Well the ‘goldilocks’ market continues for income investors—interest rates moving in a 7-8 basis point range. Of course the non-goldilocks part of this market is the never ending search for something to buy with cash that becomes available when issues are redeemed.
Even with interest rates much higher than a year ago it seems no matter where new issues price – lower and lower–many times for pure crap, but there are plenty of buyers waiting. Massive amounts of money continue to slosh around as the Fed insists on buying bonds and mortgage securities–they will be forced to taper these purchases soon. Banks are so loaded with cash they are sending it back to the Fed with Reverse Repos (reverse repurchase agreements). So let me get this right–the Fed buys $120 billion a month in securities and gives cash to banks and other holders–then the banks have too much cash so they turn around and do overnight reverse repos with the Fed–what a silly, silly loop this is.
Oh well–so be it–we are all doing well until we aren’t. Something will ‘break’ sooner or later, but until that time—-
One issue I added this past week in a overweight position is the 5.375% DTE Energy subordinated notes (DTJ) which becomes callable on 6/1/2021. The issue went ex-dividend on 5/15/2021 and is trading around $25-$25.08. Even if called right away there is little monetary call risk–and if we are lucky it will stay outstanding for a few quarters. By the way this is not my idea–it has been talked about by Gridbird and many others for days and weeks on this website–that is what the site is about – ideas – now more than ever.
The other issue I have been in and out of a few times recently is the Armour Residential REIT 7% perpetual(ARR-C) monthly payor. The issue traded up to $25.40 a week ago so I exited with a nice gain–then after ex date I went back in around $25.10 and I see it is back to the $25.35 area already. While not the highest coupon mortgage REIT preferred I like the 14.6 cent monthly dividend – I love virtually all monthly payors–just evens out the income stream.
Another monthly payor I have had for quite some time are 2 issues from Puerto Rican bank First Bancorp (FBP). This is the ‘dicey’ Puerto Rico based banking company–I rate their financials a C now – but I had them rated a D. They have 5 monthly paying preferreds outstanding, but they are relatively illiquid–tough to buy at a favorable rate. I held the 7.00% FRPRL issue and the 7.125% FRPRP issue–but have moved out now. The company announced a $300 million stock buyback in April which may include (per their press release) the redemption of the preferred shares of which there are about 1.4 million shares outstanding. The company press release announcing the potential preferred stock buyback can be read here.
It looks like CEF Priority Income Fund (not exchange listed, but I use PRIF in the database for sorting purposes) is going into a cycle of ‘refinancing’ there term preferreds. I had owned the 6.25% PRIF-B term preferred for quite a while, but lost it to redemption 2 weeks ago. The company has recently issued a 6% term preferred (PRIF-H) and I see they have filed a registration statement for the next issue which will be PRIF-I. The company must maintain a 200% asset coverage ratio since they are a closed end fund (CEF) and they are just shy of 300% at this time. I went into the 6.25% PRIF-G term preferred which has 21 months of call protection.
As folks have noted in their comments Assured Guaranty Holdings (AGO) priced a new $500 million issue of notes this past week with a 10 year maturity and a 3.15% coupon. Surprisingly the 3 different baby bonds the company has outstanding only moved lower by 2-4%–they are here. These have coupons as high as 6 7/8% with maturities in the next century. Even with the set back in prices issues are all contain at least 3% monetary call risk–to as high as 6%. The company has not proclaimed they will call the baby bonds for sure (mentioned as ‘may’ call)–but given their 5.60% to 6.25% coupons it would seem like it is a no brainer. The note issue prospectus is here.