Barry Critchley was kind enough to mention me in his piece Assessing the value of the minimum reset yield:
The minimum rate reset feature has some value for the investor and could become real value in five years if the five-year Canada bond rate is below the current five-year rate. The question is whether investors are being rewarded now.
James Hymas, portfolio manager of the Malachite Aggressive Preferred Fund and publisher of the PrefBlog thinks they’re not. “I think it’s overly reflective in the price, but given the current yield on five-year Canada bonds (around 1.70 per cent) the current value is minimal.”
Hymas said the minimum reset has value if in five years, the five-year Canada rate is below 1.70 per cent, a level that’s “significantly below the target inflation rate,” of two per cent set by the Bank of Canada, and not far from the record low five-year rate.
In Hymas’s view, a coupon that starts with a five is required. In the meantime, he says that better value lies in the secondary market.