November 27, 2014

November 27th, 2014

It’s a tangled web we weave when attempting to control the flow of capital:

Foreigners who illegally buy homes in Australia should face higher fines, a parliamentary committee said, calling on authorities to better police existing rules.

The current A$85,000 ($72,769) fine for foreigners breaching the rules, “seen by many as simply the cost of doing business,” should be replaced with penalties tied to the property’s value, the House Economics Committee said in a report that made 12 recommendations. Third parties who help foreigners break the rules should be fined, and gains from illegally purchased homes should be forfeited to the government, it said.

The committee started the inquiry in March on concerns that foreign, particularly Chinese, buyers were pricing Australians out of the home market. Sydney’s median asking price for detached houses topped a record A$1 million this month, while prices across the nation’s major cities jumped 9 percent in the 12 months through October to the highest ever.

To fund better policing, the committee recommended a “modest” administration fee. An A$1,500 fee would generate revenue of A$158.7 million over four years, yet amount to less than 0.3 percent of the purchase price of a home in Sydney or Melbourne, according to the report.

How’s that for good news for sellers? There will be a tax on the sale of a house so the government can ensure that high bidders with deep pockets are disqualified.

Structural subordination is becoming important for European bank bonds:

Senior bonds sold by Barclays Plc and Royal Bank of Scotland Group Plc yield as much as 38 basis points more than equivalent securities issued by the units they use to make loans. There was little difference in yields before this month.

The divergence underscores growing investor concern that senior bonds sold by parent holding companies could suffer losses if a bank fails, while debt of the operating companies will remain intact — a scenario regulators endorse. Investors are also anticipating a surge in issuance of senior debt that can be written down as lenders prepare for the biggest overhaul of financial debt in a generation.

S&P this week told investors it will probably remove any assumption of government support when assigning senior ratings to bank holding companies, meaning these bonds may be downgraded because of the risk of being bailed in.

It’s a red letter day! The Canadian Securities Administrators are proposing something sensible!

The Canadian Securities Administrators (CSA) today published for comment proposed amendments that would create a streamlined prospectus exemption for rights offerings by reporting issuers.

“Although rights offerings can be one of the fairest ways for issuers to raise capital, in that they allow all existing investors to participate on a pro rata basis, they are seldom used because of the time and costs associated with them,” said Bill Rice, Chair of the CSA and Chair and Chief Executive Officer of the Alberta Securities Commission. “The proposed exemption is designed to make rights offerings more attractive to reporting issuers by decreasing both the time and costs involved.”

One of the key proposals is to remove the current regulatory review process prior to use of the rights offering circular. The CSA anticipates this will significantly decrease the amount of time it takes to conduct an offering. The CSA also proposes increased investor protection through the addition of civil liability for secondary market disclosure, and the introduction of a more user-friendly form of rights offering circular document.

The proposed amendments would also update other rights offering requirements and repeal the prospectus exemption for rights offerings by non-reporting issuers.

The CSA notice and proposed amendments are available on CSA members’ websites. The comment period is open until February 25, 2015.

The price of oil is catching up to the real economy:

West Texas Intermediate oil tumbled 6.3 percent to $69.05 a barrel in electronic trading, as Brent crude fell to its lowest level since 2010. Canadian energy companies sank the most since 2011, dragging the Standard & Poor’s/TSX Composite Index down 0.8 percent by 4:30 p.m. in Toronto.

The Organization of Petroleum Exporting Countries maintained its collective production ceiling of 30 million barrels a day at a meeting in Vienna, resisting calls from Venezuela that a supply cut was needed to stem the rout that has sent oil prices into a bear market this year. Global energy stocks are down 25 percent in 2014, while fixed-income assets have rallied as the drop in crude damps inflation. German price growth climbed the least since 2010, data today showed, and most U.S. markets were closed for Thanksgiving.

The ruble weakened to an all-time low of 48.6550 per dollar in Moscow, while Norway’s krone, the second-worst performer against the dollar this year among 16 major currencies, lost 1.4 percent to 6.9272 per dollar. Norway is the biggest oil producer in Western Europe.

And what with one thing and another, the Great Game is making a comeback!

Russian President Vladimir Putin will seek to bolster energy ties with India on a visit next month, his latest move to expand trade links with Asian nations to counter sanctions from the U.S. and its allies.

Gas exporter OAO Gazprom (OGZD) reached a $400 billion deal with China in May to build a pipeline and start supplies after more than a decade of talks. In September, Putin offered to sell a stake in Vankor, the country’s second-biggest oil project, to “Chinese friends.” OAO Russian Railways is seeking to build a 2.8 trillion-ruble, high-speed line linking Moscow and Beijing.

“India is looking very closely at that — it’ll want to get in on the action,” said Sinderpal Singh, a senior research fellow at the Singapore-based Institute of South Asian Studies. “The Russians want to diversify, India wants hydrocarbons. Trade imperatives bind all these countries.”

India, which spent $143 billion to import crude last year, may look to diversify suppliers by buying more oil from Russia and Latin America to guard against geopolitical risks, Oil Minister Dharmendra Pradhan said in an October interview.

Economic ties between India and Russia are largely limited to arms transfers, and those have decreased over the past few decades. While the Soviet Union was India’s largest trading partner in 1981, Russia wasn’t among its top 15 commercial partners last year, according to data compiled by Bloomberg.

Russia and the Soviet Union have been India’s biggest weapons suppliers, accounting for about 70 percent of its arms imports since 1950, according to data compiled by the Stockholm International Peace Research Institute. The U.S. surpassed Russia as India’s top supplier of defense equipment in the three years to March, according to Indian government data.

US consumers aren’t spending:

The U.S. Commerce Department reported Wednesday that personal consumption spending increased a slim 0.2 per cent in October from September, less than economists had expected after September’s flat reading. The U.S. economy is accelerating, but consumer spending isn’t. For the past 12 months, real (i.e. inflation-adjusted) disposable personal income has risen 2.5 per cent, the fastest pace in nearly two years; but personal consumption expenditures are up 2.2 per cent, the lowest in eight months.

The U.S. Conference Board’s latest consumer confidence index reading, released this week, was at a five-month low. Somehow, the combination of third-quarter economic growth of nearly 4 per cent annualized, strong employment growth and tumbling gasoline prices isn’t enough to impress our grumpy old Uncle Spender.

