So we have the FOMC meeting starting in a few hours, but leading on to the meeting we will have the consumer price index (CPI) released in less than an hour–the final piece to the puzzle before a interest rate hike/pause. Likely only a massive surprise (either higher or lower) will make a difference in the rate hike decision – as I have mentioned I think that the FOMC really wants to raise rates – but likely will pause. We’ll know in about 30 hours.
Markets are fairly quiet today with equities barely moving–although yesterday the S&P500 index was up about 1% – if you were to believe the pundits these markets are pretty darned overvalued and we could see a might tumble soon. Well no one knows for sure and I don’t fixate on that possibility – just like the coming ‘recession’ which never seems to arrive trying to forecast the macro movements is a fools errand and only causes one to cower in the corner and not act.
Once again I did nothing at all yesterday – no buying or selling. I am thinking that I have most of the banking issues I want/need and need to move onto a new sector. Some have suggested business development companys (BDCs) and it looks to me like that sector does hold some great opportunity–in the baby bonds not the common shares. I will be honing in on a few shares soon–without a doubt I will buy the new Capital Southwest Corp (CSWC) 7.75% baby bond when it becomes available.
https://www.globenewswire.com/news-release/2023/06/13/2687630/8276/en/Capital-Southwest-Receives-Investment-Grade-Rating-from-Fitch-Ratings.html
Capital Southwest Receives Investment Grade Rating from Fitch Ratings
Fitch assigns a first time BBB- long-term issuer rating with a stable outlook
I’m anxiously awaiting this one 2wr–plan to simply buy a full position–crossing fingers it won’t run up once trading.
Tim – I was able to submit a bid through Schwab yesterday (through a Bond Desk agent) and picked up a position for 24.95. It does not look like it is trading yet under the symbol CSWCZ. My position is current valued at $25 per share (I suspect a “place holder value) and is listed under the Cusip. Once it trades openly, that should be updated to the correct symbol. Hope it dips when it open to allow others in to get a good price!
I suppose the best comparison of recently issued BDC baby bonds would be GAINL 8’s of ’28 and SAZ 8.50% of ’28 both trading at par give or take 3 cents….. Both are also investment grade thanks to the great Egan Jones… BBB on GAINL and BBB+, ironically, on SAZ….. I bet you’re anxiously waiting for EJ’s rating on this one before making your decision, aren’t you?????? wink wink …. It probably won’t come because it seems as though nothing at EJ is ever rated higher or lower than BBB plus or minus and if a company is worthy of IG from a major rating agency or two, they ain’t gonna be paying no EJ for its opinion… lol.
I think there is good opportunity in certain MReit preferred’s. Specifically, I like EFC-PA. Ellington has been a long time and seen every market. It floats in October 2024, has a spread of 520 bps. It trades around $21.50 and should converge near par when it resets.
FWIW – To generalize, most floating rate issues with coupon due 3/15. 6/15 9/15, and 12/15 will reset for the very last time off of today’s 3 month LIBOR rate. CNBC shows that rate to be 5.552%. SOFR is 5.05 I believe, so it looks as though SOFR + .2616 that will become the standard after 6/30 will be giving issuers about a 25 basis point gift in lower rate.
Those holding CUBI preferreds, do you agree their float rate will be determined tomorrow not today?
I looked up three month term SOFR at cmegroup.com and it is shown as 5.25432%. If so, then it is fairly close to 3 month LIBOR when the .2616 adjustment is included.
https://www.newyorkfed.org/markets/reference-rates/sofr and https://sofracademy.com/current-sofr-rates/ both seem to confirm 5.05%.
and from cmegroup – https://www.cmegroup.com/market-data/cme-group-benchmark-administration/term-sofr.html
Texpaul – If I’m reading cmegroup’s chart correctly, I suspect the rate you’re looking at is a futures rate.. looking across the chart I posted, they show the actual overnight SOFR rate as 5.05%. I think, not entirely sure, to calculate 3 month LIBOR replacement rate you’re supposed to add .2616 to that base rate.