- For non-financial corporate hybrids, fundamentals still matter.
- The main driver of sub-senior spread is extension risk, as coupon deferral risk is structurally low and early call risk is often manageable.
- Yet extension risk is often mispriced during market sell-off, creating structural alpha.
- We are buyers of extension risk premium when it exceeds >10% of fair value for lower-beta hybrid and 20% for higher-beta hybrid.
- The views and opinions contained herein are those of the author and may not necessarily represent views expressed or reflected in other communications. This does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments