a year or so. Noone likes red in their web page of investments and they just sell. Many investors say they are buy and hold. But several down weeks and they capitulate one by one and cave into selling. That is when it is the most profitable and it seems like this happens every year. We have data in seconds and investors trade off emotion and dont have a defined list of trading rules. Or … they are aware of the rules, but say, “this time is different, get out and fight another day.”
The stock market goes down on an escalator, but rides up in an elevator. Hence investors usually sell low and buy high, or at least could have made more money staying in and then spend years making up the lost $.
mgr/vclt trading near 3 low .. tried buying mgre ar 23.70 but missed it
PSA preferreds are cumulative perpetuals. PSA has a history of calling the highest coupon preferred when treasury yields have fallen to an advantageous level. PSA-H at 5.6% would be next.
These preferreds trade like bonds, making the same highs and lows as ZN 10-year treasury futures. There is also a stock-like component that can crash the price in a downturn.
PSA-H closed at 22.90, creating the potential for a 9.2% cap gain to par. The CY is 6.1%. If I knew that yields were going to fall to the Sep low (without a GDP hiccup), I’d buy PSA-H now. However, I don’t know what’s going to happen, and the price indicates that traders aren’t exactly jumping on the trade. I’m just going to watch some more.
NMAX being destroyed on day 3. Whatever it is.
NEWSMAX. Recent IPO.
The latest from Eric Basmajian.
“Residential Construction: The Backbone of the Cyclical Economy”
https://epbresearch.substack.com/p/residential-construction-the-backbone
What I wrote to a friend this morning about the reaction I expected:
“Here’s my scenario: indexes, DXY and yields down.”
That’s what happened.
Will the stock index dip be bought once again tomorrow? ZB t-bond futures tried three times and failed in the last month to push up above the 200-day moving average and stay there. This afternoon’s fourth try looks like a possible breakout. A trend up for ZB is a trend down for the 30-year yield.
Economic and China expert Brad Setser talks about the expected tariff hit to GDP in this interview from 3 days ago.
https://www.youtube.com/watch?v=nFg8Uo2gKUc
“Treasury Secretary Bessent says market woes are more about tech stock sell-off than Trump’s tariffs”
https://www.cnbc.com/2025/04/02/treasury-secretary-bessent-says-market-woes-are-more-about-tech-stock-sell-off-than-trumps-tariffs.html
I guess he doesn’t have his life’s savings in a 401k.
From the intraday high to current price this evening, ES (SPX futures) has fallen over 3%. I can’t fathom what long traders are thinking when they get caught up in these moves. High surf! Rip tides! Rocky bottom! This is classic rip-your-face-off big correction behavior.
Of NOTE;
S&P circuit breaker at 7% down, 13% and 20%
https://www.investor.gov/introduction-investing/investing-basics/glossary/stock-market-circuit-breakers
I see we’re off 6% as I type. Bet we don’t reach 7
Low on SP future looks to be down a little over 4%.
https://www.cmegroup.com/markets/equities/sp/e-mini-sandp500.quotes.html
Roll another one.
exactly
Not sure if this is very new (Jan?)- explains digital front running and the IEX answer to it.
https://www.facebook.com/watch/?v=1066748965222485
Can’t win unless you can use IEX. ( code: V or IEXG ) Offhand, not seeing it used, but haven’t done much looking.
Watching futures gyrate after the close should be entertaining.
Listening to Trump speech and sounds like this is going to be a nightmare for the ports of entry Customs trying to figure the the total tariff cost for s particular shipment. Its going to play havoc with supply chains. Shortages and price increases here we come! Wow….. Check the futures…… Down big time.
Gold massive pop here. Should have taken a flyer on these ahead. The June contracts now looking like they might smash 3200 mark.
Re: ports of entry – Check the proposed new multi-million dollar docking fees for ships docking at US ports. These are on top of tariffs. JMO. DYODD.
Yep… Saw that too. There will be huge prices for a lot things coming….. If this all holds up. Subject to changes st any time.
Rocks, the hysteria on twitter is at a fever pitch., very entertaining. Fear and drama!!!!!!
Etrade seems stuck 40 min behind FIDO on quotes for BNJ- they say last is 15.40, when it is actually 15.46
WTHell? It looks like they are only reporting one exchg- DF for 171 shs- showing late on FIDO, still has last as 15.40, not 15.42 now.