I don’t quote Willem Buiter much any more, which is a shame. But he has favoured us with his golden wisdom:

The initiative requiring the Swiss National Bank to hold a fixed portion of its assets in gold makes no sense, according to Citigroup Inc., which said the metal was the equivalent of the virtual currency bitcoin.

“There is no economic or financial case for a central bank to hold any single commodity, even if this commodity had intrinsic value,” Willem Buiter, the bank’s chief economist and a former Bank of England policy maker, wrote in a report dated yesterday. “Forbidding a central bank from ever selling any gold it owns reduces the value of those gold holdings to zero.”

Like bitcoin, gold has no intrinsic value and is costly to produce and store, Buiter wrote. “If the central bank is to invest in commodities, better to have a balanced portfolio of commodities or, more conveniently, a balanced portfolio of commodity ETFs or other derivatives,” he said.

And I have to admit, Japanese bond yields are more amusing than usual:

The Bank of Japan’s record bond buying is crowding out individual buyers, narrowing the investor base on which the world’s second-largest bond market stands.

The government last month canceled sales of sovereign notes maturing in 2016 through financial companies to households because buyers would have to pay more in broker fees than they would get in interest, according to the Ministry of Finance. The BOJ’s 80 trillion yen ($681 billion) a year in debt purchases has cut yields, with the latest two-year securities offering a 0.038 percent coupon, less than half the rate in June last year, and compared with about 0.02 percent interest on bank deposits.

The ratio of government bonds held by individuals was 2 percent at the end of June, compared with 21.2 percent for the BOJ and 57.7 percent for banks, life insurers and mutual funds, according to central bank data.

But despite these efforts…:

Japan’s consumer price gains slowed for a third straight month, challenging Bank of Japan Governor Haruhiko Kuroda’s effort to stoke faster inflation.

Consumer prices excluding fresh food increased 2.9 percent in October from a year earlier, the statistics bureau said today in Tokyo, matching the median projection in a Bloomberg News survey (JNCPIXFF) of economists. Stripped of the effect of April’s sales-tax increase, core inflation — the BOJ’s key measure — was 0.9 percent.

Tumbling oil prices are complicating the task of stoking inflation in an economy that slid into recession last quarter. The inflation number is the last key data point on consumer price changes before an election next month, with Prime Minister Shinzo Abe seeking a renewed mandate for his economic growth strategy.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 4bp, FixedResets down 8bp and DeemedRetractibles gaining 3bp. Volatility was average. Volume was very low.

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 0.5823 % 2,541.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.5823 % 4,024.2
Floater 2.97 % 3.08 % 64,161 19.48 4 0.5823 % 2,702.1
OpRet 4.04 % -3.70 % 99,241 0.08 1 0.0000 % 2,760.1
SplitShare 4.25 % 3.88 % 51,253 3.76 5 0.3938 % 3,208.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,523.8
Perpetual-Premium 5.44 % -7.09 % 70,331 0.08 19 -0.0595 % 2,485.9
Perpetual-Discount 5.12 % 5.01 % 108,751 15.42 16 -0.0396 % 2,675.3
FixedReset 4.15 % 3.57 % 187,739 6.40 73 -0.0807 % 2,589.6
Deemed-Retractible 4.95 % -1.23 % 98,695 0.09 40 0.0266 % 2,616.3
FloatingReset 2.55 % -6.56 % 60,021 0.08 6 0.0978 % 2,557.0
Performance Highlights
Issue Index Change Notes
FTS.PR.G FixedReset -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-27
Maturity Price : 23.33
Evaluated at bid price : 25.18
Bid-YTW : 3.52 %
PWF.PR.A Floater -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-27
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 2.75 %
CGI.PR.D SplitShare 1.18 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.80
Bid-YTW : 3.31 %
BAM.PR.B Floater 3.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-27
Maturity Price : 17.22
Evaluated at bid price : 17.22
Bid-YTW : 3.08 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.A FixedReset 118,550 Nesbitt crossed 100,000 at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.54
Bid-YTW : 3.50 %
FTS.PR.H FixedReset 65,639 Nesbitt crossed 50,000 at 20.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-27
Maturity Price : 20.42
Evaluated at bid price : 20.42
Bid-YTW : 3.64 %
TRP.PR.A FixedReset 63,447 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-27
Maturity Price : 21.42
Evaluated at bid price : 21.70
Bid-YTW : 3.91 %
RY.PR.I FixedReset 58,500 Desjardins crossed 10,800 at 25.66; RBC crossed 36,000 at 25.64.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.61
Bid-YTW : 2.92 %
TRP.PR.B FixedReset 39,449 Nesbitt crossed 19,300 at 18.68.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-27
Maturity Price : 18.70
Evaluated at bid price : 18.70
Bid-YTW : 3.73 %
SLF.PR.G FixedReset 34,998 Nesbitt crossed 25,800 at 21.20.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.25
Bid-YTW : 4.82 %
There were 19 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: 19.20 – 19.73
Spot Rate : 0.5300
Average : 0.3794

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-27
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 2.75 %

MFC.PR.B Deemed-Retractible Quote: 23.80 – 24.15
Spot Rate : 0.3500
Average : 0.2352

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.80
Bid-YTW : 5.26 %

NEW.PR.D SplitShare Quote: 32.67 – 33.48
Spot Rate : 0.8100
Average : 0.7102

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.67
Bid-YTW : 2.15 %

BAM.PR.N Perpetual-Discount Quote: 22.10 – 22.43
Spot Rate : 0.3300
Average : 0.2383

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-27
Maturity Price : 21.67
Evaluated at bid price : 22.10
Bid-YTW : 5.44 %

MFC.PR.C Deemed-Retractible Quote: 23.38 – 23.60
Spot Rate : 0.2200
Average : 0.1570

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.38
Bid-YTW : 5.33 %

ENB.PR.A Perpetual-Premium Quote: 25.53 – 25.70
Spot Rate : 0.1700
Average : 0.1103

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-27
Maturity Price : 25.00
Evaluated at bid price : 25.53
Bid-YTW : -19.74 %

November 26, 2014

November 26th, 2014

There was an article on Bloomberg about tech worker visas in the US:

Along with temporary deportation relief for millions, President Obama’s executive action will increase the number of U.S. college graduates from abroad who can temporarily be hired by U.S. corporations. That hasn’t satisfied tech companies and trade groups, which contend more green cards or guest worker visas are needed to keep tech industries growing because of a shortage of qualified American workers. But scholars say there’s a problem with that argument: The tech worker shortage doesn’t actually exist.

