GoldenStag
12-03-2015, 11:54 AM
I've been looking to provide a little protection against any potential interest rate rises, and also some protection against any potential inflation.
What I'm wondering is how Hybrids react to market forces like interest rate rises and inflation?
I'm assuming it should be obvious, but I can't work it out. If interest rates rise, then bonds fall through the floor, but a Hybrid will match the rises by changing its payout rate. So, would a Hybrid provide protection against interest rates and inflation or not? And would the capital remain protected as well? i.e. how do these instruments react to the different markets?
Also, do the companies call-in the hybrids when rates rise? Or do they normally let them run? i.e. If it is a good deal to have a hybrid, will the issuer just use the call-in clauses to convert them to shares or buy them back - thus making hybrids only appear useful until something goes bad.
Thanks in advance for any advice...
Cheers,
GS
What I'm wondering is how Hybrids react to market forces like interest rate rises and inflation?
I'm assuming it should be obvious, but I can't work it out. If interest rates rise, then bonds fall through the floor, but a Hybrid will match the rises by changing its payout rate. So, would a Hybrid provide protection against interest rates and inflation or not? And would the capital remain protected as well? i.e. how do these instruments react to the different markets?
Also, do the companies call-in the hybrids when rates rise? Or do they normally let them run? i.e. If it is a good deal to have a hybrid, will the issuer just use the call-in clauses to convert them to shares or buy them back - thus making hybrids only appear useful until something goes bad.
Thanks in advance for any advice...
Cheers,
GS