The incompetent have their shorts in a knot because Standard Chartered did not honour a pretend-maturity:
Perpetuals are popular because bonds without a legal maturity date may qualify as equity according to International Financial Reporting Standards, reducing a company’s leverage in the eyes of banks and making it easier for them to get lower rates on loans. Investors buy them because they’re pretty certain they’ll be redeemed in full at the first call.
In other words, these are three- to five-year notes that pay higher yields than regular securities of a similar tenor.StanChart has now challenged that notion.
The London-based lender said in its third-quarter earnings statement Tuesday that it wouldn’t exercise the option it has in January to buy back its $750 million of 6.409 percent non-cumulative redeemable preference shares that were issued in 2006.
That makes sense, from the bank’s standpoint. After January 2017, the notes convert to paying three-month Libor plus 151 basis points. At current levels, that translates into a yield of less than 2.4 percent. StanChart’s 10.5-year 4.3 percent dollar bonds due 2027 are yielding 4.5 percent.
The fact a perpetual might not be called isn’t something most investors consider when they purchase the notes. Now, they’re having to think about what would be a fair price for a lot of the debt they hold if, when the time comes, it may be cheaper for a company not to act.
The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives.
…
Voting against the action were: Esther L. George and Loretta J. Mester, each of whom preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.
Some were fascinated by the word “some”:
The Fed’s use of the word “some” versus the harder-hitting “next meeting” phrasing of October 2015 to signal an approaching move was appropriate for several reasons, said Vincent Reinhart, chief economist at Standish Mellon Asset Management Co LLC in Boston, who in his former role as a Fed economist has helped draft statement language.
Investors prior to the meeting had already priced in about a 70 percent probability of Fed action next month, so there was no need to hammer home the point. The chances of a move shifted up to 80 percent following release of the FOMC statement.
PerpetualDiscounts now yield 5.13%, equivalent to 6.67% interest at the standard equivalency factor of 1.3x. Long corporates yield a smidgen under 3.8%, so the pre-tax interest-equivalent spread is now about 290bp, unchanged from the October 5 report.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2313 % | 1,710.7 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2313 % | 3,125.1 |
| Floater | 4.38 % | 4.55 % | 43,335 | 16.31 | 4 | -0.2313 % | 1,801.0 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0264 % | 2,905.5 |
| SplitShare | 4.82 % | 4.69 % | 40,224 | 2.06 | 6 | -0.0264 % | 3,469.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0264 % | 2,707.3 |
| Perpetual-Premium | 5.35 % | 4.20 % | 73,325 | 0.09 | 23 | 0.0154 % | 2,703.1 |
| Perpetual-Discount | 5.11 % | 5.13 % | 91,953 | 15.24 | 15 | -0.3907 % | 2,914.2 |
| FixedReset | 4.84 % | 4.25 % | 186,665 | 6.87 | 93 | -0.0702 % | 2,105.4 |
| Deemed-Retractible | 5.04 % | 4.63 % | 116,669 | 1.11 | 32 | -0.0803 % | 2,802.3 |
| FloatingReset | 2.86 % | 3.45 % | 40,403 | 4.93 | 12 | 0.0214 % | 2,290.3 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| IFC.PR.A | FixedReset | -1.50 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.71 Bid-YTW : 9.47 % |
| MFC.PR.F | FixedReset | -1.43 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 13.80 Bid-YTW : 10.48 % |
| BMO.PR.Q | FixedReset | -1.32 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.21 Bid-YTW : 6.12 % |
| CU.PR.G | Perpetual-Discount | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-11-02 Maturity Price : 22.21 Evaluated at bid price : 22.55 Bid-YTW : 5.05 % |
| IFC.PR.D | FloatingReset | -1.05 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.85 Bid-YTW : 7.21 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BAM.PR.K | Floater | 202,857 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-11-02 Maturity Price : 10.48 Evaluated at bid price : 10.48 Bid-YTW : 4.55 % |
| W.PR.M | FixedReset | 180,544 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-10-15 Maturity Price : 25.00 Evaluated at bid price : 26.15 Bid-YTW : 4.25 % |
| TRP.PR.D | FixedReset | 135,107 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-11-02 Maturity Price : 18.21 Evaluated at bid price : 18.21 Bid-YTW : 4.43 % |
| TRP.PR.J | FixedReset | 134,506 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-05-31 Maturity Price : 25.00 Evaluated at bid price : 26.65 Bid-YTW : 4.16 % |
| BMO.PR.B | FixedReset | 131,293 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-02-25 Maturity Price : 25.00 Evaluated at bid price : 25.77 Bid-YTW : 4.26 % |
| BNS.PR.H | FixedReset | 105,898 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-01-26 Maturity Price : 25.00 Evaluated at bid price : 25.98 Bid-YTW : 4.17 % |
| TD.PF.H | FixedReset | 105,644 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.78 Bid-YTW : 4.21 % |
| There were 41 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PF.A | FixedReset | Quote: 20.03 – 20.43 Spot Rate : 0.4000 Average : 0.2385 YTW SCENARIO |
| PWF.PR.S | Perpetual-Discount | Quote: 23.40 – 23.66 Spot Rate : 0.2600 Average : 0.1679 YTW SCENARIO |
| BAM.PF.E | FixedReset | Quote: 19.77 – 20.09 Spot Rate : 0.3200 Average : 0.2330 YTW SCENARIO |
| SLF.PR.J | FloatingReset | Quote: 13.15 – 13.40 Spot Rate : 0.2500 Average : 0.1733 YTW SCENARIO |
| FTS.PR.G | FixedReset | Quote: 18.14 – 18.38 Spot Rate : 0.2400 Average : 0.1672 YTW SCENARIO |
| PWF.PR.O | Perpetual-Premium | Quote: 25.65 – 25.89 Spot Rate : 0.2400 Average : 0.1696 YTW SCENARIO |