47 thoughts on “Bank of America Prices Preferred Issue”

  1. I added a small position in HFRO/PRA. At 5.375% and A1 credit rating, this CEF is very well priced at about $25.12. Next dividend payment is 9-30.

    Not only is this a better rate than Capital One & Bank of America it is a cumulative dividend.

    1. SteveA–I added HFRO-A yesterday–just because. Had a modest position and not finding anything else of quality with my coupon specs–probably as good as anything at this time.

    1. Good point and for that reason alone, I held up on this one at a meager 5%. If rates continue to rise, it will get hammered badly.

  2. Pricing appears to be in line with the uncallable BAC-L which yields about 5% after accounting for accrued div. I’d still rather have BAC-L than this new issue as the uncallable feature has some value.

  3. Bought some on Merrill. Of course they don’t make it easy. You get a ‘symbol can not be traded’ message but you can still request an authorization number. I requested, used the number returned, and the trade took.

  4. Question: Which is a better buy
    BAC-M 25.94 YIELDING 5.14%….THIS IS A 5.375% ISSUE

    1. Which has higher bankruptcy risk? COF has a lot of credit card customers with bad credit so I’d guess they are higher risk. I like BFALL better than BAC-M if you get it under par. Yield is only a few points lower and much better Yield-to-call.

    2. Those aren’t the same at all. The essence of your Q is “Buy premium bond or par bond?” IF rates stay same or drop you’ll potentially make more on par bonds. So they do have their place. I just advocate for paying up for premium bonds. I don’t know if you have the YTC correctly calculated on BAC M, which is what you should track not current yield

    1. Not able to find it in Merrill either, Mike and they are joined to the hip of BofA. Usually they have early access but it’s not even coming up in their system. Then again, this is the new normal with them. Vanguard or Schwab will probably be the winner of the chicken dinner on this one.

      1. Well I see that it has a grey market listing of BFALL and you can see it on YAHOO finance but not on my Fidelity acct.

        1. Mike–Fido can be a day behind, but with an issue of this size it is of no consequence–it will not run higher fast (if at all).

  5. It will be interesting to see how this one plays out. Stripped yield on BAC-M (5.375 Coupon) looks to be at 5.15%. This would put BAC-N (5.0 Coupon) at 24.27 to be comparable. YTC dates are within 3 mos.

    1. Good point … BAC-M was hit really hard yesterday and is down again this morning and might be the better play.

        1. I agree if the market eventually prices them on YTC rates. But if they are eventually priced on current yields since there are 5 years to the call dates, then the N will have to fall or the M will have to rise to make the yields equal. That’s why I suggested the M might be the better play as of this morning.

          1. Agreed – I doubt many people are looking at YTC 5 years out. BAC-M is the better buy today compared to BAC-N

            1. I’m confused. If YTC for BAC-M is 4.54%, and wouldn’t new issue BAC-N be 5.0% YTC as issued today at par $25. So would not that make the N preferred better.

              1. Current yield for BAC-M is 5.19% vs BAC-N at 5%

                BAC-M is trading over par at $25.90 right now, which results in the lower YTC. But the call dates for both are roughly 5 years away. If you want to worry about a potential call in 5 years, then focus on the YTC.

                However, lots can happen over time. I doubt most people will be looking at a potential call 5 years out when comparing the issues.

                For me, it is highly unlikely I may be holding this in 5 years. So I will focus on what is best now.

            2. In that case you want to be buying BAC-C and its 6% yield.

              While you’re at it load up on NTRSP.

              1. Well as you know, there is a difference between 5 years of call protection and 15 months (BAC-C) or 1 month (NTRSP)

                IMO YTC becomes more relevant the closer you get to call date

                5 years though is an eternity in many people’s minds

                1. YTC is always relevant.

                  The most common mistake made in buying preferred is ignoring YTC. Or not calculating it. Or not knowing what it is. It’s not an accident that the “Moron” group (I’m borrowing grid’s term) at SA rarely mentions YTC when they pump an issue. Very often, yield-to-call turns into yield-you-get.

