For a good hedge against inflation your best friend, surprisingly enough, is price. This is because all of the choices mentioned pay dividends or interest based on their par value.

This means, for instance, that a preferred share priced at 12.50 will see its yield go up by 2bp for every 1bp increase in its benchmark rate (oh, all right, a decimal place or two might result from a delay in implementing the change in base rate, which would be three-months for a Floater or FloatingReset, or up to five years for a FixedReset) – and the price can reasonably be expected to adjust very quickly.

So, for instance, consider BAM.PR.K, which pays 70% of prime and is bid at 7.46. Therefore, its leverage to prime is 70% * 25 / 7.46 = 2.34:1

This leverage factor is beaten by PWF.PR.P, which pays GOC-5 + 160bp (resetting 2021-1-31) while being bid at 8.15, so its leverage to GOC-5 is 25 / 8.15 = 3.07:1, subject to an adjustment to reflect the delay until implementation.

The easiest way is to estimate the ‘delay adjustment’ is to play with the Yield Calculator for FixedResets and determine the change in yield given a 10bp (say) change in benchmark yield.

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