Research: Break-Even Rate Shock

Investors will often purchase FixedResets in preference to PerpetualDiscounts because “there is better inflation protection”. In this essay, derived from the appendix to the June, 2009, PrefLetter, I attempt to quantify and discuss this effect.

The related Break-Even Rate Shock Calculator has been published previously.

Look for the research link!

This entry was posted on Tuesday, October 27th, 2009 at 7:20 pm and is filed under Publications. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

11 Responses to “Research: Break-Even Rate Shock”

  1. PrefBlog » Blog Archive » New Issue: BAM FixedReset 5.40%+230 says:
    January 5, 2010 at 6:19 pm

    […] BAM.PR.M & BAM.PR.N, closed last night yielding around 6.80%, therefore the Break-Even Rate Shock for the issue, according to the BERS Calculator is a very high […]

  2. PrefBlog » Blog Archive » New Issue: FTS FixedReset 4.25%+145 says:
    January 11, 2010 at 1:14 pm

    […] Break-Even Rate Shock for the issue against FTS.PR.F, according to the BERS Calculator is a rather high […]

  3. PrefBlog » Blog Archive » National Post Cheers on FixedResets says:
    January 14, 2010 at 5:48 pm

    […] of a rise in yields, you pay through the nose for that benefit; the bond market, as a whole, ascribes zero value to this benefit. And the credit risk is forever. Should Bad Things happen to Groupe Aeroplan – although it is hard […]

  4. PrefBlog » Blog Archive » Carrick: Rising inflation set to shake up sleepy preferreds says:
    February 20, 2010 at 8:05 pm

    […] nice things cost money. Inflation protection is nice. And it costs money, as I have discussed in my essays on break-even rate shock. Naturally, having calculated the cost, one can quite legitimately take the view that it’s […]

  5. PrefBlog » Blog Archive » New Issue: TRP FixedReset 4.00%+128 says:
    March 4, 2010 at 12:03 pm

    […] subsidiary, closed last night at 48.80-86 and 48.80-90, respectively, to yield 5.74-73%. The Break-Even Rate Shock on this issue is therefore an astonishing 266bp – and the straights used for this calculation, […]

  6. New Issue: BNS FixedReset 3.85%+100 « PrefBlog says:
    March 29, 2010 at 1:22 pm

    […] Rate Shock Calculator with values of 5.91% yield on BNS Straights and a 5-year term to reset, the Break-Even Rate Shock for this issue is a stunning […]

  7. New Issue: EMA FixedReset 4.40%+184 « PrefBlog says:
    May 25, 2010 at 11:13 pm

    […] but we do what we can), which are currently trading to yield about 6.2%. Plugging that in to the BERS Calculation routine shows a Break-Even Rate Shock of 277bp; down significantly from SLF.PR.G at 384bp and BNS.PR.Y at […]

  8. New Issue: TRP FixedReset 4.40%+154 « PrefBlog says:
    June 17, 2010 at 11:47 am

    […] to yield about 5.85% which, assuming we can consider the credits to be identical, results in a Break Even Rate Shock of 222bp. This compares to 277bp for EMA.PR.A; SLF.PR.G at 384bp. March’s issue of TRP.PR.B […]

  9. New Issue: GWO FixedReset 3.65%+130 « PrefBlog says:
    November 16, 2010 at 12:13 am

    […] Break Even Rate Shock Calculator: PD Yield 5.40%, FR Spread -1.75%, Term 5 Years and come up with a Break Even Rate Shock of 257bp, which seems pretty […]

  10. New Issue: BAM FixedReset 4.60%+180 « PrefBlog says:
    January 21, 2011 at 9:17 am

    […] 2011-1-21: The Break Even Rate Shock on this issue is […]

  11. Research: Break-Even Rate Shock « PrefBlog says:
    May 30, 2022 at 10:05 pm

    […] The related Break-Even Rate Shock Calculator has been published previously, as has the Moneyletter version of this discussion. […]

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