Observations and Sample of Recent Trades: 3/10/17 (GMTA, UL, FIE:CA, UL, PSAPRE )

I started to build a short term bond/CD ladder last December. At the start of this year, I was expecting the FED to raise the federal funds rate by .25% twice, once in March or June and the other in December. 

Initially, I concentrated my weighting in the 18 month period ending 6/30/18. My first maturity occurred last Thursday. 

Based on my expectations, I clustered maturities around the June and December Fed meetings anticipating that the proceeds could be used to buy higher yielding short to intermediate term bonds with slightly higher yields due to FED rate increases at those meetings.  


The FED is going to raise the FF rate next week. The question now is whether there will be one or two more rate increases this year. 

A lot of the proceeds from maturing bonds and CDs will be used to buy 1 or 2 intermediate term, high quality bonds. The yields on those bonds have been rising which is apparent when the investor looks at the FINRA charts. The prices have been moving down and the yields up. 

Today, the ten year was not able to stay over the 2.6% level, which is where the yield rise stalled last December. 

For corporate bonds, both Interactive Brokers and Fidelity charge me $1 per bond commission, while Vanguard is at $2 per bond. Those commission rates make small lot purchases cost effective, provided I do not pay much over the best ask price for such small lots. 

Schwab, Fidelity and Vanguard do not charge a brokerage commission for treasury purchases, although Schwab does have a commission for the treasury strips. 

I have snapshots of my intermediate term bond confirmations that show the price paid and the YTM. As interest rate rise, one option is to add to existing positions in 1 or 2 bond lots. Some bonds generally have active trading in one bond minimum lots, but most require a minimum of 2 bonds. 

Some bonds almost never trade in less 5 or 10 bond lots.  

Some bonds are far more actively traded than others even from the same issuer.  

I also have snapshots of order books for bonds that I may buy at some point. The idea is to see how the price changes over time which I can also see by looking at the FINRA charts. 

Examples: 3 Utility Bonds

Baltimore Gas & Electric:  

Eversource: 

Consolidated Edison: 

The number in parenthesis id the minimum order for the bid or ask price shown. 

I can also place my own day limit order at Fidelity or IB, but not at Vanguard.  


 +++++++++++++++ 

1.  Intermediate Term Bond Ladder Basket Strategy:

All of the intermediate term bonds discussed below can be bought at lower prices now. 

These kind of purchases emphasize preservation of capital with a slight income tilt. 

I have no concerns about PG or Apple surviving to pay par value, and no current or reasonably anticipated credit concerns about the Ventas and Laboratory Corporation bonds discussed below. 

Interest rate risk is a potential issue assuming rates continue to rise. However, I personally have no concerns about that risk either for several reasons previously discussed in more detail:  

(1) I am using a ladder strategy and buying only small lots;  

(2) I am able to hold everything purchased until maturity;  

(3) I have no situational risks that require a higher return on investments;  

(4) I have a number of securities maturing every month; and 

(5) I intend to buy more high quality bonds and FDIC insured CDs with the proceeds from maturing securities which will capture high yields in a rising interest rate environment. 

A. Bought 2 Procter & Gamble 2.7% Senior Unsecured Bonds Maturing on 2/2/2026: 

                                              

Issuer:  Procter & Gamble Co. (PG)
FINRA Page: Bond Detail (prospectus is not linked)

Final Prospectus Supplement

Credit Ratings: 

Moody's at Aa3

S & P at AA-

YTM at Total Cost (98.519 ) = 2.889%

SEC Filings 

PG Analyst Estimates 

Moody's Assigns Aa3 Rating to P&G's USD bonds; outlook stable

This bond closed today at 96.5, creating a YTM at that price of 3.155%.

B. Bought 2 Apple 2.4% Senior Unsecured Maturing on 5/3/23:

                                              

Issuer: Apple Inc.  (AAPL)
FINRA Page: Bond Detail (prospectus linked)
Credit Ratings:
Moody's at Aa1
S & P at AA+
YTM at Total Cost (98.864) = 2.6%

This bond closed today at 97.09, creating a YTM at that price of 2.922%. 


