Weekend This and That

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.

8 thoughts on “Weekend This and That”

  1. Sold a portion of my large holding of REIT preferreds. Mostly those recently moving above par, not much price upside left. Sitting on some cash waiting for opportunity to strike.
    Tim, I held on to ARR-C. I’m closer to buying more than selling it. 7% sure beats what the old stalwarts NLY and AGNC are now paying.

  2. https://youtu.be/cbI31x3FpS0
    Remy: Dogecoin Rap
    LYRICS:
    Coming up: Bad news for savers as even those with high interest savings accounts
    are seeing their money disappear thanks to inflation
    But first, we’ll detail every possible thing you could die from

    He’s a rational investor, dividend digestor
    Saves some of his paycheck just like all his ancestors
    Him looking for high yields? That’s never the case
    He’s seeking six percent returns, Slow and steady wins the race!

    But when he checks his accounts just to see what they’re fielding
    It’s like driving in Maryland—ain’t nobody yielding
    What is he to do? He shouldn’t be in a drought
    So he visits his advisor just to sort it all out

    Inflation’s higher than your bond rates
    That’s what I was fearing
    And so your savings account is slowly disappearing
    And your CD’s are pointless
    That’s not very funny
    What would you like me to do?
    Put it all in dog money

    Dog money, dog money, dog money, dog money
    I’m trading it in for dog money
    Dog money, dog money, dog money, dog money
    I’m putting it all in dog money

    My 401(k) is now a 401(K9)
    The sum of my net worth ain’t no longer in a straight line
    I’m making smart moves, I ain’t gonna be a pun
    I sold my IRA and bought an NFT of one

    All in on doge, I dish ’em out like a Tommy gun
    You’d think I was statehood the way I’m passing on Washingtons
    I feel like Matt Gaetz, you know what I mean?
    Assuring everybody it’s above 18

    It’s a modern day gold rush, the prices’ll boom
    Like Reggie White vs. the Oilers I’m heading straight to the moon
    My broker’s calling? You KNOW that it’s on
    Buy dog money don’t stop ’til it’s dawn

    One more air base, two more museums
    Three more walls, four more Supremes
    Five more stadiums—we’re all out of fiat?
    Can you take trillions of these and go and make a Xerox?

    We pay our debts in our currency, that might be unfurled
    If it’s no longer the reserve currency of the world
    Confidence in the dollar is permanent, just ask any scholar!
    People are exchanging their dollars for dog money
    Dog money?
    Dog money
    Dog money…

    We’re trading it in for dog money!
    Dog money, dog money, dog money, dog money
    I’m putting it all in dog money

  3. I’m really struggling to find anything to buy. It’s not like 2020 where you could literally borrow as much money as you wanted at 2-3% and buy almost anything with a guarantee to make more than the borrow cost. Now you can still borrow the same money for the same price, but there’s nothing to buy.

      1. David, the base rate on 5 year TIPS closed yesterday (5/21) @ -1.82%. Inflation will have to be greater than 1.82%/year for you to make a penny. Contrast that the 5 year US Treasury rate of +0.82%. So inflation is >2.64%, TIPS will win. If it is less than 2.64%, you would be better off buying a 5 year UST.

        So place your bet on how inflation will turn out . . .

    1. DD: The only year I remember like 2020 was 1999. Any and everything you bought just went up. The problem then was broker trade fees were “discounted” at $39.99 at Charles Schwab, so you got hammered on the round-trip.
      Feels like time to ease the greed, increase the fear, and lower expectations.

      1. >>>>Feels like time to ease the greed, increase the fear, and lower expectations.
        Hear, hear! Couldn’t agree more.

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