I’ve been buying 8% and higher, and I feel like I’m swimming against the consensus. While some are hunkering down in the 6s, I see the current weakness in preferred prices as an opportunity to buy good stuff at a discount. And the discounts might get even better if the trend continues. I’ve got tons of 6%ish; I don’t want more.
I think the disconnect is between those who are concerned about the MtM value of their portfolios and others, like me, who are trying to improve their yields. The yield on my $25 stocks has risen from mid-6s to 7%.
On Monday on a different page, martin g wrote:
“You guys are more conservative than I am. My IRAs are still mostly 7 to 11% dividends. I figure added trading profits are enough to compensate for increased default risk. We shall see. I don’t consider fluctuating prices to be a loss if they keep paying.”
When a recession comes, it’s not going to matter if your preferreds are conservative or aggressive. With a few exceptions, they’re all going to tank. So, I buy companies that expect will keep paying through the hard times and keep a cash stash to buy more.
You wouldn’t think a guy approaching 80 would be so cavalier, LOL.
rocks-
Right there with you- age is the same, similar tactics & outlook. 44% cash equivalents, so I feel ready for the drop that is bound to come.
Hey, just reopened page, Jim Here ( June 1944 ), Mentioned before and have liked for years….. an old Grid recommend…. Citi Trups ( CpN ) .
A $25. item … BUT way over par , now $29.86….. Fltr …. Resets late April.
Take a look at a 2yr Monthly to see if it could work.
You posters are Fantastic , and your management fees are reasonable !
OPPS ! Getting in the way of Tarriff Time ……
Current annual yld is 7.47% Luckily, I don’t have to spend any- just do the damn RMDs- but that goes into taxable issues, unless I need it for a new roof, etc.
Rockstostocks;
I am 76 myself and agree somewhat with Martin G. When you get our age things look a little different than they used to. Most of us have a paid off home, a couple may have $5,000 -$6000 a month in SS coming and Medicare, maybe some fixed pension money, savings, usually no car payments or other debt, some like myself still work part time or consult. So, if the whole portfolio blew up, we can most likely get by fine without it, so no overwhelming need to be highly conservative as most would think older people should be. Mostly how well the portfolio does will determine what the heirs or our charities get 10 -20 years down the road. Hey, I even have a few YieldMax funds in my wild-ass bucket
Bill, Gary, Rocks y’all are making me feel young at 68. I’m pretty much in the same position on everything Bill said. Cars and houses are paid off and small annuity and still working a couple days a week. Wasn’t a big wage earner, just saved so no way close on the SS. But it’s enough like I said yesterday if I had a big wipeout in the market I would survive. I got the sheep for meat in the freezer and enough land to grow a big garden.
R2S – post some 8s you have been buying.
I think my plate is full for right now with uber high credit quality 6s that I have posted about i.e. Schwab, PRU, Metlife, Public Storage, Bank of America, Morgan Stanley etc.
theta-
I generally don’t post my trades because they might appear to be recos. I do when I think I can add something new to the chat.
In the last 30 days. All are small positions. Some are adds. Some of the yields depend on the date of purchase, which might have been right before the ex-date.
SNCRL@24.45, YOC 8.6%, YTM 11.4%
NGL-C@24.04, YOC ~12.2%
ARGO-A@23.97 (an add) YOC 7.0%, YTC > 8%
ATLCL@24.08 (an add) YOC 6.4%, YTM 8.9%
ATLCZ@25.21 YOC 9.2%, YTM 9.4%, YTC 9.5%
It has been helpful to have my spreadsheet accurately calculate YTM and YTC.
Here are some of mine…
ATHS @$25.16
ARGD @ $21.52
NEWTH @ $24.93
OXLCI @ $25.43
PRIF-F @ $24.36
DYODD
The yield curve is inverted from one month (4.38%) to 3 years (3.85%) with a downward slope. You might say that the slope predicts lower rates at the short end as time goes by. That would align with expectations for future rate cuts. We’ve all heard this narrative from multiple sources.
https://www.ustreasuryyieldcurve.com/
What’s interesting is that in January (when the long end hit 5%) the short end inversion was milder, ending at one year. Since then, the curve has developed a saggy belly. The evolution of the curve is a view into the mind of Mr. Market and is relevant for fixed income investors.