The argument against the tech worker shortage is presented in a paper by Hal Salzman, Daniel Kuehn, and B. Lindsay Lowell titled Guestworkers in the high-skill U.S. labor market:

This paper reviews and analyzes the science, technology, engineering, and mathematics (STEM) labor market and workforce and the supply of high-skill temporary foreign workers, who serve as “guestworkers.” It addresses three central issues in the ongoing discussion about the need for high-skill guestworkers in the United States:
Is there a problem producing enough STEM-educated students at sufficient performance levels to supply the labor market?
How large is the flow of guestworkers into the STEM workforce and into the information technology (IT) workforce in particular? And what are the characteristics of these workers?

What are the dynamics of the STEM labor market, and what are the employment and wage trends in the IT labor market?

Analysis of these issues provides the basis for assessing the extent of demand for STEM workers and the impact of guestworker flows on the STEM and IT workforces.

The IT industry was able to attract increasing numbers of domestic graduates during periods of rising wages and employment, leading to a peak in wages and numbers of computer science graduates in the early 2000s. Since that time, the IT industry appears to be functioning with two distinct market patterns: a domestic supply (of workers and students) that responds to wage signals (and other aspects of working conditions such as future career prospects), and a guestworker supply that appears to be abundantly available even in times of relatively weak demand and even when wages decline or are stagnant.

Workers from countries with low wages and limited career opportunities will find the U.S. IT labor market attractive even when wages are too low and career opportunities too limited to increase the IT supply from domestic students and workers. In other words, the data suggest that current U.S. immigration policies that facilitate large flows of guestworkers appear to provide firms with access to labor that will be in plentiful supply at wages that are too low to induce a significantly increased supply from the domestic workforce.

Very interesting, but there are some policy questions left unaddressed. The first is a question of equilibrium – one would hope, from economic theory, that supply and demand for professionals of a given type will result in an equilibrium, as high wages increase supply (of people entering undergraduate studies in the field) and decrease demand (as projects become less profitable due to higher wages.

So question #1 is: given that programming is a well-paid sector (average salary in excess of $80,000, according to Figure K of the paper), and given that the end-product is so easily transported, does it not make sense to grant visas in order to increase the global market share of the US? This isn’t a “TFWs at Timmy’s” issue, these are services that are exported and have major spin-off benefits.

Question #2 (which is actually more relevant to the paper as written) is: is the population of IT guest-workers equivalent in any rough kind o way to the population of domestic workers? There is a huge variation of skill among professional programmers, with what I call ‘teeny-bopper programmers’ at the low end … they can do a competent job of coding as long as you give them their assignments in small chunks … but if they design a large project, you end up with spaghetti code that after a few iterations becomes undebuggable and unimprovable (it is my understanding that that is what happened to dBase). Designing a programme, determining how it will be broken down into modules, which talk to each other this way and rely on these common underlying functions … that’s a very highly skilled job.

So what’s the salary distribution of guest-workers compared to the salary distribution of domestic workers? If guest-workers are all in – say – the top tercile of domestic salaries, then the paper’s argument loses a lot of its validity.

Speaking of equilibrium labour markets, it’s good times for retailers:

Workers are facing the most favorable job market for seasonal work since the 18-month recession that started in December 2007, getting hired with fewer interviews and in some cases with higher pay.

About 821,000 workers will be hired for retail seasonal jobs this year, up 11 percent from a year ago and the highest since records were started in 1990, estimates Michael Niemira, former director of research for the International Council of Shopping Centers Inc. and now founder of economic forecasting firm The Retail Economist LLC in Tucson, Arizona.

“I don’t want to say there is pressure on wages but there is an alignment of wages with demand,” said Jack Kleinhenz, chief economist with the National Retail Federation in Washington, who is estimating as many as 800,000 workers will be added. “There is some tightening” in the job market.

The unemployment rate for the retail and wholesale trade sector fell to 5.1 percent in October, the lowest since early 2008 in the initial months of the recession, Labor Department figures show. Wages and salaries for retail workers rose 2.5 percent in the third quarter from the same period in 2013, the biggest increase in more than four years, according to the Bureau of Labor Statistics data.

Seasonal job seekers using the website Snagajob.com are finding work in an average of 28 days this year compared with 45 days last year, company Chief Executive Officer Peter Harrison said. The Richmond, Virginia-based online matching service focuses on part-time and hourly positions.

Investment grade new issues have set a new record:

Investment-grade corporate debt sales have surged to a record $1.15 trillion this year as the most creditworthy borrowers flocked to the U.S. bond market to take advantage of historically low interest rates.

Apple Inc. (AAPL), Verizon Communications Inc. and Oracle Corp. were among borrowers that helped swell issuance this year. JPMorgan Chase & Co. was the the top underwriter for the fifth-straight year, grabbing 12.7 percent of the deals, according to data compiled by Bloomberg.

Alibaba Group Holdings Ltd., Asia’s biggest Internet company, led borrowings of more than $126 billion this month that helped sales breach last year’s record of $1.13 trillion. Companies have raced to the market to lock in borrowing costs that remain within 0.5 percentage point of the all-time low of 2.65 percent reached in 2013, Bank of America Merrill Lynch index data show.

Investors purchasing the debt have reaped 7.3 percent gains in 2014, overcoming the 1.5 percent loss last year, index data show. Investment-grade bonds are rated above Ba1 by Moody’s Investors Service and BB+ at Standard & Poor’s.

But it’s not good news all ’round:

Leveraged loan issuance plummeted in the U.S. this month as investors punished borrowers in an increasingly volatile market for high-yield, high-risk debt.

Borrowers including TransFirst Inc. and Norwegian Cruise Line Holdings Ltd. have sold $6.5 billion of U.S leveraged loans to institutional investors in what’s poised to be the slowest November since 2008, according to data compiled by Bloomberg. Volume was almost $30 billion in October. Fewer deals are getting done after loan prices plunged more than 3 percent last month from a July peak and yields rose to 6.2 percent, the highest in more than two years.

The drop-off in issuance comes as regulators scrutinize Wall Street’s lending practices and demand for the speculative-grade debt fades. Leveraged loans are typically issued by companies that have ratings of less than Baa3 by Moody’s Investors Service and below BBB- by Standard & Poor’s.

Remember how the Competition Ha-Ha Board (the guys who made the discovery that not all on-line reviews are legitimate) gave the banks permission to extend their hegemony on financial services as long as they paid sufficient money to their regulatory buddies? Well, it’s going to get even better!

The chair of the Ontario Securities Commission has inked a new deal to co-operate on investigations with his former employer, the federal Competition Bureau, which he headed in the early 1990s.

While the two regulatory bodies have far different mandates, they say there are enough areas of mutual interest to work on fraud investigations, exchange “information and intelligence,” and undertake joint education initiatives.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 20bp, FixedResets off 9bp and DeemedRetractibles gaining 13bp. Volatility was good, with a preponderance of FixedReset losers. Volume was above average.

PerpetualDiscounts now yield 5.01%, equivalent to 6.51% interest at the standard equivalency factor of 1.3x. Long Corporates now yield a little under 4.15%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 235bp, unchanged from the November 19 report.

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 -0.6070 % 2,527.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.6070 % 4,000.9
Floater 2.98 % 3.08 % 64,796 19.47 4 -0.6070 % 2,686.5
OpRet 4.04 % -3.83 % 99,130 0.08 1 -0.2361 % 2,760.1
SplitShare 4.27 % 3.98 % 51,943 3.76 5 -0.1858 % 3,195.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2361 % 2,523.8
Perpetual-Premium 5.43 % -10.12 % 69,854 0.09 19 0.0965 % 2,487.4
Perpetual-Discount 5.12 % 5.01 % 109,700 15.39 16 -0.2000 % 2,676.4
FixedReset 4.15 % 3.55 % 190,660 4.90 73 -0.0900 % 2,591.7
Deemed-Retractible 4.95 % -0.58 % 99,808 0.10 40 0.1334 % 2,615.6
FloatingReset 2.55 % -5.17 % 59,792 0.08 6 -0.1432 % 2,554.5
Performance Highlights
Issue Index Change Notes
BAM.PR.B Floater -3.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-26
Maturity Price : 16.68
Evaluated at bid price : 16.68
Bid-YTW : 3.18 %
PWF.PR.S Perpetual-Discount -1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-26
Maturity Price : 23.78
Evaluated at bid price : 24.16
Bid-YTW : 5.00 %
MFC.PR.K FixedReset -1.29 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.17
Bid-YTW : 3.56 %
ENB.PR.H FixedReset -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-26
Maturity Price : 22.11
Evaluated at bid price : 22.60
Bid-YTW : 4.06 %
TRP.PR.C FixedReset -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-26
Maturity Price : 21.51
Evaluated at bid price : 21.87
Bid-YTW : 3.55 %
ENB.PR.Y FixedReset -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-26
Maturity Price : 22.55
Evaluated at bid price : 23.48
Bid-YTW : 4.10 %
PWF.PR.A Floater 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-26
Maturity Price : 19.40
Evaluated at bid price : 19.40
Bid-YTW : 2.72 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.A FixedReset 249,639 Scotia crossed blocks of 100,000 and 45,500, both at 22.01. RBC crossed 55,900 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-26
Maturity Price : 21.65
Evaluated at bid price : 22.02
Bid-YTW : 3.90 %
MFC.PR.K FixedReset 168,406 Scotia crossed blocks of 52,600 and 30,500 at 25.20; RBC crossed 75,000 at the same price. MFC.PR.K resets at +222bp in 2018, so this is probably some portfolio rejigging related to the new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.17
Bid-YTW : 3.56 %
BAM.PF.A FixedReset 109,722 Desjardins crossed 50,000 at 25.98. Nesbitt crossed two blocks of 25,000 each at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 3.65 %
ENB.PR.B FixedReset 53,709 Scotia crossed 41,400 at 24.73.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-26
Maturity Price : 23.35
Evaluated at bid price : 24.69
Bid-YTW : 3.87 %
FTS.PR.M FixedReset 38,887 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-12-01
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 3.67 %
BNS.PR.M Deemed-Retractible 38,354 TD crossed 30,000 at 25.78.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-26
Maturity Price : 25.50
Evaluated at bid price : 25.79
Bid-YTW : -5.48 %
There were 37 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.B Floater Quote: 16.68 – 17.20
Spot Rate : 0.5200
Average : 0.2814

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-26
Maturity Price : 16.68
Evaluated at bid price : 16.68
Bid-YTW : 3.18 %

PWF.PR.S Perpetual-Discount Quote: 24.16 – 24.62
Spot Rate : 0.4600
Average : 0.2929

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-26
Maturity Price : 23.78
Evaluated at bid price : 24.16
Bid-YTW : 5.00 %

PVS.PR.C SplitShare Quote: 25.60 – 25.90
Spot Rate : 0.3000
Average : 0.1893

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 3.98 %

FTS.PR.J Perpetual-Discount Quote: 24.30 – 24.55
Spot Rate : 0.2500
Average : 0.1750

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-26
Maturity Price : 23.90
Evaluated at bid price : 24.30
Bid-YTW : 4.89 %

GWO.PR.S Deemed-Retractible Quote: 25.92 – 26.18
Spot Rate : 0.2600
Average : 0.1920

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.92
Bid-YTW : 4.92 %

BNS.PR.Q FixedReset Quote: 25.66 – 25.88
Spot Rate : 0.2200
Average : 0.1562

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-10-25
Maturity Price : 25.00
Evaluated at bid price : 25.66
Bid-YTW : 2.97 %

New Issue: MFC FixedReset, 3.80%+230

November 26th, 2014

Manulife Financial Corporation has announced:

a Canadian public offering of Non-cumulative Rate Reset Class 1 Shares Series 19 (“Series 19 Preferred Shares”). Manulife will issue 8 million Series 19 Preferred Shares priced at $25 per share to raise gross proceeds of $200 million. The offering will be underwritten by a syndicate of investment dealers co-led by Scotia Capital Inc., CIBC World Markets and RBC Capital Markets and is anticipated to qualify as Tier 1 capital for Manulife. The expected closing date for the offering is December 3, 2014. Manulife intends to file a prospectus supplement to its June 23, 2014 base shelf prospectus in respect of this issue.

Holders of the Series 19 Preferred Shares will be entitled to receive a non-cumulative quarterly fixed dividend yielding 3.80 per cent annually, as and when declared by the Board of Directors of Manulife, for the initial period ending March 19, 2020. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 2.30 per cent.

Holders of Series 19 Preferred Shares will have the right, at their option, to convert their shares into Non-cumulative Rate Reset Class 1 Shares Series 20 (“Series 20 Preferred Shares”), subject to certain conditions, on March 19, 2020 and on March 19 every five years thereafter. Holders of the Series 20 Preferred Shares will be entitled to receive non-cumulative quarterly floating dividends, as and when declared by the Board of Directors of Manulife, at a rate equal to the three-month Government of Canada Treasury Bill yield plus 2.30 per cent.

Manulife intends to use the net proceeds from the offering for general corporate purposes, including future refinancing requirements.

“Our financing activities take into account future refinancing needs. We have over $2 billion in potential refinancing requirements over the next 12 months. We have taken the opportunity to issue preferred shares in favourable markets,” said Senior Executive Vice President and Chief Financial Officer Steve Roder.

Manulife’s Canadian life insurance company subsidiary, The Manufacturers Life Insurance Company, also intends to issue a minimum of $250 million principal amount of fixed/floating subordinated debentures. The debentures will be fully and unconditionally guaranteed on a subordinated basis by Manulife.

They later announced:

that as a result of strong investor demand for its previously announced Canadian public offering of Non-cumulative Rate Reset Class 1 Shares Series 19 (“Series 19 Preferred Shares”), the size of the offering has been increased to 10 million shares. The gross proceeds of the offering will now be $250 million. The offering will be underwritten by a syndicate of investment dealers co-led by Scotia Capital Inc., CIBC World Markets and RBC Capital Markets and is anticipated to qualify as Tier 1 capital for Manulife. The expected closing date for the offering is December 3, 2014. Manulife intends to file a prospectus supplement to its June 23, 2014 base shelf prospectus in respect of this issue.

Manulife intends to use the net proceeds from the offering for general corporate purposes, including future refinancing requirements.

They also announced an issue of sub-debt with a five-year pretend-maturity:

The Manufacturers Life Insurance Company (“MLI”), the Canadian insurance company subsidiary of Manulife Financial Corporation, announced today that it intends to issue $500 million principal amount of 2.64% fixed/floating subordinated debentures due January 15, 2025 (the “Debentures”). MLI intends to file a prospectus supplement to its December 13, 2013 base shelf prospectus in respect of this issue.

The Debentures will bear interest at a fixed rate of 2.64% until January 15, 2020 and thereafter at a rate of 0.73% over the three month CDOR. The Debentures mature on January 15, 2025.

Subject to prior regulatory approval, MLI may redeem the Debentures, in whole or in part, on or after January 15, 2020 at a redemption price equal to par, together with accrued and unpaid interest to the date fixed for redemption. The Debentures will constitute subordinated indebtedness, ranking equally and rateably with all other subordinated indebtedness of MLI from time to time issued and outstanding.

The Debentures will be fully and unconditionally guaranteed on a subordinated basis by Manulife Financial Corporation, as to payment of principal, premium, if any, interest and redemption price, if any.

The offering is being done on a best efforts agency basis by a syndicate co-led by RBC Capital Markets, BMO Capital Markets and TD Securities and consisting of CIBC World Markets, Scotiabank Global Banking and Markets, Bank of America Merrill Lynch, National Bank Financial, HSBC Securities, Desjardins Securities, Canaccord Capital, Laurentian Bank Securities and Manulife Securities Incorporated. The offering is expected to close on December 1, 2014.

MLI intends to use the net proceeds from the offering for general corporate purposes, including future refinancing requirements.

“Our financing activities take into account future refinancing needs. We have over $2 billion in potential refinancing requirements over the next 12 months. We have taken the opportunity to issue subordinated debt in favourable markets,” said Senior Executive Vice President and Chief Financial Officer Steve Roder.

Implied Volatility theory suggests that this issue is about $0.20 cheap to theory:

ImpVol_MFC_141126
Click for Big

November 25, 2014

November 25th, 2014

The OECD has released its OECD Economic Outlook, November 2014:

25/11/2014-Modest global economic forecasts, continuing high unemployment, and downshifts in potential output should spur governments with a greater sense of urgency to fully employ monetary, fiscal and structural policy levers to support growth, notably in Europe, according to the Economic Outlook.

The Economic Outlook draws attention to a global economy stuck in low gear, with growth in trade and investment under-performing historic averages and diverging demand patterns across countries and regions, both in advanced and emerging economies.

Global GDP growth is projected to reach a 3.3% rate in 2014 before accelerating to 3.7% in 2015 and 3.9% in 2016, according to the Outlook. This pace is modest compared with the pre-crisis period and somewhat below the long-term average

I must say, I don’t understand their pricing strategy at all. They want $105 (presumably USD) for an electronic version while posting an electronic version that can’t be copy-pasted. Given that this is a taxpayer-funded organization, this is ridiculous. So I’ll report on the Globe & Mail stories instead.

They’re anticipating policy hikes sooner than most:

In the OECD’s twice-annual Economic Outlook, released early Tuesday, the international economic policy and research body argued that Canada’s low and economically stimulative 1.0-per-cent central bank rate “will need to be gradually withdrawn to counter inflationary pressures,” as its economy grows toward reaching its full output capacity.

“It is assumed in this projection that the first policy rate increase occurs in late May of 2015, and that rates rise steadily thereafter,” the outlook report said.

At the time [November 2013], the OECD’s concern looked misplaced, given that inflation was below 1 per cent. And, indeed, its call for rate increase to begin before the end of 2014 was, in retrospect, premature.

But 12 months later, Canada’s inflation picture may make the OECD’s argument more compelling. Last week, Statistics Canada reported that the country’s total Consumer Price Index inflation rate in October was 2.4 per cent, its highest since early 2012. The so-called “core” inflation rate, which excludes the most volatile components of CPI and is the Bank of Canada’s key guide to underlying inflation trends, was 2.3 per cent last month, its highest since the end of 2008.

The OECD said Canada’s improving growth next year will be driven by rising export demand, particularly from the United States, which accounts for three-quarters of Canada’s exports. The OECD expects the U.S. economy will grow 3.1 per cent next year, its strongest in a decade and the highest among major advanced countries.

US mortgage rules are getting very strict:

The Consumer Financial Protection Bureau introduced the Ability to Repay rule, or ATR, in January to prevent borrowers from getting mortgages they can’t afford. Part-time wages can be included by banks in determining the ability to repay a mortgage if an employer verifies that the borrower has worked at the job for two years and will continue to do so. Lenders may consider a period of less than two years if they have a reasonable explanation.

The issue isn’t the rule — it’s how lenders interpret it, said Pete Mills, senior vice president for residential policy for the Mortgage Bankers Association in Washington. Banks are concerned about “potentially draconian” penalties for violating ATR, so they are being conservative when evaluating applications, he said.

“We don’t have a long enough track record to see how ATR is going to be enforced, so lenders are staying well inside the credit lines,” Mills said. “When you have an application based on multiple jobs — those are hard to evaluate from a stability of income standpoint.”

Sam Gilford, a CFPB spokesman, declined to comment.

Without part-time income, some borrowers no longer meet the debt-to-income ratio used to measure the ability to repay, disqualifying them for a mortgage. Fannie Mae and Freddie Mac, the government-run companies that buy and back most U.S. mortgages, cap the ratio at 45 percent. For loans insured by the Federal Housing Administration, the maximum is 43 percent.

Clever regulation – allow exceptions on the basis of “reasonable explanations” so the regulators can’t be criticized, but refuse to give a reasonable explanation of just what exactly a reasonable explanation is, to make use of the loophole extraordinarily risky.

Note that because regulation writers are morons, the term Debt-To-Income (as defined by Fannie Mae) is a misnomer. It’s actually Debt-Service-To-Income:

The DTI ratio consists of two components:
  • •total monthly obligations, which includes the qualifying payment for the subject mortgage loan and other long-term and significant short-term monthly debts (see Calculating Total Monthly Obligation below); and
  • •total monthly income (see Chapter B3–3, Income Assessment).

The question of bankers’ pay is getting more entertaining by the minute:

Osborne said on Nov. 20 that he would consider ways to put bankers’ salaries at risk to ensure employees pay the price for misconduct and failure. At the same time, he dropped a court challenge against EU rules that cap bankers’ bonuses at twice fixed pay.

The U.K. maintains that the EU bonus rule gives banks a perverse incentive to boost fixed pay, breaking the link between compensation and performance. To restore that link through salaries, Osborne must resolve the problem that if fixed pay can be taken back, EU rules could classify it as a bonus that would be subject to the limit — and banks would still be able to raise salaries.

Meanwhile, universities are the new sweatshops:

Vandita Sharma writes code for a company that turns old radiators into high-tech heating devices. Gaurav Chhabra develops software that lets computers identify objects on camera. Paul Dariye is designing an app for a startup that helps nonprofits raise money.

The three engineers are paid $11 an hour or less by New York University’s Polytechnic School of Engineering, which has placed them in internships at small companies. Their work is at the center of a battle between NYU’s administration and the graduate student union, which is demanding higher wages for interns at the university’s startup incubators.

Engineers who do jobs comparable to those of Polytechnic’s interns make roughly $43 per hour, according to Glassdoor, a website that tracks salaries.

There’s no conflict of interest there. Nope, not one bit. Not with all the administrators employed by universities to watch over the incubation programme to make sure they’re run fairly.

It was an off day for the Canadian preferred share market, with PerpetualDiscounts off 7bp, FixedResets losing 15bp and DeemedRetractibles down 11bp. Volatility was average, but comprised entirely of losers. Volume was high.

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 0.3542 % 2,542.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.3542 % 4,025.4
Floater 2.96 % 3.07 % 64,996 19.50 4 0.3542 % 2,702.9
OpRet 4.03 % -6.76 % 94,172 0.08 1 0.1182 % 2,766.6
SplitShare 4.26 % 4.04 % 48,857 3.77 5 0.1404 % 3,201.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1182 % 2,529.8
Perpetual-Premium 5.44 % -9.53 % 69,892 0.08 19 -0.0677 % 2,485.0
Perpetual-Discount 5.11 % 5.01 % 110,725 15.40 16 -0.0710 % 2,681.7
FixedReset 4.15 % 3.51 % 183,394 4.60 73 -0.1462 % 2,594.0
Deemed-Retractible 4.95 % -0.73 % 100,502 0.10 40 -0.1094 % 2,612.1
FloatingReset 2.55 % -6.56 % 58,434 0.08 6 0.0717 % 2,558.1
Performance Highlights
Issue Index Change Notes
ENB.PR.H FixedReset -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-25
Maturity Price : 22.27
Evaluated at bid price : 22.85
Bid-YTW : 4.00 %
MFC.PR.F FixedReset -1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.16
Bid-YTW : 4.50 %
GWO.PR.S Deemed-Retractible -1.14 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 4.90 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.M FixedReset 121,530 Nesbitt crossed 49,700 at 25.52. RBC crossed 49,900 at 25.54.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-12-01
Maturity Price : 25.00
Evaluated at bid price : 25.43
Bid-YTW : 3.73 %
TRP.PR.A FixedReset 103,600 Scotia crossed 58,900 at 22.01.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-25
Maturity Price : 21.67
Evaluated at bid price : 22.05
Bid-YTW : 3.89 %
NA.PR.S FixedReset 97,520 Nesbitt crossed 29,000 at 25.70 and 65,000 at 25.66.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-15
Maturity Price : 25.00
Evaluated at bid price : 25.65
Bid-YTW : 3.51 %
BNS.PR.Z FixedReset 95,956 Desjardins sold 50,000 to National at 24.75 and 40,000 to anonymous at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 3.21 %
BAM.PR.C Floater 92,921 RBC crossed 91,400 at 17.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-25
Maturity Price : 17.22
Evaluated at bid price : 17.22
Bid-YTW : 3.07 %
FTS.PR.H FixedReset 84,653 Nesbitt crossed 75,000 at 20.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-25
Maturity Price : 20.39
Evaluated at bid price : 20.39
Bid-YTW : 3.65 %
There were 40 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.X FixedReset Quote: 22.03 – 22.33
Spot Rate : 0.3000
Average : 0.1834

