Strategy’s junior preferred stock, Stride (STRD), has demonstrated notable movement in the financial markets, particularly as its credit spread narrowed significantly at the end of last week. This reduction in spread is indicative of robust demand for the company’s highest-yielding preferred offering. As of December 12, the difference between the yield of STRD and the U.S. 10-Year Treasury Note had contracted to a low of 8.12%. However, following a decline in Bitcoin’s value, the spread widened again, approaching 9% by Monday.
The concept of a credit spread refers to the extra return that investors expect when acquiring riskier assets, like bonds or preferred stock, as opposed to secure investments like the U.S. 10-Year Treasury. The recent performance of STRD has been part of an overall trend marked by a steady narrowing of spreads since mid-November. A decreasing spread often signifies increased investor confidence and improved perceptions of credit quality.
This trend could suggest that investors are reassessing Strategy’s financial standing and its business model, which is inherently tied to Bitcoin, perceiving STRD as a more reliable option than previously thought. Additionally, the company enhanced the credit quality of its preferred securities by establishing a substantial reserve of $1.44 billion, which is sufficient to cover more than 21 months of dividends. This action, in tandem with ongoing accumulation of Bitcoin, has increased the collateral supporting the preferred stocks.
The current yield of STRD is noteworthy, particularly given that it offers a yield premium of approximately 320 basis points over Strategy’s more senior preferred stock series, STRF, despite both having similar stated dividend rates. Earlier speculation about the potential inability to meet dividend payments on the junior preferred stock has been dismissed by Michael Saylor, Strategy’s executive chairman. He emphasized that failing to honor STRD’s dividends is not a feasible option, attributing the yield gap to capital structure positioning rather than underlying fundamentals.
STRD was introduced six months ago as part of a larger strategy to create a structured yield curve that accommodates an array of income products, ranging from conservative offerings to higher-risk exposures associated with the company’s Bitcoin-linked balance sheet.
In a remarkable development, Strategy announced it raised $82.2 million from the sale of approximately 1 million shares of STRD through its at-the-market program during the week ending December 14. This issuance represented a substantial proportion of the preferred-stock offerings during that period, with STRF generating only $16.3 million, and minimal activity from STRK and no sales recorded for STRC. Data compiled by crypto analyst Chris Millas reveals that this recent issuance of STRD marks the largest single-week proceeds in the company’s history for preferred stock offerings. Recent weeks have clearly highlighted a tilt in issuance toward the company’s highest-yielding junior preferred stock.
