The yield-to-worst on POW.PR.B is now negative. It closed today at 26.46-65, but it is currently callable at $26.00:
|POW.PR.B Embedded Options|
This gives rise to:
|Call||2007-01-11||YTM: -6.26 %||[Restricted: -0.51 %]||(Prob: 35.43 %)|
|Call||2007-04-11||YTM: 2.20 %||[Restricted: 0.72 %]||(Prob: 5.03 %)|
|Call||2007-12-28||YTM: 3.32 %||[Restricted: 3.32 %]||(Prob: 7.25 %)|
|Call||2008-12-28||YTM: 3.76 %||[Restricted: 3.76 %]||(Prob: 3.72 %)|
|Call||2009-12-28||YTM: 3.93 %||[Restricted: 3.93 %]||(Prob: 2.86 %)|
|Call||2010-12-28||YTM: 4.03 %||[Restricted: 4.03 %]||(Prob: 2.57 %)|
|Option Certainty||2035-01-21||YTM: 5.05 %||[Restricted: 5.05 %]||(Prob: 43.13 %)|
I’ve uploaded some graphs:
I can’t say I really understand why the price should have gone up so spectacularly recently. One can make the usual argument that since the redemption premium declines by $0.25 annually, the net cost to the company is not the coupon of 1.3375, but $0.25 less than this, or $1.0875, but this is less than the current financing cost only by half the saving. The company’s treasurer has the immediate option of reducing permanent costs by about $0.125 p.a. (gross of issuance costs), at the expense of a few years loss of charges … but this analysis assumes that the current refinancing level will be available a few years hence. It might not be.
And why should the price spike now?
The best an investor can reasonably hope for is a yield of 4.03% if it lasts until its $25.00 call; there are lots of issues with similar characterists that have such a yield without the risk of negative returns. The new RY.PR.D issue settles tomorrow and yields 4.50%. RY.PR.W has a yield to worst of 4.02%, with a 2014 call date, without the risk of an intervening call. The same can be said for POW.PR.D, pre-tax bid-YTW of 4.36% based on a call 2014-11-30, with no intervening call risk – and it’s a more active trader and the same name!
So the whole situation is very mysterious and I consider POW.PR.B to be very expensive at current levels.