Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Fixed to Float Preferred Stock
Old 11-03-2013, 03:13 PM   #1
Recycles dryer sheets
Richard4444's Avatar
 
Join Date: Jul 2011
Location: South Florida
Posts: 402
Fixed to Float Preferred Stock

I have been reading about Preferred Stocks that are 'Fixed to Float,' that is, they have a fixed interest rate (typical would be ~ 4 -6 %) and a date upon which the interest rate floats (Libor + x%) and are usually callable upon that date. Therefore, the interest rate risk is not the same as a perpetual preferred stock. This seems like a fairly safe (many are BBB+) conservative instrument. Any opinions? Thanks !
__________________

__________________
Richard4444 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-03-2013, 08:51 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
I am not sure they are much better than regular preferred stock. If interest rates go down and/or the credit rating of the firm goes up, they call the bond. If the credit rating of firm goes down and/or interest rates go up, they pay the floating rate.

One thing is sure the firm will do what is in the best interest of firm regard interest rates. The thing to understand as the buyer of a preferred stock you are assuming both credit risk and interest rate risk when you purchase a preferred stock. Now as long as you are compensated for the risk no problem..


Personally, I'd only pay a modest premium perhaps 25 basis points lower yield to have such a feature vs a fixed rate preferred.
__________________

__________________
clifp is offline   Reply With Quote
Old 11-03-2013, 08:52 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Quote:
Originally Posted by Richard4444 View Post
I have been reading about Preferred Stocks that are 'Fixed to Float,' that is, they have a fixed interest rate (typical would be ~ 4 -6 %) and a date upon which the interest rate floats (Libor + x%) and are usually callable upon that date. Therefore, the interest rate risk is not the same as a perpetual preferred stock. This seems like a fairly safe (many are BBB+) conservative instrument. Any opinions? Thanks !
if I understood what you said, you will get to keep it if it is a dog, but they will call it away if their position has strengthened.

Sounds not too appealing.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is online now   Reply With Quote
Old 11-04-2013, 06:17 AM   #4
Recycles dryer sheets
Richard4444's Avatar
 
Join Date: Jul 2011
Location: South Florida
Posts: 402
It seems to function like a bond and then goes with a floating interest rate to offset the long term interest rate risk. So as part of the Bond AA, in the case of one going from 5% fixed (for 4 years) then switching to Libor + 3% float, for 4 years one gets 5% and then Libor +3% which should be fairly similar and the price of the bond doesn't fluctuate much. Sounds reasonable to me as opposed to a long term bond. <--- Still learning
__________________
Richard4444 is offline   Reply With Quote
Old 11-04-2013, 06:34 AM   #5
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,429
Quote:
Originally Posted by Richard4444 View Post
It seems to function like a bond and then goes with a floating interest rate to offset the long term interest rate risk. So as part of the Bond AA, in the case of one going from 5% fixed (for 4 years) then switching to Libor + 3% float, for 4 years one gets 5% and then Libor +3% which should be fairly similar and the price of the bond doesn't fluctuate much. Sounds reasonable to me as opposed to a long term bond. <--- Still learning
More like a stock with a variable dividend, tied to an interest rate index. The market value of a preferred stock is much less stable than the market value of a bond with similar rate of return.
__________________
MichaelB is online now   Reply With Quote
Old 11-04-2013, 06:43 AM   #6
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
Individual preferreds have the same risk as individual stocks with usually much less upside. I used to have some in my fixed income portfolio but 2008 cured me of that. I didn't end up losing much money but "safe" became less assured. And, safe was the purpose fo the fixed income portion.
__________________

__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 11:07 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.