Really big fat finger trade for 150shs RCC at 9:44 -someone upped the ask (error?) to 26.87 -way above the 24.85 bid, then it traded @ 26.87, 25.965, 25.07
It stayed at Ask of 26.97 for 2min & 8 sec- finally back to 25.07 after 2min 25 sec.
Somebody lucked-out, somebody burned from the look of it.
On offer: Corebridge 3 year annuity , which you can withdraw at any time subject only to interest rate movement (market-value adjustment), intended to act like a bond 5.4%
Corebridge 3 year debt, unsecured offered at 4.74%
https://crbgdoc.jaggedpeak.com/getDocument/?email=defalt%40crbg.com&Source=default&catalogID=AGL14481
I’ve noted this disparity for awhile, between non- commisionable annuities of the insurance sub and unsecured debt of the parent .
Where the sub is the primary asset, it doesn’t make sense. It implies the debt is priced too high?
Once again, it seems like the market is following BTC. It opened down and bitcoin rallied then the market did.
I’ve noted this seemingly occurring for quite awhile.
I’m not willing to bet on it.
I can shout all day that “correlation is not causation” or “the past doesn’t predict the future” but then people look at what their charts show and bet on it.
Go figure. We can really get fixated on an idea that doesn’t have validity.
I see BTC and even more so meme crypto/meme stocks as a barometer for the market’s appetite for risk on assets.
Taxable v tax free munis:
Here’s a good indication of the difference in rates:
on AA+ housing bonds backed by MBS, the 2050 taxable new issue is 5.875%.
The 2050 tax free was indicated yesterday at 4.95% on a new issue
An article in wsj on the issue of munis and tax exemption
https://www.wsj.com/finance/investing/are-muni-bonds-still-a-darling-on-wall-street-it-depends-who-you-ask-d20bb0d9?mod=md_bond_news
Incidentally, not to make any sort of political statement but these broad and high tariffs that have been announced could raise quite a lot of revenue. If so this will relieve the pressure on Congress to find other “pay for” to fund the tax cuts extensions and thus indirectly make it less likely that they need to touch the muni exemption. But this is only speculation on my part of course
Looks like ET-I isn’t safe from UBTI after all-they corrected their K-1 yesterday. 100% of dividends are ubti.
There has been some great DD on this site regarding the Enbridge preferreds, in particular by 2whiteroses. The specific item I’m having problem finding is, did someone 100% verify that if you hold in a nontaxable account, either EBGEF or EBBGF, USD denominated, there is no issue with foreign tax or something being withheld from your quarterly distribution? Thanks and cheers.
I have mine in my Merrill ira, and they often withhold the tax but then credit it back within a day or so.
Thanks Irish. Very helpful.
I have EBGEF in a Roth IRA at Schwab and they don’t take out foreign tax.
ACR-C – I noticed that ACR is only paying this F/F issue based on 3 month SOFR + its originally stated spread of 5.927. It is NOT INCLUDING the permanent spread adjustment of.26161 adjustment that I thought was required to be added to the formula… Anyone know of another issuer doing this???? https://www.acresreit.com/2025-03-18-ACRES-Commercial-Realty-Corp-Declares-Quarterly-Cash-Dividends-for-its-Preferred-Stock.
“The Company will pay a cash dividend on its 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”) in the amount of $0.6383681 per share, which reflects a rate of 10.21389%, equal to three-month Term SOFR on the dividend determination date plus a spread of 5.927% per annum. The dividend will be payable on April 30, 2025, to holders of record on April 1, 2025.” The math on getting to 10.21389% I believe would confirm .26161 is not being included.
2white.. I also heard that from a fellow shareholder a month or so ago.. I urged him to contact IR, but he didn’t..
Also, this same person pointed out that the latest RITM-A div is lower than what their stated rate implies. demand justice!
(.641949*4)/25 does not equal 10.387% rate,
“In accordance with the terms of Rithm Capital’s Series A Cumulative Redeemable Preferred Stock (“Series A”), the Board declared a Series A dividend for the first quarter 2025 of $0.6419490 per share, which reflects a rate of 10.387%. The Series A Preferred Stock accrue dividends at a floating rate equal to three-month CME SOFR (plus a spread adjustment of 0.261%) plus a spread of 5.802%.”
https://ir.rithmcap.com/investors/news/news-details/2025/Rithm-Capital-Corp–Declares-First-Quarter-2025-Common-and-Preferred-Dividends/default.aspx
He also says other RITM pfds have that same ~10bps error.
