JPMorgan to Float Five-Bonds

JPMorgan Chase ($JPM) is looking to float some five-year bonds. The bank is hoping to lock-in a yield of 137.5 basis points above similar Treasury bonds. The five-year Treasury currently goes for 0.69%, so that translates to roughly 2.065%.

What’s interesting is that JPM bumped up its quarterly dividend to 30 cents per share. At the current price, the stock yields about 3.5%. In other words, the company can make an instant profit by issuing debt to buy their own stock.

Obviously if the company tried to sell enough debt to take themselves private, the yield would be much higher than 2.065%. But it’s interesting that the risk in owning equities is so high that it creates an obvious arbitrage opportunity for any company, especially the largest bank in America.

Posted by Eddy Elfenbein on August 13th, 2012 at 1:32 pm

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Tickers: JPM