Well yesterday was a pretty ugly day all around–it was difficult to fully escape the carnage if you are invested in any part of stock and bond markets. I don’t like to take 1/2% portfolio losses–but facts are facts and one needs to focus on the longer term–not on 1 day.
Yesterday the JOLTs (job openings and labor turnover) report pretty much shocked a bit of reality into investors – 9.6 million job openings against an expectation of 8.8 million is not exactly comforting for those looking everywhere and anywhere for softening economic numbers.
I have said day after day I am sitting on my hands—BUT I had 4 good til canceled orders out there and was quite surprised that one of them executed yesterday. I added to my largest position of XAI Octagon Floating Rate & Alternate Income Term Trust 6.50% term preferred (XFLT-A). The term preferred took a tumble yesterday and a buy order executed @$24.25. The issue has a mandatory redemption on 3/31/2026—current yield to maturity around 7.8%. Given my overweight in this issue I will be unable to buy more of this issue.
Well we have economic news coming shorting–and now that we have seen the 10 year treasury trade up in the mid 4.8%s everything will be parsed even more closely.
The current 10 year treasury yield has backed off from the 4.84% area earlier this morning to 4.77% now – we will see how long that lasts.
Go for low. Lower coupons appear to be risky, but for those who would sell. They bring the highest rewards.
I’ve been heads down at work for a bit. Pulled my head out of the sand, and had a large cash account (was WFC-Q) got redeemed on me. Woah, what the heck is going on with utilities and industrials? Holy heckola. Not sure if it is blood in the streets, but… am buying. Spent some time buying things that have escaped me (sojc, dukb, cmsc, sr-a, srea, and many more…). By the looks, am i the only one buying? Deep in the 6% and several 7% notes and preferreds. Hmm need to look at portfolio. But if I make > 6% over my lifetime, i would consider that good for me. Might need to do some adjustments this weekend.
Today I was reminded of the UK Consol which was a perpetuity issued in ~1750s and was finally called in 2016. Coupon was 3.5%. Of course this was denominated in Sterling. To me it is remarkable that they had 3.5% coupon perpetual bonds issued by the then superpower and in currency that was backed by silver in the 1750s.
What is most interesting about these bonds is the length of time they were around. Here is a chart from the St Louis Fed showing the yield from 1753 to 2016 over time.
https://fred.stlouisfed.org/series/LTCYUK
Chart puts today’s yields into historical perspective – it is helpful to make comparisons to US Revolutionary War, 1812, WW1, WW2 and the period from 1950 to 1980. The ’50-’80 (30 year Bond Bear Market!!!) period aside, relative to history, a 5%-6% yield is a great yield.
It is also noteworthy that peak to trough moves in interest rates take a very long time. I don’t expect to see a long term trough again in my lifetime and I don’t expect to see a long term peak again in my lifetime either.
For what it’s worth – when I see this chart in light of today’s rates I feel that a AA+ sovereign US bond with 5%+ yield (US Treasury) 6%+ yield (like an MBS bond) is a great deal and I want to buy 10 year duration (or close as possible). I like a ~7% callable yield on AA+ sovereign (agency) debt as well. I think one is getting paid for the call risk. For me the strategy is to buy a mix accepting prepayment and call risk on a portion of the portfolio. Sadly, we also have to face downgrade risk as well, but downgrade risk aside – 10 year Treasuries and Agencies will still return par (IMO).
Personally, I like to time around Fed Meetings and I am looking to add to my agency and possibly Treasury Note FI portfolio.
FWIW
Had many prefs mature with good gains, and bought CUSIP 13063CMA5 CA Muni for a 5% return. 18 months ago, I would have never thought about getting 5% tax-free without leverage.
Have about 50% of portfolio in CDs and treasuries for safety balancing but could not resist using up some dry powder to add to positions in Prudential (PRH) and Spire (SR.A). Lots of things near 52 week lows and temptations are getting the better of me.
Can someone explain the rationale behind why bacpl and wfcpl get taken to the woodshed when rates rise and most of my other preferreds don’t move all that much….I know those two are what they call busted preferreds but why do they act so differently…thanks…
craig – give an example of your other preferreds so as to make a comparison… The simple answer on these two are that they are fixed rate perpetuals so when interest rates are rising, there’s no way for them to adjust to the greater competition for investors than for the price to go lower…. I’ll take your word on it that the conversion feature is meaningless as I don’t follow either specifically. Right now, in general, we also seem to be in another “don’t trust the banks” cycle so that might have been exaggerating the move you’ve been seeing relative to non bank preferreds… If your other preferreds happen to be F/F, then in this environment that likelihood of higher payouts as the float rate goes up acts as a downside cushion on the share price.
Just ck BACRP !
Most of the talking heads are starting to conclude that rising real rates are pushing up nominal rates. Some brave souls are even suggesting that the rise in real rates is due to deficits and the Treasury’s relentless schedule for selling more government debt. One interesting observation: in the past (? Years) a real rate of 2.3-2.4% would be considered average.
For the $$$ maturing for me this past weekend, I chickened out with treasuries maturing in April and got a 5.51% YTM. I did take some excess funds and bought SGOV. Super-conservative here with all the “noise” in the markets and the world.
I had a gtc order for the TY preferred fill at $45.
TY- not TY
I’ve been picking up GAM-B for 24.50 and below. Not quite as safe at TY- but pretty darn safe and yielding a little more. Plus they have a buyback policy when it is under 24.95 so it should recover to par as the interest rate spike moderates.
I joined you and Chuck , am back in LBRDP and MGR as of yesterday, also a little more of the junk utes SCE PL and PCG A & B
Some of this is going to be for flipping ( hopefully) over the next few months as I am overweight in the SCE PL
I have been making some decent capital gains in my taxable accounts, so I sold a big slug of LBRDP about a week ago in the $22.xx range to do some tax loss harvesting. Put the money into treasuries that mature in a month so i can re-enter (and so I don’t spend it on something else).
Really wish I could have bought back in yesterday.
Private I sold out end of July or August modest profit of 50 cents and a divy. The chart shows a gradual decline this past 8 months. Lower highs and lower lows. Where it stops no one knows. I sold for 3 reasons, it’s cable, fixed preferred and not sure if it gets called in my lifetime. 2 out of the 3 reasons I sold MGR and bought back.
I wanted to build up cash for the drop in the market I was expecting. Now see if it moves back up by end of Dec .
My crystal ball is back out of the shop but only good for 1 to 3 months into the future. Need to send it back in for service.
Similar story for me w/ All-J. A forgotten GTC limit order hit. Happy to add a high quality 7+% issue even if the timing wasn’t necessarily intentional.