Mistakes and corrections have happened as recently as Oct 2023 w AGNC prefs.
https://investors.agnc.com/news-releases/news-release-details/agnc-investment-corp-announces-corrections-previously-announced
I have contacted ACR IR today……. was looking here for any confirmation that their treatment of SOFR without the .26161 spread adjustment is unique to them.. Obviously will post if I receive an answer from IR.
Re: RITM-A, they do say they are using the .26161. The explanation to the difference could possibly have to do with the number of actual days in the quarter, I don’t know…… whatever the answer, it apparently does not have to do with the .26161 adjustment..
2wr….. on the various Fltrs I have that now use the 3 Mo Term SOFR + .26bp,
have given up to reconcile. At one point, thought it had something to do with the SOFR # was on reset date versus a AVG rate on the the SOFR for the period.
Have been satisfied with the ylds on the various items.
The SOFR rate used for the next floating rate period is almost always based on the rate on a specific date, usually the second business day before the latest payment date although it does vary from issue to issue. I believe I have seen some set based on an average SOFR for a short period of time such as 5 business days prior. As per always, the specific answer is in the specific prospectuses. To the best of my knowledge, the rate for the upcoming next quarter is always set at the beginning of the quarter and not at any other time such as the date it’s declared if it’s a preferred.
I hold ACR-C as well and noticed the missing 26.1 basis point adjustment when they first declared the dividend for the 10/30/24 (initial floating rate).
I called and left messages for IR twice and never heard back from them. Then they actually paid that 10/30/24 and the following 1/30/2025 dividend, all without giving us the benefit of the 26.1 adjustment.
After two such payments, I assumed it wasn’t an clerical error.
I hope you get a response….and a cumulative correction would be even better !!
Keep us posted.
Maine,
I’m not certain this is the explanation for this period’s RITM-A div, but as 2wr just pointed out, they calculate its floating divs differently than they did when it paid a fixed coupon. Floating divs are calculated on the basis of a 360-day year and the # of days actually elapsed in the div period. Before it began floating, it’s div was calculated on a 360-day year and twelve 30-day months, regardless of how many days there actually were in a div period.
This RITM-A div accrual period runs from Feb 18 through May 14 (86 days).
Feb 18 = previous div pay date
May 14 = day before upcoming divs pay date
Your formula assumes 90 days of accrual. Since it’s only 86 days, it overstates the coupon and amount.
RITM-A prospectus, pp. S-3 and S-21:
“Dividends payable for any Dividend Period during the Fixed Rate Period will be calculated on the basis of a 360-day year consisting of twelve 30-day months, and dividends payable for any Dividend Period during the Floating Rate Period will be calculated on the basis of a 360-day year and the number of days actually elapsed in such Dividend Period.”
By the way, with the inputs we got from RITM (coupon, div amount, floating spread, and tenor adj) and with my estimate of 86 days in the period, I derived the 3-month SOFR (3mS) to be 4.26519%. If we knew what 3mS rate that RITM used, we could tell if they made an error.
WE can get close can’t we? “Dividend Determination Date” means the second London Business Day immediately preceding the first date of the applicable Dividend Period.” Using https://www.barchart.com/stocks/quotes/SOFERMM3.RT/interactive-chart you can go back and find the rate on that specific date assuming we agree with RITM what that specific date should have been…. either way it’s gonna be close, right?
If it helps, I have the exact 3 month term SOFR rates by day for 2025 and most of 2024 to the accurate to “4.xxxxx”. If you post the date(s) you need I can send them to you.
ACR-C –Fido pd me 0.65726086956, so x4 /25 = 10.51617% The diff ionly .0188927,
not the .26161 — must be the number of days ?
Gary – The announcement has to do with the upcoming 4/15 payment on C… Fido’s normally pretty good at posting payments quickly but I doubt they’ve posted 2 weeks in advance… lol…. That’s what they paid you in January?
Will someone please explain how it makes sense that rates keep falling while gold is rising. The logical move seems the opposite would happen?
This is obviously another of my directional bets on which I have lost every year I’ve tried to gamble.
I’ve hedged most of my long gold with GLD short, and part of what I thought was a muni rate hedge with TLT, but neither MUB nor TLT seems to move with the new issue bond market. MUB should, and it’s had outflows recently.
