US$30b rescue! T-bill 3.65% p.a.! Banks or REITs? Good?

I am not feeling too good today.

So, if this blog feels a little incoherent, you know why.

I have so many things flying around in my mind now. 

I just need to deposit them here in my blog, my Pensieve.

So, it seems that the U.S. banking crisis is contained once again with eleven big U.S. banks pledging $30billion to First Republic Bank.

This is a significant move to shore up confidence in the U.S. banking system as the individual sums of $1billion to $5billion in deposit are, obviously, uninsured by the F.D.I.C.

It is pretty impressive as it should be quite obvious to anyone that the U.S. Fed is unable to fight high inflation and to bail out the U.S. banking system at the same time.

Choosing to hike interest rate to fight inflation would increase the fallout risk in the banking system while not hiking interest rate might result in higher inflation.

The $30billion joint deposit made to First Republic Bank did not happen because the largest banks in U.S.A. decided all at once that it was in their industry's best interest.

The CEO of J.P. Morgan, the largest bank in U.S.A., Jamie Dimon, together with Jerome Powell and the Treasury secretary, Janet Yellen, seeded the idea. 

Jamie Dimon approached his peers and the $30billion package was born.

So, with the banking crisis contained once more, the Fed will be able to hike interest rate next week with one less thing to worry about. 

This move will follow the ECB, which just hiked interest rate by 0.5% to fight inflation in the EU.

Bond yields sank for many days in a row, because Mr. Market was betting on the Fed choosing to manage the risk of further fallout in the U.S. banking sector rather than to continue hiking interest rate to fight inflation.

There was also a flight to safety as Mr. Market moved money to the relative safety of treasuries.

With the Fed likely to hike interest rate as planned, investors in Singapore should see yield on the short end of the curve rising again. 

So, we should see 6 months T-bill yield going higher from the relatively low cut-off yield of 3.65% per annum we saw in the 16th March auction.

As for DBS, OCBC and UOB, the Monetary Authority of Singapore has issued a statement to say that the exposure which DBS, OCBC and UOB have to troubled Credit Suisse is “insignificant”.

I am staying invested in DBS, OCBC and UOB for income as I expect them to continue to bring home the bacon. 

With higher dividends declared, I look forward to getting bigger portions in future too.

What about REITs?

In the current environment, U.S. banks are going to be more selective and risk averse. 

So, I believe that it could be harder to secure loans or to refinance for some commercial properties in U.S.A. now.

So, I would avoid those U.S. REITs which have very high gearing and which need to refinance in the next 12 to 18 months.

Digital Core REIT, which is a data centre REIT, saw its unit price crashing because one of its largest tenants, Cyxtera, which accounts for 22% of its income has not been able to refinance a revolving credit facility that matures in Nov 2023. 

Moody's downgraded Cyxtera's credit rating to junk as it believes the possibility of default over the next few months is significant.

Only a couple of months ago, there was a chorus of BUY calls for Digital Core REIT by analysts and some finance social media influencers.

It pays to remember not to ask barbers if we need a haircut.

It pays to remember that no one cares more about our money than we do.

Eat crusty bread with ink slowly for peace of mind.

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