Very early this morning – 6 a.m. the 10 year treasury was knocking on the door of 5% trading in the 4.98% area, before backing off and now trading at 4.94% up around 4-5 basis points on the day. I suspect it could take a few days before 5% is breached–but it seems to me it will make it (my wild ass guess).
In reviewing holdings my biggest hit yesterday was from CEF Tricontinental 5% $50 perpetual (TY-P)–down $2/share to the $42 area. Current yield was 5.9% area. That’s what happens when you hold a low coupon and somewhat illiquid preferred–forget that it may well be the highest quality preferred trading today. It is getting a nice bounce today (up $1.45). Last I checked their asset coverage ratio was 4200%–I suspect it is down to 4100% now.
When I see this kind of selling it makes me want to buy, buy, buy – I am tying my hands together after this note so I don’t do something irrational. Why buy at $43 when it might be $38 next month.
Today we got a number of economic pieces of news. 1st time jobless claims tumbled again–under 200,000 at 198,000–expectation was for 210,000–ugh–still looks strong. On the otherhand we had Leading Economic Indicators (LEI) come in at a -.7 softer than the -.5 expected. Existing home sales came in stronger than expected. So cross currents continue.
On top of the economic news we have way too many Fed yakkers today including Chair Powell in an hour–so we will see if these people move markets.
I have quite a few callable agencies in my portfolio. What is interesting is that my 10 year 5.6% coupon issues still have a higher coupon than the 10year.
When I purchased them I thought for sure they would get called by now.
Looks less likely by the day.
I added 50 more shares of the TY preferred to my fixed income account at $43.50. I can resist anything but temptation.
Jersey,
That purchase will pay approx 5.75% on the money spent. I realize TY- is very safe. I know it is not fully QDI but probably close. It is definitely a sleep well at night purchase.
But goodness gracious. Only 5.75% in this current environment? There are so many other ridiculously safe purchases out there which can easily get at least 6% with some almost touching 7%.
Don’t you think you are being a touch too conservative? TY- is probably a classic case of an illiquid preferred defying gravity because most owners just sit on it. The average volume appears to be less than 1000 shares per day.
GDV-K is 6.3% and mostly QDI like TY-.
Some PSA preferred are hitting 6.75% now.
ALL-J will pay you more then 7% fully QDI.
Frankly.. if it does not pay greater then 6% I do not even bother with it. BB, preferred, or whatever.
fc,
Actually, GDVprK is the other issue I’ve been accumulating. Not concerned with qualified or not as most of our preferreds are in IRAs.
10yr just hit 5.001%
October 19 is the anniversary of the 1987 Black Monday crash and time for business writers to walk down Memory Lane. According to The Telegraph UK, my go-to site for financial doom and gloom, a crash could happen again, Columnists Matthew Lynn and Roger Bootle take the lead with Black Monday articles. Nominally about Britain, the articles also discuss the US. IMHO, they are good reading if you’ve forgotten Black Monday 1987 and its 22% one day stock market plunge – or if you were born after it.
Graphic Content Warning: The Telegraph UK is chock full of alarming headlines. Words like “cataclysm”, “geopolitical chaos”, “teetering on the edge of the abyss”, “Middle East firestorm,” “trouble ahead”, “overcast outlook” etc. fill the headlines. (We all have our fears. Mine is getting stuck between floors in an elevator with Nouriel Roubini and The Telegraph UK’s business columnists.)
You should be able to access these stories. There are a few free articles before before you hit the paywall. Happy reading.
Why Britain is on the verge of a cataclysmic financial crisis
Worrying parallels emerge between 1987’s stock market crash and 2023’s bond sell-off
https://www.telegraph.co.uk/business/2023/10/08/britain-heading-another-black-monday-stock-market-crash/
Middle East conflict threatens to trigger another Black Monday
https://www.telegraph.co.uk/business/2023/10/15/middle-east-conflict-black-monday-bonds-stock-market/
Just my opinion. DYODD.
BearNJ–I remember exactly where I was on crash day. I held a pot load of puts which I unloaded the previous Friday which was a down day.
Ha, I do too, Tim… and I also had some puts but I unfortunately learned a very expensive lesson about the options market and limit orders that day. I put in my order to sell early knowing I had a huge profit but I, with extreme cockiness, put in a market order… They ripped my lungs out on execution…. Here I was feeling so smart for having puts on the most opportune day in my lifetime then quickly that turned to feeling so dumb for allowing such crappy execution… Still made money but boy I left multiples on the table because of my naivete at the time..
