Research: Break-Even Rate Shock

Investors will often purchase FixedResets in preference to PerpetualDiscounts because “there is better inflation protection”. In this essay, derived from the appendix to the June, 2009, PrefLetter, I attempt to quantify and discuss this effect.

The related Break-Even Rate Shock Calculator has been published previously.

Look for the research link!

10 Responses to “Research: Break-Even Rate Shock”

  1. […] BAM.PR.M & BAM.PR.N, closed last night yielding around 6.80%, therefore the Break-Even Rate Shock for the issue, according to the BERS Calculator is a very high […]

  2. […] Break-Even Rate Shock for the issue against FTS.PR.F, according to the BERS Calculator is a rather high […]

  3. […] of a rise in yields, you pay through the nose for that benefit; the bond market, as a whole, ascribes zero value to this benefit. And the credit risk is forever. Should Bad Things happen to Groupe Aeroplan – although it is hard […]

  4. […] nice things cost money. Inflation protection is nice. And it costs money, as I have discussed in my essays on break-even rate shock. Naturally, having calculated the cost, one can quite legitimately take the view that it’s […]

  5. […] subsidiary, closed last night at 48.80-86 and 48.80-90, respectively, to yield 5.74-73%. The Break-Even Rate Shock on this issue is therefore an astonishing 266bp – and the straights used for this calculation, […]

  6. […] Rate Shock Calculator with values of 5.91% yield on BNS Straights and a 5-year term to reset, the Break-Even Rate Shock for this issue is a stunning […]

  7. […] but we do what we can), which are currently trading to yield about 6.2%. Plugging that in to the BERS Calculation routine shows a Break-Even Rate Shock of 277bp; down significantly from SLF.PR.G at 384bp and BNS.PR.Y at […]

  8. […] to yield about 5.85% which, assuming we can consider the credits to be identical, results in a Break Even Rate Shock of 222bp. This compares to 277bp for EMA.PR.A; SLF.PR.G at 384bp. March’s issue of TRP.PR.B […]

  9. […] Break Even Rate Shock Calculator: PD Yield 5.40%, FR Spread -1.75%, Term 5 Years and come up with a Break Even Rate Shock of 257bp, which seems pretty […]

  10. […] 2011-1-21: The Break Even Rate Shock on this issue is […]

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