Good article in Bloomberg about the possible loss of muni exemption
https://www.bloomberg.com/news/articles/2025-03-27/muni-bond-rout-comes-as-concerns-brew-over-tax-exemption-repeal
lt
Gold up: geopolitical uncertainty
Rates down: recession probability
Dollar and gold negative correlation is common. Also common, dollar and rates positive correlation. So, gold and rates negative correlation. There are periods when this works and periods when it doesn’t.
Several factors move the price of Gold it’s not all about rates. Pundits like to guess the reason after the fact but it’s rarely that simple.
I think of it this way:
Suppose the marginal buyer has to decide between buying gold and buying a fixed income investment.
Gold doesn’t pay interest. So when rates are higher, the bond is relatively more appealing than gold.
The closer to zero rates drop, the less income the bond will produce, so its appeal relative to gold diminishes.
At least, that’s how I think about it.
Wednesday 8:20 am NY … Bloomberg TV …. El-Erian nutshell comments …
Uncertainty for some time …. no certainty at 4pm today.
This will up / down will drag on for some time.
Goldman 1st Qtr GDP current # , + – 1.00%
Atlanta 1st Qtr GDP NOW revised down to minus 3.7%
Word Count so far ! ! …… Stagflation
Any ideas on how to prepare for stagflation? Traditional ideas are TIPS, commodities, gold/precious metals, maybe agriculture commodities, REITS, short term bonds, healthcare, utilities, high quality consumer defensives.
I can get behind TIPS, short term bonds, and to some extent high quality REITS, healthcare, utilities, consumer defensives. Of course high quality prefferreds and baby bonds as well.
Gold I certainly see the case for, but I’m struggling to buy now after such a runup. Of course it can keep running
Commodities in general I’m having trouble with, as their price seems to rely on demand, which would seem in high peril during stagflation.
What about MBSs? I’m in Managed futures as well. Any other ideas?
DTW (DTE Energy), solid BBB- Notes sitting there today fluctuating around 6.07% yield. I picked some up.
Pig this looks like it is in a downtrend. Has a 52 week low of 21.32 would you consider continuing to buy as it goes down or do you have a full allotment?
Charles, Yes went in with a typical smaller purchase to begin. Will most definitely buy more if it continues to dip.
Charles & Pig,
If you like DTW at 6.07%, SOJC (Southern Co) is available for a 6.09% yield at $21.55. These two Jr Subordinated Notes are almost identical. I own both for diversification.
Thank you Mr Owl!
Charles & Pig,
If you like DTW at 6.07%, SOJC (Southern Co) is available for a 6.09% yield at $21.55. These two Jr Subordinated Notes are almost identical. I own both for diversification.
PFF vs PFFA I think I saw a discussion recently on these. Looking for input on pros/cons of a preffered ETF in general and any experiences with these two in particular. Not looking for advice, just perspectives. Thanks much.
Biggest complaint I’ve heard is a big fund can’t trade low volume issues efficiently, large trades move the price against them. There are ways around it but they don’t always do so. People here point out when to take advantage playing against those big trades though we don’t always know who the other side is.
@furcal:
1) “Arbitrage Trader” on SA seems astute, and has been writing reviews of different preferred stock ETF’s over the last couple months. He doesn’t like either, but particularly dislikes PFFA. The one ticker in the sector he that he respects so far is FLC, which is a preferred CEF.
2) You should read ESW3’s response to me lower on this thread (April 1 about 2:30 pm) about how ridiculously PFF overpayed for ABLLL a few months ago only to sell their position below par yesterday. It’s hard to believe a high school intern with a week’s training couldn’t have done a better job of protecting their shareholders assets.
@ESW3: Wow, thanks for the tracking down what happened!
good comment.. PFF close below 30.65 ominous.. PFF/TLT price pair has seen PFF outperform since feb 2020.. using 3yr horizon pair is testing uptrend.. I am expecting a reversal in trend (widening credit spreads) .. PFFA/PFF pair trading near fair value but close below 21.59 on PFFA confirmed its breakdown ….20.94 is next support
PFFA down 9 of last 10 days. The trend is not your friend.
Not sure what to make of this , so throwing it out for comment:
Mich State new issue housing bonds , long end due in 2050 and 2055,
looks likely to price at 4.95-5% tax free.
These are AA+/AA2 and are generally backed by federally insured MBS.