C. Bought 2 Ventas 3.125% Senior Unsecured Maturing on 6/15/23:

Bought 1 Ventas  2023 Bond in a Taxable Account  

                                             

Issuer: Ventas Realty  Limited Partnership, a wholly owned operating partnership of Ventas Inc. (VTR)
Fully and Unconditionally Guaranteed by Ventas

VTR Page at Morningstar 
Finra Page: Bond Detail
Credit Ratings:
Moody's at Baa1
S & P at BBB+
Fitch at BBB+
YTM at Total Cost ( 99.324) = 3.242%

Bought 1 Ventas 2023 Bond in a Roth IRA ($2 per bond brokerage commission-Vanguard)

                                          

YTM at Total Cost (99.454 ) = 3.221%

D. Bought 1 Laboratory Corp. 3.2% Senior Unsecured Bond Maturing on 2/1/22-ROTH IRA:
 

                                   

Issuer: Laboratory Corp. of America Holdings (LH)
LH Page at Morningstar 
Finra Page: BondDetail
Credit Ratings:
Moody's at Baa2
S & P at BBB
YTM at Total Cost (100.308) = 3.131% ($2 brokerage commission)
Moody's changes LabCorp's outlook to stable; affirms Baa2 Sr. unsecured rating
2016 Annual Report (debt listed starting at page F-22)

I will consider buying this bond in a taxable account with the proceeds from maturing securities.   

This bond closed today at 100.35.

E. Added 1 Consolidated Edison 2% Senior Unsecured Maturing on 5/15/21: 

                                                 

Issuer: Consolidated Edison Inc.  (ED)
ED Page at Morningstar
Finra Page: Bond Detail (prospectus linked)
Credit Ratings:
Moody's at A3
S & P at BBB+
FITCH at BBB+

YTM at Total Cost (98.105 ) = 2.478%

The other 1 bond lot was bought in a Roth IRA account and was discussed in this post: Stocks, Bonds & Politics: Observations and Sample Trades (VIVHY, ADX, HTGZ): January 24, 2017/Donald Trump and the Beginning of the End of the Progressive Era

2016 Annual Report; Earnings Report Q/E 12/31/16

In late February, Consolidated Edison sold $400M of a 2% coupon senior unsecured bond maturing on 3/15/20.

The 2021 bond closed at 98.68 today, creating at YTM of 2.334%. 

2. Long Term Bond Basket Strategy-Minimal Exposure: I will flip exchange traded bonds with potentially long maturities. 

A. Sold 40 GMTA in Roth IRA at $25.23: 

GATX Corp. 5.625% Senior Notes due 2066  (GMTA) 

Profit Snapshot: +$124.78

                                           

I discussed this purchase here. The issuer has the right to redeem on or after 5/30/2021. If not redeemed early at the issuer's option, the bond matures on 5/30/66. Prospectus

I basically exchanged GMTA for a similarly rated Laboratory Corporation senior bond, discussed above, that matures in about 5 years. 

I am down to owning 50 shares of GMTA bought at $22.23 (12/14/16). I intend to keep that lot and will consider buying more when and if the price sinks below that purchase price. 

I last discussed this security when I sold 20 shares using a commission free trade: 

Scroll to Item #3 A: Stocks, Bonds & Politics: Observations and Sample of Trades (UMPQ, GMTA, GJO, DLRPRI, MRK): 2/19/17/ Trump The Classless/Trump as the Victim of a Fake News Conspiracy


3. Short Term Bond/CD Ladder Basket Strategy:

A. Bought 2 First N.A. .65% CDs (monthly interest) Maturing on 9/15/17:

                                        

First N.A. is the operating bank subsidiary of First Bancorp (FNLC), a small bank holding company based in Maine. I have bought and sold the common shares several times.

4. Continued Paring Stock Allocation:

A. Sold 200 FIE:CA at C$7.54:

                                         

Profit Snapshot: +C$166

                                    

I sold 1500 earlier this year:

                                  

I discussed that transaction here.

