4 Responses to “September 13, 2023”

1. stusclues says:

   September 14, 2023 at 9:03 am

   Intact announced today that “notes were issued with a principal amount of $400 million and bear interest at a fixed annual rate of 5.276% until maturity on September 14, 2054.”

   If they had issued a new fixed reset instead, they would have needed to offer GOC5+ 5.01% (per IVT). As I write the 5 year is 3.993%, so the FR would need to yield 9.0%!

   As seems generally agreed here, FRs are best compared to long bonds. This spread implies some serious hedging against the lower ranking in the capital stack. Warranted from a risk perspective? Hardly seems so.

2. jiHymas says:

   September 14, 2023 at 10:52 am

   … and, as I write this, TXPR is down nearly half a point and has set a new 52-week low on the day; ZPR has also set a new low.

   It strikes me that OSFI’s introduction of LRCNs and OTC-traded preferreds (and the fed’s fiddling with the tax treatment of dividends received by financial institutions) has had the effect of not only affecting the total market size of the preferred share market, but has also changed the balance of informed vs. uninformed investors in the public market, as institutional investors expend more time, money and attention on the the new markets.

3. DR says:

   September 14, 2023 at 11:43 am

   i don’t think one can underestimate the effect that crowding out has had on the pref market. that is to say, when 1 & 2 yr bank paper can yield 5.5%-6%, many have chosen to invest there and add in the stresses that high variable rates place on the highly levered variable rate borrowers (BPO).

   while i relish the idea of having a full reset cycle occur with GOC5yr at 4%, i believe the current inversion will continue to cause the crowding out.

   that being said, i have long felt that the “best case” for the pref market is one that balances out relatively high gov5yr with a lower overnight rate that eliminates much of the crowding out (and removes some of the credit concern strain on variable rate highly levered entities like BPO)

   ironically the forward curve is projecting just such an environment, albeit not for a couple years or so. that is o/n rates in the mid 3 range and a gently upward sloping curve from there.

4. September 20, 2023 « PrefBlog says:

   September 20, 2023 at 8:03 pm

   […] PerpetualDiscounts now yield 7.01%, equivalent to 9.11% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.48% on 2023-9-15 and since then the closing price has changed from 14.33 to 14.12, a decrease of 147bp in price, with a Duration of 12.08 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies an increase in yield of about 12bp since 9/15 to 5.60%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed sharply to 350bp from the 375bp reported September 13. […]