I had noted recently new issue bonds seemed to be pricing at high yields, but given the fall in rates it seems way out of line.
Do you think this is concern for elimination of muni exemption, possible privatization of fnma/ fre or something else?
Arent these bonds callable and also pass through some of the prepayment risk like the taxable MBS? Then you need to account for the value of all this negative convexity and maybe your actual yield is more like 4.5% or something? That is still pretty cheap for tax free to be sure… As far as privatization of FNMA that would first of all show up in taxable mortgage bonds and I dont think they are trading at particularly wide spreads ? Actually during and after GFC munis traded at yields well in excess of UST as well so this sort of thing not entirely new
My guess would be worries about the tax break going away.
Apparently new issuance calendar is very heavy recently and this is putting pressure on yields. Partly is all the states and other municipal issuers have used up their COVID era money and their funding needs are going up. Also though yes they maybe concerned that Congress will restrict their ability to issue new tax exempt debt and they will be forced to instead issue taxable debt at higher yields so they are rushing to issue ahead of that which creates supply pressure.
I could go with these answers except on housing bonds, there is a limitation already . The exemption is allocated to the states based on , I beleive (but don’t quote me) population.
As far as callable, yes. At any time. But these are not called like FHLB debt. rates have to move a lot.
As to prepayment risk, it’s not like an MBS, though typically MBS are backing these.
I note the stuff that prepays like MBS is offered to institutions (I was accidentally offered one by Stifel). Those are straight conversions of MBS from taxable to tax free, which I admit IS sort of a scam on taxpayers
Lt, Alamo Capital was just advertising on the radio they are one of the underwriters for 2.5? billion of tax free Calif. bonds coming out. Some as short on call as 2026 rated AA+ / AA2 didn’t mention the yield.
Newsmax IPO
It traded up above $190.
I took the loss in the $80’s, around $5000, but made it back on my shorts of BA-A and ARES-B , both mandatory convertibles. I shorted those on the close and bought the common then unwound them today.
I’m certain i missed some great trades yesterday against all the imbalances
REDDIT WINS AGAIN. Dastardly!
There’s no edge at all in the stuff I gamble on, and a lot of edge in the arbitrage trades .
I remind myself every time I make a mistake like NMAX. I can also look at the 25 years in which I made a bet on market direction via SPY or QQQ. I have losses in 24 of those years on those ETF’s or options on market direction.
lt, reminds me of the hedge fund manager story about paying one research assistant twice what he paid the others. When questioned, the hedge fund manager explained that the overpaid employee was actually extremely underpaid because he was invariably wrong about the market direction which could be faded and enhance hedge fund performance far more than any of the other staff.
lt should give himself a raise?
lt – NMAX going to the moon. $300s next. Are you converting @ 0.3260 on that ARES arb?
Are you still trading those SPAC warrants? I was looking at a bunch of different rights. If I can get some between 10-15 cents on a half way decent proposed merger, might be a good risk reward. Or even rolling the dice on newer one that is in the “III” iteration with previous merger closing(s) success. Many of those you can get between a nickel and 8 cents but then probably going to be waiting 18 months.
You know that arb on the converts is genius. You could probably do that all the time. I’d even be interested in a quarter scalp. Sure beats betting on red or black and only getting 50% odds.
Hey Theta wish I had thought of mentioning it. QXO a spac bid on buying BECN about a month ago and was told go pound sand. My understanding is as a spac they have to complete a buyout or return the investors money. They raised their offer and asking for a vote on April 14th? For shareholders approval. They plan to continue buying building materials and supply companies.
Charles M – QXO looks very interesting. The company is very SPAC like in terms of that empty shell structure but they are full steam ahead at this point with Brad Jacobs running the bus and even putting in nearly $1B of his own dime.
I’m looking for specifically new or about to merge SPACs that have rights trading. How they work is, 10 rights convert to 1 share. So if you can get them at 10 cents or 20 cents, your cost basis for 1 share is effectively $1.00 – $2.00. Great risk reward on these. Even if you bail at $3, still a stellar profit.
Now if a merger doesn’t happen, you lose 100% of your money. Also allot of folks are catching on to this trade so what happens is, when the merger does complete but the company is not that great, people will sell those shares at will to take profit and sometimes you’ll see these SPACs trade all the way down from $10 to $3.
