December 19, 2014

December 20th, 2014

Canadian inflation was tamer than expected:

Canada’s inflation rate slowed more than economists forecast in November, returning to the central bank’s target on a drop in gasoline prices.

The consumer price index rose 2.0 percent from a year ago following the October pace of 2.4 percent, Statistics Canada said today from Ottawa. The core rate, which excludes eight volatile products including fruit, vegetables and gasoline, slowed to 2.1 percent following the October pace of 2.3 percent, which was the fastest in almost three years.

Economists forecast the total rate would rise 2.2 percent and core by 2.4 percent, according to median responses in separate Bloomberg News surveys.

Bank of Canada Governor Stephen Poloz has said inflation will slow to a 1.4 percent pace in the second quarter of next year, ending a period of faster-than-expected gains linked to temporary factors such as a weaker currency and price increases for products such as meat. Policy makers have kept their benchmark overnight lending rate at 1 percent for more than four years and economists surveyed by Bloomberg predict Poloz won’t tighten for about another year.

… which didn’t do the dollar much good:

Canada’s dollar approached a five-year low after a report showed inflation slowed more than forecast in November, adding to speculation slumping crude-oil prices will damp economic growth and keep interest rates low for longer.

The currency fell for a fourth week as crude, the nation’s biggest export, traded at almost the lowest since 2009. Canadian two-year government bonds’ yield advantage over U.S. peers shrank to the least since 2010 as traders priced in a rate increase by the Federal Reserve in the first half of 2015 and began to push chances for Bank of Canada rate action into 2016.

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, weakened 0.2 percent to C$1.1600 per U.S. dollar at 5 p.m. Toronto time. It touched C$1.1674 on Dec. 15, the weakest level since July 2009. One loonie purchases 86.21 U.S. cents.

Canada’s two-year debt yielded 37 basis points, or 0.37 percentage point, more than comparable-maturity Treasuries, compared with 63 basis points in October. The Canadian yields have been little changed during the period, while U.S. yields rose as investors sold Treasuries. Two-year securities are more sensitive to expectations for changes in central-bank policy than longer-maturity debt, which tends to reflect expectations for inflation.

Canadian retail sales were little changed in October at C$42.8 billion ($36.9 billion), Statistics Canada said in another report. A Bloomberg survey of economists forecast a 0.3 percent decrease.

Ontario, Canada’s most populous province, had its credit rating downgraded to AA- from AA by Fitch Ratings. The company cited the difficult actions needed to meet the province’s goal for a balanced budget by 2017-18.

… but equities seemed pretty happy:

Canadian stocks rose for a fourth day, capping their best week in five years, as energy producers led gains in a rally ignited by the Federal Reserve’s pledge to be patient on boosting borrowing costs.

Energy stocks in the Standard & Poor’s/TSX Composite Index (SPTSX) rose 2.9 percent for a 13 percent gain this week, the most in five years. Trican Well Service Ltd. and TransGlobe Energy Corp. soared more than 8.8 percent. BlackBerry Ltd. dropped 1.2 percent after reporting third-quarter revenue short of analysts’ estimates.

The S&P/TSX index climbed 121.51 points, or 0.9 percent, to 14,468.26 at 4 p.m. in Toronto. The gauge surged 5.6 percent in the past four days as oil prices stabilized and Fed Chair Janet Yellen said the U.S. central bank will probably hold rates near zero at least through the first quarter.

MetLife has been designated a systemically important financial institution – and doesn’t like it:

The Financial Stability Oversight Council voted to designate New York-based MetLife a SIFI, the insurer said today in a statement. The ruling subjects MetLife to stricter Federal Reserve oversight that could include tougher capital, leverage and liquidity requirements. The company can appeal in U.S. district court within 30 days.

“We continue to believe that MetLife is not systemically important,” the insurer said in the statement. “The company will carefully review the designation rationale as it considers its next steps.”

The company has said that it wouldn’t pose a risk to the broader financial system even if it were to fail, and Kandarian has called the insurance industry a source of stability. MetLife, based in New York, didn’t take a bailout during the 2008 financial crisis.

MetLife said today that FSOC should focus on activities that pose systemic risks, rather than on individual companies.

“FSOC has already embraced this activities-based approach for the asset-management industry but has rejected it for the life-insurance industry,” MetLife said in its statement.

U.S. lawmakers voted last week to give the Fed more flexibility in how it sets rules after insurers said they shouldn’t be subject to standards set for banks. Kandarian, in a Dec. 10 statement, praised Congress for passing the legislation, which he said would give the central bank the “opportunity to write rules that will preserve competition.”

Simon Kennedy of Bloomberg draws our attention to an interesting parallel to 1956:

The U.K., with France, followed Israel into Egypt in 1956 after President Gamal Abdel Nasser nationalized the global commercial lifeline and kicked out the consortium that had been running the canal.

Britain was exposed when sterling came under speculative attack. Investors targeted its $2.80 peg to the dollar, forcing the Bank of England to run down its reserves to defend it.

For the U.K., “Suez was also a financial crisis,” according to a 2001 study by IMF historian James M. Boughton.

As they struggled to maintain the $2 billion minimum viewed as necessary to stave off devaluation, British officials began looking for assistance. Knowing the U.S. was unlikely to help directly, they turned to the then decade-old IMF.

No dice. U.S. Treasury Secretary George M. Humphrey told the U.K. he would only back it at the IMF when it was “conforming to, rather than defying, the United Nations.”

On the verge of having to reveal its reserves had breached $2 billion, the British government buckled and announced a troop withdrawal from Egypt. That freed up $1.3 billion of international loans. Sterling was saved.

As noted very briefly above, Fitch downgraded Ontari-ari-ari-owe:

RATING DOWNGRADE: Difficult actions will be necessary to achieve the province’s deficit elimination goal of fiscal 2018 and budget options are likely to prove more limited given the extent of actions taken to date and use of one-time actions to achieve targets, in Fitch’s opinion. While the province is considering other fiscal options for fiscal 2016 should economic conditions restrain future revenue growth, the downgrade to ‘AA-’ reflects Fitch’s concern that risks remain to achieving its goals and both debt burden and the accumulated deficit will remain significantly elevated, reflected in a rating level more consistent with an ‘AA-’ rating.

SIGNIFICANT FINANCIAL IMBALANCE: The province had an accumulated deficit equal to 152% of operating revenues in fiscal 2014 (25.4% of gross domestic product [GDP]) due to, slow revenue growth, and increasing expenditures, and sizable capital borrowing. Annual deficits through the forecast period of fiscal 2018 will contribute to growth in the accumulated deficit.

LARGE AND GROWING DEBT BURDEN: The province has a high debt burden (net direct debt to GDP) with net debt to GDP at 38.4% for fiscal 2014, although debt service expense is a manageable 8% of annual expenditures. Fitch expects debt levels to increase through fiscal 2016, and then begin to decrease, given the province’s expectation of an annual deficit through that fiscal year and continued growth in GDP. Pensions are well funded.

RATING SENSITIVITIES

The rating is sensitive to the province’s commitment and success in achieving deficit elimination targets and restoring fiscal balance. Failure to enact budgets that follow a path toward articulated deficit elimination targets would result in negative rating pressure. Reaching deficit elimination targets ahead of forecast, sizable growth in GDP, and steady progress on lowering debt burden and the accumulated deficit would be positive credit factors.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 37bp, FixedResets up 26bp and DeemedRetractibles gaining 13bp. Volatility was high (although low by recent standards!) and dominated by FixedResets – particularly the low-spread and credit-uncertain Enbridge issues which have been hit hard recently. Volume was average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:

  • based on Implied Volatility Theory only
  • are relative only to other FixedResets from the same issuer
  • assume constant GOC-5 yield
  • assume constant Implied Volatility
  • assume constant spread

Here’s TRP:

impVol_TRP_141219
Click for Big

So according to this, TRP.PR.A, bid at 20.40, is $1.24 cheap, but it has already reset (at +192). TRP.PR.D, bid at 25.11 and resetting at +238bp on 2019-4-30 is $0.44 rich and TRP.PR.E, bid at 25.40 and resetting at +235bp on 2019-10-30, is $0.93 rich.

This particular calculation is fascinating because it is apparent that – disregarding the TRP.PR.A outlier – the slope of the line used to calculate implied volatility is negative. I can’t remember seeing one of those since the Credit Crunch!

impVol_MFC_141219
Click for Big

Here, as has often been the case lately, it is apparent that

  • MFC.PR.F, resetting at 141bp on 2016-06-19 is in another world and distorting results again. It’s the only deep-discount issue, bid at 20.65 – everything else is above or near par.
  • the slope determined by the higher-spread issues is unreasonably high if these are to be considered perpetual issues and unreasonably low if they are to be considered NVCC non-compliant issues
impVol_BAM_141219
Click for Big

There continues to be extraordinary cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 20.26 and appears to be $0.95 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 25.20 and appears to be $1.65 rich.

impVol_FTS_141219
Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 18.60, looks $1.08 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 24.81, looks $1.02 expensive and resets 2019-3-1

pairs_FR_141219
Click for Big

The average break-even rate has declined from 1.80%-2.00% at the time recent conversion decisions were made to a current range of 1.50%-1.60%. This decline means that the estimated profit on TRP.PR.A conversion has declined from $0.48 to a mere $0.16 (at the lower end of the range).

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.1782 % 2,479.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.1782 % 3,925.8
Floater 3.06 % 3.16 % 65,591 19.34 4 1.1782 % 2,636.0
OpRet 4.41 % -2.78 % 26,566 0.08 2 0.0000 % 2,748.8
SplitShare 4.31 % 4.04 % 39,459 3.70 5 -0.1804 % 3,176.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,513.5
Perpetual-Premium 5.44 % -3.14 % 75,182 0.08 20 -0.0196 % 2,475.1
Perpetual-Discount 5.20 % 5.11 % 110,801 15.26 15 0.3683 % 2,647.5
FixedReset 4.26 % 3.58 % 250,616 16.57 77 0.2554 % 2,519.8
Deemed-Retractible 4.98 % 1.11 % 99,552 0.19 40 0.1252 % 2,610.0
FloatingReset 2.56 % 2.11 % 63,285 3.51 5 -0.1417 % 2,535.4
Performance Highlights
Issue Index Change Notes
ENB.PF.G FixedReset 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 22.74
Evaluated at bid price : 23.99
Bid-YTW : 4.23 %
GWO.PR.H Deemed-Retractible 1.25 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.28
Bid-YTW : 5.23 %
TRP.PR.E FixedReset 1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 23.30
Evaluated at bid price : 25.40
Bid-YTW : 3.63 %
ENB.PF.E FixedReset 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 22.63
Evaluated at bid price : 23.72
Bid-YTW : 4.27 %
PWF.PR.T FixedReset 1.49 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.83
Bid-YTW : 3.49 %
ENB.PR.Y FixedReset 1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 21.71
Evaluated at bid price : 22.08
Bid-YTW : 4.27 %
GWO.PR.N FixedReset 1.53 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.95
Bid-YTW : 5.33 %
FTS.PR.H FixedReset 1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 18.60
Evaluated at bid price : 18.60
Bid-YTW : 3.77 %
PWF.PR.A Floater 5.56 % Reasonably sort-of real. This reverses yesterday‘s loss, which was reasonably sort of real, but on trivial volume. Volume today was actually respectable, 5,776 shares, with the low for the day being 18.41 at the opening, with all subsequent trades near or above 19.00 – with a high of 19.98 for 500 shares late in the day.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 2.78 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.C FixedReset 140,825 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 23.07
Evaluated at bid price : 24.76
Bid-YTW : 3.53 %
ENB.PR.Y FixedReset 127,774 Scotia crossed 100,000 at 21.98.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 21.71
Evaluated at bid price : 22.08
Bid-YTW : 4.27 %
ENB.PR.T FixedReset 113,374 Scotia crossed 100,000 at 22.40.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 21.97
Evaluated at bid price : 22.45
Bid-YTW : 4.29 %
SLF.PR.A Deemed-Retractible 76,340 Desjardins crossed 74,800 at 24.40.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.20
Bid-YTW : 5.17 %
HSE.PR.A FixedReset 74,639 RBC crossed 46,200 at 19.55.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 19.66
Evaluated at bid price : 19.66
Bid-YTW : 3.99 %
BMO.PR.S FixedReset 63,578 RBC crossed 50,000 at 25.53.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 23.36
Evaluated at bid price : 25.50
Bid-YTW : 3.51 %
There were 34 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CGI.PR.D SplitShare Quote: 25.16 – 26.08
Spot Rate : 0.9200
Average : 0.7739

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 3.69 %

IAG.PR.A Deemed-Retractible Quote: 23.41 – 23.99
Spot Rate : 0.5800
Average : 0.4533

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.41
Bid-YTW : 5.44 %

RY.PR.L FixedReset Quote: 26.02 – 26.34
Spot Rate : 0.3200
Average : 0.2162

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-02-24
Maturity Price : 25.00
Evaluated at bid price : 26.02
Bid-YTW : 3.30 %

FTS.PR.G FixedReset Quote: 24.86 – 25.19
Spot Rate : 0.3300
Average : 0.2354

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 23.23
Evaluated at bid price : 24.86
Bid-YTW : 3.44 %

BAM.PR.K Floater Quote: 16.55 – 16.95
Spot Rate : 0.4000
Average : 0.3074

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-19
Maturity Price : 16.55
Evaluated at bid price : 16.55
Bid-YTW : 3.17 %

NEW.PR.D SplitShare Quote: 32.17 – 33.09
Spot Rate : 0.9200
Average : 0.8327

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.17
Bid-YTW : 3.46 %

December 18, 2014

December 18th, 2014

US equities were on fire today:

The Dow Jones Industrial Average surged the most since 2011 and the Standard & Poor’s 500 Index capped its best two-day gain in three years as global equities rallied on the Federal Reserve’s pledge to be patient on boosting rates.

The S&P 500 added 2.4 percent to 2,061.23 at 4 p.m. in New York. The index climbed 4.5 percent over two days, the most since November 2011. The Dow gained 421.28 points, or 2.4 percent, to 17,778.15, the biggest one-day jump since December 2011.

Canadian equities too!:

Canadian stocks rose, capping the biggest three-day surge in more than three years, as consumer-staples and health-care companies led gains amid a global rally following the Federal Reserve’s pledge to be patient on boosting rates.

Nine of the 10 main groups in the Standard & Poor’s/TSX Composite Index (SPTSX) advanced. Alimentation Couche-Tard Inc. surged 8.3 percent to pace gains in consumer shares, while raw-materials stocks jumped 2.1 percent.

The S&P/TSX Index increased 132.87 points, or 0.9 percent, to 14,346.75 at 4 p.m. in Toronto. The equity gauge has surged 4.7 percent in the past three days, the most since November 2011. The index is up 5.3 percent for the year.

Junk seems to have hit a bottom:

Demand for junk-rated debt is bouncing back from a selloff triggered by plunging oil prices on optimism that the Federal Reserve will be in no rush to raise interest rates next year.

The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, declined 14.7 basis points to 354.3 basis points. That follows yesterday’s drop resulting in the biggest two-day decline for the index since January 2013. The average yield on speculative-grade debt contracted for the first time this month on Dec. 17 dropping to 7.1 percent, according to Bank of America Merrill Lynch index data.

Treasuries, not so much:

Treasuries fell, with 10-year note yields rising the most during two days in 17 months, after Federal Reserve Chair Janet Yellen suggested a “patient” approach to interest rates may translate into an increase by the middle of next year.

The yield on the 30-year bond touched the highest level in a week as Yellen said yesterday at a news conference that a rate increase won’t take place for “at least the next couple of meetings.” The difference between two- and 30-year yields widened for the first time in six days as longer-maturity Treasuries led declines. Stocks rose by the most in two years. The Treasury auctioned $16 billion of five-year inflation-indexed securities at the highest yield since April 2010.

The benchmark 10-year yield rose seven basis points, or 0.07 percentage point, to 2.21 percent at 4:59 p.m. New York time, according to Bloomberg Bond Trader data. The 2.25 percent note maturing in November 2024 fell 20/32, or $6.25 per $1,000 face amount, to 100 3/8. The yield has increased as much as 17 basis points the past two days, the most since July 2013.

Thirty-year bond yields added nine basis points to 2.82 percent, reaching the highest level since Dec. 11. Two-year yields gained one basis point to 0.63 percent.

Crude oil futures fell 2.8 percent to $54.89 a barrel in New York, after reaching $53.60 on Dec. 16, a five-year low.

Pay attention to the slope of the yield curve! While FixedResets are more-or-less immune to changes in five-year rates, the yield they pay has to compete with fixed rate perpetual instruments! It is not impossible that at some point there may be a reprise of what happened to Floaters in the Credit Crunch.

And Credit Crunch capital destruction due to housing prices might even be rivalled by capital destruction due to oil prices:

In a stunning analysis this week, Goldman Sachs found almost $1 trillion in investments in future oil projects at risk. They looked at 400 of the world’s largest new oil and gas fields — excluding U.S. shale — and found projects representing $930 billion of future investment that are no longer profitable with Brent crude at $70. In the U.S., the shale-oil party isn’t over yet, but zombies are beginning to crash it.

Switzerland has a problem that many might like to have:

Switzerland’s franc weakened the most in 18 months versus the euro after the nation’s central bank introduced negative interest rates to defend the currency’s cap.

The shared currency fell for a second day against the dollar as the Swiss National Bank decision boosted speculation the European Central Bank will expand stimulus measures next year.

The franc weakened against all of its 16 major peers as the Zurich-based SNB introduced a negative deposit rate for the first time since the 1970s, saying it was prepared to buy unlimited foreign currency to shield the 1.20-per-euro cap and take further measures if needed.

The Swiss currency appreciated to within 0.07 percent of the cap yesterday, reaching the strongest level since September 2012. Pressure on the cap has bolstered speculation the ECB will start a large-scale sovereign-bond buying program, a measure that may weaken the euro against its peers.

SNB President Thomas Jordan cited turmoil in Russia as a “major contributory factor” to its rate decision.

“If money is moving out of these high-risk geopolitical countries, where do they tend to move this money to? Switzerland,” said FXCM’s Song. The rates move was “a way for the SNB to discourage that.”

Is this what they mean by “captive market“?:

Take [journalist Sarah] Koenig’s 40 hours of taped calls with [prisoner Adnan] Syed, a detail she mentions in the second-to-last episode (the finale makes its debut on Thursday morning). In 2013, the top rate for telephone calls to prisons in the U.S. was 89¢ per minute plus a $3.95 per-call charge, according to data collected by the Federal Communications Commission. At that rate, Koenig and Syed conversations could have easily exceeded $2,500. Representatives for “Serial” and Global Tel-Link declined to comment for this story.

The market for inmate phone services is unusual, to say the least. The prisons generally sign exclusive contracts with specialized phone carriers. Instead of competing by offering the lowest-priced calls or the best sound quality, companies such as Global Tel-Link win contracts largely by offering to pay the prisons a portion of the money from inmates’ phone bills. Some carriers pay the prisons up to 96 percent of their call revenue, according to the FCC.

There was a good bounce in the Canadian preferred share market today, with PerpetualDiscounts gaining 13bp, FixedResets up 17bp and DeemedRetractibles winning 37bp. There is yet another very lengthy Performance Highlights list. Volume was on the high side of average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:

  • based on Implied Volatility Theory only
  • are relative only to other FixedResets from the same issuer
  • assume constant GOC-5 yield
  • assume constant Implied Volatility
  • assume constant spread

Here’s TRP:

impVol_TRP_141218
Click for Big

So according to this, TRP.PR.A, bid at 20.30, is $1.31 cheap, but it has already reset (at +192). TRP.PR.D, bid at 25.29 and resetting at +238bp on 2019-4-30 is $0.68 rich and TRP.PR.E, bid at 25.06 and resetting at +235bp on 2019-10-30, is $0.65 rich.

impVol_MFC_141218
Click for Big

It looks like MFC.PR.F, resetting at 141bp on 2016-06-19 is in another world and distorting results again. It’s the only deep-discount issue, bid at 20.65 – everything else is above or near par.

impVol_BAM_141218
Click for Big

There continues to be extraordinary cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 20.10 and appears to be $0.93 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 25.20 and appears to be $1.73 rich.

impVol_FTS_141218
Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 18.31, looks $1.37 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 24.85, looks $1.11 expensive and resets 2019-3-1

FixedResetFloatingPairs_141218
Click for Big

The average break-even rate has declined from 1.80%-2.00% at the time recent conversion decisions were made to a current range of 1.50%-1.70%. This decline means that the estimated profit on TRP.PR.A conversion has declined from $0.48 to a mere $0.16 (at the lower end of the range).

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.7600 % 2,450.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.7600 % 3,880.1
Floater 3.09 % 3.14 % 65,153 19.39 4 -0.7600 % 2,605.3
OpRet 4.41 % -2.93 % 27,667 0.08 2 0.0589 % 2,748.8
SplitShare 4.30 % 4.03 % 41,093 3.71 5 -0.1109 % 3,182.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0589 % 2,513.5
Perpetual-Premium 5.44 % 0.13 % 73,767 0.09 20 0.1569 % 2,475.6
Perpetual-Discount 5.22 % 5.13 % 110,103 15.19 15 0.1268 % 2,637.8
FixedReset 4.27 % 3.61 % 249,079 16.56 77 0.1731 % 2,513.4
Deemed-Retractible 4.99 % 2.78 % 99,638 0.28 40 0.3651 % 2,606.8
FloatingReset 2.56 % 2.12 % 64,099 3.44 5 0.2922 % 2,539.0
Performance Highlights
Issue Index Change Notes
PWF.PR.A Floater -5.36 % This is reasonably real, but on very low volume. Total volume was 1,669 shares, which started the day at 19.26, but there was a trade at 3:06pm for 200 shares at 18.27 and an odd-lot at 18.26. The last quote was 18.00-19.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 2.93 %
TRP.PR.E FixedReset -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 23.19
Evaluated at bid price : 25.06
Bid-YTW : 3.70 %
ENB.PR.J FixedReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 22.60
Evaluated at bid price : 23.50
Bid-YTW : 4.22 %
TRP.PR.D FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 23.31
Evaluated at bid price : 25.29
Bid-YTW : 3.61 %
FTS.PR.H FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 18.31
Evaluated at bid price : 18.31
Bid-YTW : 3.83 %
BAM.PR.C Floater 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 16.65
Evaluated at bid price : 16.65
Bid-YTW : 3.15 %
SLF.PR.B Deemed-Retractible 1.25 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.31
Bid-YTW : 5.16 %
TRP.PR.C FixedReset 1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 3.91 %
BAM.PR.K Floater 1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 3.14 %
BAM.PR.T FixedReset 1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 23.29
Evaluated at bid price : 24.43
Bid-YTW : 3.73 %
SLF.PR.E Deemed-Retractible 1.62 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.20
Bid-YTW : 5.44 %
SLF.PR.D Deemed-Retractible 1.63 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.12
Bid-YTW : 5.43 %
SLF.PR.C Deemed-Retractible 1.63 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.11
Bid-YTW : 5.44 %
IGM.PR.B Perpetual-Premium 1.71 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.25
Evaluated at bid price : 26.16
Bid-YTW : 4.85 %
TRP.PR.A FixedReset 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 20.30
Evaluated at bid price : 20.30
Bid-YTW : 4.00 %
SLF.PR.A Deemed-Retractible 1.77 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.20
Bid-YTW : 5.17 %
PWF.PR.P FixedReset 1.96 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 20.81
Evaluated at bid price : 20.81
Bid-YTW : 3.64 %
MFC.PR.B Deemed-Retractible 2.58 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.84
Bid-YTW : 5.28 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.P FixedReset 364,622 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 23.05
Evaluated at bid price : 24.70
Bid-YTW : 3.54 %
BMO.PR.S FixedReset 205,009 Desjardins bought blocks of 10,000 and 28,900 from Scotia at 25.53, then another 20,000 at 25.51. Desjardins then crossed 75,000 at 25.53 and bought 25,300 from RBC at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 23.36
Evaluated at bid price : 25.50
Bid-YTW : 3.51 %
TD.PF.C FixedReset 141,790 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 23.06
Evaluated at bid price : 24.74
Bid-YTW : 3.53 %
MFC.PR.M FixedReset 90,100 Scotia crossed blocks of 50,000 and 29,000, both at 25.15.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-12-19
Maturity Price : 25.00
Evaluated at bid price : 25.27
Bid-YTW : 3.68 %
ENB.PR.F FixedReset 83,698 Nesbitt bought 30,400 from GMP at 22.60, then crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 22.20
Evaluated at bid price : 22.70
Bid-YTW : 4.24 %
BMO.PR.Q FixedReset 67,833 Nesbitt bought 55,200 from GMP at 23.90.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.06
Bid-YTW : 3.46 %
There were 35 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.A Floater Quote: 18.00 – 19.00
Spot Rate : 1.0000
Average : 0.6943

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 2.93 %

ELF.PR.H Perpetual-Premium Quote: 25.39 – 26.00
Spot Rate : 0.6100
Average : 0.4119

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 24.92
Evaluated at bid price : 25.39
Bid-YTW : 5.49 %

TRP.PR.E FixedReset Quote: 25.06 – 25.50
Spot Rate : 0.4400
Average : 0.3003

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 23.19
Evaluated at bid price : 25.06
Bid-YTW : 3.70 %

NEW.PR.D SplitShare Quote: 32.14 – 33.00
Spot Rate : 0.8600
Average : 0.7370

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.14
Bid-YTW : 3.62 %

GWO.PR.P Deemed-Retractible Quote: 25.41 – 25.90
Spot Rate : 0.4900
Average : 0.3782

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 5.20 %

FTS.PR.J Perpetual-Discount Quote: 23.78 – 24.50
Spot Rate : 0.7200
Average : 0.6131

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-18
Maturity Price : 23.42
Evaluated at bid price : 23.78
Bid-YTW : 5.02 %

December 17, 2014

December 18th, 2014

Today’s big news was the FOMC release:

Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace. Labor market conditions improved further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices. Market-based measures of inflation compensation have declined somewhat further; survey-based measures of longer-term inflation expectations have remained stable.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation.

However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

As always, the votes against and rationales thereof are illuminating:

Voting against the action were Richard W. Fisher, who believed that, while the Committee should be patient in beginning to normalize monetary policy, improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate; Narayana Kocherlakota, who believed that the Committee’s decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target; and Charles I. Plosser, who believed that the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements.

We don’t get this kind of detail in Canada because none of us are actual adults and might burst into tears if there was any conflict of opinion.

Yellen elaborated:

Yellen told reporters following a two-day meeting that the Fed is likely to hold rates near zero at least through the first quarter. She also laid out the economic parameters that would need to be met for liftoff to begin later in the year and said that rates probably would be raised gradually thereafter. They may not return to more normal levels until 2017, she added.

The dollar and yields on Treasury securities rose in response, as investors in those markets processed the likelihood of rate increases by the Fed. The greenback gained against most currencies, with the Bloomberg Dollar Spot Index increasing to almost a five-year high. The yield on 10-year Treasuries rose eight basis points to 2.14 percent as of 5 p.m. in New York, according to Bloomberg Trader data.

Certainly, US inflation looks tame:

Consumer prices rose 1.3 percent over the past year, the smallest gain since February and down from a 1.7 percent annual advance the prior month, according to the Labor Department.

Energy costs decreased 3.8 percent from a month earlier, led by a 6.6 percent plunge in gasoline that was the biggest drop since December 2008. Food prices rose 0.2 percent.

Excluding volatile food and fuel, the so-called core measure rose 0.1 percent in November, bringing the advance over the past year down to 1.7 percent from 1.8 percent in October. The gain matched the median forecast of economists surveyed by Bloomberg and followed a 0.2 percent increase the prior month.

Rising rents, medical care and airline fares were almost completely offset by the biggest drop in clothing costs in 16 years and the largest fall in prices for used cars and trucks since September 2012.

Speaking of inflation, how about that US two-year break-even inflation rate, eh?:

A Treasury market gauge measuring the outlook for inflation turned negative for the first time in five years as oil costs and consumer prices tumble.

The difference between yields on two-year notes and same-maturity Treasury Inflation Protected Securities, which measures trader expectations for consumer prices over the life of the debt, dropped to minus three basis points yesterday. Treasury long-term yields are falling as inflation slows, while shorter maturities lagged behind as the Federal Reserve prepares to raise interest rates, flattening the so-called yield curve.

Here’s a badge of honour!

What do Highland Capital Management, Fortress Investment Group LLC (FIG) and Cerberus Capital Management have in common? The firms, which manage some $110 billion among them, are on a list that says they can never invest in a $155 million loan that’s trading in U.S. markets.

RBS Holding Co., the owner of direct marketer Quadriga Art, banned the three firms and seven others last year from buying parts of the loan, according to two people with knowledge of the matter who asked not to be named because the decision was private. They were deemed, the people said, to be too demanding in debt restructurings, a fate that executives at RBS — which has no relationship to the Scottish bank — considered as Quadriga’s business faltered.

The practice poses risks to a market whose size has quadrupled from about $200 billion over the last decade as plunging interest rates fueled investor demand for securities that offer extra yield. Blacklisting reduces the number of potential buyers, which in turn makes the loans difficult to trade, and can exclude the savvier investors who are better able to fight for creditor rights in a default.

It took 20 days on average to complete a loan trade in the three months ending in June, according to data compiled by the New York-based Loan Syndications & Trading Association. That’s almost seven times as long as the three-day average in the corporate bond market.

Data gathered by Xtract Research show that 77 percent of all loan deals in the third quarter included provisions giving borrowers the ability to block individual lenders, up from 51 percent at the end of last year.

NexGen Financial Corporation has announced:

that at today’s special meeting its shareholders overwhelmingly approved the previously announced plan of arrangement (the “Arrangement”) between a wholly-owned subsidiary of Natixis Global Asset Management, L.P. and NexGen. The Arrangement was approved by 99.97% of the votes cast by NexGen’s shareholders and 99.96% of the votes cast by NexGen’s shareholders who are not receiving a collateral benefit in connection with the Arrangement. A total of 84.85% of the outstanding common shares of NexGen were voted at the meeting. Now that the requisite shareholder approvals have been obtained, a final order of the Ontario Superior Court of Justice approving the Arrangement will be sought on December 18, 2014. If the final order is obtained, management anticipates that the Arrangement will be completed on or about December 22, 2014, subject to receiving all necessary regulatory approvals.

NexGen was founded in 2005 and has about $885-million under management; Natixis is a conglomerator with over twenty firms in its stable and $894-billion under management.

Sun Life Financial, proud issuer of SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D, SLF.PR.E, SLF.PR.G, SLF.PR.H and SLF.PR.I, was confirmed at Pfd-2(high) by DBRS:

Compared to its peers, the Company has a high proportion of BBB and lower-rated bonds to total bonds, at 33.2%. With the Company’s sizable business in the Philippines, it has invested local premium in Philippine government bonds to avoid currency risks.

Return on equity and EBIT fixed-charge coverage ratios are expected to improve with the Company’s efforts to improve profitability toward meeting its 2015 targets. This focus on profitability should have lasting benefits. The five-year historical averages are below the rating level, but improvements are expected.

Financial leverage has declined to near 24% with improved retained earnings and with the Company using the proceeds of the sale of the U.S. business to repay maturing debt. This improved leverage is noted by DBRS, as the Company has had financial leverage ratios above 30%.

Great-West Lifeco, proud issuer of GWO.PR.F, GWO.PR.G, GWO.PR.H, GWO.PR.I, GWO.PR.L, GWO.PR.M, GWO.PR.N, GWO.PR.P, GWO.PR.Q, GWO.PR.R and GWO.PR.S, was confirmed at Pfd-1(low) by DBRS:

With the employed leverage combined with stable profits, the Company has been able to produce an above-peer return on equity in the mid-teens for several years running. As the Company is the largest insurer in Canada, top-line growth will be limited largely to total market growth. Growth by acquisition within Canada is limited, given the dominance of the big three insurers. Achieving a full turnaround with the Putnam investment subsidiary has proven elusive, but recently the funds have achieved high-ranking performance statistics, which should allow a shift toward better results.

Financial leverage at September 30, 2014, is 30.1%, which is better than its prior highs near 34%. As compared with recent leverage reduction achievements of its peers, the Company has been slow in reducing leverage toward its long-term target of 25%. The current leverage ratio is higher than desirable for the rating level.

Industrial Alliance Insurance and Financial Services Inc., proud issuer of IAG.PR.A, IAG.PR.E (soon to be redeemed), IAG.PR.F and IAG.PR.G, was confirmed at Pfd-2(high) by DBRS:

Despite the largely unfavourable market environment, the Company’s return on equity has generally been in the 12% to 13% range for most of the last five years.

The Company has a more aggressive risk appetite compared with other industry players, as demonstrated by its higher tolerance for interest rate and equity market sensitivity and willingness to pursue niche opportunities in the property and casualty space. The Company has rapidly reduced its financial leverage ratio to 25.9% as at September 30, 2014, from a ratio near 36% in 2012 by raising equity and paying down debt. EBIT fixed- charge coverage ratios have been improving and are now in the 5 times coverage range. Both leverage and coverage ratios now sit within or are near the range for an A-rated company.

The minimum continuing capital and surplus requirement at September 30, 2014, is 215%, which is satisfactory for the rating, but considering the sensitivity to interest rates and equities, the Company needs to maintain the ratio in the higher levels.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 1bp, FixedResets down 10bp and DeemedRetractibles off 5bp. There is yet another very lengthy list of performance highlights, with both winners and losers dominated by FixedResets. Volume was average, but the highlights are notable for the presence of two floaters, which usually trade by appointment only and performed poorly – probably due to a dovish interpretation of the FOMC release.

PerpetualDiscounts now yield 5.14%, equivalent to 6.68% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.0%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 270bp, a significant widening from the 255bp reported December 10.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:

  • based on Implied Volatility Theory only
  • are relative only to other FixedResets from the same issuer
  • assume constant GOC-5 yield
  • assume constant Implied Volatility
  • assume constant spread

Here’s TRP:

impVol_TRP_141217
Click for Big

So according to this, TRP.PR.A, bid at 19.95, is $1.51 cheap, but it has already reset (at +192). TRP.PR.D, bid at 25.00 and resetting at +238bp on 2019-4-30 is $0.52 rich and TRP.PR.E, bid at 25.36 and resetting at +235bp on 2019-10-30, is $1.08 rich.

impVol_MFC_141217
Click for Big

It looks like MFC.PR.F, resetting at 141bp on 2016-06-19 is in another world and distorting results again. It’s the only deep-discount issue, bid at 20.65 – everything else is above or near par.

impVol_BAM_141217
Click for Big

There continues to be extraordinary cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, is bid at 20.02 and appears to be $0.91 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 25.00 and appears to be $1.57 rich.

impVol_FTS_141217
Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 18.10, looks $1.45 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 24.87, looks $1.21 expensive and resets 2019-3-1

breakEvenBills_141217
Click for Big

Given all today’s speculation on policy rates – and the performance of Floaters – I thought I’d have another look at the break-even bill rates for the FixedReset/FloatingReset Strong Pairs.

The average break-even rate has declined from 1.80%-2.00% at the time recent conversion decisions were made to a current range of 1.50%-1.70%. This decline means that the estimated profit on TRP.PR.A conversion has declined from $0.48 to a mere $0.16 (at the lower end of the range).

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -1.4405 % 2,469.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.4405 % 3,909.8
Floater 3.07 % 3.17 % 64,422 19.30 4 -1.4405 % 2,625.3
OpRet 4.41 % -2.62 % 27,577 0.08 2 -0.0588 % 2,747.2
SplitShare 4.29 % 4.06 % 41,675 3.71 5 0.4192 % 3,185.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0588 % 2,512.0
Perpetual-Premium 5.45 % 1.35 % 74,676 0.08 20 -0.0843 % 2,471.7
Perpetual-Discount 5.22 % 5.14 % 110,760 15.19 15 0.0144 % 2,634.5
FixedReset 4.28 % 3.63 % 234,962 16.57 77 -0.0978 % 2,509.0
Deemed-Retractible 5.01 % 2.66 % 98,405 0.60 40 -0.0479 % 2,597.3
FloatingReset 2.56 % 2.13 % 63,301 3.51 5 0.0079 % 2,531.6
Performance Highlights
Issue Index Change Notes
IFC.PR.A FixedReset -2.65 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.01
Bid-YTW : 4.93 %
GWO.PR.N FixedReset -2.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.57
Bid-YTW : 5.55 %
BAM.PR.K Floater -2.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 16.45
Evaluated at bid price : 16.45
Bid-YTW : 3.18 %
MFC.PR.B Deemed-Retractible -1.94 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.24
Bid-YTW : 5.60 %
IGM.PR.B Perpetual-Premium -1.76 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.72
Bid-YTW : 5.34 %
BAM.PR.C Floater -1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 16.45
Evaluated at bid price : 16.45
Bid-YTW : 3.18 %
MFC.PR.F FixedReset -1.67 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.65
Bid-YTW : 5.21 %
BAM.PF.A FixedReset -1.40 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : 4.02 %
PWF.PR.A Floater -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 19.02
Evaluated at bid price : 19.02
Bid-YTW : 2.78 %
BAM.PR.T FixedReset -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 23.12
Evaluated at bid price : 24.05
Bid-YTW : 3.80 %
PWF.PR.P FixedReset -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 20.41
Evaluated at bid price : 20.41
Bid-YTW : 3.71 %
FTS.PR.H FixedReset -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 18.10
Evaluated at bid price : 18.10
Bid-YTW : 3.87 %
NEW.PR.D SplitShare 1.06 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.46
Bid-YTW : 1.67 %
ENB.PR.N FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 22.37
Evaluated at bid price : 23.05
Bid-YTW : 4.29 %
TRP.PR.E FixedReset 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 23.29
Evaluated at bid price : 25.36
Bid-YTW : 3.64 %
ENB.PR.H FixedReset 1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 20.70
Evaluated at bid price : 20.70
Bid-YTW : 4.31 %
FTS.PR.K FixedReset 2.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 23.18
Evaluated at bid price : 24.87
Bid-YTW : 3.40 %
TRP.PR.A FixedReset 2.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 19.95
Evaluated at bid price : 19.95
Bid-YTW : 4.07 %
PWF.PR.T FixedReset 2.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 23.35
Evaluated at bid price : 25.35
Bid-YTW : 3.63 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.C FixedReset 140,075 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 23.08
Evaluated at bid price : 24.78
Bid-YTW : 3.53 %
CM.PR.P FixedReset 133,810 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 23.05
Evaluated at bid price : 24.71
Bid-YTW : 3.53 %
BAM.PR.K Floater 93,724 Desjardins crossed 83,400 at 16.37.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 16.45
Evaluated at bid price : 16.45
Bid-YTW : 3.18 %
BAM.PR.B Floater 89,653 Desjardins crossed 85,300 at 16.60.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 3.17 %
MFC.PR.N FixedReset 67,100 Recent new issue.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.91
Bid-YTW : 3.79 %
TRP.PR.C FixedReset 58,489 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 18.75
Evaluated at bid price : 18.75
Bid-YTW : 3.97 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.B Deemed-Retractible Quote: 23.24 – 23.97
Spot Rate : 0.7300
Average : 0.5425

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.24
Bid-YTW : 5.60 %

SLF.PR.E Deemed-Retractible Quote: 22.83 – 23.36
Spot Rate : 0.5300
Average : 0.3429

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.83
Bid-YTW : 5.65 %

ELF.PR.G Perpetual-Discount Quote: 22.90 – 23.48
Spot Rate : 0.5800
Average : 0.4147

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 22.61
Evaluated at bid price : 22.90
Bid-YTW : 5.26 %

IGM.PR.B Perpetual-Premium Quote: 25.72 – 26.30
Spot Rate : 0.5800
Average : 0.4180

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.72
Bid-YTW : 5.34 %

CGI.PR.D SplitShare Quote: 25.25 – 25.93
Spot Rate : 0.6800
Average : 0.5192

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 3.63 %

ENB.PR.Y FixedReset Quote: 21.70 – 22.15
Spot Rate : 0.4500
Average : 0.2903

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-17
Maturity Price : 21.43
Evaluated at bid price : 21.70
Bid-YTW : 4.35 %

YCM.PR.A and YCM.PR.B: Large Partial Redemption

December 17th, 2014

Quadravest has announced:

New Commerce Split (the “Company”) announced today that it will redeem 1,011,720 Class I Preferred Shares (YCM.PR.A) and 1,011,720 Class II Preferred Shares (YCM.PR.B) for cash redemption on January 5, 2015. This redemption represents approximately 36.91% of the outstanding Preferred Shares and allows the Company to fulfill the requirement to maintain an equal number of shares of all classes after holders of 1,011,720 Capital Shares (YCM) exercised their 2014 Special Retraction rights. The 2014 Special Retraction right was given to all shareholders in connection with the extension of the termination date from December 1, 2014 to December 1, 2019 as approved at the May 14, 2014 Special Meeting of Shareholders.

The Class I and Class II Preferred Shares will be redeemed on a pro rata basis, so that Preferred Shareholders of record on the close of business on December 31, 2014 will have approximately 36.91% of their Preferred Shares redeemed. The redemption price of $5.00 per Class I Preferred Share and $5.00 per Class II Preferred Share will be paid on January 5, 2015. Holders of Class I and Class II Preferred Shares that have been called for redemption will be entitled to receive the regular monthly dividends declared for the December 31, 2014 record date, payable January 9, 2015.

The net asset value per unit as of the close of business on December 17, 2014 was $11.35 per unit after giving effect to the Capital Shares Special Retraction payment and the Class I and Class II Preferred Share redemption. Preferred shares are only redeemable by the Company on the set redemption dates, the next such date being December 1, 2019.

YCM.PR.A and YCM.PR.B were last mentioned on PrefBlog in connection with the recent warrant expiry (it doesn’t look like there was much, if any, exercise – the news page has no announcement). YCM.PR.A and YCM.PR.B are not tracked by HIMIPref™.

December 16, 2014

December 16th, 2014

How ’bout that ruble, eh?

After the single worst day in Russia’s nine-month-old financial crisis, the fallout is spreading across global markets.

Pacific Investment Management Co. (PEBIX) is facing mounting losses on its Russian bond holdings; almost every bullish ruble option contract registered in the U.S. has been made worthless; and foreign-exchange brokers in New York and London told clients they’re no longer taking ruble trades. Sergey Shvetsov, a first deputy central bank governor, expressed astonishment at the scope of the collapse during a business conference in Moscow.

“We couldn’t imagine what’s happening in our worst nightmare even a year ago,” Shvetsov, who oversees financial markets at the central bank, said yesterday. He said the bank’s surprise interest-rate increase in the middle of the night, a 6.5 percentage-point move that failed to stem the run on the ruble yesterday, was a choice between a “very bad” option and and a “very, very bad” option.

The ruble sank beyond 80 per dollar, a record low, as panic swept across Moscow’s financial markets before it rebounded after Economy Minister Alexei Ulyukayev denied speculation the government would impose restrictions to stop Russians from converting cash into dollars. The currency ended the day at 67.9 per dollar, down 5.4 percent on the day, while bonds and stocks also tumbled, sending the RTS equity gauge down the most since 2008.

Russians have long experience of state-run media:

Russians like Vladimir Rudenkov from Voronezh, a city about 500 kilometers (311 miles) from Moscow, were ignoring the government-media assurances and taking action. Rudenkov transfered a portion of his savings into dollars this morning and said he regretted that he didn’t transfer it all.

“The situation is catastrophic,” said Rudenkov, a 35-year-old manager. “I don’t believe that the ruble collapse is happening only due to the falling oil prices. The government is the one to blame as it didn’t defend the national currency.”

The BoC has published a paper by George J. Jiang, Ingrid Lo and Giorgio Valente titled High-Frequency Trading around Macroeconomic News Announcements: Evidence from the U.S. Treasury Market:

This paper investigates high-frequency (HF) market and limit orders in the U.S. Treasury market around major macroeconomic news announcements. BrokerTec introduced i-Cross at the end of 2007 and we use this exogenous event as an instrument to analyze the impact of HF activities on liquidity and price efficiency. Our results show that HF activities have a negative effect on liquidity around economic announcements: they widen spreads during the pre-announcement period and lower depth on the order book during the post-announcement period. The negative impact on liquidity mainly derives from HF trades. Nonetheless, HF trades improve price efficiency during both the preannouncement and post-announcement periods.

Intact Financial Corporation, proud issuer of IFC.PR.A and IFC.PR.C, has been confirmed at Pfd-2(low) by DBRS:

DBRS Limited (DBRS) has today confirmed Intact Financial Corporation’s (Intact or the Company) Issuer Rating at A (low), Senior Unsecured Debt at A (low) and Non-Cumulative Preferred Shares at Pfd-2 (low). The trends are Stable.

The Company’s operating subsidiaries are among the strongest performers in the Canadian property and casualty insurance industry, achieving underwriting profits and obtaining above-industry return on capital results. The Company’s overall underwriting performance hinges on tightening benefits, reducing exposures, scale and analysis, which allows it to identify and price risks by mining its extensive database. Scale also enhances the ability of the Company to keep claims costs lower than those of its peer group and to more efficiently service its multi-channel distribution networks. Recent efforts to increase pricing in firmer commercial markets, to tighten benefits and to reduce earthquake exposures should improve the Company’s performance after three years of elevated catastrophic claims. An efficient capital structure keeps the Company’s overall financial leverage within bounds, and it has seen improving financial leverage ratios since 2011. There is a possibility of acquisition activity increasing the financial leverage if financed with debt.

DBRS calculates Intact’s annualized return on equity for the first nine months of 2014 to be 16.2%, a positive result benefiting from lower catastrophic claims so far this year compared with 2013 and generally improved underwriting results with higher premiums and reduced benefit obligations. The important Ontario auto insurance market, which comprises the largest segment of Intact’s business, is challenging with the provincial government’s desire to lower auto insurance premiums. To achieve the desired premium reductions, the industry is asking for a reduction in benefit costs and greater ability to discourage fraud.

It was (yet another) poor day for the Canadian preferred share market, with PerpetualDiscounts down 9bp, FixedResets losing 22bp and DeemedRetractibles off 8bp. There is (yet another) lengthy list of Performance Highlights, dominated (yet again) by losing FixedResets with (yet more) heavy representation from the credit-dubious Enbridge. Volume was above average, enlivened by the two new issues, CM.PR.P and TD.PF.C.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:

  • based on Implied Volatility Theory only
  • are relative only to other FixedResets from the same issuer
  • assume constant GOC-5 yield
  • assume constant Implied Volatility
  • assume constant spread

Here’s TRP:

impVol_TRP_141216
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So according to this, TRP.PR.A, bid at 19.45, is $1.84 cheap, but it has already reset (at +192). TRP.PR.D, bid at 25.00 and resetting at +238bp on 2019-4-30 is $0.66 rich and TRP.PR.E, bid at 25.04 and resetting at +235bp on 2019-10-30, is $0.90 rich. The TRP issues seem to be rationalizing, but there continues to be pressure on TRP.PR.A.

Now, this is really interesting. TRP.PR.A will pay 3.266%, which is to say $0.8165, until its next reset date 2019-12-31. TRP.PR.E will continue to pay its initial dividend of $1.0625 until it resets 2019-10-30 at +235. See that? Two month’s difference in reset. I think we can disregard forecasts of changes in GOC-5 yield that get that precise. That is to say, over the next five years, TRP.PR.E will pay a total of about $1.25 more than TRP.PR.A. Then it will reset at 46bp more, which is to say $0.115 p.a., forever.

And yet the difference in price is $5.59! That seems to me to be a lot to pay for a short term payment of $1.25, leaving $4.34, to earn $0.115, or 2.65%. But some people, it would seem, find this quite reasonable. It will be noted as well that TRP.PR.A is exposed to possible capital gains if the Market Reset Spread narrows; so it could gain up to $5.55 in price while TRP.PR.E got nothing.

impVol_MFC_141216
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It looks like MFC.PR.F, resetting at 141bp on 2016-06-19 is in another world and distorting results again.

impVol_BAM_141216
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There continues to be extraordinary cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, is bid at 20.01 and appears to be $0.96 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 24.90 and appears to be $1.39 rich.

impVol_FTS_141216
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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 18.30, looks $1.05 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 24.30, looks $0.77 expensive and resets 2019-3-1

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.1438 % 2,505.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.1438 % 3,966.9
Floater 3.03 % 3.12 % 60,256 19.44 4 -0.1438 % 2,663.7
OpRet 4.41 % -3.71 % 27,354 0.08 2 -0.0196 % 2,748.8
SplitShare 4.31 % 4.02 % 43,390 3.71 5 -0.0294 % 3,172.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0196 % 2,513.5
Perpetual-Premium 5.44 % 1.18 % 74,181 0.09 20 -0.0020 % 2,473.8
Perpetual-Discount 5.22 % 5.14 % 111,245 15.18 15 -0.0864 % 2,634.1
FixedReset 4.28 % 3.60 % 233,669 16.45 77 -0.2249 % 2,511.5
Deemed-Retractible 5.00 % 1.37 % 98,170 0.29 40 -0.0837 % 2,598.5
FloatingReset 2.56 % 2.10 % 64,191 3.51 5 -0.0868 % 2,531.4
Performance Highlights
Issue Index Change Notes
PWF.PR.T FixedReset -4.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 23.11
Evaluated at bid price : 24.64
Bid-YTW : 3.77 %
IFC.PR.A FixedReset -1.82 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.61
Bid-YTW : 4.61 %
ENB.PR.B FixedReset -1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 22.21
Evaluated at bid price : 22.56
Bid-YTW : 4.16 %
BNS.PR.P FixedReset -1.46 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.62
Bid-YTW : 2.71 %
MFC.PR.F FixedReset -1.41 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.00
Bid-YTW : 5.01 %
GWO.PR.N FixedReset -1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.01
Bid-YTW : 5.29 %
ENB.PR.N FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 22.23
Evaluated at bid price : 22.80
Bid-YTW : 4.34 %
BAM.PF.F FixedReset -1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 23.26
Evaluated at bid price : 25.25
Bid-YTW : 4.08 %
ENB.PR.F FixedReset -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 22.20
Evaluated at bid price : 22.70
Bid-YTW : 4.24 %
TRP.PR.A FixedReset 1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 19.45
Evaluated at bid price : 19.45
Bid-YTW : 4.17 %
BAM.PF.A FixedReset 1.70 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.76
Bid-YTW : 3.60 %
HSE.PR.A FixedReset 2.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 19.55
Evaluated at bid price : 19.55
Bid-YTW : 4.01 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.C FixedReset 749,016 New issue settled today.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 23.11
Evaluated at bid price : 24.87
Bid-YTW : 3.51 %
CM.PR.P FixedReset 692,550 New issue settled today.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 23.07
Evaluated at bid price : 24.75
Bid-YTW : 3.53 %
FTS.PR.M FixedReset 269,800 Desjardins crossed blocks of 197,100 and 60,000 at 25.60.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 23.25
Evaluated at bid price : 25.25
Bid-YTW : 3.71 %
TRP.PR.E FixedReset 116,806 RBC crossed 114,600 at 25.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 23.18
Evaluated at bid price : 25.04
Bid-YTW : 3.70 %
CM.PR.E Perpetual-Premium 66,242 Called for redemption January 31.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-15
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : -0.24 %
ENB.PR.A Perpetual-Premium 56,250 RBC crossed 42,700 at 25.10.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 24.68
Evaluated at bid price : 24.99
Bid-YTW : 5.54 %
There were 40 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.T FixedReset Quote: 24.64 – 25.44
Spot Rate : 0.8000
Average : 0.5662

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 23.11
Evaluated at bid price : 24.64
Bid-YTW : 3.77 %

ENB.PR.A Perpetual-Premium Quote: 24.99 – 25.63
Spot Rate : 0.6400
Average : 0.4751

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 24.68
Evaluated at bid price : 24.99
Bid-YTW : 5.54 %

NEW.PR.D SplitShare Quote: 32.12 – 33.12
Spot Rate : 1.0000
Average : 0.8457

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.12
Bid-YTW : 3.71 %

SLF.PR.A Deemed-Retractible Quote: 23.91 – 24.35
Spot Rate : 0.4400
Average : 0.2925

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.91
Bid-YTW : 5.32 %

PWF.PR.A Floater Quote: 19.25 – 20.00
Spot Rate : 0.7500
Average : 0.6105

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 19.25
Evaluated at bid price : 19.25
Bid-YTW : 2.74 %

FTS.PR.K FixedReset Quote: 24.30 – 24.95
Spot Rate : 0.6500
Average : 0.5176

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 22.96
Evaluated at bid price : 24.30
Bid-YTW : 3.51 %

CM.PR.P Soft on Good Volume

December 16th, 2014

The Canadian Imperial Bank of Commerce has announced:

that it has completed the offering of 12 million Basel III-compliant non-cumulative Rate Reset Class A Preferred Shares Series 41 (the “Series 41 Shares”) priced at $25.00 per share to raise gross proceeds of $300 million.

The offering was made through a syndicate of underwriters led by CIBC World Markets Inc. The Series 41 Shares commence trading on the Toronto Stock Exchange today under the ticker symbol CM.PR.P.

The Series 41 Shares were issued under a prospectus supplement dated December 8, 2014, to CIBC’s short form base shelf prospectus dated March 11, 2014.

CM.PR.P is a FixedReset, 3.75%+224, announced December 8. This issue will be tracked by HIMIPref™ and has been added to the FixedResets index.

The issue traded 862,850 shares today (consolidated exchanges) in a range of 24.75-94 before closing at 24.75-76.

Vital statistics are:

CM.PR.P FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 23.07
Evaluated at bid price : 24.75
Bid-YTW : 3.53 %

TD.PF.C Soft On Good Volume

December 16th, 2014

TD.PF.C is a FixedReset, 3.75%+225, announced December 5, which TD did not honour with an announcement of the closing. The issue will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded a very respectable 1,005,216 shares today in a range of 24.80-96 before closing at 24.87-88.

Vital statistics are:

TD.PF.C FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-16
Maturity Price : 23.11
Evaluated at bid price : 24.87
Bid-YTW : 3.51 %

Implied Volatility is:

impVol_TD_141216
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TLM.PR.A To Be Taken Out At $25.00?

December 16th, 2014

Talisman Energy Inc. has announced:

•A cash price of C$25 plus accrued and unpaid dividends per Talisman preferred share if holders approve their participation in the transaction

that it has entered into a definitive agreement (the “Arrangement Agreement”) with Repsol S.A. under which Repsol will acquire all of the outstanding common shares of Talisman for US$8.00 (C$9.33) per share in cash.

Following an extensive review and analysis of the proposed transaction and other available alternatives, the Talisman Board has unanimously approved the transaction and recommends that Talisman’s common shareholders and preferred shareholders vote in favor of the arrangement at a special meeting of shareholders to be held mid February 2015. In addition, certain of the directors and all of the executive officers of Talisman have signed agreements to vote their shares in favor of the transaction.

The transaction is to be effected pursuant to an arrangement under the Canada Business Corporations Act. The Arrangement Agreement between Talisman and Repsol provides for, among other things, a non-solicitation covenant on the part of Talisman, subject to customary “fiduciary out” provisions, that entitles Talisman to consider and accept a superior proposal if Repsol does not match the superior proposal. If the Arrangement Agreement is terminated in certain circumstances, including if Talisman enters into an agreement with respect to a superior proposal, Repsol is entitled to a termination payment of US$270 million.

Completion of the transaction is subject to customary closing conditions, including court approval of the Arrangement Agreement, approval of two-thirds of the votes cast by holders of common shares at the special meeting, and applicable government and regulatory approvals. The transaction is targeted to close in the second quarter of 2015.

Under the Arrangement Agreement, if approved by the holders in a separate class vote, Repsol will acquire the outstanding preferred shares of Talisman. However, closing of the Arrangement Agreement is not conditioned on approval by the holders of the Talisman preferred shares. If the requisite preferred shareholder approval is not obtained, the preferred shares will be excluded from the arrangement and will remain outstanding following completion of the arrangement.

Tim Kiladze comments in the Globe:

Combined, the two companies are expected to have net debt that amounts to 1.9 times earnings before interest, taxes, depreciation and amortization next year, which could fall to 1.2 times by 2017. However, that’s the base case scenario, which assumes $85 oil next year, and $99 oil in 2017. In a stress case with $71 oil next year and $79 oil in 2017, net debt is 2.3 times EBITDA next year and 1.7 times EBITDA in 2017.

As for the broad strategy, Repsol is willing to bet against the market. Most energy firms were punished for tacking on too many assets and projects as oil prices soared, and they are now scrambling to shed non-core positions and slash capital spending. Repsol believes adding diversity will help it through this energy downturn – so long as the assets are in politically safe regions like the Americas.

Rebecca Penty of Bloomberg notes:

Analysts widely recommended that shareholders accept Repsol’s bid, including those from BMO Capital Markets, CIBC World Markets Inc. and Raymond James Ltd.

TLM.PR.A was on fire today, rocketing up from yesterday’s closing quote of 19.60-20 to 23.70-72 today.

So what’s going on? First, I suggest that the discount to par represented by today’s quote is an uncertainty discount; if either common or preferred shareholders reject the deal, the price will tank again, since any credit improvement of the combined company will be minimal. DBRS comments:

Overall, DBRS expects this transaction to have a minimal impact on Talisman’s ratings. From a business risk perspective, the acquisition would be a net positive for Talisman given Repsol’s significant size and scale of integrated and geographically well-diversified operations. From a financial risk perspective, the pro forma financial metrics are expected to be reasonable to support an investment-grade rating.

Note that when DBRS talks about “investment grade” they are talking about the bonds, which are BBB. There is subordination notching for the preferreds, which are junk.

In May 2014, S&P affirmed Repsol at BBB- [Outlook Positive]:

  • •Spain-based energy company Repsol S.A. has executed its debt reduction measures by completing the sale of its liquefied natural gas (LNG) division. In addition, Repsol has sold its remaining stake in Argentina-based YPF and the related restitution bonds.
  • •Following this, the new higher level of Repsol’s credit ratios will depend on its uses of the cash and our forecast of growing production.
  • •We are therefore revising our outlook on Repsol to “positive” from “stable,” and affirming our ‘BBB-’ long-term corporate credit rating on the company.
  • •The positive outlook mostly reflects our belief that the company will be able to generate higher operating cash flows, and have an increased ability to internally fund ongoing investments in exploration and development.

… and downgraded TLM to BBB- in October:

  • •We expect Talisman Energy Inc.’s operating performance, specifically its production and cost profile, to show limited improvement in the next 18-24 months, constraining any significant cash-flow growth.
  • •At the same time, we expect Talisman to significantly outspend internally generated cash flow through 2015. Even if the company meets its US$2 billion asset sale target in the next 12-18 months, we do not think its credit profile is commensurate with that of its ‘BBB’ rated peers.
  • •As a result, we are lowering our long-term corporate credit and senior unsecured debt ratings on Talisman to ‘BBB-’ from ‘BBB’.
  • •We are also lowering our global scale rating on its preferred stock to ‘BB’ from ‘BB+’ and its Canada scale rating on the preferred stock to ‘P-3′ from ‘P-3 (High)’.
  • •The stable outlook reflects our view that Talisman’s cash flow from its increasing liquids production combined with any asset sales will allow the company to maintain its funds from operations-to-debt at more than 30% through 2015.


At the same time, Standard & Poor’s lowered its global scale rating on its preferred stock to ‘BB’ from ‘BB+’ and its Canada scale rating on the stock to ‘P-3′ from ‘P-3 (High)’.

The outlook is stable.

The latter action was reported on PrefBlog.

This is a tricky one. Remember the BCE Plan of Arrangement with its huge prices for the preferred shares? And remember how Prefs plunged when the deal got into trouble? And then the deal died? All this could – conceivably – happen again with the TLM.PR.A deal. Even if the deal is simply replaced by a better deal for common shareholders – a bid by the CPPIB has been mooted – the new plan might not necessarily involve taking out the preferreds.

So I don’t really have any advice for investors on this one. On December 10 the issue was quoted at 15.95-24 and oil hasn’t exactly rebounded since then. So if common shareholders reject the deal, the price will be … pick a number. If common shareholders accept the deal but preferred shareholders reject it (a very low probability scenario, according to me!) then the issue will remain outstanding and the price will be … pick a number. And if both common and preferred shareholders accept the deal, the price will be $25.00.

So there’s huge deal risk here, and I do preferred shares and yield curves. Deal risk is for charlatans magicians wiser heads than mine. My own inclination is that investors should unload the deal risk to speculators and try not to obsess too much about the potential upside being given up. But it’s all up to you.

TLM.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

December 15, 2014

December 15th, 2014

STRIPS are taking off!

An obscure corner of the $12.4 trillion market for U.S. government debt is providing one of the clearest signs yet that bond investors are writing off the threat of inflation for years, if not decades, to come.

Demand for Strips, created when Wall Street banks separate the interest payments from the principal of U.S. debt and sell each at a discount, has boosted the amount outstanding to an average $211 billion this year, the most since 1999, data from the Treasury Department show. The securities, the most vulnerable to inflation of all U.S. government bonds, posted the biggest returns this year by rallying almost 50 percent.

This is particularly impressive given that the yield curve is relatively flat; the STRIPS term curve will always (by inexorable mathematics) be steeper than the bond term curve, on an accelerating basis as the bond curve gets steeper … some of these investors might find themselves bankrupt and bewildered if the curve steepens; which, theoretically, it should do as the market starts pricing in policy rate hikes (cf. 1994).

There is much wailing over drops in the CAD:

The Canadian dollar slumped below the 86-cent mark today as oil prices slipped again.

And don’t expect it to get much better, though there may be some higher points along the way.

The loonie, as Canada’s dollar coin is known, closed at 85.79 cents U.S. today, down more than half a cent.

This came as oil prices, which had stabilized, tumbled yet again, continuing the weeks of turmoil.

But it ain’t got nuthin’ on the ruble:

The ruble tumbled the most since 1998, sliding past 60 for the first time, as traders tested Russia’s willingness to defend the currency amid an oil slump that’s pushing the economy toward recession.

The ruble weakened 9.1 percent to 64.0005 per dollar at 7:57 p.m. in Moscow, the steepest slide on a closing basis since the year Russia defaulted on local-currency debt. The 10-year government bond yield rose 23 basis points to 13.23 percent. Three-month implied volatility for the ruble climbed to a six-year high as the rout triggered the Bank of Russia to sell foreign exchange, according to BCS Financial Group and MDM Bank.

Traders are pressing the central bank to buy more rubles to limit a selloff that has wiped out 22 percent of the currency’s value this month. Oil’s slide toward $60 a barrel in London and sanctions over the conflict in Ukraine are undermining confidence in Russian assets as evidence mounts that the economy is entering a recession. Industrial output fell the most in more than a year in November, data showed today.

Assiduous Reader JP, who continues to send me interesting stuff when youse guys can’t be bothered, sends me a picture, and tells me to note the high and low:

ruble_141215
Click for Big

Faced with this, Russia’s central bank had little choice but to acknowledge Russia’s third world status:

The central bank increased the key rate to 17 percent from 10.5 percent effective today, it said in a statement on its website. Policy makers gathered for an unscheduled meeting after a one-point increase on Dec. 11.

“This decision is aimed at limiting substantially increased ruble depreciation risks and inflation risks,” the bank said in the statement.

Russia’s central bank raised interest rates for the sixth time in 2014 after more than $80 billion spent from its reserves failed to stop a 49 percent selloff of the ruble, the world’s worst-performing currency this year. President Vladimir Putin, whose incursion into Ukraine’s Crimea peninsula in March prompted the U.S. and its allies to strike back with sanctions, this month called for “harsh” measures to deter currency speculators.

The ruble yesterday tumbled past 60 for the first time on record, losing 9.7 percent to 64.4455 a dollar. That extended its plunge this year to 49 percent, which overtook the Ukrainian hryvnia’s drop. Brent, the grade of oil traders look at for pricing Russia’s main export blend, slipped 79 cents, or 1.3 percent, to end the session at $61.06 a barrel on the London-based ICE Futures Europe exchange.

