{"id":1804,"date":"2008-02-13T23:07:41","date_gmt":"2008-02-14T03:07:41","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=1804"},"modified":"2008-02-13T23:07:41","modified_gmt":"2008-02-14T03:07:41","slug":"recent-bondpreferred-performance","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=1804","title":{"rendered":"Recent Bond\/Preferred Performance"},"content":{"rendered":"

Assiduous Reader madequota<\/em> has asked on another post<\/a>:<\/p>\n

OK, one more question that\u2019s easy to ask, and hard to answer:<\/p>\n

In very general terms, I\u2019ve always believed that prefs (of the so-called perp variety especially) should behave, more or less, in sync with the 30 year bond. I\u2019m aware of the variety of specific differences between the two vehicles, but at the end of the day, these two investments are very similar in that the occurances of the daily market should have identical impact on both of them. Hence they should, at the very least, move in the same direction.<\/p>\n

Assuming my generalization is correct, why then do these things trade so often in opposite directions? For example, the US retail number came out today, and because it was marginally \u201cbetter than analyst\u2019s expectations\u201d, bonds got punished both in the US and Canada. But the prefs had a great day in Canada.<\/p>\n

Specifically then, why is the long bond getting creamed over the past week, while at the same time, thirst for perp prefs seems to be unquenchable?<\/p>\n

madequota<\/p><\/blockquote>\n

I am on the verge of doing serious work on spreads … though what I am calling “serious work” is what I would normally term as a product of the “Look, Mummy, I got a spreadsheet!” school of security analysis.<\/p>\n

One more month and I should have the HIMIPref\u2122 indices up to date, which will give the data I require to draw long term spread graphs. PerpetualDiscounts SHOULD trade like long corporates (NOT long Canadas!), PerpetualPremiums, Retractibles & OpRets SHOULD trade like short corporates – the first of these with a little slippage due to negative convexity.<\/p>\n

All I can really say is: spreads are volatile. And without some hot institutional money (even lukewarm institutional would be a help) to arbitrage corporates\/prefs, they’re going to stay volatile.<\/p>\n

Note that long corporates<\/a> are down about 2.52% YTD, while perpetualDiscounts are up about 2.67%. So go figure.<\/p>\n","protected":false},"excerpt":{"rendered":"

Assiduous Reader madequota has asked on another post: OK, one more question that\u2019s easy to ask, and hard to answer: In very general terms, I\u2019ve always believed that prefs (of the so-called perp variety especially) …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28],"tags":[],"class_list":["post-1804","post","type-post","status-publish","format-standard","hentry","category-spreads-to-bonds"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1804","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1804"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/1804\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1804"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1804"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1804"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}