There are some exchange traded products that are functionally identical but have different market prices. The reason why the prices are different is because of the individual demand/supply characteristics of the securities and individual liquidity preferences – for example, if two issues were otherwise identical in maturity date, coupon and seniority, if one issue was $200M outstanding, while the other was $20M outstanding, you would expect the $20M one to trade for less because of liquidity preference.
Right now on my radar screen, I see 7% coupon, 2028 maturity trust preferreds (backed by corporate senior debt, par value $25) trade at bid/ask 19.1/19.41 for one issue and 19.70/19.94 for another issue. Using the midpoint, we have a 9.83% yield to maturity for the first, and a 9.51% yield to maturity for the second.
The only reason why I am not hammering this difference is because they are non-marginable and you cannot short sell them.
Even more complicated is another issue that has identical characteristics, except it gives off a 6.5% coupon. At the current bid/ask of 17.37/17.50, we get a yield to maturity of 10.29%, which makes it more of a bargain than the other two securities – as long as you are willing to take your returns in the form of capital gains instead of coupon payments. In Canada, for taxable accounts, this is favoured. The cost of this, however, is that lower coupon issues are more sensitive to interest rate changes.
What is interesting is that if the securities in question were zero-coupon, with a 10.29% yield to maturity they would be priced about $3.965/share, while at a 9.51% yield to maturity, they would be $4.531/share, a 14.3% difference. It pays to shop around for your fixed income!