FixedResets vs PerpetualDiscounts: The Yield Gap Is Back (2026)

The Yield Gap Is Back: What It Means for Canadian Preferred Share Investors

If you've been watching the Canadian preferred share market in mid-2026, you may have noticed something unusual: FixedReset preferreds are yielding more than PerpetualDiscount preferreds. As of late July 2026, the median current yield on FixedResets in the Canadian universe sits at approximately 5.70%, while PerpetualDiscounts trail at 5.42%. That 28-basis-point gap might not sound dramatic, but it represents a significant shift in market dynamics — and it carries real implications for income investors.

This yield gap has historically served as a market signal. When FixedResets yield more than PerpetualDiscounts, it typically reflects investor expectations about the direction of interest rates. Understanding why this gap exists today, what it has meant in the past, and how to position your portfolio accordingly can make a meaningful difference in your income strategy.

FixedResets vs PerpetualDiscounts: The Basics

Before diving into the yield gap analysis, let's quickly review the two dominant preferred share types in the Canadian market.

FixedRate Reset Preferred Shares

FixedResets (also called Rate Resets) have a dividend that resets every five years based on a formula: Government of Canada 5-year bond yield + a fixed spread. That spread is set at issuance and does not change for the life of the share. At each reset date, investors can typically choose between a new fixed-rate period or converting to a floating-rate share.

Currently, the median reset spread across the Canadian FixedReset universe is +2.65% (based on 148 issues with spread data available). This means at the next reset, a typical FixedReset's dividend would be set at the prevailing GoC 5-year yield plus 2.65 percentage points.

PerpetualDiscount Preferred Shares

PerpetualDiscounts pay a fixed dividend rate that was set at issuance and does not change — there is no reset mechanism. The dividend continues indefinitely until the issuer calls (redeems) the shares or the shares are converted. The "discount" in the name refers to the historical tendency for these shares to trade below their $25 par value.

Because the dividend never adjusts, PerpetualDiscount prices are more sensitive to changes in long-term interest rate expectations. If rates rise, the fixed dividend becomes less attractive and the price tends to fall. If rates fall, the opposite occurs.

Why the Yield Gap Exists Right Now

Under normal conditions, PerpetualDiscounts tend to yield slightly more than FixedResets. This makes intuitive sense: a perpetual fixed dividend carries more interest-rate risk (no reset to protect you), so investors demand a higher yield as compensation. When this relationship flips — when FixedResets yield more than PerpetualDiscounts — it's typically a sign that the market expects rates to rise or stay elevated.

That's exactly the environment we're in. Here's what's driving it:

• Federal Reserve hawkish hold: In late July 2026, the FOMC voted 9–3 to hold the federal funds rate at 3.50–3.75%, with three dissenters pushing for a rate hike. Fed Chair Warsh reiterated a hardline stance on the 2% inflation target.


• Bond yields surging: The U.S. 30-year Treasury yield jumped above 5.17% — its highest level since 2007. The 10-year approached 4.69%. These are not normal levels.


• Rate hike odds climbing: Fed funds futures markets are pricing approximately 60% odds of a rate hike by September 2026, up dramatically from earlier in the year.


• Inflation persistence: Supply shocks from geopolitical conflict, combined with strong productivity and capital investment, are keeping inflation elevated relative to central bank targets.

In this environment, investors are discounting FixedReset prices because the current GoC 5-year yield (~3.19%) combined with most reset spreads produces dividend rates that, while reasonable, are being weighed against the possibility of even higher rates ahead. This price discount on FixedResets pushes their current yields up — creating the gap.

The Numbers: Current Market Snapshot

Here's how the Canadian preferred share universe breaks down by type as of late July 2026, based on 250 active issues:

The yield hierarchy is clear: FixedResets > PerpetualDiscounts > Floaters. This ordering tells you the market is pricing in rate persistence — if rates were expected to fall, you'd see the opposite arrangement.

The Reset Spread: The Most Important Metric You're Not Tracking

When evaluating FixedResets, the reset spread is arguably the single most important data point. It determines how much income your share will generate at every future reset date, regardless of where interest rates go.

The formula is straightforward: Dividend Rate at Reset = GoC 5-Year Yield + Reset Spread

With the current GoC 5-year yield at approximately 3.19%, here's what different spreads translate to at the next reset:

*Projected at current GoC 5-year yield of ~3.19%. Actual yield at reset depends on the GoC 5-year yield on the reset date and the share's trading price at that time.

The takeaway: higher reset spreads provide a larger income cushion. If rates rise, your reset dividend goes up proportionally. If rates fall, the spread provides a floor — even if the GoC 5-year yield dropped to 1%, a +3.50% spread issue would still reset to a 4.50% dividend rate.