Theta, We’ll see how this works out. My feeling is it’s too late in the business cycle to be paying top dollar for a roofing materials distributor. When they went from Allied building materials to Beacon a lot of the experienced management bailed, although that was the higher paid people. The ship continued running smoothly but QXO is focused on efficiency and if that affects service and inventory the customers will go elsewhere.
I like the additional plays you have going on preferreds with shorting ahead of ETF rebalancing. How did you know those issues were the ones they would be dumping?
Lots of interesting ideas here from the group. Many thanks.
Question about UMBFP:
If it’s going to be called 7/15, do I only start accruing interest from 4/15, meaning it’s not accruing it now because that interest is being paid on 4/15?
LT,
Your description is how I read it, also. here is an excerpt from the prospectus:
…Dividends will be payable to holders of record of Series E Preferred Stock as they appear on our books on the applicable record date (each such date being referred to herein as a “dividend record date”), which shall be the 15th calendar day before the dividend payment date or such other record date fixed by our board of directors or a duly authorized committee of our board of directors that is not less than 15 calendar days or more than 30 calendar days before the applicable dividend payment date.
A dividend period is the period from and including a dividend payment date to, but excluding, the next dividend payment date or any earlier redemption date, except that the initial dividend period will commence on and include the original issue date of the Series E Preferred Stock and will end on and exclude the first dividend payment date….
Well it’s a preferred, there’s no interest to accrue.
Unless I’m missing something about what you’re asking?
While an important distinction – interest vs dividends, I think the gist of the question is when the issue starts accruing again.
Payment date to payment date seems to be almost universally true.
Ex date only references who will get the upcoming payment. I think, technically, UMBFP is still accruing the upcoming payment, and accrual for the next payment starts AFTER that payment is made.
However, for purposes of YTC and YTM calculations, I think it is important to add in the extra 15 days you will not have that money available for trading. On the other hand, in 15 days, the issue will have risen back above 25, so there is always that to consider.
Mark,
I’m still not clear. It went ex a few days back. That payment is Ap 15. If it’s called on 7/15, would I receive dividends only from April 15, or from the date it went ex? This has been discussed but I’m not clear and it makes a diff in YTC
I think I concluded I’d been running a big preferred arb book for years and calculating it incorrectly, though i made money. None of those was ever called,
Said another way, YES, UMBFP will not begin to accrue again on its dividend until 4/15. So to calculate an accurate YTC during this period between now and 7/15/25 you should ADD to your purchase price (instead of subtract) the amount of accrued you WON’T be getting before calculating…. For example, I bot some today at 24.86. To calculate YTC, at least in the Fido calculator, you should add probably .063 + 24.86 = 24.923 to figure actual YTC, with .063 being 13 days worth of accrued not received. I still come up with an inexplicably high YTC of 8.092%. Without doing this, you would come up with a YTC of 8.996% @ 24.86.
Okay 2WR, I feel like I might be taking crazy pills here, one of us is totally missing the boat here with the calculations so show me where I’m wrong.
You buy UMBFP today, 4/1, at $24.86.
The call notice goes out.
On 7/15, you receive $25.4375.
The IRR (or YTC if you’d prefer to think of it that way) is 8.31%, because you neither pay nor receive anything accrued nor is there an additional 15-day dividend payment along the way.
(Nice trade getting it for $24.86 btw)
I suppose the only answer I can provide is that the most important point to keep in mind is consistency in assumptions…. As long as you’re always consistent with your input, the answer you come up with will give you the relative comparison you need to evaluate vs alternative investments. Or, in other words, you don’t say how or where you come up with an IRR of 8.31 so I can’t figure out why our results differ… And in a case like these dealing with short time spans, very slight little assumption differences can make outsized differences in results. Either way, 8.31% or 8.092%, I find it pretty difficult to come up with a better risk adjusted yield for a short term issue of practically investment grade quality. And I just don’t feel terribly uncomfortable with the consequences should this one end up remaining outstanding after 7/15.
