Investing

BMO 5.85 notes

  • Last Updated:
  • Jul 21st, 2020 9:53 am
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3 replies
[OP]
Deal Addict
Mar 13, 2017
1011 posts
1183 upvotes
didn't seem to get much reaction - here's the snapshot for these notes:
- 5.85 coupon
- 5yr maturity
- 50% downside protection of related banking index
- 10% uptick callable

the risk of them being called seems to far outweigh the downside, but so what - you keep whatever 5.85 monthly's have been paid until than. it's interest income vs dividend, so it's taxed higher, but I have some tax planning that works for that.

so than .. opportunity to lock into 5.85 with almost no risk, OR visibility that banks are on thin ice given they are looking to close some sort of gap that must exist between deposits and loan losses in the pipe.

anyone?
Newbie
Jun 11, 2018
17 posts
19 upvotes
Seems pretty safe to me but I wouldn't call an allowable 50% loss "downside protection". Of course anything can happen, but I don't see banks decreasing 50% from here, especially if your hold period is 5 years.

I personally would rather just invest in BMO equity. Roughly the same yield (5.7%), no upside cap and more liquid (can sell and get cash back immediately).
Deal Fanatic
User avatar
May 11, 2014
5657 posts
7561 upvotes
Rankin Inlet, NU
RalphL85405 wrote: Seems pretty safe to me but I wouldn't call an allowable 50% loss "downside protection". Of course anything can happen, but I don't see banks decreasing 50% from here, especially if your hold period is 5 years.

I personally would rather just invest in BMO equity. Roughly the same yield (5.7%), no upside cap and more liquid (can sell and get cash back immediately).
This. Plus the fact the notes are auto-called at 110%. That could be a good thing during times of volatility, but if you miss out on a upswing due to economic recovery etc., you miss the momentum, unless you act quickly to buy again.

Buying the shares of a few banks, setting a stop loss around say 60% of the price would likely allow you to get a higher yield, shareholder rights, better downside protection and better upside potential. Only drawback is stop loss isnt guaranteed (but if banks drop 40%, larger problems likely), and income is quarterly not monthly.
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