Strategy’s (MSTR) junior preferred stock Stride (STRD) experienced a further tightening in its credit spread at the end of last week, likely signaling a robust demand for the company’s highest-yielding preferred offering.
The yield spread between STRD and the U.S. 10-Year Treasury Note dipped to a record low of 8.12% as of December 12, according to data from Bitcoin for Corporations (the spread has since widened back to nearly 9% on Monday as bitcoin fell below $86,000).
A credit spread indicates the extra return that investors demand to hold a riskier security, such as a bond or preferred stock, instead of a lower-risk benchmark like the U.S. 10-year Treasury.
This recent data for STRD continues a gradual decline that began in mid-November. A narrowing STRD to Treasury spread often suggests stronger investor interest and enhanced perceptions of credit quality.
Investors might be reevaluating Strategy’s financial stability and bitcoin-focused business model, perceiving STRD as more reliable than previously thought, thus warranting a smaller premium over government debt.
Additionally, Strategy recently strengthened the credit profile of its preferred securities by establishing a $1.44 billion reserve, which covers over 21 months of dividends, while also continuing to increase its bitcoin holdings, enhancing the balance sheet collateral backing the preferred stocks.
Why STRD’s effective yield is gaining attention
The yield disparity between STRD and Strategy’s more senior preferred securities has been discussed in market analyses. Currently, STRD provides a yield premium of around 320 basis points over another preferred series, STRF, despite both products having comparable stated dividend rates.
As reported by CoinDesk on October 20, Michael Saylor dismissed fears regarding the potential non-payment of dividends for the more junior offering, asserting that failing to pay STRD’s dividends was not a viable option.
The Strategy executive chairman maintained that the yield disparity between the two securities reflected a credit spread influenced by capital positioning rather than fundamental factors. STRD was launched six months ago as part of a broader strategy to develop a structured yield curve that extends from more conservative income products to higher-risk investments linked to its bitcoin-centered balance sheet.
Historic STRD issuance highlights significant trends
On Monday morning, Strategy reported that it raised $82.2 million from the sale of approximately 1 million STRD shares via its at-the-market program for the week ending December 14. The junior preferred made up the vast majority of preferred-stock issuance during this time, with STRF contributing $16.3 million, minimal activity from STRK, and no sales of STRC.
Weekly ATM issuance data compiled by crypto analyst Chris Millas, based on Strategy’s public disclosures since March 17, indicates that this latest STRD issuance marked the largest single-week proceeds among the company’s preferred stock offerings. The chart below shows that while issuance has varied among STRF, STRK, STRD, and STRC over time, recent weeks have seen a notable preference for STRD, indicating a significant shift towards the company’s highest-yielding junior preferred stock.