OC-
I agree- I don’t see how the cost increases because there is accrued that I can’t receive. What if you bought it a month or more earlier- have to add that in too? You’d have a really high cost. Looks like 14¢ cap gain + .4375 div
But, WDIK
Again, what you do has to do with how to compensate for the assumptions that are built into a proper bond calculator… I am incapable of arguing about what’s built into a calculation done via spreadsheet or the like which comes up with IRR, but a bond calculator assumes that you are accruing interest or dividend every day… When X-div leaves you in a position that you will not be accruing every day, you have to make the calculator realize that special situation…. So since in this case, given the calculator believes you’re getting .00486 cents you won’t be getting for 13 days up to 7/15, the only way I know to compensate for that is to ADD the accrued you’re not getting to the price you’re actually paying…. Now the calculator will believe you’re getting the amount of accrued you actually will receive on 7/15
BTW, I’m simplifying for illustrative purposes, not incorporating the added wrinkle of the 360 day year assumption
Restating what I think 2WR is saying: He’s not making any claim about what is “right”. He’s saying that if you do what he says, the Fidelity bond calculator can be tricked into producing the right answer for a preferred stock.
The bond calculator is actually doing more work behind the scenes than most people think. Among other things, it’s calculating the accrued interest and assuming you will be paying it to the seller. And importantly, when it calculates the IRR, it’s _not_ using price of the bond you enter as the initial outflow. Instead, it’s using the price plus the phantom accrued interest—which you aren’t actually paying.
His method tries to correct for this. Personally, I’m not sure it gets it exactly right. I worry that the basis for the purchase ends up off, and thus the IRR it reports is also slightly off. I’m not sure it’s actually possible to get a hard coded bond calculator to produce exactly the right answer for a preferred stock that trades dirty and has an ex-div date. But his approach clearly produces a closer answer with that calculator than making no correction, or worse, adjusting in the other direction based simply on logic.
2wr and Nathan Kurz,
Thanks for this. I’ll add the .06 to the 24.95 I paid and I still end up close to 7%.. Yep, this is like me buying 25,000 shares of a $5 stock 1c below the deal price on the final day of the merger and waiting a few days for it to settle. Nice % but little actual cash. I suppose this is why banks offer promo rates for short term CD”s…it’s just a small cost to acquire an account.
It cost Mountain America CU perhaps .5% to sell me the 18 month 5% cd’s.
It’s a small cost to get a new member.
Amazing to see all the discussion of UMBFP YTC.
Here is how I look at YTC.
Between now and 7/15 is 104 days.
The dividend paid on 7/15 will be $0.4375
Based on what I paid plus the dividend is the money I gained.
I would have 25.4375 on 7/15.
If I put 24.86 in a savings bank today and withdrew it on 7/15 I would need to find a savings account that paid interest of 8.1529%. To me that’s what I need to know when thinking of YTC. For me YTC is 8.1529%.
If I counted days wrong and its 103 days then it would be 8.232%
Everyone’s calculations are close enough for practical purposes unless I was investing millions. LOL
Interestingly, with such a short holding period the YTC changes significantly based on the buy price. In my case I paid 25.21 so my YTC is only 3.6% if I bought today but actually I received the 3/15 dividend so I’m doing ok.
danzeb, I have a similar view – I have to compare to what a CD would pay me. So I use 365 days in a year, not 360. I count 103 days from settlement day (tomorrow) to July 15.
The total received, $0.5775, is the gain of 0.14 + the $0.4375 of dividend. So prorating to a full year (365/103), I get:
(0.5775/24.86)*(365/103) = 0.0823202
Exactly what you got.
In some cases, I use 360 days, such as when calculating a partial dividend amount as for SPNT-B or for the accrued amount of a bond. SPNT-B’s prospectus conveys that 360 days (and 30 day months) are used for a partial dividend calculation. But once I have that partial dividend amount, I still use 365 days for the YTC.
I do all in an XLS spreadsheet.
FWIW, a non subscription version of MS Office can be bought at a very reasonable price at stacksocial.com
I have enough CIM-D but recent action looks like an opportunity for a buy and flip. If that doesn’t work dividend is around 10%. Missed yesterday when it dropped to 23 but 23.48 still looks good to me. DYODD. Dividend was paid 3/30 so next one isn’t until June. If anyone knows of a problem with CIM I’d like to hear it.
i added a bit this morning
dan, Long time holder of the various old time floating CIM’s that have the Float pegged to 3 Month Term SOFR PLUS.
Current SOFR peg rate is 4.288% , and has been in that area since mid December’s back -up to the 4.40~4.50% area. Same move in the 10yr has been a big yld drop from the 4.50% area to March 31 at 4.20%.
Should the 3month SOFR stay in this area, and the curve stays flat I am a holder.
Anyone using Etrade get paid for CIM-B OR D so far? Slow there.