The Party Continues with Interest Rates Continuing Higher

It is amazing how fast these markets change–we go from ‘the world is going to end’ to ‘everything in the world is good’ in the blink of an eye.

With common stocks up 1% this morning the 10 year treasury is moving higher–just like it is supposed to work. The 10 year treasury is up 3-4 basis points to the 1.64% area. Energy markets are in sync as well with crude up $1.50/barrel.

The new preferred from giant mREIT AGNC Investment (AGNC) is trading now under the OTC Temporary ticker AINGZ and is around $24.99–it has thus far traded in about a 5 cent range. As Bob-in-DE points out whether to buy the new issue or go with one of the older outstanding issues is kind of a toss up. The YTC on the new issue is better, but the current yield is worse. Bob attached a little Google sheet to his comment which can be seen here.

Qniform is targeting some of the debt issues of junky–even bankrupt companies and you can follow some of his comments over on the Reader Initiated Alerts section. I had been looking at the Atlas Financial baby bonds last weekend and at $6.50 there is a decent risk/reward if these get paid off at $25.00–I bought a very small taste. I am not advocating others follow–this has little to do with income investing–more like going to Las Vegas.

Fabrib noted that NuStar Energy (NS) reported earnings today--they are pretty decent. Of course NS is a MLP so if you hate K-1’s this isn’t for you, but they have some high yield preferreds for those with a little appetite for risk–you can see them here.

We are still awaiting details on the new Oxford Lane term preferred issue–I suspect it will be out after market close today. The older issue OXLCO 7.50% term preferred issue is off 42 cents and trading at $25.24–folks are awaiting news on how much of this older issue will be redeemed with the proceeds of the new issue.

Since the party is continuing you would expect maybe $25/share preferreds and baby bonds would be up–in spite of higher interest rates–and you would be correct–the average share is up 4 cents this morning.

10 thoughts on “The Party Continues with Interest Rates Continuing Higher”

  1. I am rather fully invested in the market but this party is bad news. We have swung down 3 times to the 1.5% level and back to the 1.9% twice. All in less than a year. Last 2 days, we are moving way too fast and may find ourselves back at 1.9% soon.

    IMHO, this is not a staple market. As far as I am concerned, the more this goes on, the greater the risk is

  2. Opinions aren’t worth much, but I’m beginning to feel shades of 99′. Now, whether it’s early 98 or late 99, or I’m way off, I don’t know. If you’ve read GMO’s recent couple of pieces, the disparity in valuations (Value/Growth, US/EM, etc) hearkens back to that time. They had a great chart that went back to 1900 that looked at periods of time (7-13 years) when a 60/40 portfolio was basically flat/negative on a real basis. In short, there are more of these periods than you’d probably thought (6) and they happened when beginning CAPE ratios were high (22+) OR real treasury yields were negative. Today, we have both.

  3. I saw over on SA this morning an article on AGNC that at one point they cut their dividend of their common. So if that is correct it would give me the feeling that they wouldn’t hesitate to not pay this new issue if the situation arose. Now having said all that I will totally and freely say I have never even heard of this company. On another Johnny Cochran “Side Bar” I have noticed that just recently there are alot of new issues coming out from companies I have never even heard of. Now before all the criticism comes in keep in mind that I have been buying bonds and preferreds now for “decades & decades”. But I try to find and buy companies that are somewhat more “mainstream” types of companies.

    1. Billions are made on dealing with debt related to real estate. I would consider MREITs as mainstream investments, and have been around for many decades. Are they highly conservative investments, risk adverse, protection of investment capital, etc, is another question.

    2. When a common div gets cut there’s more left for the preferreds. Many a company has been slow to adjust dividends downward on a slow down in cash flow.

      Mreits are a game of leverage. Their balance sheets defying simple analysis. You spread your risks and hope for the best

      1. Also, AGNC pays over a billion dollars in common dividends a year that would have to be cut first before any preferreds could be cut. That’s a lot of protection for the preferreds.

  4. On the choice of the various AGNC preferred, it’s not only about current yield and YTC, but likelihood of a call, as well as your view on future LIBOR rates. The new issue is much less likely to ever get called at 6.125%; as the stated dividend rate declines chances are higher that the issue will be perpetual, and thus carry higher duration risk. AGNCP’s YTC may be irrelevant, this issue may need to be seen as a perpetual issue. On the other hand, AGNCN at 7.0% is much more likely to be called — which may be exactly what some investors want. The YTC at Oct 22 is in the low-5% range — a call is not so bad at under 3 year hold period. If it does not get called, you benefit from L+5.11% which is the best of the group, at close to 7% based on today’s LIBOR. There is no easy answer on which is the best, it depends on your strategy. If you only care about the perpetual yield, then the new issue may be best but not so if none of the issues are ever called. If you want less duration risk, AGNCN is best — you either get called near term or you hold longer, but at a better long term floating yield than the rest (and 7% in the meantime). Ultimately I choose AGNCN.

    1. You’re correct Larry–there are a lot of factors that enter into ones decision–much of it is personal opinion and some of it is years and years of experience.

  5. 30 yr mortgage quote up 1/4 to 3.5 in short order.

    If the market continues up and employment remains strong rates will push.

    1. If you prefer–I would love higher rates–AS LONG AS IT IS A SLOW MOVE HIGHER–speed kills.

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