                  If you’re a trader and nimble enough to get out before call is an issue then go for it. For most here, who are more buy and hold, YTC is the first metric to be looking at. And if the issue is post-call, look at how much you are risking if a call come at the first call opportunity after you buy.

                  1. Hi Bob and others. Good discussion. I have BAC-M that I purchased at IPO. This was put in a taxable account as a long term hold. I do see that the YTC is actually better on the BAC-N, but do you think it’s enough of a change in a taxable account to warrant the exchange? Also, in a falling rate environment, do you also consider the possibility of higher capital gains with the higher coupons instead of or in addition to the YTC? Thanks for the thoughts of all.

                  2. You can’t just make blanket statements like this “YTC is always relevant.”

                    No, it necessarily isn’t. It depends on each person’s individual circumstances, strategies, timeframes, etc.

                    Sure, if all you plan to do is buy and then fall asleep for the next however many years, YTC is relevant. But if you are monitoring the market often, like I assume many folks here are, basing decisions on YTC when that call is a minimum of 5 years away does not make sense. You are assuming everyone here is a buy and forget holder. Given the variety of posts we have and the frequency of trading, I would posit that we have just as many traders.

                    Now, I do not disagree with you when you get to less than a year, maybe 2 years of call, YTC becomes much more relevant. But 5 years is an eternity in this market IMO. Should people know what it is and understand it – sure. Should it drive every decision, no

                    1. Maverick – well said. I could not agree more and can think of nothing to add, which is pretty unusual for me … LOL

                    2. I agree…In 2013 I had to make a call in for AILLL back then. Broker tried to convince me not to siting a negative 25% annualized YTC. Fast forward 6 years and its still trading. With an annualized negative YTC significantly higher than then, lol.

                    3. Maverick, Throwing my two cents in…the YTCs of two identically rated issues like the M and N should inexorably merge – meaning a slow retracement of M relative to N, a barely perceivable few pennies at a time. Seems opting for lower YTC M will “require” a future well-timed trade to justify the current hold.

                      I’m sure you already incorporated this – though regarding total income to call, an important consideration is the sale of 1000 shares of M would provide funds for 1041 shares of N.

                    4. Maverick – to be honest, I don’t get your logic. If a guy’s a buy then fall asleep for the next how many years, why would that guy care about YTC when he doesn’t care about anything else other than his buy? Let’s not forget we’re in quite unusual times, so what were talking about in general is the relevance of a YTC calculation when practically everything is trading at a premium….. I would argue that YTC becomes essentially irrelevant only when a preferred is and has been consistently trading at a discount, because then, it will only calculate a potential windfall as opposed to a limiting factor to anyone’s yield. Does anyone know where interest rates are going to be 5 years from now? No, so I get it that YTC becomes potentially less relevant the farther out the call date is, however, it’s not irrelevant to calculate whenever a security be it a bond or preferred is trading at a premium…. One can always compare your YTC to today’s present yield for a similar security with a maturity equivalent to your security’s call date and figure out whether or not you will have done better than having chosen to buy that other security in a worst case situation plus, even if you are a trader type, knowing YTC will give you a better idea of just how high or how limited your highest possible price ought to be before you think about trading out…… That’s my 2 cents… and it’s probably worth each penny… lol

                    5. Maverick, to the newbees, I am going to provide a little context to your “It depends on each persons….” comment.
                      Take me for example…Roughly 1/3 of my preferreds are past call. So YTC means absolute zilch which is fine with me. For example on one of my issues technically its YTC is an annualized 533%. One the bad side another issue is minus 88% YTC annualized. So see clearly these numbers mean nothing.
                      As far as determining between to same company issues, they need to have a relative tight window between the 2 on YTC to have meaningful analysis of price discrepancy. Now lets go to the opposite end…
                      Compare UMH-B to UMH-D. Same rating and protection, but B is yielding 7.70% and D is about 6.25%. No price discrepancy can be gleaned from that because B is just a year from first call. Ok, the YTC calculator fleshes that part out. But it doesnt factor in a worry some may have… A sudden jump in rates…If long end jumped 100 basis points, D would get rocked and B would not feel much if any of a sting as it is “over yielding” above current market rates now thanks to the “pull to par”.
                      This 100 bps may be enough to defer a call, thus the YTC calculator then proved incapable of assisting.
                      So it does matter what one owns and what they are buying for in determining a usefulness of YTC.

