Well interest rates are drifting lower with the 10 year treasury trading right around 4.25%–which if maintained through tomorrow would be the lowest close since mid March. Of course with the personal consumption expenditure (PCE) being released tomorrow things can change quick-BUT I am going to make an assumption that the numbers will be relatively tame.
So the slow drift lower in interest rates gives me a BIT more confidence that we may be on a path to lower rates—but still without a budget from congress I have questions—without a reasonable budget (and I am not even sure what that means anymore) rates could easily move higher.
So if I am going to buy another perpetual preferred, and I am (next week), I will have to stick to high quality. At least if I get stuck in it for a long period at least I know the company will be solvent. So I will be working off ‘Quality Issues‘ list and looking for at least a 6.50% current yield–so my pickings are slim really as I own most of the list already.
Additionally my buy will be modest—I would rather leg in to a position slowly over a couple months than get the absolute lowest price. If one has to pay a dime more in a few weeks so be it.
Portfolios are nicely green today and I am looking for a relatively nice bump higher on Monday as June 30 is the one of the biggest dividend/interest days of the year for my portfolio.
In regards to the “Quality Issues” list I notice that many of these long dated BB/preferreds are trading at about the same yields as the preferreds of the largest SIFI banks such as BAC, MS, STT etc. What would be a reason to prefer these smaller issuers given no yield advantage? Diversification?
while your analysis requires an observation across credit ratings, my understanding is that the fundamental pricing here is due to convexity/optionality. e.g. old low coupon MBS have lower current yield than new high coupon MBS but the old ones are more convex, while the new ones price the optionality higher (bigger upside vs sooner call-which-is-priced-high). I’d be happy to be corrected