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One trend that I am seeing (which I do not like) is the increasing use of perps for funding.
Accounting wise these are treated as equity, but the problem is that most people are pricing perps using the yield-to-call i/o yield to perpetuity - the assumption is that the issuer will call less they face a step up borrowing rate.
So the moment one does not call (hence effectively turning into a true perp and equity), funding costs will prob spike up as perceived credit quality weakens.
ART seems especially keen to use perps to get ard the gearing restriction.
Beware of headline gearing ratios.
Accounting wise these are treated as equity, but the problem is that most people are pricing perps using the yield-to-call i/o yield to perpetuity - the assumption is that the issuer will call less they face a step up borrowing rate.
So the moment one does not call (hence effectively turning into a true perp and equity), funding costs will prob spike up as perceived credit quality weakens.
ART seems especially keen to use perps to get ard the gearing restriction.
Beware of headline gearing ratios.