The problem, you see, is that the extant fixed-resets are all trading with a yield-to-five-year-call well in excess of the 5.60% dividend and simultaneously with a yield-to-limitMaturity well below the 5.60% dividend. Thus, if the market considers these issues to be five-years, the new Royal should trade at a discount to par; if it considers them to be perpetuals, at a premium. This is the first case where the initial fixed coupon and the subsequent resets were significantly enough different from extant issues to make such a comparison meaningful.
And the results are in! RY.PR.L traded 418,820 shares today and closed at 24.70-75. After accounting for underwriter support, we can draw a preliminary conclusion, based mainly on the fact that the issue trades at a discount to par: the market considers it to be a five year. Probably. The issues trade with less five year variance than perpetual variance but the results are not devoid of ambiguity … they never are! That’s what makes this fun!
|RY.PR.L and some comparators|
We’ll get another data point on Wednesday, when the TD 5.60%+274 settles.