                    6. Dittos Maverick…also maybe at an institutional level it becomes cumbersome to trade out of a big position that is closing in on its call date, but for individuals the process is quite easy. I can think of many factors I’d consider more important than YTC, especially with regard to new issues.

                  3. It makes perfect sense to ignore YTC if you think you are going to die very soon. Otherwise probably not. That’s just me though.

                    1. Thanks to Max, Grid and Citadel for your agreement – and thank 2wr and alpha for a different perspective.

                      I think the varying perspectives just goes further to prove my point that you can’t make blanket statements about a metric like YTC being always relevant and that things depend on each person’s individual circumstances, strategies, timeframes, etc. As I said, people should be aware of what YTC is, but it shouldn’t drive or be a factor in every decision

                      Grid – thanks for the example you provided. I too have several past call issues (probably thanks to you, lol), where YTC means nothing. And as your example with UMH pointed out, things can change dramatically if interest rates change. I don’t think anyone here can say with certainty what rates will be in a year, let alone 5 years

                  4. Yes, I can, and I do. And I repeat, “YTC is always relevant”. One may chose to discount it, or ignore it, but that does not take away from its relevance.

                    A call is an option, and an option has value. Always. 100% of the time. In part, the value of the option is a function of time, but it is never zero. Even if the option is not exercisable for many years.

                    That is Finance 101.

                    To speak to the broader audience here I would add the following. If you’re “advanced” to “expert” in the field of fixed income, you don’t need my input here. Nor do you need Maverick’s. Trade away.

                    But if you’re not, and many of you aren’t (I know this from correspondence I had with many who read these pages), you would do well to pay more attention to yield-to-call and less to nominal yield. More so if, as Maverick says with disdain “you plan to buy and hold and then fall asleep for the next however many years”. That, precisely, is what many people do.

                    And there is nothing wrong with doing doing so. It will put you ahead of many investors who trade in and out of issues not really knowing what they are doing.

                    Buying good issues, from good issuers, at good entry points (that’s where YTC comes in) will do more for most investors that trading in and out of issues.

                    Signing off on this thread … no more need to engage on the topic.

                    Those who want further explanations concerning bond math, issue selection, or portfolio construction are welcome to contact me though the SA messaging system. Many have done so in the past and I reply to all messages.

                    1. So Bob you resurrect a thread from 8 days ago to take another personal shot at me because I disagreed with you on another matter today? I said nothing with “disdain”

                      Come on now. No need for pettiness – this is the second time today you did this. No call for that. People are allowed to have different opinions and draw different conclusions and post about them.

                    2. When reviewing the posts, I really dont think there is as big of difference in viewpoints. I think the disagreements are largely on the edges. I dont think anyone specifically said YTC doesnt matter.
                      But its importance lies more with the particular issue. And this affects me more because I buy a lot of these “peripheral preferreds”.
                      Take my IPWLO. At almost 20% below redemption price and being a fixed perpetual preferred at 4.2%, one is not going to look at YTC with any real serious implications. Its been callable for over 60 years. So there is little value to that particular stock. PPX being past call and above par also makes YTC meaningless. One makes other assumptions here in buying and selling or moving in and out of it.
                      But for vast majority of preferreds YTC does have relevance in terms of comparison, not only company issue to issue but same sector and/or credit quality. Now whether one actually will get redeemed or shortly after can also bring in other assumptions that may or may not ring true. I always hold several past call issues and but have never got caught holding the “call bag”. Hopefully that pattern will continue.

      1. Anybody want to guess what they do with the money?
        1. Stock buybacks
        2. Redeem debt
        3. Hold on to it to tide them through the next recession

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