Yet another hybrid security was categorized as equity last month by the National Association of Insurance Commissioners via its Securities Valuation Office. The whole subordinated financial sector reacted badly to the ruling that a RBS yankee tier 1 security would classified as equity, making it prohibitively expensive for US insurers to invest in.
The 5.512% RBS Capital Trust III, tier 1 due 2014 immediately widened to 159 -169 basis points over treasuries. This yankee was previously quoted at 131–127 basis points over treasuries.
Although the move does not directly affect European investors, the European market widened because the discrepancy between US and European institutional spreads could not be maintained.
| How RBS’s yankee reacted to NAIC |
| Yield of RBS 5.512% |
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