Surprisingly Orderly Markets

While stocks are off by a percent and REITs and Utilities are off by more than a percent this seems like a surprising orderly sell-off in light of the movement of the 10 year treasury moving higher by 8 basis points.  It helps that the talking heads are spewing garbage every moment about “skyrocketing interest rates”.  We all know what skyrocketing rates are and 8 or ever 12 basis points don’t qualify.

The average preferred and baby bond is off by 7-8 cents which is orderly and as we have mentioned 100 times before investors barely notice the loss of capital from their accounts at this rate, but over time you do lose a percent or two from your capital.  At a slow pace of rate movement higher dividends and interest payments tend to mask the capital losses.

As rates move higher we are keeping our eyes on term preferreds and baby bonds for any move to $25 or even lower.  At that point most of these issues would be great low stress positions (assuming they do go broke–so the RAIT issues should be avoided by most).  If a conservative investor can lock in 6-7% for a 1 or 2 year period it would likely be good timing for at maturity there may be some much better yields available assuming interest rates continue to move higher.

3 thoughts on “Surprisingly Orderly Markets”

  1. Tim, since you mention RAIT, do you have a sense they are facing BK? I’m holding RFT in several accounts. Thank you

    1. Hi Dan–RAIT is one to stay away from (common and preferreds). They have just 140 million of equity left in the company which means that they “theoretically” can cover all the debt and some of the preferreds (with 0 left for common holders). This is from the last 10-Q. The equity is 30 million lower than last quarter–so in a few quarter they won’t have equity. I suspect they won’t pay the next preferred dividend which would be 6/30/2018–the cash drain of paying preferreds is pretty huge.

      I guess I would exit if I held the debt–but of course I don’t like much risk. Look for a long and wild ride I think–could take a few years to work through it all.

      There was a time 6-12 months ago that I thought they would work through it–most REITs do, but now it is questionable.

  2. Thank you for your perspective, Tim. I meant to say I’m holding the baby bond, RFTA. Thought it would make it through to the call date in a year or so, but will definitely look at exiting before that while minimizing the damage. I appreciate your market updates and commentary very much.
    Thanks again. Dan

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