Trading Below Par: Opportunity or Trap?

Currently, 51 of the 122 FixedResets in the market are trading below their $25 par value, while 71 trade at or above par. This split creates two distinct opportunity sets.

The Discount Opportunity

FixedResets trading below $25 offer a potential capital appreciation play alongside income. If rates rise as the market expects, the reset mechanism will increase the dividend — and the share price should appreciate toward par as the new, higher dividend attracts buyers. Issues like BPO.PR.C (+5.18% spread, $24.99) and CF.PR.C (+4.03% spread, $25.33) combine high reset spreads with prices near par, offering reset protection without deep discount risk.

The Premium Risk

Conversely, FixedResets trading significantly above par face call risk. Issuers can redeem shares at $25, meaning anything trading at $26+ carries potential capital loss if called. Premium-priced issues with lower spreads are particularly vulnerable — if rates don't rise enough to justify the premium price, the issuer may simply call the shares.

Top FixedResets with Strong Reset Spreads

Based on current market data, these FixedReset issues combine meaningful reset spreads with current yields above 5.5%:

Note the wide yield range: the Enbridge issues (ENB.PF.V, ENB.PR.V) screen at unusually high current yields, which warrants additional research into the specific terms and issuer fundamentals before considering a position. National Bank (NA.PR.C, NA.PR.G) offers investment-grade quality with solid spreads.

The PerpetualDiscount Case for Stability

Don't count PerpetualDiscounts out. While FixedResets have the yield edge right now, PerpetualDiscounts serve a different strategic purpose — and for some investors, they may actually be the better hold.

When PerpetualDiscounts Win

• Rate stability or cuts: If the Fed's hawkish stance proves temporary and rates eventually stabilize or decline, PerpetualDiscounts locked in at today's 5.4%+ yields become highly attractive. Their prices would appreciate as rates fall.


• Simplicity: No reset dates to track, no conversion decisions to make. The dividend is what it is.


• Call protection via yield: Issues trading below par are unlikely to be called (issuers redeem at $25, so calling a $23 share costs them money). This provides income stability.


• Duration matching: For investors with long time horizons who want steady, predictable income, a perpetual fixed rate is a feature, not a bug.

Top PerpetualDiscounts by Current Yield

Note that Power Financial (PWF) appears three times in the top list — a reflection of the insurer's active preferred share issuance. MIC.PR.A trading at $23.60 stands out for its discount-to-par pricing, offering both high yield and potential capital appreciation if the price recovers toward par.

Which Type Fits Your Portfolio?

The FixedReset vs PerpetualDiscount decision ultimately comes down to your interest rate outlook and income needs. Here's a framework to help you decide:

A Balanced Approach

For many income investors, the answer isn't choosing one type over the other — it's holding a blend. A diversified preferred share portfolio might allocate across FixedResets (for rising-rate protection and income growth), PerpetualDiscounts (for predictable income and potential price appreciation if rates fall), and perhaps a small allocation to Floaters (for direct benefit from rate hikes).

The current yield gap — FixedResets at 5.70% vs PerpetualDiscounts at 5.42% — suggests the market expects rates to remain elevated. If you agree with that consensus, tilting toward FixedResets with strong reset spreads (+3.0% or higher) positions you for rising dividend income at future reset dates. If you believe the market is wrong and rates will eventually decline, PerpetualDiscounts at today's yields offer a compelling entry point.

Either way, the key is to focus on issuer quality (stick with P-1 and P-2 rated issues from established Canadian issuers), reset spreads (higher is better for FixedResets), and price relative to par (below-par discounts offer capital upside, above-par premiums carry call risk).

Key Takeaways

• The yield gap favors FixedResets: Median FixedReset yield (5.70%) exceeds PerpetualDiscount yield (5.42%), signaling market expectations for persistent or rising rates.


• Reset spread is the key metric: The median spread is +2.65%. Issues with spreads of +3.5% or higher offer superior income protection at reset dates.


• 51 FixedResets trade below par: Potential capital appreciation if rates rise as expected and reset dividends increase.


• PerpetualDiscounts offer stability: For investors who expect rates to eventually fall, today's 5.4%+ perpetual yields may be attractive long-term.


• A blended approach manages uncertainty: Combining both types hedges against being wrong on rate direction.


• Issuer quality matters most: Regardless of type, prioritize P-1 and P-2 rated issues from established Canadian financial institutions, utilities, and energy companies.

Use the preferred shares dashboard to filter by issue type, yield, reset spread, and credit rating. The rankings page sorts issues by yield to help identify opportunities. For a deeper dive into specific issuers, browse the issuer analysis articles.