Thoughts on Canadian preferred shares (Reply) | Value Investing News

Thoughts on Canadian preferred shares (Reply)

  • Currently the 5yr government yield is 121bps – at present rates you’ll get a reset at 6.2%, but you can be sure if 5yr yields go down to 60bps (which is conceivable and mirrors the lows a few years back) TRP.PR.B will be trading at around $7.60-ish, all things being equal, or almost another 25% of capital loss!
  • Going from 2.0% to 1.5% is a 25% difference – low-rate reset preferred shares such as TRP.PR.B are getting absolutely killed because of the small denominator.
  • You can dampen the risk by buying rate resets that are further out in time (e.g. resetting 3, 4 years from now) but they still trade quite sensitively to the overall 5yr government bond rate.
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