Quote: iShares Canadian Financial Monthly Income ETF (FIE:TOR)

I have periodically discussed buying shares at my SA Instablog, including these posts:

Item # 1. Added 200 FIE:CA at C$6.69: Update For Portfolio Positioning And Management As Of 6/6/16 - South Gent | Seeking Alpha

Item # B1. Added 400 of the Ishares Canadian Financial Monthly Income ETF at C$6.46: Update For Portfolio Management And Positioning As Of 10/16/15 - South Gent | Seeking Alpha

Toronto-Dominion, one of the bank stocks owned by FIE, had a bad day today. I own over 100 shares. 

Closing Price: $49.03 -$2.74 

The culprit was apparently this article that appeared in a Canadian paper. TD Falls on Reports Tellers Were Pressured to Hit Sales Targets - Bloomberg

'We do it because our jobs are at stake': TD bank employees admit to breaking the law for fear of being fired - British Columbia - CBC News

This is reminiscent of the WFC fiasco. TD responded as follows: TD Comments on CBC Go Public Story

My last TD purchase discussion was probably in this post: Item # 4 Initiated Position in Toronto Dominion (TD) at $43.37 (2/11/15) The USD priced TD shares have been hurt by the weakness in the CAD/USD exchange rate since my purchases. 

B. Sold 30 of 100 UL  at $47.66 (recently bought lot):

                                      

I used a commission free trade to buy and sell this odd lot.

Profit Snapshot: +$264.7

                                    

I still own 70 shares that were bought in March 2009 at $18.05. 

Unilever's stock is expensive at its current price. UL Analyst Estimates I will consider buying back some shares at less than $40. 

I have been trading both UL and UN shares for several years now, including the following more recent round trips. 

2015 Dispositions: 

103 + Shares of UN: +$497.61

I discussed the purchase of this 100 share lot here:  Item # 2 Bought 100 Unilever at $38.10 (9/21/13 Post)

30 Shares of UL: +$104.78

The UL lot, which was sold in 2015, was bought in a Roth IRA account and discussed here: 

Dividend Growth Strategy: Added 30 UL At $39.25 Roth IRA - South Gent | Seeking Alpha

The UL ordinary shares are priced in British Pounds, whereas UN's ordinary shares are priced in Euros. The U.K. will not withhold a dividend tax, whereas the Netherlands has a 15% dividend tax for U.S. citizens that will reduce UN's dividend.  

4. Continued Paring Potentially Long Duration Fixed Coupon Equity Preferred Stocks: 

A. Sold 50 PSAPRE AT $22.37: 

                                         

I used commission free trades to buy and to sell this odd lot. 

I discussed buying this lot here. 

PROFIT SNAPSHOT: +$51.04

                                      

Quote: Public Storage 4.9% Cumulative Preferred Series E Stock (PSA.PE)

Prospectus (issuer has the option to redeem at par value on or after 10/14/21)

I will consider buying a PSA cumulative preferred stock when and if the yield exceeds 6%.

Some preferred stocks that have investment grade ratings from one or more rating agencies have recently declined to yield 6%+, and several others are close to that yield. 


Baa1/BBB+  RenaissanceRe Holdings Ltd. 6.08% Preferred Series C (RNR.PC:NYSE) 

Baa3  Capital One Financial Corp. Non-Cumulative Preferred Series F (COF.PF:NYSE) 

Baa2/BBB-  JPMorgan Chase & Co. Non-Cumulative Preferred Series AA (JPM.PG:NYSE) 

Baa2/BBB-  Kimco Realty Corp. 6% Cumulative  Preferred Series I Stock (KIM.PI:NYSE) (optional redemption period starts on 3/20/17)

Baa3 National Retail Properties 5.7% Cumulative Preferred Series E Stock (NNN.PE:NYSE) 

Baa3/BBB Wells Fargo & Co. Preferred Series V (WFC.PV:NYSE) 

I would expect all of those securities to continue their price declines if the ten year treasury continues to move up in yield. 

However, as I have pointed out in the past, the ten year treasury initially went down in yield when the FED started to increase the FF rate in June 2004. The starting point then was a 1% FF rate and the rate increases kept coming until the FF rate hit 5.25% in July 2006.  

Effective Federal Funds Rate-St. Louis Fed

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