3 Responses to “March 18, 2009”

1. prefhound says:

   March 18, 2009 at 7:58 pm

   May I be baffled at the relative prices/yields of the two Yellow Pages Prefs?:

   YPG.PR.A closing $19.80; Dividend $1.0625; Retractible Dec 31, 2012 for a YTM = 11.1%.

   YPG.PR.B closing $11.75; Dividend $1.25; Retractible Jun 30, 2017 for a YTM = 17.1%

   We are used to flaky pref prices when the lower priced issue has a smaller dividend, but here the Pref A has a lower dividend and lower current yield than the Pref B (5.4 vs 10.7%) — and that is before its lower capital gains potential!

   If it is a yield curve difference (due to the extra 4.5 years for the pref B), then YPG.PR.B yields 11.1% through Dec 31, 2012 and 26.5% for the period 2013-retraction. Should we conclude that the company will be fine for 3 years and then fall apart in the subsequent five?

   BAM and BPO retractible prefs of different maturity dates often have very similar yields to maturity, but not YPG. The YPG.PR.B yield is often more than PR.A, but the current 6 points seems absurd. If both Pref A and Pref B had the same yields to retraction, the Pref B should be $16.82 — more than 40% higher!

   I smell arbitrage potential here, but am not sure how long it would take to sort out. Do you have any special insight into this pair?

2. jiHymas says:

   March 18, 2009 at 8:25 pm

   I think it all comes down to mortgages.

   There is a very real preferred habitat amongst retail investors for short-term bonds, which are usually defined as bonds with five years or less to maturity, which just happens to be the term of most Canadian mortgages.

   When you add in the fact that the number of watchers is reduced dramatically by the Pfd-3(high) rating, I think you have an explanation.

   You are quite right that BPO retractibles all yield in the same ballpark – but that ballpark is the “penalty yield” ballpark … it is, perhaps, best thought of as a company that is not getting the benefit of the five-year cliff.

   And BAM’s just plain wierd.

   I suspect that any rationalization of the YPG.PR.B yield will have to wait until 2011-12, when retail will start thinking of it as something with a maturity instead of one of them never get yer money back things.

   As I have previously disclosed, the fund holds a position in YPG.PR.B, taken as an optimization trade after the downgrade of BCE.PR.I made me uncomfortable with the fund’s weighting in that name. It’s a relatively small position, with a portfolio weight within the bounds I consider prudent. Barring an increase in credit concern, I’ll hold the damn thing to maturity at a yield of 17+%!

3. PrefBlog » Blog Archive » YPG.PR.A / YPG.PR.B : Wildly Divergent Yields says:

   March 18, 2009 at 9:27 pm

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