{"id":31797,"date":"2016-01-01T02:30:14","date_gmt":"2016-01-01T07:30:14","guid":{"rendered":"http:\/\/prefblog.com\/?p=31797"},"modified":"2016-01-01T02:30:14","modified_gmt":"2016-01-01T07:30:14","slug":"gwo-pr-o-listed-no-trading-wide-spread","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=31797","title":{"rendered":"GWO.PR.O Listed: No Trading, Wide Spread"},"content":{"rendered":"

As I reported previously, there was a 15% conversion to GWO.PR.O<\/a>, the FloatingReset, from GWO.PR.N, the FixedReset, following the latter issue’s reset to 2.176% for the next five years<\/a>, a reduction of just over 40% in the dividend rate.<\/p>\n

GWO.PR.O will pay 3-month bills +130bp, reset quarterly. It will be tracked by HIMIPref™ and has been assigned to the FloatingReset subindex.<\/p>\n

Note that since the issue is issued by an insurance holding company and is not convertible into common at the option of the issuer, I consider it to have a “Deemed Maturity” 2025-1-31 (this date may change in the future). This is due to my belief that OSFI will eventually extend the Non-Viability Contingent Capital (NVCC) rules to insurers and insurance holding companies. There is a brief explanation of this on the PrefLetter website<\/a> (under the heading “DeemedRetractibles”) and with more detailed argument and progress reports on international negotiations in every edition of PrefLetter.<\/p>\n

I will note that the market does not share my views regarding future application of the NVCC rules insurers and insurance issues trade very similarly to perpetuals.<\/p>\n

GWO.PR.O was listed today although, as is normally the case, there was no trading because brokerage customers haven’t actually seen the shares in their accounts yet – and, presumably, having recently made the decision to convert, are less likely than most to want to sell.<\/p>\n

The issue closed with the extraordinary quote of 13.10-21.00, 10×2. I have not checked whether this lamentable state of affairs is due to inadequate Toronto Stock Exchange reporting<\/a> or inadequate Toronto Stock Exchange supervision of market-makers<\/a>.<\/p>\n

Vital Statistics are:<\/p>\n

\n\n\n
GWO.PR.O<\/td>\nFloatingReset<\/td>\nYTW SCENARIO
\nMaturity Type : Hard Maturity
\nMaturity Date\t: 2025-01-31
\nMaturity Price : 25.00
\nEvaluated at bid price : 13.10
\nBid-YTW : 9.80 %<\/td>\n<\/tr>\n<\/table>\n<\/div>\n

Strong Pair theory<\/a>, for which a calculator is available<\/a>, allows us to examine the consistency of the bid price of GWO.PR.N with GWO.PR.O; they are interconvertible in the future. The bids of 13.99 and 13.00, respectively, allow us to gauge that total returns over the next five years will be equal if the three-month Bill Yield exceeds -0.07%. While this is a laughably low figure, it is not as low as that of other investment-grade FixedReset\/FloatingReset pairs.<\/p>\n

\"pairs_FR_151231A\"<\/a>
Click for Big<\/i><\/div>\n

Whatever one might think of the probability of the bill yield averaging over -0.07% over the next five years, it is clearly rational to believe that the break-even yield will decline in the future, to become more comparable to the break-even yield of the issues’ peers. This implies an expectation that the bid price of the FloatingReset, GWO.PR.O, will decline in the next little while relative to that of GWO.PR.N [note the word “relative”! They could both increase or both decrease!]. In fact, keeping the bid price of GWO.PR.N constant at 13.99, a decline of the bid for GWO.PR.O to 11.50 will bring the break-even yield of the pair to -1.50%, the centerpoint of the chart.<\/p>\n

In other words, I suggest that although GWO.PR.O is currently cheap relative to GWO.PR.N, there is good reason to believe it will get cheaper!<\/p>\n","protected":false},"excerpt":{"rendered":"

As I reported previously, there was a 15% conversion to GWO.PR.O, the FloatingReset, from GWO.PR.N, the FixedReset, following the latter issue’s reset to 2.176% for the next five years, a reduction of just over 40% …<\/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-31797","post","type-post","status-publish","format-standard","hentry","category-issue-comments"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/31797","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=31797"}],"version-history":[{"count":0,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/31797\/revisions"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=31797"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=31797"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=31797"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}