Thursday, November 14, 2013

Update on Exchange Traded Bond and Preferred Stock Table as of 11/14/13

Exchange traded bonds include the following categories:

European Hybrids: ING HYBRIDS and Aegon Hybrids 
Baby Bonds Usually With $25 Par Values

I discuss equity preferred stocks in two Gateway Posts:

Click to Enlarge:

I have over $30,000 in net additions to this table since the last update. All of the Citigroup PPNs mature in 2014 and will need to be replaced with whatever is the best option at the time (MBC, MKN, MKZ, MOL, MTY, MOU).

Both MBC and MOU are interesting for potential paydays in their last annual periods. Both of their coupon payments are linked to the performance of the Russell 2000 with 3% minimums on a $10 par value. 

Relevant Data Points: No Maximum Violation Yet

MBC: Starting Value: 998.78 (5/21/13 Russell 2000 Close, RUT Historical Prices
Maximum Level Violation: 1,298.41
End Date 6/2/14 Final Pricing Supplement (Page PS-2)

MOU: Starting Value 916.5 (2/22/13 Russell 2000 Close,  RUT Historical Prices)
Maximum Level Violation: 1,255.12
End Date 3/3/14 Pricing Supplement

Closing Prices 11/14/13

It is highly probable that I will simply hold all of the Citigroup PPNs until they mature in 2014. All of those PPN's are unsecured senior notes issued by Citigroup Funding and guaranteed by Citigroup as provided in the prospectuses. 

MOU had a 27.93% coupon in 2011: MBC & MOU

If there was no Maximum Level Violation on or before 3/3/14, which would cause a reversion to a 3% annual coupon, and the Russell 2000 closed on 3/3/14 at 1,111.44, then the MOU coupon for its final annual coupon period would be 21.27% (1,111.44 minus Starting Value of 916.5=194.94 Divided by 916.5=21.27% which works for me). One close above 1,255.12 causes a reversion to the minimum 3% coupon irrespective of what happens thereafter. 

I may harvest my profit before year's end in the PPN SDA rather than taking a chance on a decline in the DJIA before the 2015 maturity date: Bought 100 SDA at $9.8-Roth IRA

Closing Price 11/14/13: SDA: 14.01 +0.13 (+0.94%) 

I will be sorry to see the PPNs mature since they have provided a measure of entertainment for the OG, particularly when one comes down to the wire as MBC did earlier this year: Stocks, Bonds & Politics: MBC Down to the Wire


Since my last update, I have bought the following exchange traded bonds:

Roth IRA: Bought 50 THGA at $21.58 & Paired Trade: Sold 50 EMQ at $26.49 and Bought 50 EFM at $24.9 (11/6/13 Post)(THGA: Junior Baby Bond; EFM: First Mortgage Baby Bond)

Bought:  50 ARU at $24.5, 50 AGIIL at $21.11 (10/31/13 Post)(Senior Unsecured Baby Bonds)

Added 50 GYC at $18.66 -Roth IRA (10/24/13)(Synthetic Floater)

Bought:  50 RZA at $24.29 (10/24/13 Post)(junior baby bond)

Bought 50 SGZA at $20.6/ Roth IRA: Bought 50 TCBIL at $21.3 (SGZA: Senior Unsecured; TCBIL: Junior Bond)(10/19/13 Post)

Added 100 BANCL at $25.1 (10/14/13)(senior unsecured baby bond)

Bought 50 RZA at $24.47-ROTH IRA (9/28/13 Post)(junior baby bond)

Roth IRA: Bought 50 PJA at $25.18 (9/14/13 Post)(trust certificate: underlying senior unsecured bond)

Bought Roth IRA: 50 GYC at $20 Bought 100 ISM at $22.8 (SOLD GYC-Synthetic Floater; ISM: senior unsecured baby bond)(underlying security in GYC-senior unsecured bond)


I have added the following equity preferred stocks:

Bought 50 NNNPRD at $22.63 (to be discussed)

Bought: 50 GSPRJ AT $22.78 (11/12/13 Post)

Bought 50 TCBIP at $22.64 (10/11/13 Post)


I have sold the following:

Sold: 50 BANCP at $26.12 (equity preferred stock)

Sold 50 EMQ at $26.49 (first mortgage bond, part of a paired trade)

Sold 50 of 100 GYC at $20.8 (Synthetic Floater)


  1. Why sell the SDA? Looks like it's 46.5% in the money, but only trading at a 40% premium to par. If you strip out an expected forgone dividend of ~3.5%, you're picking up about 3% free return over the index. You also get some protection from a catastrophic sell off, but I guess that's somewhat offset by the BoA credit risk.

    I too will miss the Citi PPN's. They're the closest thing to free options out there that I'm seeing. Sometimes they still trade at a price that makes them compelling. I bought some MKZ today. I've been debating whether or not to sell some upside calls against these just to monetize the option. Trading delta can be tricky as the reference approaches the knock-out level though. Probably easier just to view them as an enhanced cash position with a nice potential kicker.

  2. Scott: SDA will pay the greater of its $10 par value or a percentage increase in the DJIA. The percentage increase is calculated using the starting value of 10,836.15. The end date is based on an average of DJIA closes during a 5 day period in March 2015. SDA does not make an interest payment until maturity

    What happens if the end value of the DJIA is at 14500? Then I will receive in $338 in interest or I could take a $400 profit now and earn 7% on $1400 for about 16 months.

    If the DJIA climbed to 17,000 by the end date, then the interest payment becomes $569 on a $1,000 in principal amount. I can almost get to the same number by selling at a greater than a $400 profit now and investing the proceeds rather than taking the chance on receiving less due to a decline in the DJIA.

    If I had bought 1000 SDA rather than 100, the choice would be clearer. I could sell 300 now, and maybe another 200 at $14.5 and then take a chance on the remaining 500.

    It really depends on much an investors wishes to risk. I am generally a cautious and conservative investor, a serious practitioner of the turtle school of investing.

    The PPN can be looked at as call option and MKZ is an example. MKZ will make one more minimum coupon payment of $30 on a $1,000 principal. At $10.2, that interest payment will offset the $20+ loss on principal at maturity in July 2014. The starting value of the commodity index was 126.2 with the Maximum Level at 165.61:

    The coupon will need to increase to over 130.21 in order to trigger an increase in the minimum coupon, assuming no Maximum Level Violation (end date 7/3/14)

    I checked this morning and saw that the index was at 123.23:

    With those facts, I would agree that MKZ can be viewed as a reasonably priced call option on the commodity index.

    I see from my post link that I owned 200 MKZ, but I later sold 100 at around $10.5.

    I also own 100 MKN which has had several good paydays. MKZ is probably the better call option play since MKN matures in March (less time to run) and has a significantly higher starting value (136.36 on 4/1/13)