Tuesday Morning Kickoff

Well if we can all kick off the cobwebs of a long week-end it is time to get ready for the next 4 days, which will fly by quickly. We will see if interest rates stabilize in the 2.30% area and if the SP500 can get its footing right in the 2826 area or if it will continue to move lower.

Last week the 10 year treasury moved as low as 2.29% and was as high as 2.44% before closing out the week on the lower end at 2.32%. The SP500 traded in a range of 2805 to a high of 2868 before closing the week at 2826 down around 1% on the week.

The Fed balance sheet fell by a strong $14 billion last week to be at $3.86 trillion. Last week the balance sheet had fallen by $28 billion.

The average $25/share preferred stock and baby bond ended the week at $24.85 which is a move higher of 2 cents last week–this gives us a change in the last 3 weeks of 2 cents–as we had mentioned before the average issue is pretty quiet. The days of easy quick flips and dividend captures are behind us for now–but they will return at some point in the future.

We note that Public Storage called for redemption the PSA-Z 6% issue last week. The next PSA issue–which they WILL call (based on current interest rates) will be the PSA-A 5.875% issue which becomes redeemable on 12/2/2019. You can see this one here–and if I owned it I would sell it now–it is trading now at $25.69–in the next 6 months if it is called it has just 1% of upside (total return) to the end of the year. If desired the company can issue at 5.50% right now.

Eagle Point Credit (NASDAQ:ECC) also announced early redemption of 1/2 of the ECCA 7.75% term preferred issue. The share price fell from the $25.60 area to $25.35 or so. With a potential full call always possible we should see this issue stay in the $25.30 area for the foreseeable future.

Last week we had Ladenburg Thalmann (NASDAQ:LTS) announce a new baby bond with a coupon of 7.75%. Of course the company has 3 other baby bonds outstanding and 1 monthly paying preferred outstanding–you can see the current issues outstanding here. The new issue ticker is LTSH although at this time it is trading only on the bond desk at $24.84.

TriState Capital (NASDAQ:TSC) announced a decent new preferred issue with a coupon of 6.375%. The issue raced to $26/share, before setting back to close the week at $25.52. It is trading under OTC Temp Ticker TRSXL.

Lastly we believe that the newer Algonquin Power and Utilities 6.20% baby bond will begin trading on the NYSE tomorrow as their NYSE registration was just approved a couple of days ago. It has been trading only on the “bond desk” up until now and last priced at $25.32. I believe it will trade under AQNB, although the new ticker wasn’t officially announced.

17 thoughts on “Tuesday Morning Kickoff”

  1. Tim,
    Hi, I am a loyal follower of your Innovative Income Investor. Lot of great information. Thank You.

    I am 65 and retired and depend on my fixed income portfolio for about 80% of my income. I currently have about half of the portfolio in high yield Corporate bonds with less than 5 years to maturity and the other half in BDC baby bonds (40%) and the remainder in traditional Prefs (10%). I recently read your 12/19/18 article on Reviewing Leverage Rules of CEFs (Closed End Funds). I understand and agree with why you feel BDC Prefs carry more risk than CEF Prefs. Having said that my Investment Advisor likes BDC Prefs and states that not one BDC defaulted duting the 2008 financial chaos. Therefore he feels they are very safe in the current environment. I would appreciate your view on this. Thanks
    If you would prefer that I post this on III I can do that. Just tell me where, perhaps the Morning Kickoff ? Thanks again

  2. Bothers me too, looking at various Canadian issues. Spoke with someone on the Fidelity fixed income desk last week, didn’t get clear answers, gave it up— calling in from overseas, a waste of time and money. If anyone has comprehensive insight, I will be watching this space as ever. D

    1. Thank you, A4I, have copied all, will read and (I trust) learn — another day, another (Canadian) dollar. D

  3. Steve you are right about the treaty exemption for retirement accounts so I will assume that there is withholding in non-qualified accounts

    1. I would think so. Although it is traded on the NYSE, AQN (common stock) is listed by Schwab (and other brokers I assume) as a Canadian company and their common stock rating comes from the International division.

      So, I cannot imagine not getting hit for the Canadian withholding on the issue. However, I just do not want to mislead anybody if somehow no withholding is done for taxable accounts.

    2. One nice thing for everybody to know is NO WITHHOLDING from Fidelity and Schwab in your IRA accounts. So this is a good one for IRA’s. If you do put a Canadian issue in your IRA and have the withholding, my understanding is you get no tax credit. You have flushed the withholding amount away.

    3. Jonathan,

      Make sure that you have filled out form NR301 for your non-taxable account in order to get the 15% rate versus a higher rate.

      For several quarters I was getting charged approximately 25% tax for JE-A because I had not fill this form out.

  4. Good morning, Tim. As I head out for the group golf outing, I noticed in my Vanguard account it officially changed today my Algonquin bond desk purchase last week to AQNB this morning.

    1. I have AQNA in my IRA account at Fidelity. 0% withholding. The IRA was transferred to Schwab. 0% withholding. No forms needed to be completed.

      The tax treaty between Canada and US says it should be 0% for IRA accounts. many brokerages still withhold even in IRA accounts BUT this is not the case for AQNA in both Fidelity and Schwab.

      I will defer to Gridbird. He said it was because it traded on NYSE.

      Does that mean 15% withholding in taxable accounts (if you complete the form) or 30% if you don’t. I do NOT know that answer, perhaps Gridbird or others can help

      1. Steve – thanks for posting about Schwab. I didn’t see your post before getting on the phone with them since I just bought some AQNB for my mom’s IRA.

        I was very frustrated with them for not being able to give me a definitive answer as to whether tax on AQNB would be withheld in her IRA. They said that they would not know until the first “dividend on this preferred” was paid. I corrected the rep and reminded him that this is a note not a preferred…. not that it seems to matter to them.

        They told me that DST is the custodian for this issue and I was told several months ago that DST “plays nice with the treaty” and does not withhold CN tax in an IRA….whereas other custodians do withhold for issues such as CDUTF, EBBNF, FTRSF, ERRAF, etc. in an IRA.

        I asked the rep to reach out to DTC to confirm that there will be no withholding but, again, I spoke with them before I saw your note. It will be interesting to see if the rep calls me back with confirmation from DTC that there will be no withholding….. which would mirror your experience.

        It is also interesting that the rep told me “this is a complex question.” Yikes, it doesn’t seem that complex to me or at least it shouldn’t be that complex.

        1. amazing. Very strange. This is the same type of note as AQNA. They have a history. After, I moved the IRA to Schwab, I was worried they would do withholding. They went ahead and checked other holders of AQNA to make sure they didn’t withhold.

          On my April 17th dividend ( after they told me they would not withhold), they intend did NO withhold any Canadian taxes on AQNA. So I can attest they did not for me from 1st hand experience

          1. Steve, I havent found the entire prospectus, but my assumption being USD and US exchange it is just normal interest payment with no withholding. However this is in my Roth.
            Comcerning the reset QDI preferreds…I did have FTRSF and ERRAF in tax free. TD withheld inside the Tax free…I called but not help..Another online friend called and raised holy hell. Well guess what? It got corrected and 2 weeks later I got the refund…And the latest payment was done correctly no withhold…FTRSF had no withholding and was done correctly from get go.

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