Friday, February 3, 2017

Current Exchange Traded Bonds and Preferred Stocks Basket as of 2/2/17

I have knocked this basket down in size since 12/31/16. It topped out late last year at over $170K.

The reductions have resulted from profit taking in the Canadian reset equity preferred stocks and selling the highest cost and recently purchased lots in potentially long duration exchange traded bonds and preferred stocks in anticipation of buying them back at lower prices.  

I have been in a profit taking mode on my Canadian reset equity preferred stocks that have performed far better than their U.S. counterparts. 

Yesterday, I sold 50 CFPRC at C$17.15.

2017 CFPRC +C$173.5

CFPRC is a reset equity preferred stocks issued by Canaccord Genuity Group Inc (CF:TOR). This security is currently in the fixed coupon period which is 5.75%. The first reset occurs in June 2017 at a 4.03% spread to the Canadian five year bond. That bond closed yesterday at 1.13%. A minor coupon cut is likely on the reset date. The reset coupon will last for five years.  

Snapshots of Canadian reset equity preferred stock round-trips are grouped with my U.S. equity preferred stocks here: Stocks, Bonds & Politics: Advantages and Disadvantages of Equity Preferred Floating Rate Securities

The ten year treasury hit a short term top near 2.6%. 

Recent U.S. economic numbers and a continuation of extremely abnormal CB policies by the ECB, other European CBs, and the BOJ caused a brake in upward spike that started in July 2016. 

The jobs report released this morning was okay with 227K jobs added last month, but December was revised down to 164K from 204K. Average hourly earnings rose 3 cents and have risen 2.5% over the past year. 

With the nation at "full employment", as defined by economists, the easy pickings for job growth have already occurred, thereby making a continuation of 200K+ monthly job growth numbers harder to achieve. Wage growth, on the other hand, will come easier as employers have to raise wages to stop worker migration.  

U.S. workers will quit their jobs and the monthly numbers are significant as shown in the BLS JOLTS data. In the last report which was for November, 3.1M employees quit their jobs or about 2.1% of the labor force: Job Openings and Labor Turnover Summary

The flip side of quits is job openings. More workers tend to quit when job openings are more plentiful: 

In early morning action today, bonds are rising in price and falling in yield, indicating that the Bond Ghouls view today's report as a sign of weakness. 

For now, the Stock Jocks generally put either a positive light on all news or just ignore the negatives as noise. For example, if job and wage growth were significantly better with a major upward revision for December, that means the U.S. economic growth was accelerating which will be good for earnings. If January 2017 job report showed signs of weakness, then that is also good for stocks also, since it will keep the FED from hiking rates twice or more this year.  Even a sharp slowdown in earnings growth did not restrain their willingness to take stock prices higher.  

Eventually this attitude of everything comes up roses will receive a river of bad news that requires an adjustment. The adjustments are bad for the economy and will frequently lead to a recession or deepen an ongoing one. 

Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members


  1. South Gent,

    Just entered to buy 25152RWY5 that matures on 5/30/2017 with yield to worst of 1.282%. That is pretty good, considering it short duration and relative high yield. This kind of bond does not come across often.

    1. Y: The Deutsche Bank bonds will have higher yields compared to other similarly rated bonds due to investor credit risk concerns.

      I do not own any. Moody's has a Baa2 rating.

      I am focusing mostly on A- or better. I probably have not gone down to a Baa2 on a bank holding company bond. Those companies are highly leveraged and a BK will generally mean a 20% recovery or less on senior bonds.

      I am occasionally going down to that level on industrial company bonds where the worst case is probably a 50%+ recovery.

      I would not be worried about DB short term, but I would not touch an intermediate or longer term bond.

      5 Year DB Chart:

    2. SG,
      Just curious, as I may be missing something:
      Any reason why to continue to hold PFK at >$26? Is it a gamble that inflation will pay more than $1 (26-25) until term?

    3. A: It is a small gamble that I will be able to capture or or more monthly interest payments and still be able to sell at >$26. I believe the last ex date was 1/30/17.

  2. South Gent,

    Thank you for the insights, which make a lot of sense. Based of the dim view of the interest rate environment in many of your comments I tend to stay within 12 months for my CD/Bond ladder.

    By the way my broker is terrible in pricing. I paid the second highest price this morning for 10 bonds. My broker bought the 10 bonds from a dealer at 99.945 and turned around in 2 seconds to sell it to me at 100.02. If you want to buy it from Fidelity now, you will have to pay 100.179. However, throughout the morning some retail buyers were getting the bond at 99.946.

  3. Y: The current price from Fidelity for CUSIP 25152RWY5 is 99.945. FINRA will show that price and the price to you after Fidelity's commission. The ten bond price with the $1 per bond commission would be 100.045 at that price. That will be the price shown on the Fidelity confirmation.

    There is a Valspar note, rated Baa2 by Moodys and maturing on 5/1/17, that has a .653% YTM before the commission. The DB bond maturing on 5/30 has a YTM of 1.521% before the commission.

    There were two ten bond trades so far today. The first was at 9:54. The ten bonds were bought from the buyer's broker at 99.945 (1.524% YTM) and the buyer's cost was 100.045 but that is with the commission. I can tell that this buyer paid a $10 commission.

    The difference in those number is .1% or $1 per bond.