Manulife - 5 Year Rate Reset Preferreds, 5.60%

tojo · 2009-05-25

Fyi, to any of you fixed income junkies out there. New offering from Manulife: 5 year rate reset preferred shares, resettable after 5 years to 5-Year Government of Canada Bond Yield plus 3.23%. Nothing spectacular, but an alternative to park some cash. No broker fees if you can get in as a new offering.

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lb71

· #2 · May 26, 2009

A lot of the financials are selling similar preferreds these days. They are usually five year terms with a premium over a yield at the end of the term. The premium's are usually quite generous, so the expectation is the companies will recall them in five years. The financials are considering it short term debt to prop up their balance sheets.

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tojo

Discussion Starter · #3 · May 26, 2009 (Edited)

lb71 said:
A lot of the financials are selling similar preferreds these days. They are usually five year terms with a premium over a yield at the end of the term. The premium's are usually quite generous, so the expectation is the companies will recall them in five years. The financials are considering it short term debt to prop up their balance sheets.

Agreed, after 5 years, if rates are high, it will be called as the premium will be too high. If rates are low, it will be called to refinance as necessary under lower rates. This is why they trade near or above par on the market. This offering only lasted 30 minutes on the new offerings board. Some are treating them like 5 year tax-advantaged GICs with good liquidity....

Disclosure: applied for 100 paltry shares...

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leslie

· #4 · May 26, 2009

I prefer to buy the pre-existing preferred that are trading at a discount to face value, so that I get both the same yield PLUS possible capital gains.

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tojo

Discussion Starter · #5 · May 26, 2009

leslie said:
I prefer to buy the pre-existing preferred that are trading at a discount to face value, so that I get both the same yield PLUS possible capital gains.

Yes, I like those as well, but already have way too many of them. They are however, sensitive to interest rate changes. Fixed-resets, because of the high probability of a call at par after five years, are a bit more resistant to pricing fluctuations.

I very much treat them as part of my cash component (I know I shouldn't), because of their stability and liquidity.

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joes_k

· #6 · May 26, 2009

Let us know if you get any.

On the discount brokerage side I haven't been able to for the last couple of issues. But have been able to get a few through my full service broker now and then.

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ethos1

· #7 · May 27, 2009

leslie said:
I prefer to buy the pre-existing preferred that are trading at a discount to face value, so that I get both the same yield PLUS possible capital gains.

Well done that is exactly one of the ways to buy preferreds, not just on new issue

There are lots of discounted preferreds out right now both on the TSE and the NYSE yielding 6 -10% with an end pick up

Right now a simple one in Canada is the BMO.L series 15 yielding over 6% trading at $23.75 Cdn

Then on the NYSE you have DILLARD CAPITAL TRUST PC (symbol DDT) yielding upper 15%

http://www.profitspi.com/stock-quote/ddt.aspx

or DEUTSCHE BK CP VIII 6.37 (symbol DUA) yielding around 10%

http://www.profitspi.com/stock-quote/dua.aspx

depends on what turns you on and what your investment scope is

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tojo

Discussion Starter · #8 · May 27, 2009 (Edited)

ethos1 said:
Well done that is exactly one of the ways to buy preferreds, not just on new issue

There are lots of discounted preferreds out right now both on the TSE and the NYSE yielding 6 -10% with an end pick up

I went over this with you before, you cannot compare perpetuals to fixed resets - apples to oranges my friend http://www.canadianmoneyforum.com/showpost.php?p=3640&postcount=31.

I can easily pick up perpetuals yielding 6.5 - 7.5% on the market right now, if that is what I'm looking for

.

Some perpetual quick picks (all investment grade prefs):
http://www.globeinvestor.com/servlet/Page/document/v5/data/stock?id=POW.PR.B-T&pi_sponsor=
http://www.globeinvestor.com/servlet/Page/document/v5/data/stock?id=CL.PR.B-T&pi_sponsor=
http://www.globeinvestor.com/servlet/Page/document/v5/data/stock?id=GWO.PR.H-T&pi_sponsor=
http://www.globeinvestor.com/servlet/Page/document/v5/data/stock?id=SLF.PR.B-T&pi_sponsor=
http://www.globeinvestor.com/servlet/Page/document/v5/data/stock?id=SLF.PR.D-T&pi_sponsor=

SLF.PR.D is especially appealing, in the event of a call, you'll get a good capital gain...

