Regards Geoff 1309.
not a strategy. Moving to gilts/bonds. Raptor.
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hiriskpaul wrote: BBYB is relatively safe because Balfour have a large infrastructure portfolio they could dip into should they have difficulty financing the redemption of BBYB.
Alaric wrote:hiriskpaul wrote: BBYB is relatively safe because Balfour have a large infrastructure portfolio they could dip into should they have difficulty financing the redemption of BBYB.
Same sector as Carillion though and they even contemplated a merger some years ago.
https://www.theguardian.com/business/20 ... rger-talks
AleisterCrowley wrote:What sort of effect would a base rate rise (say 25 bps) have on pref capital values?
AleisterCrowley wrote:Interesting post highriskpaul - thanks. I have looked at prefs in the past (and have a few 'experimental' holdings) but need to revisit as I have a fairly large inactive cash pile.
What sort of effect would a base rate rise (say 25 bps) have on pref capital values?
Where's the best place to find current rates ? I have used fixedincomeinvestor.co.uk in the past
dlp6666 wrote:I've not looked under the bonnet of these two USD stocks but their c.7% yields look very tempting:
FFC (Flaherty & Crumrine Preferred Securities Inc Fund)
SPFF (Global X Funds SuperIncome Preferred ETF)
Any thoughts would be appreciated (I'm sure I'm missing some important 'cautionary' information!).
AleisterCrowley wrote:An additional risk which can arise with both Prefs and PIBs is that the issuer can find some small print allowing them to redeem at par.
Worrying.... how well hidden is that sort of clause normally? Has anyone trawled the prospectuses and pulled out the 'redeem at par' into a nice simple Y/N ?
hiriskpaul wrote:AleisterCrowley wrote:Interesting post highriskpaul - thanks. I have looked at prefs in the past (and have a few 'experimental' holdings) but need to revisit as I have a fairly large inactive cash pile.
What sort of effect would a base rate rise (say 25 bps) have on pref capital values?
Where's the best place to find current rates ? I have used fixedincomeinvestor.co.uk in the past
Sorry for not replying, I had not noticed the comments on this thread.
Hard to say precisely what would happen to undated prefs/PIBS when interest rates rise. Possibly not much though. 10 years ago base rates were 5.5%, but NWBD was about 143, implying a yield of about 6.3%. So not significantly different to today. What matters much more than base rates are 1) changes in long gilt yields and 2) changes in the credit spread. The 4% 2060 gilt has a gross redemption yield of about 1.7%, implying credit spread of between 3.8% and 4.5%. Long gilt yields in 2007 were about 4.5%, implying a comparable credit spread of only 1.8% at the time. Banks and building societies are being forced to take on more capital and behave more prudently now than before the financial crisis. In addition, these sorts of prefs are being underpinned by CoCos, which supply capital ahead of a bank failure. In theory then the prefs should carry less risk than historically they have done. On the other hand 2007 was a crazy time with practically no premium being placed on risk.
On balance I am happy to hold and not too concerned about rises in base rates, but would probably substantially reduce my holdings should the credit spread above long dated gilts get below 2%.
hiriskpaul wrote:Having been a victim of Lloyds reprehensible behaviour with respect to the ECNs, I am very alert to the possibility of the issuer exploiting some loophole.
AleisterCrowley wrote:hiriskpaul wrote:AleisterCrowley wrote:Interesting post highriskpaul - thanks. I have looked at prefs in the past (and have a few 'experimental' holdings) but need to revisit as I have a fairly large inactive cash pile.
What sort of effect would a base rate rise (say 25 bps) have on pref capital values?
Where's the best place to find current rates ? I have used fixedincomeinvestor.co.uk in the past
Sorry for not replying, I had not noticed the comments on this thread.
Hard to say precisely what would happen to undated prefs/PIBS when interest rates rise. Possibly not much though. 10 years ago base rates were 5.5%, but NWBD was about 143, implying a yield of about 6.3%. So not significantly different to today. What matters much more than base rates are 1) changes in long gilt yields and 2) changes in the credit spread. The 4% 2060 gilt has a gross redemption yield of about 1.7%, implying credit spread of between 3.8% and 4.5%. Long gilt yields in 2007 were about 4.5%, implying a comparable credit spread of only 1.8% at the time. Banks and building societies are being forced to take on more capital and behave more prudently now than before the financial crisis. In addition, these sorts of prefs are being underpinned by CoCos, which supply capital ahead of a bank failure. In theory then the prefs should carry less risk than historically they have done. On the other hand 2007 was a crazy time with practically no premium being placed on risk.
On balance I am happy to hold and not too concerned about rises in base rates, but would probably substantially reduce my holdings should the credit spread above long dated gilts get below 2%.
Thanks - that makes sense , I think -....I had to look up CoCo...appears to be equivalent to an ECN?
If the issuer runs intro trouble how will the prefs be affected compared to equity. ? Presumably as the apparent risk increase the pref prices will fall to provide a greater yield over Gilts, with equities heading south as well. Probably an impossible question to answer but if Megabank plc shares drop 30% what would be the expected parallel drop in Megabank undated prefs ? From memory they are higher up the pecking order so 'safer' than equities?
I do have problems with the dual nature of prefs.
Time for me to do more research perhaps - anything to avoid 'work' !
Alaric wrote:hiriskpaul wrote:Having been a victim of Lloyds reprehensible behaviour with respect to the ECNs, I am very alert to the possibility of the issuer exploiting some loophole.
That was one of the loopholes, there was something else involving PIBs previously issued by the Bristol & West Building Society when the Bank of Ireland who had taken over Bristol & West ran into difficulties. There's uncertainty around anything issued by the Co-op Bank, but I don't think that was anything more untoward than poor management.
hiriskpaul wrote:Issues such as management incompetence, spivvy behaviour and outright fraud can hit many investments. Prefs and bonds are not immune to the fallout from that, but holders don't usually don't come off quite as badly as ordinary shareholders.
UncleEbenezer wrote: A somewhat-comparable risk is reversion to a different coupon: something that is AIUI common among PIBs. If a coupon reverts from 10% to base rate + 0.5%, your income takes a hit! The trick with both these risks is to look at the maturity date on the asset in question, on a site such as fixed income investor. You know something happens (probably at the company's option) on that date, so check the prospectus for what that is, and decide if it's something you're OK with. Always assume the worst, because if the company doesn't exercise their right to reduce the burden to them of your high income, they're almost certainly in trouble!
UncleEbenezer wrote:hiriskpaul wrote:Issues such as management incompetence, spivvy behaviour and outright fraud can hit many investments. Prefs and bonds are not immune to the fallout from that, but holders don't usually don't come off quite as badly as ordinary shareholders.
Surely the generic situation in cases like you describe is that the issuer gets into trouble, and a rescuer holds you over a barrel as they impose their own terms on a rescue.
You don't even have to be an investor to feel the fallout. Look at what QE did to (the purchasing power of) pension pots and Doris's savings: that's actually more arbitrary and despotic than the Irish government imposing its terms - for which they had to convince a court.
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