Research : Are Floating Prefs Money Market Vehicles?

This article was in the August, 2006 edition of Advisors’ Edge Report.

The short answer to the title question is “NO!”. For the reasons …. click the link!


Hat tip to Financial Webring Forum for providing rationales for floating pref investment!

Note added 2006-10-04: There is a typographical error in the table “DBRS Downgrades”: the issues GT.PR.A, STQ.E and SXT.PR.A should be in the “Split-share” column – they are not perpetuals.

2 Responses to “Research : Are Floating Prefs Money Market Vehicles?”

  1. […] Well, the preferred share component of a split share corp does not mature at NAV, absent default. The last two words are very important, because as I showed in the article Are Floating Prefs Money Market Vehicles?, Split Shares have, historically, been more susceptible to credit downgrades than other classes of share. However, readers who have read Using Credit Ratings When Buying Preferreds and Split Shares will know how to watch for the signs of an imminent downgrade. It seems to me that DBRS has been tightening its standards for Split Share credit ratings in the past year or two; as well, while the nature of a split share makes the rating more volatile, it also makes credit analysis a lot easier! So, while you have to watch them, so what? You have to watch everything in this uncertain world. […]

  2. […] I don’t think my regular readers will be surprised if I mention that I have something of a philosophical disdain for floating rate issues. They trade with lower yields (generally!) than their fixed-rate cousins and there’s not really a lot of reason for that. Sure, there is a certain amount of interest rate protection built into the concept of a floating rate, which is very nice to have – but, as I pointed out in an article last August one very big reason why short rates are lower than long rates is credit risk … and with a floating rate preferred share, you have perpetual credit risk. […]

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