Credit spreads on Strategy’s (MSTR) junior preferred stock Stride (STRD) tightened further over the weekend, likely underscoring strong demand for the company’s highest-yielding preferred stock.
According to Bitcoin for Corporations, the spread between STRD and the U.S. 10-year Treasury yield fell to a new low of 8.12% as of December 12 (on Monday, the spread had widened to nearly 9% as Bitcoin fell below $86,000).
Credit spreads represent the extra return an investor would need to own a riskier security like a bond or preferred stock rather than a lower-risk benchmark like the U.S. 10-year Treasury note.
The latest data for STRD continues its steady decline since mid-November. A narrowing of the STRD-Treasury spread may generally signal increased investor demand and improved perceptions of credit quality.
Investors may be reassessing Strategy’s financials and Bitcoin-centric business model, viewing STRD as more stable than before and therefore demanding a smaller premium relative to government debt.
Additionally, in early December, Strategy strengthened the credit profile of its preferred shares by building a $1.44 billion reserve covering more than 21 months of dividends while continuing to accumulate Bitcoin, which increases the balance sheet collateral backing the preferred shares.
Why STRD effective rate of return attracts much attention
The yield gap between STRD and Strategy’s higher priority products has again cropped up in market commentary. At current pricing, STRD yields about 320 basis points higher than STRF, another preferred series, even though the two instruments have similar dividend yields.
As CoinDesk reported on Oct. 20, Michael Saylor dismissed concerns at the time that the primary offering might not pay dividends because not paying STRD dividends was not a viable option.
The strategy’s executive chairman believes the yield gap between the two instruments reflects credit spreads driven by capital stack positioning rather than fundamentals. Strategy launched STRD six months ago as part of a broader effort to construct a structured yield curve that spans relatively conservative income products and high-risk exposures associated with its Bitcoin-centric balance sheet.
Record STRD issuance stands out against historical backdrop
Strategy revealed on Monday morning that it raised $82.2 million by selling approximately 1 million STRD shares through a market program in the week ended December 14. Junior preferred stock accounted for the vast majority of preferred stock issuance during this period, with STRF contributing $16.3 million, STRK issuing a smaller amount, and no STRC sales.
Weekly ATM issuance data compiled by cryptocurrency analyst Chris Millas based on public disclosures by Strategy since March 17 shows that the latest STRD offering represents the largest weekly gain ever for a preferred stock offering by the company. The chart below shows that while offerings have rotated between STRF, STRK, STRD, and STRC over time, recent weeks have been dominated by STRD, marking a clear shift toward the company’s highest-yielding junior preferreds.
