{"id":192,"date":"2006-10-20T13:15:01","date_gmt":"2006-10-20T17:15:01","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=192"},"modified":"2006-10-20T13:15:01","modified_gmt":"2006-10-20T17:15:01","slug":"ryprk-2","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=192","title":{"rendered":"RY.PR.K"},"content":{"rendered":"<p>We had a look at <a href=\"http:\/\/www.prefblog.com\/?p=181\">POW.PR.A<\/a> yesterday, as an example of an issue in the PerpetualPremium index with a negative YTW; now let&#8217;s look at RY.PR.K (previously commented upon on\u00a0<a href=\"http:\/\/www.prefblog.com\/?p=86\">August 22<\/a>).\u00a0This is particularly interesting in light of the <a href=\"http:\/\/www.prefblog.com\/?p=180\">RY.PR.O<\/a> redemption recently announced. RY.PR.O was also at an intermediate stage of its call schedule and\u00a0also had a call price declining by $0.25 p.a. The important differences between these issues\u00a0are:<\/p>\n<ul>\n<li>the &#8220;K&#8221; is retractable and is therefore included as debt on the balance sheet. RY.PR.O is perpetual and therefore may be included in Tier 1 Capital.<\/li>\n<li>the &#8220;K&#8221; has an annual dividend of $1.175; the &#8220;O&#8221; pays $1.375.<\/li>\n<\/ul>\n<p>This issue was quoted at the close of business, 2006-10-19, at $25.66-62 and has the embedded option schedule:<\/p>\n<ul>\n<li>Redemption\u00a0\u00a0\u00a0\u00a0\u00a0 2003-08-24\u00a0\u00a0\u00a0\u00a0\u00a0 2004-08-23\u00a0 26.000000<\/li>\n<li>Redemption\u00a0\u00a0\u00a0\u00a0\u00a0 2004-08-24\u00a0\u00a0\u00a0\u00a0\u00a0 2005-08-23\u00a0 25.750000<\/li>\n<li>Redemption\u00a0\u00a0\u00a0\u00a0\u00a0 2005-08-24\u00a0\u00a0\u00a0\u00a0\u00a0 2006-08-23\u00a0 25.500000<\/li>\n<li>Redemption\u00a0\u00a0\u00a0\u00a0\u00a0 2006-08-24\u00a0\u00a0\u00a0\u00a0\u00a0 2007-08-23\u00a0 25.250000<\/li>\n<li>Redemption\u00a0\u00a0\u00a0\u00a0\u00a0 2007-08-24\u00a0\u00a0 INFINITE DATE\u00a0 25.000000<\/li>\n<li>Retraction\u00a0\u00a0\u00a0\u00a0\u00a0 2008-08-24\u00a0\u00a0 INFINITE DATE\u00a0 25.000000<\/li>\n<\/ul>\n<p>So it is currently redeemable at $25.25 and, while one can never be absolutely certain of anything in this world, the idea that it will be redeemed prior to becoming retractible in 2008 is a safer bet than most.<\/p>\n<p>These options, run through the HIMIPref\u2122 software, give rise to the following <a href=\"http:\/\/www.prefshares.com\/glossary.html#optionCalculationList\">optionCalculationList<\/a>:<\/p>\n<ul>\n<li>Call\u00a0 2006-11-18 YTM: -6.24 % [Restricted: -0.51 %] (Prob: 31.99 %)<\/li>\n<li>Call\u00a0 2007-09-23 YTM: 2.61 % [Restricted: 2.42 %] (Prob: 1.14 %)<\/li>\n<li>Soft Maturity\u00a0 2008-08-23 YTM: 3.64 % [Restricted: 3.64 %] (Prob: 66.87 %)<\/li>\n<\/ul>\n<p>So HIMIPref\u2122 is accounting for the possibility of an immediate call (one <a href=\"http:\/\/www.prefshares.com\/glossary.html#maturityNoticePeriod\">maturityNoticePeriod<\/a> hence) at $25.25, which will result in a realized yield of -6.24%.\u00a0This is a very odd issue, quite frankly! I noticed it when I was working on my article about Yield-to-Worst as a predictor of future returns (<a href=\"http:\/\/www.himivest.com\/media\/advisor_0606.pdf\">A Call, too, Harms<\/a>) &#8230; at one of the year-ends studied it was among the issues with the lowest YTW but was not called, making my point a little less emphatic, but returning poorly over the ensuing year anyway. I drew attention at that point to the issue:<\/p>\n<blockquote><p>The other retractable in the low yield-to-worst lists for 2000-2002 that was not called was RY.PR.K. Although it managed to avoid the worst case scenario (a call nine months subsequent to its appearance in the list), it underperformed the index by a cumulative total of about 6% in the following three years. Clearly, dodging the redemption bullet was not, in and of itself, a great cause for celebration!<\/p><\/blockquote>\n<p align=\"left\">The continuing\u00a0oddness can be illustrated over the past year by looking at a <a href=\"http:\/\/www.prefblog.com\/wp-content\/uploads\/2006\/10\/RYPRK_Price.pdf\">graph of the bid price over the past year<\/a>. The high prices for this issue lead to YTWs that have been negative <a href=\"http:\/\/www.prefblog.com\/wp-content\/uploads\/2006\/10\/RYPRK_YTW.pdf\">more often than not<\/a>.<\/p>\n<p align=\"left\">I don&#8217;t understand! Fortunately, however, I don&#8217;t need to understand. Knowing where to find the &#8220;Sell&#8221; button\u00a0is good enough for me!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>We had a look at POW.PR.A yesterday, as an example of an issue in the PerpetualPremium index with a negative YTW; now let&#8217;s look at RY.PR.K (previously commented upon on\u00a0August 22).\u00a0This is particularly interesting in &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"class_list":["post-192","post","type-post","status-publish","format-standard","hentry","category-issue-comments"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/192","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=192"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/192\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=192"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=192"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=192"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}