Canadian Western Bank Preferred Shares report updated

The report for the Canadian Western Bank rate reset preferred shares is updated. These preferred shares now yield 5.7%. The reset date is not until April 2019. At that point if the five year Canada bond rate remains at about 0.86% then the distribution on these shares would drop but the yield on the current price would still be attractive (assuming the bank is still financially strong) at 4.7%. In fact, if the government bond rates remain at about today’s low levels in three years then I would think that all fixed income yields would come down and that 4.7% might be seen as very attractive.

There is no doubt that investors have been “burned” by rate reset preferred shares. They were bought because they would perform well if interest rates rose which is what was expected. Instead, rates decreased and these shares fell in price as their reset distributions would fall with lower rates. It appears that the prices were driven lower than justified as many investors “bailed out” due to the surprise losses. (“Cleverly” locking in such losses).

Rate reset shares have had some recovery in the past month. They should increase in price if the FED finally raises interest rates in December.