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-25
Maturity Price : 21.61
Evaluated at bid price : 22.03
Bid-YTW : 3.96 %

BNS.PR.N Deemed-Retractible Quote: 26.00 – 26.30
Spot Rate : 0.3000
Average : 0.1851

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-28
Maturity Price : 25.50
Evaluated at bid price : 26.00
Bid-YTW : -3.93 %

BAM.PF.B FixedReset Quote: 25.17 – 25.39
Spot Rate : 0.2200
Average : 0.1501

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-25
Maturity Price : 23.27
Evaluated at bid price : 25.17
Bid-YTW : 4.04 %

PWF.PR.F Perpetual-Premium Quote: 25.28 – 25.52
Spot Rate : 0.2400
Average : 0.1802

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-25
Maturity Price : 25.00
Evaluated at bid price : 25.28
Bid-YTW : -3.93 %

SLF.PR.C Deemed-Retractible Quote: 23.02 – 23.19
Spot Rate : 0.1700
Average : 0.1128

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.02
Bid-YTW : 5.45 %

BNS.PR.P FixedReset Quote: 25.56 – 25.72
Spot Rate : 0.1600
Average : 0.1043

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 2.74 %

November 24, 2014

November 24th, 2014

These are strange times for bond markets:

The Bank for International Settlements estimates the amount of bonds outstanding has surged more than 40 percent since 2007 as countries such as the U.S. increased deficits to pull their economies out of recession and companies locked in low-cost financing as central banks dropped interest rates.

Even so, a shortfall emerged. At a time when investors scarred by the worst economic crisis since the Great Depression were seeking out the safest assets, central banks in the U.S., U.K. and Japan sapped new supply by purchasing trillions of dollars of bonds in unprecedented stimulus programs.

Global banking regulations designed to limit risk-taking and prevent a repeat of the crisis also boosted buying by requiring that financial firms stockpile highly rated assets.

All that extra demand has helped push down borrowing costs and upended forecasts by economists and strategists who foresaw higher bond yields this year.

ECB President Mario Draghi fueled speculation that the bank will start buying government bonds after saying last week officials would broaden debt purchases if the inflation outlook weakens. Analysts estimate consumer prices in the euro area will rise 0.5 percent this year, the least since 2009.

The BOJ, the largest holder of Japan’s government bonds with 20 percent, may end up owning half that market by as early as 2018 as it tries to spur an economy that’s contracted at least five times in the past decade, according to Takuji Okubo, a chief economist at Japan Macro Advisors in Tokyo.

Central banks in the U.S., Europe, Japan and the U.K., along with the major lenders and reserve managers in those regions, are on pace to amass $26 trillion of debt securities by the end of next year, according to JPMorgan.

And it’s not only the central banks. Global bond funds will probably add $280 billion next year, while pensions and insurers in the U.S., Europe, Japan and the U.K. will buy an estimated $550 billion, according to JPMorgan.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 6bp, FixedResets gaining 5bp and DeemedRetractibles off 1bp. Volatility was average – but all the winners were FixedResets. Volume was slightly below average.

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 -0.3107 % 2,533.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.3107 % 4,011.2
Floater 2.97 % 3.07 % 60,180 19.49 4 -0.3107 % 2,693.4
OpRet 4.04 % -5.50 % 97,519 0.08 1 0.1183 % 2,763.4
SplitShare 4.26 % 4.04 % 50,581 3.77 5 0.1581 % 3,197.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1183 % 2,526.8
Perpetual-Premium 5.43 % -9.25 % 67,548 0.08 19 0.0452 % 2,486.7
Perpetual-Discount 5.10 % 5.02 % 106,354 15.40 16 -0.0552 % 2,683.6
FixedReset 4.16 % 3.53 % 172,524 4.54 74 0.0544 % 2,597.8
Deemed-Retractible 4.95 % -0.57 % 100,433 0.10 40 -0.0124 % 2,615.0
FloatingReset 2.55 % -4.71 % 58,558 0.08 6 0.1240 % 2,556.3
Performance Highlights
Issue Index Change Notes
PWF.PR.A Floater -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-24
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 2.77 %
BNS.PR.P FixedReset 1.06 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.77
Bid-YTW : 2.48 %
IFC.PR.A FixedReset 1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.10
Bid-YTW : 4.09 %
MFC.PR.K FixedReset 1.76 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 3.24 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.B FixedReset 124,791 Scotia bought 15,800 from RBC at 25.49 and crossed two blocks of 50,000 each, both at 25.48.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.44
Bid-YTW : 3.46 %
TRP.PR.B FixedReset 83,249 RBC sold blocks of 12,900 and 19,000 to National, both at 19.00, then crossed 17,400 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-24
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 3.74 %
BAM.PR.Z FixedReset 53,152 Desjardins crossed 47,600 at 26.18.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.12
Bid-YTW : 3.53 %
HSE.PR.A FixedReset 31,170 Scotia bought 10,700 from RBC at 23.15.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-24
Maturity Price : 22.53
Evaluated at bid price : 22.96
Bid-YTW : 3.61 %
GWO.PR.G Deemed-Retractible 24,365 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-24
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : -13.90 %
GWO.PR.P Deemed-Retractible 22,933 Desjardins crossed 12,500 at 26.18.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-03-31
Maturity Price : 25.25
Evaluated at bid price : 26.16
Bid-YTW : 4.77 %
There were 27 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: 19.01 – 19.50
Spot Rate : 0.4900
Average : 0.3834

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-24
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 2.77 %

MFC.PR.B Deemed-Retractible Quote: 23.80 – 24.09
Spot Rate : 0.2900
Average : 0.1894

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.80
Bid-YTW : 5.25 %

MFC.PR.H FixedReset Quote: 26.25 – 26.50
Spot Rate : 0.2500
Average : 0.1767

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 2.24 %

CGI.PR.D SplitShare Quote: 25.80 – 26.24
Spot Rate : 0.4400
Average : 0.3672

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.80
Bid-YTW : 3.43 %

IFC.PR.C FixedReset Quote: 25.93 – 26.20
Spot Rate : 0.2700
Average : 0.1997

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.93
Bid-YTW : 2.50 %

FTS.PR.H FixedReset Quote: 20.35 – 20.76
Spot Rate : 0.4100
Average : 0.3457

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-24
Maturity Price : 20.35
Evaluated at bid price : 20.35
Bid-YTW : 3.65 %

TDS.PR.C, FBS.PR.C and BIG.PR.D Confirmed by DBRS

November 24th, 2014

The three captioned issues were all placed on Review-Developing by DBRS on October 17, due to a change in sponsor.