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tojo

Discussion Starter · #9 · May 27, 2009 (Edited)

ethos1 said:
Then on the NYSE you have DILLARD CAPITAL TRUST PC (symbol DDT) yielding upper 15%

http://www.profitspi.com/stock-quote/ddt.aspx

or DEUTSCHE BK CP VIII 6.37 (symbol DUA) yielding around 10%

http://www.profitspi.com/stock-quote/dua.aspx

depends on what turns you on and what your investment scope is

These look interesting, but the beta scares me and the fact they trade at a huge range (all the way down to $3 - $4 / share at the low) makes them a bit volatile for fixed income....investment grade? Doubt it....

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ethos1

· #10 · May 27, 2009

tojo said:
These look interesting, but the beta scares me and the fact they trade at a huge range (all the way down to $3 - $4 / share at the low) makes them a bit volatile for fixed income....investment grade? Doubt it....

early March was a wondeful time to buy

even the YPG.B that you bought was $11.75 in March - perpetual right?

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tojo

Discussion Starter · #11 · May 27, 2009

ethos1 said:
early March was a wondeful time to buy

even the YPG.B that you bought was $11.75 in March - perpetual right?

No! YPG.PR.B is a retractable, non-investment grade preferred share issued by Yellow Pages. Retractable June 2017. This means I have the option at maturity to redeem my shares at $25.00 each. Again, it is at my discretion, not yellow pages (ie. a call by the company).

I bought YPG.PR.B @ 11.75 / share. A 43% return so far, and I haven't even received my first dividend yet. My yield at purchase is 10.7% and yield to maturity = 17.5% annualized. Yes it was a nice time to buy...

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leslie

· #12 · May 27, 2009

tojo said:
You cannot compare perpetuals to fixed resets.

Don't see why not. You trade off upside potential against downside protection.

The new reset issues bought at par offer next to no upside (unless the market mistakenly forgets the present value of the capital loss when called. Given the assumption that spreads (not interest rates) will fall, they offer very little downside risk, because they will be called.

The pre-existing perpetuals trading at a discount to par value, offer the same current yield. Assuming a reduction in interest rates (not spreads) they will give you upside capital gains. I don't think yields will ever end up as low as what they were issued at, but there is still upside room left.

Certainly the pre-existing issues were the better purchase in December when yields were 9-10%. Now the yields are only 7-8%. About a 30% move up.

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tojo

Discussion Starter · #13 · May 27, 2009 (Edited)

leslie said:
Don't see why not. You trade off upside potential against downside protection.

The new reset issues bought at par offer next to no upside (unless the market mistakenly forgets the present value of the capital loss when called. Given the assumption that spreads (not interest rates) will fall, they offer very little downside risk, because they will be called.

The pre-existing perpetuals trading at a discount to par value, offer the same current yield. Assuming a reduction in interest rates (not spreads) they will give you upside capital gains. I don't think yields will ever end up as low as what they were issued at, but there is still upside room left.

Certainly the pre-existing issues were the better purchase in December when yields were 9-10%. Now the yields are only 7-8%. About a 30% move up.

I think it is a matter of diversification. I am fully loaded with perpetual issues, to the point that rising interest rates becomes a risk to a large part of my portfolio . It's understood that the new reset issues do not offer any upside potential, but downside is also limited as well, due to the high likelihood that they will be called in five years time and you get to collect 5 - 6 % while you wait. To me I use it to park some cash. They also tend to have good liquidity as well. Agree that with falling spreads, which we are experiencing now, they will rise in value, but do you think this will be sufficient to trigger calls on existing perpetuals - I suspect it may happen with those that pay a higher yield at par. Regardless, I feel there is more risk with rising rates than falling - there is not much more room to fall. If you look at the floating rate prefs, they are starting to make a move up...a clue that rates may be rising? BTW, I don't think you can find too many investment grade perpetuals yielding 7 - 8% ... the best you can do now is around 6.5%

Disclosure: Allocated small (100 shares) position new MFC resets.

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