Comments (5)

  1. Most fixed for floating debt has punitive float provisions, and thus most will be called before they float — the only ones that will go to floating are those where credit has deteriorated — and typically that debt is subordinated, so credit losses would be a bigger reason for price declines.

    The bonds in graph 2 of page 7 likely didn’t decline much because the time to call is short, not because they are anticipating a period of floating. I could be wrong though — are those bonds that are floating now?

    1. Lindsay Hall says:

      Dear, David:

      The hybrid bonds within this chart have actually trended up over this period as opposed to going down. It’s true the time to call is short for some of these bonds, but that in itself does not mean they will get called. If we assume the credit quality remains the same, one of the key characteristics is what the bond pays in addition to libor. Bonds with a lower-than-market spread (once they float) are less likely to get called, and thus, typically trade at a discount to par. The bonds with higher spreads to libor assuming a similar credit rating are quite likely to get called, and thus typically trade at premiums. The bonds we used are actually a split between higher and lower spreads. Over this time frame, both set of bonds have actually traded higher. We believe the key reason both bond types have trended higher is the surge in libor rates and shift in expectations towards a faster rate hike campaign. In addition, credit spreads have tightened, which have also helped these bonds as well.

      Hope this helps and thanks for the question.

      Evergreen Investment Team

  2. Dwight Kensil says:

    How do i sign up for this report? It’s excellent.

    1. Lindsay Hall says:

      Hello Dwight, please send your email address to jliu@evergreengavekal.com and she can set you set up for our weekly newsletters. Thank you!

  3. Ed Bowles says:

    One of the best summaries, Thank you for the concise report.

Leave a Reply

Your email address will not be published. Required fields are marked *