Basically, nobody knows what’s going on:

Canadian stocks fell, extending losses after the worst week in three years, as declines among materials and energy shares offset gains in consumer stocks.

Materials companies lost 3.3 percent as gold and silver fell on speculation the Federal Reserve is moving closer to raising U.S. interest rates amid an improving economy. Energy shares lost 0.9 percent as oil fell to the lowest level in more than five years. Talisman Energy Inc. rallied 18 percent as people familiar with the matter said Canada Pension Plan Investment Board is weighing a bid for the oil-and-gas explorer.

The Standard & Poor’s/TSX Composite Index (SPTSX) lost 25.91 points, or 0.2 percent, to 13,705.14 at 4 p.m. in Toronto, after rising as much as 0.9 percent and then falling 0.7 percent. The equity gauge dropped 5.1 percent last week, its worst weekly decline since September 2011. Trading in S&P/TSX stocks was 31 percent below the 30-day average at closing time.

Canadian equities have pared their gain for the year to 0.6 percent, after rallying as much as 15 percent to a record in September. Oil, bank and raw-material shares, which collectively account for two-thirds of the S&P/TSX, are the worst performers among 10 groups this year, led by a 20 percent slump in energy, according to data compiled by Bloomberg.

Rumours regarding Repsol / Talisman are getting very specific:

Spain’s Repsol SA has submitted an $8.3-billion (U.S.) takeover bid for Talisman Energy Inc. amid falling oil prices and questions about Talisman’s long-term prospects, a source familiar with the situation said on Monday.

Under the offer, Repsol would pay $8 (U.S.) per share of Calgary-base‎d Talisman, the source said.

It was a deceptively mixed day for the Canadian preferred share market, with PerpetualDiscounts up 13bp, FixedResets gaining 4bp and DeemedRetractibles off 1bp, but the modest averages masked a lot of turmoil. There’s yet another very lengthy list of performance highlights, dominated by losing low-spread FixedResets. We may even have entered a period of self-feeding tax-loss selling (many of the losers are also volume highlights), but we won’t know until the season ends! Volume was above average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:

  • based on Implied Volatility Theory only
  • are relative only to other FixedResets from the same issuer
  • assume constant GOC-5 yield
  • assume constant Implied Volatility
  • assume constant spread

Here’s TRP:

impVol_TRP_141215
Click for Big

So according to this, TRP.PR.A, bid at 19.20, is $2.13 cheap (!), but it has already reset (at +192). TRP.PR.D, bid at 25.15 and resetting at +238bp on 2019-4-30 is $0.81 rich and TRP.PR.E, bid at 25.20 and resetting at +235bp on 2019-10-30, is $1.00 rich. The TRP issues seem to be steadily rationalizing, but there continues to be pressure on TRP.PR.A.

Now, this is really interesting. TRP.PR.A will pay 3.266%, which is to say $0.8165, until its next reset date 2019-12-31. TRP.PR.E will continue to pay its initial dividend of $1.0625 until it resets 2019-10-30 at +235. See that? Two month’s difference in reset. I think we can disregard forecasts of changes in GOC-5 yield that get that precise. That is to say, over the next five years, TRP.PR.E will pay a total of about $1.25 more than TRP.PR.A. Then it will reset at 46bp more, which is to say $0.115 p.a., forever.

And yet the difference in price is … is … SIX DOLLARS! That seems to me to be a lot to pay for a short term payment of $1.25, leaving $4.75, to earn $0.115, or 2.42%. But some people, it would seem, find this quite reasonable.

impVol_MFC_141215
Click for Big

MFC has a very good fit to theory, but the Implied Volatility is very high.

impVol_BAM_141215
Click for Big

There continues to be extraordinary cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, is bid at 20.12 and appears to be $0.89 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 25.00 and appears to be $1.49 rich.

impVol_FTS_141215
Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 18.40, looks $1.01 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 24.20, looks $0.66 expensive and resets 2019-3-1

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.3030 % 2,509.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.3030 % 3,972.6
Floater 3.02 % 3.11 % 59,635 19.45 4 0.3030 % 2,667.5
OpRet 4.41 % -3.87 % 27,159 0.08 2 -0.0979 % 2,749.3
SplitShare 4.31 % 4.11 % 45,189 3.71 5 -0.0531 % 3,173.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0979 % 2,514.0
Perpetual-Premium 5.44 % -0.36 % 73,710 0.08 20 -0.0509 % 2,473.9
Perpetual-Discount 5.22 % 5.14 % 109,492 15.21 15 0.1326 % 2,636.3
FixedReset 4.28 % 3.64 % 225,234 16.44 75 0.0382 % 2,517.2
Deemed-Retractible 5.00 % 1.81 % 97,526 0.20 40 -0.0080 % 2,600.7
FloatingReset 2.56 % 2.10 % 64,904 3.52 5 0.0079 % 2,533.6
Performance Highlights
Issue Index Change Notes
TRP.PR.A FixedReset -3.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 4.22 %
FTS.PR.H FixedReset -2.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 18.40
Evaluated at bid price : 18.40
Bid-YTW : 3.81 %
ENB.PR.T FixedReset -2.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 21.82
Evaluated at bid price : 22.23
Bid-YTW : 4.34 %
HSE.PR.A FixedReset -1.86 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 19.04
Evaluated at bid price : 19.04
Bid-YTW : 4.11 %
ENB.PR.A Perpetual-Premium -1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 24.56
Evaluated at bid price : 24.81
Bid-YTW : 5.58 %
FTS.PR.K FixedReset -1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 22.92
Evaluated at bid price : 24.20
Bid-YTW : 3.53 %
ENB.PR.H FixedReset -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 20.48
Evaluated at bid price : 20.48
Bid-YTW : 4.36 %
ENB.PF.G FixedReset -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 22.55
Evaluated at bid price : 23.59
Bid-YTW : 4.32 %
BMO.PR.Q FixedReset -1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.74
Bid-YTW : 3.67 %
GWO.PR.G Deemed-Retractible -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.65
Bid-YTW : 5.39 %
PWF.PR.S Perpetual-Discount -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 23.58
Evaluated at bid price : 23.95
Bid-YTW : 5.06 %
PWF.PR.T FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 23.45
Evaluated at bid price : 25.70
Bid-YTW : 3.56 %
BNS.PR.P FixedReset 1.17 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 2.24 %
BNS.PR.Y FixedReset 1.51 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.15
Bid-YTW : 3.00 %
MFC.PR.J FixedReset 1.54 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.65
Bid-YTW : 3.16 %
TRP.PR.D FixedReset 2.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 23.26
Evaluated at bid price : 25.15
Bid-YTW : 3.64 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.H FixedReset 214,150 Desjardins crossed 188,300 at 18.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 18.40
Evaluated at bid price : 18.40
Bid-YTW : 3.81 %
TRP.PR.A FixedReset 120,518 Will reset at 3.266%. Desjardins crossed 20,800 at 19.33. RBC crossed blocks of 28,200 and 24,200 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 4.22 %
ENB.PR.Y FixedReset 79,491 Scotia bought 10,700 from National at 21.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 21.59
Evaluated at bid price : 21.92
Bid-YTW : 4.30 %
CM.PR.E Perpetual-Premium 36,275 Called for redemption 2015-1-31.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-14
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : -0.42 %
TRP.PR.C FixedReset 33,937 RBC crossed 13,200 at 18.96.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 18.71
Evaluated at bid price : 18.71
Bid-YTW : 3.97 %
BNS.PR.Q FixedReset 29,083 RBC crossed 25,000 at 25.77.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-10-25
Maturity Price : 25.00
Evaluated at bid price : 25.72
Bid-YTW : 2.95 %
There were 36 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CGI.PR.D SplitShare Quote: 25.05 – 26.14
Spot Rate : 1.0900
Average : 0.6202

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 3.74 %

PWF.PR.A Floater Quote: 19.25 – 20.00
Spot Rate : 0.7500
Average : 0.4576

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 19.25
Evaluated at bid price : 19.25
Bid-YTW : 2.74 %

ENB.PF.G FixedReset Quote: 23.59 – 24.15
Spot Rate : 0.5600
Average : 0.3519

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 22.55
Evaluated at bid price : 23.59
Bid-YTW : 4.32 %

ENB.PR.A Perpetual-Premium Quote: 24.81 – 25.30
Spot Rate : 0.4900
Average : 0.2943

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 24.56
Evaluated at bid price : 24.81
Bid-YTW : 5.58 %

BAM.PF.A FixedReset Quote: 25.33 – 25.75
Spot Rate : 0.4200
Average : 0.2618

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-15
Maturity Price : 23.38
Evaluated at bid price : 25.33
Bid-YTW : 4.09 %

MFC.PR.B Deemed-Retractible Quote: 23.62 – 24.07
Spot Rate : 0.4500
Average : 0.3005

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.62
Bid-YTW : 5.39 %

December PrefLetter Released!

December 15th, 2014

The December, 2014, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

The regular appendices reporting on DeemedRetractibles and FixedResets are included. There is also a short appendix dealing with the correlations of Preferred Shares with other asset classes … and the misconceptions thereof.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the December, 2014, issue, while the “Next Edition” will be the January, 2015, issue, scheduled to be prepared as of the close January 9 and eMailed to subscribers prior to market-opening on January 12.

PrefLetter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.