Well let’s get this party rolling!!
Last week the S&P500 was off by almost 1% from the close the previous Friday, although it felt more positive than the facts. The Dow Jones Industrial Average had some rather sharp movements capped off by a rise of over 600 points on Friday.
This morning equity futures are showing a strong start to the week with indexes up about 1/2%–we all know this can change quickly.
The 10 year treasury closed the week at 4.20% which was off 3 basis points on the week. The yield ranged from 4.19% to 4.29% on the week which is a pretty darned tight range. We had some important economic news including the PCE, which was taken as positive by the equity markets, although we had a strong GDP report released for the 2nd quarter which shows the economy may be slowing but obviously not ‘falling off a cliff’.
This week we have a FOMC meeting starting on Tuesday and wrapping up with on Wednesday with a press conference with Jay Powell, which is always the most telling event of the meeting. We also have the July employment report being released on Friday and this is a key report.
The Federal Reserve balance sheet fell by a measly $2 billion at $7.206 trillion – we should get under $7 trillion sometime this year, although the Fed could decide to throttle back the run off this fall depending on the ability of the market to absorb massive debt supply from the treasury.
Last week the average $25/share preferred and baby bond barely moved last week as they fell by 2 cents. Investment grade issues fell by 8 cents, banks were up 1 penny and mREIT issues fell 4 cents. All in all hardly any movement at all.
Last week we had 1 new $25 issue priced from Regions Financial. The issue is a fixed rate reset perpetual preferred with an initial coupon of 6.95%.
What’s going on with ESGRO today (down 9%)??? Press release saying something about 400 mill loss portfolio transfer with SiriusPoint. Being acquired by Sixth Street consortium. Guessing divi payments for the preferred is in jeopardy?
Interesting along the lines of banks – selling old bonds w low rates at huge losses……to garner higher interest income to juice NII for next year’s comparisons??!! just thinking this thru, if we have a slowdown and they are taking big reserves for credit or losses on CRE loans.. are they juicing interest income to make it look like they are doing ‘better’. I don’t know, w only one bank pfd the MTB-Js I am not too involved- but when 2025 earnings start rolling in I will remember this color. https://finance.yahoo.com/news/why-regional-banks-are-now-willing-to-take-billions-in-losses-123009272.html well market open now have a good week all!
Truist taking a 5 billion loss in selling low interest debt!? wow.
Now we have an idea behind Regions issuance of the new preferred. Probably not to call their other preferred, but to buy some higher interest paying debt.
Bea; I too own the MTB-J, after doing quite a bit of my DD I bought 5,000 shares of it. Love that 7.5% coupon. I noticed it has really run up. Thank God I bought it when I did.
Bea and all……
When you stop to think about it …..
a) Sell billions of low yielding bonds at a loss
b) Take the proceeds and buy billions of 400 bps higher yielding bonds
Comfortable that the market will reward you when the Fed drops rates
(Core underlying assumption: the buyers/sellers of those bonds had no idea of possible Fed rate cuts when they priced the bonds to buy/sell to you)
Is this the definition of financial engineering misdemeanor?