RY.PR.L Fixed-Reset Settles: Trades Like Five-Year

The Royal Bank Fixed-Reset 5.60%+267 closed today, an event fraught with interest due to the question posed on October 28: “through or wide?”.

The problem, you see, is that the extant fixed-resets are all trading with a yield-to-five-year-call well in excess of the 5.60% dividend and simultaneously with a yield-to-limitMaturity well below the 5.60% dividend. Thus, if the market considers these issues to be five-years, the new Royal should trade at a discount to par; if it considers them to be perpetuals, at a premium. This is the first case where the initial fixed coupon and the subsequent resets were significantly enough different from extant issues to make such a comparison meaningful.

And the results are in! RY.PR.L traded 418,820 shares today and closed at 24.70-75. After accounting for underwriter support, we can draw a preliminary conclusion, based mainly on the fact that the issue trades at a discount to par: the market considers it to be a five year. Probably. The issues trade with less five year variance than perpetual variance but the results are not devoid of ambiguity … they never are! That’s what makes this fun!

RY.PR.L and some comparators
Ticker Fixed Reset Quote Yield
5-year call
RY.PR.L 5.60% +267bp 24.70-75 5.90% 5.61%
TD.PR.Y 5.10% +168bp 23.75-99 6.29% 4.92%
RY.PR.I 5.00% +193bp 23.70-99 6.33% 5.15%
TD.PR.A 5.00% +196bp 23.45-00 6.59% 5.23%
TD.PR.S 5.00% +160bp 23.57-24.69 6.42% 4.86%

We’ll get another data point on Wednesday, when the TD 5.60%+274 settles.

4 Responses to “RY.PR.L Fixed-Reset Settles: Trades Like Five-Year”

  1. Annette says:

    I am looking forward too to see how my new TD 5.6% + 274 bps will do. I had also subscribed to the the TD 5.6 straight perps issued a year before IIRC such that they can only do better. What we now need is a new issue at much less advantageous terms to confirm to the market that those TD and RY Reset issues were one of a kind not to be seen again. I do hope to be right if this credit / liquidity crisis in in fact ending or nearing its end.

  2. […] New issue, settled yesterday. […]

  3. […] settlement of RY.PR.L provided one data point and here’s another … it looks like we may state fairly […]

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