How Hike in Interest Rates Could Affect Preferred Shares?

The Bank of Canada governor, Stephen Poloz, will announce the hike in the interest rates very soon. The investors in the first issue of the preferred shares of the year will see happy days pretty soon. The chief economists predict that they will get to know the merits of their investment very soon than before.

The economists believe that the interest rates across a wide spectrum will move up. It will not be a sharp increase to the tune of the rate hike, but a decent increase. The market rates have moved up after the previous hike in rates. They expect the same after the proposed rate hike.

The CIBC offered the preferred shares with a 4.50 percent coupon. The coupon came with 205 basis points at the base rate and a spread of 245 basis points. If the banks increase the interest rates as proposed, then the 205 basis points will look thinner.

This means that the spread will also be on the lighter side as per the recent trends. So, all eyes are on the Bank of Canada now. Everyone is waiting to see how much the increase is in the key lending rate. There is no doubt that interest rates will also increase, but only to a certain extent.

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About the Author: Stefan Kachakov

Stefan covers money and politics for Canadian Business Tribune. His work has appeared in the Toronto Star, Newsweek, Slate, The New York Observer, Money and The Huffington Post Canada. He is originally from Yellowknife.

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