In issue 332, Paul Rickard discussed hybrids.
I can’t work out how, with ANZ PE at $98, you calculate a spread of 3.57%, and grossed up at 6.95%.
Can you please clarify?
A: Thanks for the question.
The calculation makes the following assumptions:
a) Called by ANZ on the first date (March 2022)
b) Uses the 7.25 bank bill year swap rate, which at the time was 3.38%;
c) Settlement 5 days out (included accrued interest to 22 October)
So, the effective grossed up yield is 6.95% (3.38% plus 3.57%).
Another way to look at is as follows:
Issued at $100, paying a fixed margin of 3.25%
Ignoring accrued interest, and assuming called in 7.25 years, this $2.00 discount is approximately 0.3% for 7 years – hence the effective margin is 3.57%
Hope this helps.
