Barry Critchley Reviews Fixed-Resets

Barry Critchley used his column in the Financial Post to note Rate-Reset Prefs Gain Followers:

In all, $8.7-billion of Tier 1 capital has been raised (about half of that this year) and those fundings have helped the Canadian banks overcome any capital problems that may have arisen because of the global financial crisis and the recession.

So why have they been so successful? “The investment community like the structure because in five years time you have the option of redemption or going floating or fixed. The five-year horizon is much more attractive from managing interest-rate risk perspective,” said Nagel.

Attractive, sure. The reset feature is worth something, I’ve always agreed with that part. Historically, however, purchasers have paid too much (that is, accepted a small yield and given the issuers generous redemption terms) for the benefit – but the situation is improving; fixed-resets have recently been seen in the Malachite Aggressive Preferred Fund portfolio on an opportunistic basis; further weakness may make the sector as a whole competitive with straights.

But we will see!

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