Watching the equity markets all day is painful. Each time the indexes move higher a tiny bit sellers come in–lots of folks looking for exits in particular in the tech stock.
The 10 year treasury moved sharply higher hitting 1.87%–up 10 basis points from last week. We will see a bit of pain in the income issues with this increase–hopefully not too much, but anytime we get sharp, quick moves of 10-20 basis points there is a possibility of a stampede out of income issues.
I will take no action on these days–in fact I have done almost nothing but collect dividends and interest for a couple months–I have some dry powder if an opportunity presents itself.
14 thoughts on “Truly Ugly Markets as Interest Rates Pop”
TIM…Good side , Finally some A-B rated Preferred under $25 Par. (jpm. cof. ms.) lots of junk lately ..Georges
George, I am worried those 4-4.35% preferred will be below 24 in short order. Not sure they are good buys at this time. Seems like they are well on their way to 24.50 as it is depending on the biz name strength.
HI. FC yes you right , but we keep these A-B rated stuff to term $25 .4-5 % plus 50-$1. which adds up. 5-7% return . Georges
Georges, just be aware if it matters, call date doesnt mean it will be redeemed. I can give you current tickers of A and B rated 4% issues that have been callable since the 1940s and were never redeemed. If a company cant “refi” lower or have a change in capitalization needs, they will stay outstanding.
Buying the dip earlier today did not work out by close. If 4490 breaks on the S&P500 watch out below. This week should be interesting. It is op-ex on Friday. I think this is probably one of the most critical couple of days in a while. If some bad news comes out over the next 36 hours it could get wild.
A couple of low ball orders on preferred hit today. Nothing exciting worth mentioning specifically but it does appear people are becoming more willing to sell at the bid instead of cutting the bid/ask spread in half.
FC, Are you seeing preferred weakness? My problem is I only follow areas of interest so its not representative of market. But for me, the “relative” deals were a lot better 6 weeks ago than today. I have been able to catch very modest up and down minor price swings on some bordeom trades. Like PCG preferreds for 25 cent a share amusement trades. Also have had some move up like LEVLP is doing heading towards exD.
It seems to me most havent crumbled like market has. But Im watching as volatility is good for me.
The only weakness I see are on the typical 3.9-4.35% perpetual type preferred. Like actual significant declines in price that anyone can buy all day long. Strangely some are holding up well compared to others.
Otherwise just some orders I put in daily depending on price action with quite low bids that are finally getting hits that never worked out over the last month or so. Often preferred I already own that I was not willing to pay more then I paid in the past or at least close to that. So to answer your question I do not think are weakening as a whole. Just some sellers finally unloading in a less patient way on some issues.
Grid, today the median preferred was unchanged. The median baby/term was also unchanged. My “canaries in the pref mine portfolio” actually went up +0.12%. Yesterday, the median pref went lost -0.47%. I have not seen any signs of widespread fire sales. The five biggest losers today were all troubled, suspended payout, low quality type of issues.
I have not detected an investable theme from these two days other than the obvious: if interest rates continue to rise, prefs/baby/terms are all going to lose money in general. Nothing has changed that in the last two days.
Tex, In general the only thing I have seen is some that were way, way over par, have drifted down some to just way over par. I have kind of traded some of these in their down drafts and then modest rises. For example like an SR-A, I bought it a few weeks ago in $26.80 range and flipped out shortly after in $27.20. Its way off its 52 week high and is sagging yet again despite heading into exD. I just kind of get in and out of them. And some like LEVLP a few weeks ago dropped on a volume dump and is clawing back towards exD. KTH did a recent spill. DDT dropped hard after recent exD and now recently has been bouncing in 25.80-26.20 range. ..That kind of stuff…
The key for me has not been owning the nose bleeds and buying them in the descent and exploit the subsequent mini bouncing. Things have been going well for me, but sentiment doesnt feel right and it feels like some drops are coming. Those liquid 4%-5% ish perpetual IG issues Im just totally ignoring.
….Remember 2013 Taper Tantrum? Fed was still at 0% and preferreds crashed hard in anticipation of rate hikes. 10 year raced briefly over 3% despite 0% funds rate. But back then, market thought returning to normal meant just that.
It never got there and market probably suspects it wont happen this time. Yet adjustment in pricing seems necessary…. Heck a readjustment to just a couple years ago would make a noticeable dent in the stash….And that thought is still ignoring inflation. Why cant I buy more Ibonds, lol….
REIT preferreds holding up so far and I still have a lot of dumb money trading them.
Big winner now is USO (oil) bought a few weeks ago it’s taking off after a brief dip. Didn’t mention it because it’s out of our wheelhouse. Got some in various metals too they they tend to fall in a crash before moving higher.
There is still a lot of dumb money looking to get invested by buying the dip. Not to mention IRA additions looking for investment ASAP. I can see several buying the dip actions coming over the next month. Only time will finally burn through all their cash so they become bag holders.
I put money into my wife’s IRA Jan 1st. Have not done a darn thing with it yet. I still need to do mine. No hurry. If I would have invested it in the usual ETFs I would already be in the red except maybe for GNR which I use for basic materials/energy. I would like to see the S&P500 at 4200 before I invest long term for IRA. I would want the S&P500 at 3800 for non retirement accounts to start buying again for a broad spectrum of choices.
It really seems patience is in order right now.
Like I said maybe a week ago…sure looks like the SP500 gonna hit that 200 day. Bring on the fire sale for “rate hikes that nobody saw coming”.
The “hedges” I have used (longer-term put options on HYG) have been paying off nicely during this big move higher in rates.
Junk bond yields really have only one way to go…….higher. I have found that put options on HYG provides one of the better ways to hedge an income portfolio consisting mostly of preferreds, baby bonds, and dividend paying stocks/REITs.
Good luck to all.
How far out do you go to buy the puts? 2024 or 2022?
I was thinking of buying puts on XLF since I mostly own banks.