January 26, 2015

January 26th, 2015

These are deflationary times in Europe:

Professional forecasters surveyed by the ECB before the QE announcement saw price growth of 0.3 percent this year and 1.1 percent in 2016. The bond-buying program is seen adding 0.4 percentage point and 0.3 percentage point respectively, according to a euro-area central bank official who has seen the ECB’s internal calculations.

In a Bloomberg News survey of 38 economists, the median forecast for January is for prices to drop 0.5 percent from a year earlier. That would follow a 0.2 percent decline in December and mark the second-biggest decrease since the creation of the euro in 1999. The record drop was in the depths of the recession, when prices fell 0.6 percent in July 2009. The data will be published at 11 a.m. in Luxembourg on Friday.

A separate report will show that unemployment in the region held at 11.5 percent in December, still near its record high of 12 percent. Persistently high joblessness, along with a backlash against austerity, was one of the key factors behind the victory of the Syriza party in elections in Greece on Sunday.

Some investors have become emboldened to justify their holdings of negative-yield debt:

Mike Amey never thought he’d buy bonds from countries like Germany and Switzerland when losses were all but guaranteed.

“It’s not a good feeling,” said Amey, whose firm runs the world’s biggest bond fund and is one of the largest investors in nations with negative yields. Others include BlackRock Inc., Deutsche Asset & Wealth Management and Vanguard Group, data compiled by Bloomberg show.

The seemingly insatiable demand for only the safest assets underscores the challenge the European Central Bank faces in convincing bond investors it has the wherewithal to jump-start the euro region after consumer prices fell for the first time in five years. Last week, ECB President Mario Draghi pledged to pump 1.1 trillion euros ($1.2 trillion) into the region’s economies by buying public and private debt.

Although the ECB’s move may push more investors into riskier assets, JPMorgan Asset Management’s David Tan says it’s possible to profit from holding negative-yielding debt.

The central bank’s full-scale quantitative easing, which starts in March, will lift prices of even the most-expensive bonds, while the potential for deflation to persist in the euro area means investors will see their purchasing power increase.

“It still makes sense to hold the bonds” when the alternative is the ECB’s deposit rate of minus 0.2 percent, said Tan, the London-based head of global rates at JPMorgan Asset, which oversees about $1.7 trillion.

Tan purchased German five-year notes when yields plunged to zero this month. The debt has since rallied, pushing yields to an all-time low of minus 0.06 percent last week. The rate was 0.01 percent at 10 a.m. in New York.

Fans of negative yields will be please to note that, given the recent 50bp-odd decline in five-year Canada yields, five year mortgages have come down a whopping 10bp:

Royal Bank of Canada is the first major lender to lower mortgage rates after five-year bond yields fell in the wake of a surprise cut by the Bank of Canada last week, according to rate-monitoring websites.

Royal Bank, the country’s second-biggest lender by assets, offered a five-year fixed rate of 2.84 per cent on Jan. 24, down from 2.94 per cent last week, according to rate-tracking website Ratespy.com. That’s below RBC’s posted rate of 4.84 per cent. The bank also trimmed its three-, seven-, and 10-year rates, according to CanadianMortgageTrends.com, an industry news website.

And S&P cut Russia to junk:

S&P, which last downgraded Russia in April, cut the sovereign one step to BB+, according to a statement released on Monday, the same as countries including Bulgaria and Indonesia. The ratings firm said the outlook is “negative.” Russian stocks on U.S. exchanges tumbled with the ruble following the announcement which came after the close of equity trading in Moscow.

“Russia’s monetary-policy flexibility has become more limited and its economic growth prospects have weakened,” S&P said in a statement. “We also see a heightened risk that external and fiscal buffers will deteriorate due to rising external pressures and increased government support to the economy.”

The ruble, the world’s second-worst performer last year after a 46 percent plunge against the dollar, plummeted after the S&P decision and closed 6.6 percent weaker at 68.7990 versus the U.S. currency on Monday. A Bloomberg index of the most-traded Russian stocks in the U.S. ended a three-day gain, tumbling 5.5 percent.

Bombardier, proud issuer of BBD.PR.B, BBD.PR.C and BBD.PR.D, has been placed on Review-Negative by Moody’s. I have updated the post that reported S&P’s downgrade of BBD earlier this month.

Brookfield Office Properties Inc., proud issuer of BPO.PR.A, BPO.PR.H, BPO.PR.J, BPO.PR.K, BPO.PR.N, BPO.PR.P, BPO.PR.R, BPO.PR.T,BPO.PR.W, BPO.PR.X and BPO.PR.Y, has been confirmed at Pfd-3 by DBRS:

DBRS Limited (DBRS) has today confirmed the Senior Unsecured Notes of Brookfield Office Properties Inc. (Brookfield or the Company) at BBB and its Cumulative Preferred Shares, Class AAA at Pfd-3, both with Stable trends. The confirmation reflects the successful re-leasing of the Bank of America/Merrill Lynch space at Brookfield Place New York. The confirmation also acknowledges that Brookfield’s coverage ratios will remain under pressure in the near term because of the re-leasing transition period of the aforementioned space. DBRS expects that coverage ratios should recover following this transition period but will remain at weak levels for the current rating category. DBRS notes that a prolonged weakness in operating performance (excluding the lease transition period of Brookfield Place New York) and/or a change in financial policy that results in further deterioration of key credit metrics could result in a Negative trend change.

The current ratings are based on Brookfield’s large, premier office portfolio, its presence in relatively stronger office markets and long-term leases to high quality tenants. DBRS expects these attributes to provide reasonable underlying support to the Company’s earnings profile. In addition, DBRS notes that Brookfield should also benefit from improving office fundamentals in the Company’s major U.S. markets, particularly downtown New York. Lower unemployment levels and a recovering economic environment in the United States should contribute to higher rental rates.

It was another violently mixed day for the Canadian preferred share market, with PerpetualDiscounts off 4bp, FixedResets down 38bp and DeemedRetractibles gaining 9bp. There is what has become the usual lengthy list of performance highlights, dominated by FixedReset losers. 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_150126
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So according to this, TRP.PR.A, bid at 20.80, is $0.77 cheap, but it has already reset (at +192). TRP.PR.C, bid at 18.90 and resetting at +154bp on 2016-1-30 is $0.37 rich.

impVol_MFC_150126
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MFC.PR.F continues to be near the line defined by its peers.

Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

impVol_BAM_150126
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There continues to be cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 21.25 and appears to be $0.46 cheap, while BAM.PR.T, resetting at +231bp 2017-3-31 is bid at 24.63 and appears to be $0.71 rich.

impVol_FTS_150126
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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 18.22, looks $0.94 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 25.16, looks $1.13 expensive and resets 2019-3-1.

pairs_FR_150126
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Pairs equivalence is looking more rational, with the investment grade pairs (which are presumably more closely watched and easier to trade) do show a rising trend with increasing time to interconversio which, qualitatively speaking, is entirely reasonable, although the increase (over five years-odd) looks pretty substantial given the scale of the chart (two years-odd). The average break-even rate is way down from recent levels again today.

