If a yield seems too good to be true …

Many thanks to John Heinzl of the Globe for quoting me in his piece If a yield seems to good to be true, published 2021-7-30:

Rather than continue to pay a 10.25-per-cent coupon on $300-million of bonds that are no longer serving their initial purpose, CIBC would rather redeem them. Notwithstanding the original 2039 call date, CIBC reserved the right to redeem the notes at face value earlier if there was a “regulatory event” that affected the notes’ eligibility as Tier 1 capital.

And that’s exactly what CIBC intends to do. In February, 2020, the bank announced that, subject to regulatory approval, it “currently expects to exercise a regulatory event redemption right in its fiscal 2022 year … meaning that this redemption right could occur as early as November 1, 2021.”

CIBC isn’t alone. Toronto-Dominion Bank has said it also expects to exercise a regulatory event redemption right on its TD Capital Trust IV Notes – Series 2 as early as Nov. 1.

“They’re all going to go. They’re all dead,” James Hymas, president of Hymas Investment Management, said of the capital trust notes. The market has understood this for years, which is why the price of the bonds has gradually fallen.

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