LOL, that was a strange day. I wasn’t sure what was happening. Whatever it was seemed very bad — one of our company’s major shareholders, a genuinely decent guy and a European multi-millionaire, was literally wandering around the halls looking like he had been struck by lightning. When I asked a senior exec what was wrong with him (I thought he was ill), they said he’d just lost 20% of his money. So, let’s buy the dip!
Brokers back then dealt by phone and no one was picking up. When I got a call through I impulsively said, “buy call options on IBM”, which sounded brilliant at the time. Whatever I bought expired worthless much like my pick-5 lottery tickets. I had no clue then about strike prices or expiration dates.
I was in Tucson AZ in an apartment that cost $255/month. It had shag carpet.
I lost 20% of my assets – $1,000. I thought it was a disaster.
TLT ~ Hit intraday low of $82.91 ~ lowest in 17 years!
I actually bought 1 share at $82.77 yesterday just to keep it front-and-center in my trading account. I still think we could breach under 80 before things turn. You can sell the January $80 strike put for $230. That might be a nice play. Greater that annualized 11% return or, another way to look at it, you own TLT at $77.70 if it goes below 80 then. I have been watching it very closely. Of course, if rates run away, a TLT of 65 might be possible! Wild times.
TLT has a 3.5%+ dividend. If you are short Jan24 $80 PUT, don’t you have to pay the dividend?
dividend is baked into the put price, unlike a short position.
No. Selling a naked or cash covered put is no different than essentially placing a limit buy order at specific or lower than current market price. No obligation whatsoever for paying out dividends regardless of how long the contracts live for.
Where some people run into problems with put writing is position sizing or they start chasing premium and stocks they’d have no interest buying or holding otherwise or just selling too many contracts for underlying shares their account can’t support.
Will we test 9% 30yr mortgages the by year end???
* 30yr Fixed Jumbo ~ up 8.09% today
* 30yr Fixed ~ up 8.03% today
I noted that the conforming 30 year crossed 8% on Tuesday. I don’t care what anybody says – 8% is a high conforming mortgage rate.
From an investor’s standpoint the yields are great, problem is the get better every single day.
At the end of the day this bear steepening is healthy as term premium returns to the treasury curve, but it sure is painful.
I’m 64 and re-fied my home 2 years ago at 3.000% cash-out for 80% LTV just because I thought I could make more money on that cash elsewhere. You couldn’t get me to pay an extra penny principal on it now. People thought I was nuts – it was one of my best business decision ever! To get the same loan today at 8%, it would be almost 2x the payment.
I noticed that the Capital One (COF) preferreds are really getting stomped this month.
COF-J, for example, is now yielding 7.7%. I think of Capital One as in the too big to fail class of large financial companies.
Anyone tempted?
Watch this video. He gives a good explanation of what is happening with banks.
https://www.youtube.com/watch?v=hhV0WtE8jDo
Justin:
Thanks for link….great stuff. Chris Whalen is the best banking analyst on the planet.
Thanks for posting this informative video. Answers many of my questions about the current banking outlook. Such a pleasure to hear a banking analyst answer questions with facts and references to substantiate his opinions.
I agree one of the best banking analysts out there.
Jostin. Thank you for posting this. Very good insight on banking and of course this is what he follows and invests in. His comment about being in banking preferred right now instead of the common is what everyone here has been investing in. The observation that regional banks that do more development and construction loans are going to be in better shape than banks holding mortgages because one is longer term and the other is mostly short term.
Very nice video – thanks! I have some JPM short term bonds, GS 2028 bonds and MS.PR.E preferreds (I do have a few LNC preferreds too). I’m sticking with positions in very large banks for now and not out-sized positions. I sold off all my WFC positions earlier this year.
Yes, donocash. I like it here. Thanks for the reminder.
I have more faith in capital one vs some of the regional banks which trade at similar yields.
donocash–I am tempted on many items–but my hands are tied behind my back waiting for even better values (famous last words before they spin and shoot higher).
COF-L the 4.375% made new lows and is yielding 7.7%+ , not callable till Sep 2026. So nibbled a bit here and assuming ^TNX is lower next 2 years, aim to sell it higher. In the meantime aim to earn the nice yields
Bought some. Thank you all. Looks like good value for preferred. Getting ready for Winter and write-offs?