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 -0.6627 % 2,437.4
FixedFloater 4.44 % 3.63 % 18,518 18.23 1 0.1404 % 3,981.4
Floater 3.11 % 3.26 % 54,506 19.08 4 -0.6627 % 2,591.2
OpRet 4.06 % 2.47 % 103,651 0.39 1 -0.3549 % 2,745.5
SplitShare 4.29 % 4.08 % 32,373 3.60 5 -0.1059 % 3,185.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.3549 % 2,510.5
Perpetual-Premium 5.42 % -6.99 % 54,825 0.09 19 -0.0945 % 2,509.7
Perpetual-Discount 5.01 % 4.86 % 108,519 15.14 16 -0.0359 % 2,768.1
FixedReset 4.25 % 3.21 % 206,127 17.31 77 -0.3797 % 2,515.3
Deemed-Retractible 4.91 % 0.26 % 103,019 0.16 39 0.0929 % 2,644.2
FloatingReset 2.44 % 2.58 % 67,041 6.46 7 -0.5450 % 2,400.3
Performance Highlights
Issue Index Change Notes
BNS.PR.Z FixedReset -3.72 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.03
Bid-YTW : 3.65 %
BAM.PR.Z FixedReset -3.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 23.48
Evaluated at bid price : 25.25
Bid-YTW : 3.76 %
TRP.PR.C FixedReset -2.93 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 18.90
Evaluated at bid price : 18.90
Bid-YTW : 3.20 %
SLF.PR.G FixedReset -2.35 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.10
Bid-YTW : 5.39 %
BAM.PR.X FixedReset -1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 3.34 %
GWO.PR.P Deemed-Retractible -1.58 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-03-31
Maturity Price : 25.25
Evaluated at bid price : 26.15
Bid-YTW : 4.68 %
FTS.PR.F Perpetual-Discount -1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 24.46
Evaluated at bid price : 24.71
Bid-YTW : 5.02 %
BAM.PR.B Floater -1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 16.08
Evaluated at bid price : 16.08
Bid-YTW : 3.29 %
TD.PR.Z FloatingReset -1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.31
Bid-YTW : 2.60 %
PWF.PR.A Floater -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 2.75 %
TRP.PR.B FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 16.40
Evaluated at bid price : 16.40
Bid-YTW : 3.21 %
RY.PR.H FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 23.25
Evaluated at bid price : 25.16
Bid-YTW : 3.04 %
TD.PF.A FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 23.23
Evaluated at bid price : 25.16
Bid-YTW : 3.04 %
TRP.PR.F FloatingReset -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 3.05 %
BAM.PR.T FixedReset -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 23.40
Evaluated at bid price : 24.63
Bid-YTW : 3.21 %
BAM.PF.A FixedReset -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 23.46
Evaluated at bid price : 25.54
Bid-YTW : 3.63 %
BAM.PF.G FixedReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 23.31
Evaluated at bid price : 25.55
Bid-YTW : 3.64 %
BAM.PF.E FixedReset -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 23.15
Evaluated at bid price : 25.00
Bid-YTW : 3.48 %
BMO.PR.R FloatingReset -1.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.65
Bid-YTW : 2.44 %
GWO.PR.R Deemed-Retractible 1.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 4.74 %
IFC.PR.C FixedReset 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.04
Bid-YTW : 3.60 %
ENB.PF.G FixedReset 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 22.81
Evaluated at bid price : 24.15
Bid-YTW : 3.80 %
PWF.PR.P FixedReset 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 21.01
Evaluated at bid price : 21.01
Bid-YTW : 2.94 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.P FixedReset 559,873 Called for redemption February 25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 1.93 %
RY.PR.I FixedReset 117,341 National sold 25,000 to Scotia and 14,500 to TD, both at 25.30. Scotia crossed 45,000 and TD crossed 15,000, both at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.31
Bid-YTW : 2.96 %
TD.PF.C FixedReset 101,135 TD crossed 25,800 at 25.10.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 23.16
Evaluated at bid price : 25.01
Bid-YTW : 3.08 %
TD.PF.B FixedReset 82,839 TD crossed 31,500 at 25.12.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 23.23
Evaluated at bid price : 25.10
Bid-YTW : 3.05 %
FTS.PR.M FixedReset 73,810 Scotia crossed 46,400 at 25.60.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 23.31
Evaluated at bid price : 25.42
Bid-YTW : 3.27 %
CM.PR.P FixedReset 63,750 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 23.16
Evaluated at bid price : 25.01
Bid-YTW : 3.08 %
There were 39 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BNS.PR.Z FixedReset Quote: 23.03 – 23.80
Spot Rate : 0.7700
Average : 0.4431

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.03
Bid-YTW : 3.65 %

FTS.PR.F Perpetual-Discount Quote: 24.71 – 25.15
Spot Rate : 0.4400
Average : 0.2661

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 24.46
Evaluated at bid price : 24.71
Bid-YTW : 5.02 %

TD.PR.Z FloatingReset Quote: 24.31 – 24.69
Spot Rate : 0.3800
Average : 0.2615

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.31
Bid-YTW : 2.60 %

ENB.PR.P FixedReset Quote: 22.36 – 22.89
Spot Rate : 0.5300
Average : 0.4146

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-26
Maturity Price : 21.93
Evaluated at bid price : 22.36
Bid-YTW : 3.85 %

CGI.PR.D SplitShare Quote: 25.10 – 25.50
Spot Rate : 0.4000
Average : 0.2870

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 3.77 %

BNS.PR.P FixedReset Quote: 25.32 – 25.70
Spot Rate : 0.3800
Average : 0.2719

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.32
Bid-YTW : 2.88 %

New Issue: RY FixedReset, 3.60%+274, NVCC-compliant

January 26th, 2015

Royal Bank of Canada has announced:

a domestic public offering of Non-Cumulative, 5-Year Rate Reset Preferred Shares Series BD.

Royal Bank of Canada will issue 12 million Preferred Shares Series BD priced at $25 per share to raise gross proceeds of $300 million. The bank has granted the Underwriters an option, exercisable in whole or in part, to purchase up to an additional 2 million Preferred Shares Series BD at the same offering price.

The Preferred Shares Series BD will yield 3.60 per cent annually, payable quarterly, as and when declared by the Board of Directors of Royal Bank of Canada, for the initial period ending May 24, 2020. Thereafter, the dividend rate will reset every five years at a rate equal to 2.74 per cent over the 5-year Government of Canada bond yield.

Subject to regulatory approval, on or after May 24, 2020, the bank may redeem the Preferred Shares Series BD in whole or in part at par. Holders of Preferred Shares Series BD will, subject to certain conditions, have the right to convert all or any part of their shares to Non-Cumulative Floating Rate Preferred Shares Series BE on May 24, 2020 and on May 24 every five years thereafter.

Holders of the Preferred Shares Series BE will be entitled to receive a non-cumulative quarterly floating dividend, as and when declared by the Board of Directors of Royal Bank of Canada, at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 2.74 per cent. Holders of Preferred Shares Series BE will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series BD on May 24, 2025 and on May 24 every five years thereafter.

The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is January 30, 2015.

We routinely undertake funding transactions to maintain strong capital ratios and a cost effective capital structure. Net proceeds from this transaction will be used for general business purposes.

They later announced:

that as a result of strong investor demand for its previously announced domestic public offering of Non-Cumulative, 5-Year Rate Reset Preferred Shares Series BD, the size of the offering has been increased to 24 million shares. The gross proceeds of the offering will now be $600 million. The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is January 30, 2015.

Monster issue!

It doesn’t happen very often, but this issue actually looks cheap to its peers! The new issue looks a whopping $1.47 cheap, while the most expensive issue is RY.PR.I, bid at 25.31 and – according to Implied Volatility theory – is $0.40 rich. RY.PR.I resets at +193 on 2019-02-24 … and has a good chance of being called then because it’s not NVCC-compliant.

impVol_RY_150126
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January 23, 2015

January 23rd, 2015

I continue to be fascinated by negative yields:

Want proof we’re still living in abnormal times? The bond market is telling us that many advanced economies won’t see much in the way of nominal growth over the next decade.

In the wake of the Swiss National Bank’s decision to ditch its currency floor and move deposit rates further into negative territory, investors actually lined up to pay the government for the privilege of holding on to their money for a period of 10 years.

According to Bank of America Merrill Lynch, there is now $7.3-trillion (U.S.) in debt that has a minus sign in front of the yield, courtesy of the euro zone, Japan and Switzerland.

While the Swiss move got all the headlines last week, India’s central bank governor Raghuram Rajan also surprised with a rate cut. Although this was cast as a response to sliding inflation in light of the slump in oil prices, the governor’s op-ed published prior to this announcement told a different tale. In fact, his reasons were very similar to those of his counterpart in Switzerland: A desire to prevent a wave of inflows into the nation.

“If not properly managed, these flows can precipitate a credit and asset-price boom and drive up exchange rates,” he wrote. “When developed-country monetary policies are eventually tightened, some of the capital is likely to depart.”

The Economist provides a little colour:

Some banks and institutions are also forced to hold government bonds, regardless of their yield, because of regulations and liquidity requirements.

The final possibility, and the most obvious explanation in the short term, is that investors have been anticipating the introduction of quantitative easing by the European Central Bank. If experience in America and Britain is any guide, purchases by the ECB will eventually drive prices up and yields down. Why worry about the theoretical loss involved in holding a bond till maturity if the investor knows he can offload the bond to his friendly neighbourhood central bank?

There are risks involved, of course. If the global economy returns to normal, then losses on government bonds will be substantial. The same would be true if inflation ever reappears. M&G says that if German bond yields merely rose back to the levels that prevailed at their previous trough, in 2012, when it was feared the euro might break up, investors would suffer a capital loss of 7%. Whatever else European government bonds may be, they are not risk-free.

Canadian inflation is lower than expectations:

Canadian inflation slowed to 1.5 percent in December as cheaper gasoline countered accelerating prices on most other items, reinforcing Bank of Canada Governor Stephen Poloz’s argument the economy needs lower interest rates.

The core inflation rate, which excludes eight volatile products such as energy, quickened to 2.2 percent from November’s 2.1 percent pace, Statistics Canada said today from Ottawa. Economists in a Bloomberg News survey forecast the total rate would slow to 1.6 percent from 2.0 percent and core prices would rise 2.3 percent.

Valener Inc., proud issuer of VNR.PR.A, was confirmed at Pfd-2(low) by DBRS:

DBRS Limited (DBRS) has today confirmed Valener Inc.’s (Valener or the Company) Cumulative Rate Reset Preferred Shares, Series A rating at Pfd-2 (low) with a Stable trend. The rating is based on the stability of dividends distributed to the Company from its 29% interest in Gaz Métro Limited Partnership (GMLP), which guarantees the First Mortgage Bonds and Senior Secured Notes (rated “A”) of Gaz Métro inc. (GMi). The rating also reflects Valener’s low non-consolidated leverage. GMi owns the remaining 71% of GMLP.

It was another violently mixed day for the Canadian preferred share market, with PerpetualDiscounts up 41bp, FixedResets down 14bp and DeemedRetractibles off 7bp. Yet another lengthy Performance Highlights table was dominated by losing FixedResets and winning Straight Perpetuals. Volume was below 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_150123
Click for Big

So according to this, TRP.PR.A, bid at 20.99, is $0.71 cheap, but it has already reset (at +192). TRP.PR.C, bid at 19.47 and resetting at +154bp on 2016-1-30 is $0.82 rich.

impVol_MFC_150123
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MFC.PR.F continues to be near the line defined by its peers despite its very poor performance today, as Implied Volatility declined again from 24% yesterday to 20% today.

Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

impVol_BAM_150123
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There continues to be cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 21.62 and appears to be $0.35 cheap, while BAM.PR.T, resetting at +231bp 2017-3-31 is bid at 24.91 and appears to be $0.67 rich.

impVol_FTS_150123
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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 18.28, looks $0.88 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 25.15, looks $1.12 expensive and resets 2019-3-1.

pairs_FR_150123
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Pairs equivalence is all over the map, but the investment grade pairs (which are presumably more closely watched and easier to trade) do show a rising trend with increasing time to interconversio which, qualitatively speaking, is entirely reasonable. The average break-even rate is way down from recent levels again today, reinforcing yesterday’s move. And it’s kinda neat to see that the DC.PR.B / DC.PR.D pair is now priced for a negative three-month bill rate over the next four and a half years-odd.

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 0.4586 % 2,453.7
FixedFloater 4.45 % 3.63 % 19,270 18.23 1 -0.2800 % 3,975.8
Floater 3.09 % 3.24 % 54,724 19.14 4 0.4586 % 2,608.4
OpRet 4.04 % 1.52 % 95,989 0.40 1 0.0000 % 2,755.3
SplitShare 4.29 % 4.09 % 32,700 3.60 5 -0.1954 % 3,188.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,519.4
Perpetual-Premium 5.42 % -9.67 % 55,637 0.09 19 -0.2132 % 2,512.1
Perpetual-Discount 5.01 % 4.85 % 107,872 15.30 16 0.4146 % 2,769.1
FixedReset 4.24 % 3.22 % 208,685 17.26 77 -0.1364 % 2,524.9
Deemed-Retractible 4.92 % 0.23 % 101,362 0.09 39 -0.0716 % 2,641.8
FloatingReset 2.46 % 2.49 % 67,147 6.46 7 0.2435 % 2,413.5
Performance Highlights
Issue Index Change Notes
IFC.PR.C FixedReset -2.86 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.78
Bid-YTW : 3.78 %
TRP.PR.C FixedReset -2.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 19.47
Evaluated at bid price : 19.47
Bid-YTW : 3.19 %
ENB.PF.G FixedReset -2.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 22.68
Evaluated at bid price : 23.86
Bid-YTW : 3.92 %
MFC.PR.F FixedReset -1.90 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.65
Bid-YTW : 4.83 %
HSE.PR.A FixedReset -1.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 20.05
Evaluated at bid price : 20.05
Bid-YTW : 3.37 %
BMO.PR.L Deemed-Retractible -1.25 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-05-25
Maturity Price : 25.50
Evaluated at bid price : 26.00
Bid-YTW : 2.52 %
CGI.PR.D SplitShare -1.22 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 3.71 %
ENB.PF.E FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 22.71
Evaluated at bid price : 23.89
Bid-YTW : 3.89 %
POW.PR.G Perpetual-Premium -1.07 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-04-15
Maturity Price : 26.00
Evaluated at bid price : 26.71
Bid-YTW : 4.17 %
BNS.PR.C FloatingReset 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.77
Bid-YTW : 2.53 %
CU.PR.E Perpetual-Discount 1.07 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-09-01
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 4.74 %
BAM.PR.Z FixedReset 1.16 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.06
Bid-YTW : 3.40 %
CU.PR.D Perpetual-Discount 1.19 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-09-01
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 4.70 %
CU.PR.F Perpetual-Discount 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 23.35
Evaluated at bid price : 23.70
Bid-YTW : 4.80 %
BAM.PR.N Perpetual-Discount 1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 22.88
Evaluated at bid price : 23.29
Bid-YTW : 5.13 %
BAM.PR.M Perpetual-Discount 1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 22.90
Evaluated at bid price : 23.20
Bid-YTW : 5.15 %
GWO.PR.P Deemed-Retractible 2.35 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-31
Maturity Price : 26.00
Evaluated at bid price : 26.57
Bid-YTW : 4.31 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.P FixedReset 686,000 Called for Redemption 2015-2-25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 1.76 %
ENB.PF.E FixedReset 287,930 RBCC crossed 70,200 at 24.25 and 50,000 at 24.22. TD crossed 50,000 at 24.22; Nesbitt crossed 95,400 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 22.71
Evaluated at bid price : 23.89
Bid-YTW : 3.89 %
ENB.PF.G FixedReset 83,200 Nesbitt crossed 75,000 at 24.22.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 22.68
Evaluated at bid price : 23.86
Bid-YTW : 3.92 %
RY.PR.Z FixedReset 60,855 Desjardins crossed 50,000 at 25.65.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 23.42
Evaluated at bid price : 25.65
Bid-YTW : 2.98 %
TD.PF.C FixedReset 56,796 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 23.22
Evaluated at bid price : 25.17
Bid-YTW : 3.11 %
PWF.PR.F Perpetual-Premium 52,927 Desjardins crossed 47,400 at 25.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-22
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : -15.06 %
There were 26 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
ENB.PF.G FixedReset Quote: 23.86 – 24.40
Spot Rate : 0.5400
Average : 0.3123

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 22.68
Evaluated at bid price : 23.86
Bid-YTW : 3.92 %

IFC.PR.C FixedReset Quote: 24.78 – 25.20
Spot Rate : 0.4200
Average : 0.2489

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.78
Bid-YTW : 3.78 %

BMO.PR.L Deemed-Retractible Quote: 26.00 – 26.45
Spot Rate : 0.4500
Average : 0.2794

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-05-25
Maturity Price : 25.50
Evaluated at bid price : 26.00
Bid-YTW : 2.52 %

NEW.PR.D SplitShare Quote: 32.33 – 33.33
Spot Rate : 1.0000
Average : 0.8586

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.33
Bid-YTW : 3.05 %

ENB.PF.E FixedReset Quote: 23.89 – 24.25
Spot Rate : 0.3600
Average : 0.2370

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-23
Maturity Price : 22.71
Evaluated at bid price : 23.89
Bid-YTW : 3.89 %

MFC.PR.B Deemed-Retractible Quote: 24.46 – 24.92
Spot Rate : 0.4600
Average : 0.3545

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.46
Bid-YTW : 5.01 %

TD.PR.P & TD.PR.Q To Be Redeemed

January 23rd, 2015

The Toronto-Dominion Bank has announced:

that it will exercise its right to redeem all of its 10 million outstanding Non-cumulative Redeemable Class A First Preferred Shares, Series P (the “Series P Shares”) on March 2, 2015 at the cash redemption price of $25.607877 per Series P Share, for total redemption proceeds of approximately $256 million.

TD also announced it will exercise its right to redeem all of its 8 million outstanding Non-cumulative Redeemable Class A First Preferred Shares, Series Q (the “Series Q Shares”) on March 2, 2015 at the cash redemption price of $25.615068 per Series Q Share, for total redemption proceeds of approximately $205 million.

The cash redemption price in each case represents the sum of the redemption amount of $25.50 per share, plus an amount equal to the applicable quarterly cash dividend pro rated for the period from and including January 31, 2015 to but excluding March 2, 2015. Regular quarterly dividends of $0.328125 per Series P Share and $0.35 per Series Q Share will be paid in the usual manner on January 31, 2015 to shareholders of record on January 8, 2015, as previously announced.

From and after March 2, 2015, the Series P Shares and Series Q Shares will cease to be entitled to dividends and the only remaining rights of holders of such shares will be to receive payment of the applicable cash redemption price.

Beneficial holders who are not directly the registered holder of Series P Shares or Series Q Shares should contact the financial institution, broker or other intermediary through which they hold these shares to confirm how they will receive their redemption proceeds. Instructions with respect to receipt of the redemption amount will be set out in the Letter of Transmittal to be mailed to registered holders of the Series P Shares and Series Q Shares shortly. Inquiries should be directed to our Registrar and Transfer Agent, CST Trust Company, at 1-800-387-0825 (or in Toronto 416-682-3860).

TD.PR.P is a Straight Perpetual, 5.25%, that commenced trading 2007-11-1 after being announced 2007-10-9. The issue was poorly received – there was an inventory blow-out sale 2007-11-14

TD.PR.Q is a Straight Perpetual, 5.60%, that commenced trading 2008-1-31 after being announced 2008-1-22.

Both issues are NVCC non-compliant and so currently reside in the DeemedRetractibles index.

There are special tax implications with respect to these redemptions! Both redemptions are priced above par ($25.50 in both cases, plus accrued dividends) and the $0.50 premium will be taxable to those who receive it as a Deemed Dividend, which is to say, a Dividend. Many, if not most, if not almost all taxable investors will be better off selling their shares – even at a few pennies discount from the redemption value – and taking the difference as a capital gain (or reduced capital loss). Please consult your personal tax advisor.

January 22, 2015

January 22nd, 2015

So the banks are taking advantage of the anti-competitive Bank Act ownership provisions to increase their mortgage margins as well as their margins on Prime:

But now, all in mortgage-land are waiting and wondering if Canada’s major banks will actually pass along that rate cut. The Globe and Mail’s Streetwise reported Wednesday that TD Canada Trust may not reduce its prime rate. (TD sent me a statement this morning confirming that it is not changing prime rate “at this time.”)

We’re in a different world this time around. The average home price is 44 per cent higher than 2008, debt levels are at a record, bank revenue is pressured by multi-year lows in mortgage growth, competition has shrunk net interest margins and Ottawa had burdened banks with heaps of regulatory, capital and securitization restrictions. That makes banks and the federal government quite reluctant to see a lower prime rate.

The housing policy factor cannot be underestimated, not with the Bank of Canada admitting that certain regions’ home values may be up to 30 per cent overvalued. I spoke with one capital markets executive Thursday. He said, “I wouldn’t be surprised if the Bank of Canada called all the major banks and said, ‘Don’t use this rate cut as fuel to get more debt in consumers’ hands by lowering rates.”

Yes, if there were more banks, then the bureaucrats at the BoC and the politicians would have to make more than six calls, which would be too much like work. After all, when you’re busily micro-managing the economy and it turns out you need a two-tier interest rate policy like any other proud member of the third world, you don’t have time to waste talking.

Regrettably, there still a few members of the private sector who have not yet been re-educated:

Mortgage brokers, however, say it is only a matter of time – anywhere from a few days to a few weeks – before banks start slashing their rates, with some predicting that as Government of Canada bond yields plummet below 1 per cent, five-year fixed rates could hit a new record-low 2.5 per cent, reigniting a fierce competition for new borrowers.

Some small non-bank lenders have already begun cutting their fixed-mortgage offerings, said Drew Donaldson, a mortgage broker and executive vice-president Safebridge Financial Group. Consumers with variable-rate mortgages and preapprovals have been calling Mr. Donaldson’s office in droves looking to find out when their rates might drop.

Some industry officials say that while banks will inevitably be forced to drop their fixed mortgage rates if bond yields settle at record lows, they may put off dropping their prime rate, which affects variable-rate mortgages along with a host of non-mortgage lending, such as car loans and personal lines of credit, in order to protect their non-mortgage profits and push borrowers toward longer-term fixed rate mortgage contracts.

Others speculated that federal regulators may be pressuring banks not to lower their rates too drastically by warning that they could introduce tighter lending rules to avoid driving up already high levels of household debt.

But with the average five-year rate among the major banks now sitting around 195 basis points above five-year government bond yields, well above the historical range of between 150 and 160 basis points, most expect the banks to eventually bow to consumer pressure to slash their rates, sending potential buyers running back into the housing market.

“You’ll definitely get more interest in homebuying when you see rates go below 2.5 per cent,” Mr. McLister said.

“It’s going to be a huge flood of buyers.”

It was another violently mixed day for the Canadian preferred share market, with PerpetualDiscounts up 74bp, FixedResets off 11bp and DeemedRetractibles down 20bp. Yet another lengthy Performance Highlights table is predictably dominated by FixedReset and Floating Rate losers and Straight Perpetual winners. 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_150122
Click for Big

So according to this, TRP.PR.A, bid at 20.92, is $0.85 cheap, but it has already reset (at +192). TRP.PR.C, bid at 19.96 and resetting at +154bp on 2016-1-30 is $1.19 rich.

impVol_MFC_150122
Click for Big

MFC.PR.F continues to be near the line defined by its peers despite its very poor performance today, as Implied Volatility declined dramatically from 30% yesterday to 24% today.

Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

impVol_BAM_150122
Click for Big

There continues to be cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 21.58 and appears to be $0.36 cheap, while BAM.PR.T, resetting at +231bp 2017-3-31 is bid at 24.92 and appears to be $0.74 rich.

Relative value changes were unusual today: the bid for BAM.PR.X gained $0.07 on the day, while BAM.PR.T’s bid is down $0.28, reinforcing yesterday’s moves. Sell on rumour, buy on news?

impVol_FTS_150122
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 18.11, looks $1.04 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 25.32, looks $1.30 expensive and resets 2019-3-1

pairs_FR_150122
Click for Big

Pairs equivalence is all over the map, but the investment grade pairs (which are presumably more closely watched and easier to trade) do show a rising trend with increasing time to interconversio which, qualitatively speaking, is entirely reasonable. The average break-even rate is way down from recent levels again today, reinforcing yesterday’s move.

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 -1.5727 % 2,442.5
FixedFloater 4.43 % 3.62 % 19,586 18.25 1 -0.3719 % 3,987.0
Floater 3.11 % 3.27 % 55,245 19.07 4 -1.5727 % 2,596.5
OpRet 4.04 % 1.51 % 95,980 0.40 1 -0.0788 % 2,755.3
SplitShare 4.28 % 4.06 % 30,290 3.61 5 0.1190 % 3,194.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0788 % 2,519.4
Perpetual-Premium 5.40 % -9.01 % 55,918 0.09 19 0.1778 % 2,517.4
Perpetual-Discount 5.03 % 4.91 % 107,982 15.55 16 0.7393 % 2,757.6
FixedReset 4.23 % 3.18 % 211,047 17.26 77 -0.1115 % 2,528.3
Deemed-Retractible 4.91 % -0.46 % 101,098 0.09 39 -0.1969 % 2,643.7
FloatingReset 2.47 % 2.55 % 67,443 6.46 7 -0.6313 % 2,407.6
Performance Highlights
Issue Index Change Notes
BMO.PR.Q FixedReset -2.53 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.92
Bid-YTW : 3.24 %
BAM.PR.C Floater -2.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 16.05
Evaluated at bid price : 16.05
Bid-YTW : 3.29 %
TD.PR.R Deemed-Retractible -2.42 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-21
Maturity Price : 25.75
Evaluated at bid price : 25.86
Bid-YTW : -1.57 %
FTS.PR.H FixedReset -2.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 18.11
Evaluated at bid price : 18.11
Bid-YTW : 3.25 %
BAM.PR.K Floater -2.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 16.02
Evaluated at bid price : 16.02
Bid-YTW : 3.30 %
BAM.PR.B Floater -1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 16.17
Evaluated at bid price : 16.17
Bid-YTW : 3.27 %
TRP.PR.C FixedReset -1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 19.96
Evaluated at bid price : 19.96
Bid-YTW : 3.11 %
MFC.PR.F FixedReset -1.68 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.05
Bid-YTW : 4.60 %
TD.PR.Q Deemed-Retractible -1.65 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-02
Maturity Price : 25.50
Evaluated at bid price : 25.57
Bid-YTW : 1.51 %
BNS.PR.A FloatingReset -1.64 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.65
Bid-YTW : 2.77 %
BNS.PR.C FloatingReset -1.61 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.52
Bid-YTW : 2.69 %
BAM.PR.R FixedReset -1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 23.90
Evaluated at bid price : 24.29
Bid-YTW : 3.39 %
PWF.PR.O Perpetual-Premium -1.39 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-21
Maturity Price : 26.00
Evaluated at bid price : 26.21
Bid-YTW : -5.99 %
TD.PR.P Deemed-Retractible -1.31 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-21
Maturity Price : 25.50
Evaluated at bid price : 25.57
Bid-YTW : 0.09 %
MFC.PR.B Deemed-Retractible -1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.46
Bid-YTW : 5.01 %
ENB.PR.P FixedReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 21.88
Evaluated at bid price : 22.29
Bid-YTW : 3.93 %
BNS.PR.Z FixedReset -1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.99
Bid-YTW : 3.06 %
BAM.PR.T FixedReset -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 23.51
Evaluated at bid price : 24.92
Bid-YTW : 3.22 %
TRP.PR.B FixedReset -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 16.58
Evaluated at bid price : 16.58
Bid-YTW : 3.28 %
BAM.PR.N Perpetual-Discount 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 22.67
Evaluated at bid price : 22.94
Bid-YTW : 5.21 %
GWO.PR.N FixedReset 1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.82
Bid-YTW : 4.98 %
POW.PR.G Perpetual-Premium 1.12 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-04-15
Maturity Price : 26.00
Evaluated at bid price : 27.00
Bid-YTW : 3.64 %
SLF.PR.G FixedReset 1.50 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.63
Bid-YTW : 5.14 %
BAM.PF.C Perpetual-Discount 1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 23.00
Evaluated at bid price : 23.32
Bid-YTW : 5.24 %
CU.PR.F Perpetual-Discount 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 23.07
Evaluated at bid price : 23.39
Bid-YTW : 4.86 %
BAM.PF.D Perpetual-Discount 1.86 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 23.18
Evaluated at bid price : 23.50
Bid-YTW : 5.25 %
CU.PR.G Perpetual-Discount 2.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 23.18
Evaluated at bid price : 23.50
Bid-YTW : 4.84 %
BNS.PR.R FixedReset 3.39 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 3.00 %
Volume Highlights
Issue Index Shares
Traded
Notes
SLF.PR.I FixedReset 197,187 Desjardins bought blocks of 12,000 shares, 15,000, two of 10,000 each, and 15,900 from RBC, all at 26.20. They also bought blocks of 11,300 shares, 30,000 and 12,900 from TD at the same price. RBC crossed 39,100 at the same price again.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 1.86 %
RY.PR.D Deemed-Retractible 101,415 Nesbitt crossed blocks of 24,500 and 75,000 at 25.55.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-24
Maturity Price : 25.25
Evaluated at bid price : 25.56
Bid-YTW : -13.06 %
BNS.PR.Y FixedReset 89,041 Scotia crossed 85,000 at 22.77.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.78
Bid-YTW : 3.34 %
RY.PR.Z FixedReset 84,220 Desjardins crossed 75,000 at 25.51.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 23.38
Evaluated at bid price : 25.53
Bid-YTW : 3.00 %
ENB.PR.J FixedReset 80,120 RBC crossed blocks of 50,000 and 25,000, both at 23.95.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 22.78
Evaluated at bid price : 23.85
Bid-YTW : 3.76 %
GWO.PR.R Deemed-Retractible 61,806 RBC bought 13,900 from anonymous at 25.00, then crossed 10,000 at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 4.81 %
There were 30 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.N Perpetual-Discount Quote: 22.94 – 23.95
Spot Rate : 1.0100
Average : 0.6503

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 22.67
Evaluated at bid price : 22.94
Bid-YTW : 5.21 %

GWO.PR.P Deemed-Retractible Quote: 25.96 – 26.68
Spot Rate : 0.7200
Average : 0.4961

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-03-31
Maturity Price : 25.25
Evaluated at bid price : 25.96
Bid-YTW : 4.83 %

POW.PR.G Perpetual-Premium Quote: 27.00 – 27.68
Spot Rate : 0.6800
Average : 0.4990

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-04-15
Maturity Price : 26.00
Evaluated at bid price : 27.00
Bid-YTW : 3.64 %

CU.PR.F Perpetual-Discount Quote: 23.39 – 23.78
Spot Rate : 0.3900
Average : 0.2679

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 23.07
Evaluated at bid price : 23.39
Bid-YTW : 4.86 %

TD.PR.T FloatingReset Quote: 24.50 – 25.00
Spot Rate : 0.5000
Average : 0.3879

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 2.43 %

FTS.PR.H FixedReset Quote: 18.11 – 18.49
Spot Rate : 0.3800
Average : 0.2756

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-22
Maturity Price : 18.11
Evaluated at bid price : 18.11
Bid-YTW : 3.25 %

BMO.PR.P To Be Redeemed

January 22nd, 2015

The Bank of Montreal has announced:

its intention to redeem all of its $400,000,000 Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 23 (“Preferred Shares Series 23″) on February 25, 2015.

The Preferred Shares Series 23 are redeemable at Bank of Montreal’s option on February 25, 2015, at a redemption price of $25.00 per share. Payment of the redemption price will be made by Bank of Montreal on or after February 25, 2015, upon surrender of the Preferred Shares Series 23.

Separately from the payment of the redemption price, the final quarterly dividend of $0.3375 per share for the Preferred Shares Series 23 will be paid in the usual manner on February 25, 2015, to shareholders of record on February 2, 2015.

Notice will be delivered to holders of the Preferred Shares Series 23 in accordance with the terms outlined in the Preferred Shares Series 23 prospectus supplement.

BMO.PR.P is a FixedReset, 5.40%+241, that commenced trading 2009-6-19 after being announced 2009-6-10. The issue has been tracked by HIMIPref™ and is assigned to the FixedReset subindex. The issue is not NVCC compliant and therefore redemption on or before 2021-1-31 has been assumed in the analysis ever since the rules were announced without a grandfather clause and recognized by HIMIPref™.

Redemption of this issue has been widely expected, but I must admit that I thought it could go either way. Five Year Canadas closed at 0.84% bid today, implying the bank could have got another five-years’ worth of Tier 1 Capital for only 3.27%. I guess they don’t figure on needing it!

January 21, 2015

January 22nd, 2015

The big news today was the Bank of Canada rate cut:

The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent. This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada.

Inflation has remained close to the 2 per cent target in recent quarters. Core inflation has been temporarily boosted by sector-specific factors and the pass-through effects of the lower Canadian dollar, which are offsetting disinflationary pressures from slack in the economy and competition in the retail sector. Total CPI inflation is starting to reflect the fall in oil prices.

Oil’s sharp decline in the past six months is expected to boost global economic growth, especially in the United States, while widening the divergences among economies. Persistent headwinds from deleveraging and lingering uncertainty will influence the extent to which some oil-importing countries benefit from lower prices. The Bank’s base-case projection assumes oil prices around US$60 per barrel. Prices are currently lower but our belief is that prices over the medium term are likely to be higher.

Although there is considerable uncertainty around the outlook, the Bank is projecting real GDP growth will slow to about 1 1/2 per cent and the output gap to widen in the first half of 2015. The negative impact of lower oil prices will gradually be mitigated by a stronger U.S. economy, a weaker Canadian dollar, and the Bank’s monetary policy response. The Bank expects Canada’s economy to gradually strengthen in the second half of this year, with real GDP growth averaging 2.1 per cent in 2015 and 2.4 per cent in 2016. The economy is expected to return to full capacity around the end of 2016, a little later than was expected in October.

Weaker oil prices will pull down the inflation profile. Total CPI inflation is projected to be temporarily below the inflation-control range during 2015, moving back up to target the following year. Underlying inflation will ease in the near term but then return gradually to 2 per cent over the projection horizon.

The oil price shock increases both downside risks to the inflation profile and financial stability risks. The Bank’s policy action is intended to provide insurance against these risks, support the sectoral adjustment needed to strengthen investment and growth, and bring the Canadian economy back to full capacity and inflation to target within the projection horizon.

Prime did not follow, since the banks factor the near-total lack of competition in Canada into their decisions:

It is not clear yet if Canada’s big banks will lower their rates. Historically, Canada’s largest lenders have followed suit when the central bank cut its key interest rate. However, Toronto-Dominion Bank said Wednesday that it now weighs many factors before cutting its prime rate, sending the message that it would like to keep the status quo in order to sustain healthy loan margins. Officially, the remaining Big Six banks declined to comment, but some privately expressed a similar sentiment as TD.

When the overnight rate target was increased to 1% in 2010, prime followed, but things are different now for um, lots of reasons! Yes, lots. So suck it up, turds.

The BoC cut was not widely expected and the bond market went nuts:

The currency reached the weakest level in almost six years after the Bank of Canada reduced economic forecasts and lowered the benchmark rate target to 0.75 percent, from 1 percent, where it’s been since 2010. Government bonds climbed, pushing yields on two-, 10- and 30-year debt to record lows. Crude, Canada’s biggest export, has tumbled more than 50 percent since June amid a global glut.

The currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, depreciated 1.8 percent to C$1.2340 per U.S. dollar at 5 p.m. Toronto time. It slid as much as 2.3 percent, the most since September 2011, to C$1.2394, the weakest level since April 2009. One Canadian dollar buys 81.04 U.S. cents.

The yield on Canada’s benchmark 10-year (GCAN10YR) bond dropped to as low as 1.365 percent before trading at 1.43 percent, 0.44 percentage point below the U.S. 10-year note yield. It’s the biggest difference since 2007.

Yields on Canadian two-year securities touched 0.536 percent, and 30-year bond yields reached 2 percent.

None of the 22 economists in a Bloomberg News survey predicted the cut. The interest rate, which influences everything from car loans to mortgages, had been unchanged since September 2010. The last reduction was in April 2009.

At the close yesterday, the five-year was bid at 1.04%, and today’s closing bid was 0.86%. Eighteen basis points on the five year in a day? Twenty-three years I’ve been in the business, and while I no longer keep day-to-day records of Canada yields, I’ll guess I could count the number of days with that sort of move without having to take off my socks.

It’s a global thing:

In Tokyo, BOJ Governor Haruhiko Kuroda and colleagues cut their core inflation forecast to 1 percent for the fiscal year starting in April, from 1.7 percent, and maintained a pledge to increase the monetary base at an annual pace of 80 trillion yen ($674 billion). They also said they will boost the main part of a program to support economic growth to 10 trillion yen from 7 trillion yen. Eligibility for a facility aimed at stimulating bank lending was also widened.

Hours later in London, the Bank of England said policy makers Martin Weale and Ian McCafferty this month stopped voting for a rate increase. That left the nine-member Monetary Policy Committee unanimous for the first time since July as it warned U.K. inflation may drop to zero in the first quarter.

Inflation is slowing around the world. Malaysia on Wednesday reported that consumer prices rose 2.7 percent in December from a year earlier, the second-weakest pace in 2014. New Zealand’s fourth-quarter prices increased 0.8 percent from a year earlier, the slowest rate in six periods.

The Bank of Korea will seek an inflation target that is optimal for the economy, Governor Lee Ju Yeol said on Thursday, adding that the possibility of deflation is “limited.”

And Draghi wants US-style quantitative easing:

Mario Draghi called on the European Central Bank to make its biggest push yet to fend off deflation and revive the economy by unleashing a debt-buying spree of 1.1 trillion euros ($1.3 trillion).

The ECB president and his Executive Board proposed spending 50 billion euros a month through December 2016, two euro-area central-bank officials said. The plan still faces a tense debate in the Governing Council and may change before the final decision on Thursday, the people said, asking not to be identified as the talks are private. An ECB spokesman declined to comment.

The council’s debate will be complicated by arguments over whether the risks incurred in the new bond-buying plan should be shared across the region’s 19 central banks or kept within national boundaries. Dutch central-bank Governor Klaas Knot has said any decision to mutualize risk should be taken by elected politicians, not unelected central bankers.

But what about the Danes?

As Denmark tries to silence speculation it may follow Switzerland and abandon its euro peg, the nation’s business leaders are adding their voice to the debate.

The Confederation of Danish Industry, which represents about 10,000 companies, says the long-term cost of discarding the euro peg far outweighs any potential short-term benefit.

The central bank fought back speculation it might run out of ammunition to defend its peg by delivering a surprise rate cut on Monday, lowering its benchmark deposit rate to minus 0.2 percent. Danske Bank A/S, the country’s biggest lender, says the rate may be cut again tomorrow, to minus 0.3 percent as the ECB prepares to unveil the details of its bond-purchase program.

Denmark relies on trade with the European Union for about 70 percent of its total exports, meaning the country’s de facto euro membership saves its companies billions in exchange-rate hedges.

All these pegs … reminds me of my father’s commentary on political guidance with respect to currency movements under the Bretton Woods regime … “We will not devalue, we will not devalue, we will not devalue, whoops, we will not devalue again, we will not devalue again, we will not devalue again …”. If I ran a FX brokerage, I’d be hiking the margin on pegged currencies instead of all of them. Free markets are more reliable than politicians:

FXCM Inc., the New York-based retail broker, said Wednesday it’s increasing margin requirements for clients who trade currencies and gold after customers’ losses forced it to seek a $300 million lifeline. CME Group Inc., owner of the Chicago Mercantile Exchange, is altering how it handles volatility in emergencies after it was buffeted by trading halts last week.

The turmoil shows regulators need to consider boosting oversight of retail trading platforms such as FXCM, a member of the U.S. Commodity Futures Trading Commission said.

“I am concerned that lower standards are putting this industry in a precarious position and placing retail foreign-exchange investors unnecessarily at risk,” said Commissioner Sharon Bowen, a Democrat who joined the CFTC last year. That market “is the least regulated part of the derivatives industry,” she said.

The National Futures Association, the U.S. derivatives industry’s self-funded market overseer, temporarily boosted the amount of money traders must put down to back currency transactions. The more stringent requirements apply to the Swiss franc, Swedish krona and Norwegian krone, the group said in a statement. The changes apply to retail trading.

So fear not. This gross failure of the political class to restrain markets will be lead to increased regulation, because if at first you don’t succeed, it’s the fault of them durn speculators.

It was a violently mixed day for the Canadian preferred share market, with PerpetualDiscounts up 90bp, FixedResets off 17bp and DeemedRetractibles gaining 64bp. A very lengthy Performance Highlights table is dominated by FixedReset and Floating Rate losers and Straight Perpetual winners. Volume was average.

Given the size of the move in the GOC yields, I amended my usual practice and entered a mid-week change in HIMIPref™’s rate assumptions – all yields given in the tables are performed with GOC-5 = 0.85% and 3-Month Bills = 0.59%. Prime remains at 3%, so it’s an ill wind that blows nobody any good!

PerpetualDiscounts now yield 4.94%, equivalent to 6.42% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.75% (!) so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 265bp, unchanged from January 14.

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_150121
Click for Big

So according to this, TRP.PR.A, bid at 20.90, is $1.02 cheap, but it has already reset (at +192). TRP.PR.C, bid at 20.31 and resetting at +154bp on 2016-1-30 is $1.38 rich.

impVol_MFC_150121
Click for Big

[Update, 2015-1-22: The wrong chart was here yesterday, being a repeat of the TRP chart. I am considering executing the proofreader.

MFC.PR.F continues to be near the line defined by its peers, although it drifted up today and is having an effect on the calculation. Implied Volatility continues to be a conundrum. It is far too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

impVol_BAM_150121
Click for Big

There continues to be cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 21.51 and appears to be $0.53 cheap, while BAM.PR.T, resetting at +231bp 2017-3-31 is bid at 25.20 and appears to be $0.89 rich.

Relative value changes were unusual today: the bid for BAM.PR.X gained $0.11 on the day, while BAM.PR.T’s bid is down $0.49. Sell on rumour, buy on news?

impVol_FTS_150121

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 18.55, looks $0.83 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 25.15, looks $1.04 expensive and resets 2019-3-1

pairs_FR_150121
Click for Big

Pairs equivalence is all over the map, but the investment grade pairs (which are presumably more closely watched and easier to trade) do show a rising trend with increasing time to interconversio which, qualitatively speaking, is entirely reasonable. The average break-even rate is way down from recent levels.

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 -2.1319 % 2,481.5
FixedFloater 4.42 % 3.60 % 19,907 18.28 1 0.6551 % 4,001.9
Floater 3.06 % 3.20 % 54,600 19.23 4 -2.1319 % 2,638.0
OpRet 4.04 % 1.31 % 90,787 0.40 1 0.0394 % 2,757.5
SplitShare 4.28 % 4.13 % 31,542 3.61 5 -0.3321 % 3,190.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0394 % 2,521.4
Perpetual-Premium 5.41 % -10.47 % 55,691 0.09 19 0.3295 % 2,513.0
Perpetual-Discount 5.07 % 4.94 % 106,705 15.48 16 0.8978 % 2,737.4
FixedReset 4.23 % 3.20 % 200,525 17.28 77 -0.1740 % 2,531.2
Deemed-Retractible 4.89 % -1.56 % 95,703 0.10 39 0.6413 % 2,648.9
FloatingReset 2.45 % 2.38 % 64,529 6.47 7 -1.3274 % 2,422.9
Performance Highlights
Issue Index Change Notes
BNS.PR.R FixedReset -3.70 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.76
Bid-YTW : 3.54 %
GWO.PR.N FixedReset -2.87 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.60
Bid-YTW : 5.11 %
BAM.PR.B Floater -2.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 16.49
Evaluated at bid price : 16.49
Bid-YTW : 3.20 %
TRP.PR.F FloatingReset -2.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 20.75
Evaluated at bid price : 20.75
Bid-YTW : 3.05 %
BAM.PR.K Floater -2.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 16.38
Evaluated at bid price : 16.38
Bid-YTW : 3.22 %
BAM.PR.R FixedReset -2.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 24.33
Evaluated at bid price : 24.66
Bid-YTW : 3.34 %
BAM.PR.C Floater -2.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 16.45
Evaluated at bid price : 16.45
Bid-YTW : 3.21 %
BAM.PR.T FixedReset -1.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 23.61
Evaluated at bid price : 25.20
Bid-YTW : 3.16 %
BNS.PR.B FloatingReset -1.72 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.60
Bid-YTW : 2.46 %
PWF.PR.P FixedReset -1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 20.70
Evaluated at bid price : 20.70
Bid-YTW : 3.07 %
TD.PR.T FloatingReset -1.40 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.57
Bid-YTW : 2.38 %
PWF.PR.A Floater -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 19.35
Evaluated at bid price : 19.35
Bid-YTW : 2.70 %
IFC.PR.C FixedReset -1.19 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 2.66 %
SLF.PR.G FixedReset -1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.34
Bid-YTW : 5.31 %
TD.PR.Z FloatingReset -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.73
Bid-YTW : 2.36 %
CU.PR.D Perpetual-Discount 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 24.61
Evaluated at bid price : 25.05
Bid-YTW : 4.94 %
CU.PR.E Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 24.61
Evaluated at bid price : 25.05
Bid-YTW : 4.94 %
FTS.PR.J Perpetual-Discount 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 24.42
Evaluated at bid price : 24.85
Bid-YTW : 4.82 %
MFC.PR.B Deemed-Retractible 1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.76
Bid-YTW : 4.85 %
SLF.PR.A Deemed-Retractible 1.33 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 4.79 %
BAM.PF.D Perpetual-Discount 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 22.67
Evaluated at bid price : 23.07
Bid-YTW : 5.34 %
SLF.PR.B Deemed-Retractible 1.41 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-20
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : -1.56 %
BAM.PR.N Perpetual-Discount 1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 22.43
Evaluated at bid price : 22.70
Bid-YTW : 5.27 %
ENB.PR.Y FixedReset 1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 21.59
Evaluated at bid price : 21.91
Bid-YTW : 3.92 %
GWO.PR.G Deemed-Retractible 1.46 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-20
Maturity Price : 25.00
Evaluated at bid price : 25.79
Bid-YTW : -27.06 %
GWO.PR.S Deemed-Retractible 1.47 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.23
Bid-YTW : 4.70 %
SLF.PR.C Deemed-Retractible 1.48 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.95
Bid-YTW : 5.05 %
SLF.PR.E Deemed-Retractible 1.52 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.10
Bid-YTW : 5.02 %
GWO.PR.R Deemed-Retractible 1.58 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 4.86 %
PWF.PR.O Perpetual-Premium 1.61 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-20
Maturity Price : 26.00
Evaluated at bid price : 26.58
Bid-YTW : -22.03 %
SLF.PR.D Deemed-Retractible 1.61 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 5.02 %
BAM.PF.C Perpetual-Discount 1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 22.55
Evaluated at bid price : 22.95
Bid-YTW : 5.31 %
GWO.PR.Q Deemed-Retractible 1.72 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-09-30
Maturity Price : 25.25
Evaluated at bid price : 26.00
Bid-YTW : 4.59 %
IFC.PR.A FixedReset 1.76 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.42
Bid-YTW : 4.98 %
GWO.PR.I Deemed-Retractible 2.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.02
Bid-YTW : 5.06 %
GWO.PR.H Deemed-Retractible 2.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 4.94 %
TRP.PR.A FixedReset 2.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 20.90
Evaluated at bid price : 20.90
Bid-YTW : 3.48 %
Volume Highlights
Issue Index Shares
Traded
Notes
ENB.PR.J FixedReset 55,503 RBC crossed 50,000 at 23.95.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 22.77
Evaluated at bid price : 23.84
Bid-YTW : 3.77 %
BAM.PF.E FixedReset 39,345 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 23.23
Evaluated at bid price : 25.25
Bid-YTW : 3.48 %
FTS.PR.H FixedReset 32,500 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 18.55
Evaluated at bid price : 18.55
Bid-YTW : 3.18 %
TD.PF.A FixedReset 32,350 Scotia crossed 25,000 at 25.32.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 23.29
Evaluated at bid price : 25.35
Bid-YTW : 3.06 %
SLF.PR.D Deemed-Retractible 31,709 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 5.02 %
NA.PR.W FixedReset 30,800 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 23.21
Evaluated at bid price : 25.16
Bid-YTW : 3.11 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.S Deemed-Retractible Quote: 26.23 – 27.39
Spot Rate : 1.1600
Average : 0.6733

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.23
Bid-YTW : 4.70 %

BNS.PR.R FixedReset Quote: 24.76 – 25.75
Spot Rate : 0.9900
Average : 0.5410

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.76
Bid-YTW : 3.54 %

GWO.PR.N FixedReset Quote: 19.60 – 20.22
Spot Rate : 0.6200
Average : 0.4426

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.60
Bid-YTW : 5.11 %

CU.PR.D Perpetual-Discount Quote: 25.05 – 25.43
Spot Rate : 0.3800
Average : 0.2368

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-21
Maturity Price : 24.61
Evaluated at bid price : 25.05
Bid-YTW : 4.94 %

GWO.PR.P Deemed-Retractible Quote: 26.19 – 26.56
Spot Rate : 0.3700
Average : 0.2505

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-03-31
Maturity Price : 25.25
Evaluated at bid price : 26.19
Bid-YTW : 4.63 %

POW.PR.G Perpetual-Premium Quote: 26.70 – 27.09
Spot Rate : 0.3900
Average : 0.3006

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-04-15
Maturity Price : 26.00
Evaluated at bid price : 26.70
Bid-YTW : 4.18 %

LCS.PR.A: Capital Units Suspend Distribution

January 22nd, 2015

Brompton Funds has announced:

In accordance with its articles of incorporation and the Class A Share Provisions, the regular, non-cumulative, monthly distribution for the month of January will not be paid on the class A shares of Brompton Lifeco Split Corp. The net asset value per unit as at January 15, 2015 was $14.95. Under the articles of incorporation, no cash distribution may be paid on the class A shares, if after payment of the distribution by the Fund, the net asset value per unit (consisting of one class A share and one preferred share) would be less than $15.00. The Fund will re-evaluate the payment of class A share distributions in each subsequent month with the expectation that normal monthly distributions will resume and a press release will be issued if the net asset value per unit meets this requirement.

In accordance with the Preferred Share Provisions, regular quarterly preferred share dividends will continue to be paid.

This follows a rather sharp drop from $16.45 on December 31, a decline of 9.1% in unit value – rather a steep drop, but the insurance industry, with all its reinvestment risk, hasn’t had a particularly pleasant time of it during the recent plunge in yields:

Ticker Price
2014-12-31
Price
2015-1-20
Change
GWO 33.59 31.45 -6.4%
MFC 22.18 19.93 -10.1%
SLF 41.92 37.50 -10.5%
IAG 44.43 40.26 -9.4%

The Capital Units paid five monthly dividends of $0.075 in 2013 commencing in August as NAV improved throughout the year, and all twelve in 2014.

LCS.PR.A was added to the HIMIPref™ database in October 2014, following its term extension and treasury offering earlier in the year. The issue is relegated to the Scraps index on credit concerns.

January 20, 2015

January 20th, 2015

The loonie got hammered today:

Canada’s dollar weakened to the lowest in more than five years on speculation the central bank may signal it’s more likely to lower interest rates than raise them when it releases a growth outlook tomorrow.

The currency sank as much as 1.5 percent, the most since Jan. 2, before the Bank of Canada updates quarterly inflation and growth projections to factor in the crude-oil slump.

The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 1.4 percent to C$1.2113 per U.S. dollar at 5 p.m. in Toronto. It touched C$1.2115, the weakest level since April 2009.

One Canadian dollar purchases 82.71 U.S. cents.

Yields on 30-year government bonds touched a record low of 2.04 percent, before trading at 2.05 percent.

Crude oil, Canada’s biggest export, traded below $50 a barrel in New York, from $107.73 in June. The central bank’s October forecast of growth of 2.4 percent this year was underpinned by an assumption U.S. benchmark crude would trade at an average of $85 a barrel.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 5bp, FixedResets off 4bp and DeemedRetractibles gaining 7bp … BORRRR-RING! However, the Performance Highlights table, while shorter than it has generally been for the past few weeks, still manages to produce an entertaining list with FixedResets highlighted for volatility. Volume was below 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_150120
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So according to this, TRP.PR.A, bid at 20.46, is $1.30 cheap, but it has already reset (at +192). TRP.PR.C, bid at 20.51 and resetting at +154bp on 2016-1-30 is $1.54 rich.

impVol_MFC_150120
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MFC.PR.F continues to be near the line defined by its peers, although it drifted up today and is having an effect on the calculation. Implied Volatility continues to be a conundrum. It is far too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

impVol_BAM_150120
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There continues to be cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 21.50 and appears to be $0.90 cheap, while BAM.PR.T, resetting at +231bp 2017-3-31 is bid at 25.69 and appears to be $1.24 rich.

It seems clear that the higher-spread issues define a curve with significantly more Implied Volatility than is calculated when the low-spread outlier is included.

impVol_FTS_150120
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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 18.55, looks $1.03 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 25.35, looks $1.23 expensive and resets 2019-3-1

pairs_FR_150120
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Pairs equivalence is all over the map, but the investment grade pairs (which are presumably more closely watched and easier to trade) do show a rising trend with increasing time to interconversio which, qualitatively speaking, is entirely reasonable.

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 -0.5658 % 2,535.6
FixedFloater 4.45 % 3.63 % 19,964 18.23 1 -1.0648 % 3,975.8
Floater 2.99 % 3.11 % 53,346 19.44 4 -0.5658 % 2,695.5
OpRet 4.04 % 1.40 % 91,943 0.41 1 0.0000 % 2,756.4
SplitShare 4.27 % 4.13 % 32,033 3.61 5 -0.2122 % 3,201.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,520.4
Perpetual-Premium 5.43 % -9.31 % 56,485 0.09 19 0.0453 % 2,504.7
Perpetual-Discount 5.11 % 4.99 % 105,766 15.41 16 -0.0523 % 2,713.0
FixedReset 4.22 % 3.34 % 201,755 16.86 77 -0.0353 % 2,535.6
Deemed-Retractible 4.92 % 0.16 % 97,222 0.19 39 0.0729 % 2,632.0
FloatingReset 2.70 % 2.38 % 62,203 3.58 7 -0.1744 % 2,455.5
Performance Highlights
Issue Index Change Notes
MFC.PR.F FixedReset -1.87 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.50
Bid-YTW : 4.56 %
BAM.PF.E FixedReset -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-20
Maturity Price : 23.24
Evaluated at bid price : 25.28
Bid-YTW : 3.66 %
BAM.PF.B FixedReset -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-20
Maturity Price : 23.34
Evaluated at bid price : 25.35
Bid-YTW : 3.64 %
GWO.PR.H Deemed-Retractible -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.43
Bid-YTW : 5.21 %
BAM.PR.G FixedFloater -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-20
Maturity Price : 21.73
Evaluated at bid price : 21.37
Bid-YTW : 3.63 %
IAG.PR.A Deemed-Retractible 1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.30
Bid-YTW : 5.02 %
IFC.PR.A FixedReset 1.45 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.05
Bid-YTW : 5.37 %
BAM.PR.T FixedReset 1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-20
Maturity Price : 23.76
Evaluated at bid price : 25.69
Bid-YTW : 3.28 %
Volume Highlights
Issue Index Shares
Traded
Notes
BAM.PF.E FixedReset 170,820 RBC crossed 166,000 at 25.73.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-20
Maturity Price : 23.24
Evaluated at bid price : 25.28
Bid-YTW : 3.66 %
TD.PF.C FixedReset 63,169 RBC crossed 39,900 at 25.13.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-20
Maturity Price : 23.20
Evaluated at bid price : 25.13
Bid-YTW : 3.30 %
SLF.PR.I FixedReset 43,313 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.11
Bid-YTW : 2.04 %
ENB.PR.N FixedReset 34,390 Scotia crossed 29,300 at 23.36.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-20
Maturity Price : 22.55
Evaluated at bid price : 23.36
Bid-YTW : 4.04 %
CU.PR.C FixedReset 33,434 TD crossed 20,000 at 25.58.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.61
Bid-YTW : 3.18 %
NA.PR.W FixedReset 25,245 RBC crossed 20,000 at 25.24.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-20
Maturity Price : 23.22
Evaluated at bid price : 25.20
Bid-YTW : 3.28 %
There were 24 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.N Perpetual-Discount Quote: 22.38 – 22.82
Spot Rate : 0.4400
Average : 0.2732

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-20
Maturity Price : 21.93
Evaluated at bid price : 22.38
Bid-YTW : 5.33 %

GWO.PR.H Deemed-Retractible Quote: 24.43 – 24.94
Spot Rate : 0.5100
Average : 0.3490

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.43
Bid-YTW : 5.21 %

TRP.PR.B FixedReset Quote: 16.65 – 17.15
Spot Rate : 0.5000
Average : 0.3547

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-01-20
Maturity Price : 16.65
Evaluated at bid price : 16.65
Bid-YTW : 3.61 %

MFC.PR.F FixedReset Quote: 21.50 – 21.92
Spot Rate : 0.4200
Average : 0.2760

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.50
Bid-YTW : 4.56 %

CGI.PR.D SplitShare Quote: 25.75 – 26.20
Spot Rate : 0.4500
Average : 0.3098

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 3.40 %

PWF.PR.O Perpetual-Premium Quote: 26.16 – 26.78
Spot Rate : 0.6200
Average : 0.4831

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-19
Maturity Price : 26.00
Evaluated at bid price : 26.16
Bid-YTW : -4.09 %

BCE.PR.E / BCE.PR.F : Results of Conversion

January 20th, 2015

BCE Inc. has announced:

that 7,904,105 of its 14,577,100 fixed-rate Cumulative Redeemable First Preferred Shares, Series AF (“Series AF Preferred Shares”) have been tendered for conversion on February 1, 2015, on a one-for-one basis, into floating-rate Cumulative Redeemable First Preferred Shares, Series AE (“Series AE Preferred Shares”). In addition, 34,872 of its 1,422,900 Series AE Preferred Shares have been tendered for conversion on February 1, 2015, on a one-for-one basis, into Series AF Preferred Shares. Consequently, on February 1, 2015, BCE will have 6,707,867 Series AF Preferred Shares and 9,292,133 Series AE Preferred Shares issued and outstanding. The Series AF Preferred Shares and the Series AE Preferred Shares will continue to be listed on the Toronto Stock Exchange under the symbols BCE.PR.F and BCE.PR.E, respectively.

The Series AF Preferred Shares will pay on a quarterly basis, for the five-year period beginning on February 1, 2015, as and when declared by the Board of Directors of BCE, a fixed cash dividend based on an annual dividend rate of 3.110%.

The Series AE Preferred Shares will continue to pay a monthly floating adjustable cash dividend for the five-year period beginning on February 1, 2015, as and when declared by the Board of Directors of BCE. The monthly floating adjustable dividend for any particular month will continue to be calculated based on the prime rate for such month and using the Designated Percentage for such month representing the sum of an adjustment factor (based on the market price of the Series AE Preferred Shares in the preceding month) and the Designated Percentage for the preceding month.

BCE.PR.E closed at 20.50-65 today, while BCE.PR.F closed at 19.64-71, which means that those who took my advice and converted F to E have made a very profitable switch! According to the Pairs Equivalency Calculator, the breakeven Prime Rate for the next five years at these prices is 3.93%, which is more or less in line with the breakeven rates for other FixedFloater / Ratchet Rate Strong Pairs.

pairs_FF_140120
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