Now, with respect to TDS.PR.C:

After conducting due diligence on Timbercreek, DBRS determined that the change in administrator and investment manager will not have a material impact on the rating of the Company. The performance of the Company has generally been positive since the last annual review, with the net asset value of the Company increasing to $41.13 as of November 15, 2014. Downside protection available to holders of the Class C Preferred Shares increased to 75.7% as of November 2014, compared with 70.2% in October 2013. As a result, the rating of the Class C Preferred Shares has been confirmed at Pfd-2.

Similarly, for BIG.PR.D:

After conducting due diligence on Timbercreek, DBRS determined that the change in administrator and investment manager will not have a material impact on the rating of the Company. The Company’s performance has generally been positive, with the net asset value (NAV) of the Company increasing to $24.11 as of November 15, 2014 with downside protection available to holders of the Class D Preferred Shares of 58.5%. As a result, the rating of the Class D Preferred Shares has been confirmed at Pfd-2 (low).

And finally, FBS.PR.C:

After conducting due diligence on Timbercreek, DBRS determined that the change in administrator and investment manager will not have a material impact on the rating of the Company. The Company’s performance has generally been positive, with the net asset value of the Company increasing to $35.17 as of November 15, 2014. Downside protection available to holders of the Class C Preferred Shares rose to 71.6% as of November 2014, compared with 68.6.2% in April 2014. As a result, the rating of the Class C Preferred Shares has been confirmed at Pfd-2.

November 21, 2014

November 22nd, 2014

There is some thought that Canada’s inflation is normalizing:

Canada’s inflation rate accelerated faster than economists predicted in October, led by gasoline and clothing and suggesting the economy may be running hotter than the central bank had thought.

The consumer price index rose 2.4 percent compared with the same month a year earlier, Statistics Canada said from Ottawa. That’s faster than all 21 economists in a Bloomberg News survey predicted. The core rate that excludes eight volatile products accelerated to 2.3 percent, the strongest in almost three years.

Inflation has exceeded the Bank of Canada’s 2 percent target in five of the past six months, making it more difficult for Governor Stephen Poloz to argue temporary factors are driving price gains. Canada’s dollar rose the most in almost two months after today’s report as traders speculated the central bank may have to bring forward its timetable for raising borrowing costs.

Canada’s dollar strengthened 0.7 percent to C$1.1229 per U.S. dollar at 10:40 a.m. Toronto time. Two-year federal government bond yields rose to 1.07 percent from 1.05 percent.

Clothing and footwear price gains accelerated to 3.1 percent, from September’s 2 percent pace, as retailers offered fewer discounts, Statistics Canada said today.

Gasoline prices rose 0.6 percent in October from a year earlier. On a monthly basis, gasoline fell 4 percent in October, the fourth consecutive decline.

The next few inflation reports may show the gains in gasoline and clothing prices receding, Ferley said, citing a recent fall in fuel prices and a slower depreciation of Canada’s dollar that had boosted the cost of imported apparel. Today’s inflation gain was still broad enough to suggest price gains faster than Poloz expects, he said.

Food prices rose 2.8 percent in October, including a 12.4 percent surge for meat purchased at stores.

It was a positive day for the Canadian preferred share market, with PerpetualDiscounts winning 15bp, FixedResets flat and DeemedRetractibles up 7bp. Volatility was good, comprised entirely of FixedResets. Volume was a little low.

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 -0.1129 % 2,541.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.1129 % 4,023.7
Floater 2.97 % 3.07 % 58,507 19.50 4 -0.1129 % 2,701.8
OpRet 4.04 % -4.49 % 98,444 0.08 1 0.3773 % 2,760.1
SplitShare 4.27 % 4.03 % 48,635 3.78 5 0.2377 % 3,192.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3773 % 2,523.8
Perpetual-Premium 5.44 % -10.22 % 67,308 0.08 19 -0.0697 % 2,485.6
Perpetual-Discount 5.10 % 5.01 % 106,627 15.40 16 0.1474 % 2,685.1
FixedReset 4.17 % 3.55 % 174,850 4.48 74 0.0004 % 2,596.4
Deemed-Retractible 4.94 % -1.00 % 98,055 0.11 40 0.0662 % 2,615.3
FloatingReset 2.56 % -0.95 % 59,866 0.08 6 -0.1888 % 2,553.1
Performance Highlights
Issue Index Change Notes
MFC.PR.K FixedReset -1.11 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.01
Bid-YTW : 3.73 %
TRP.PR.A FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 21.68
Evaluated at bid price : 22.07
Bid-YTW : 3.95 %
TRP.PR.C FixedReset 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 21.80
Evaluated at bid price : 22.28
Bid-YTW : 3.51 %
FTS.PR.H FixedReset 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 20.51
Evaluated at bid price : 20.51
Bid-YTW : 3.67 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.Z FixedReset 205,547 National sold three blocks to Nesbitt, two of 14,000 each and one of 11,900, all at 25.50; it also sold blocks of 18,900 and 25,000 to Scotia at 25.51. Scotia crossed 50,000 at 25.52 and Nesbitt crossed 10,000 at 25.54.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 3.47 %
ENB.PR.P FixedReset 57,023 Scotia crossed 43,200 at 24.41.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 23.00
Evaluated at bid price : 24.41
Bid-YTW : 4.03 %
ENB.PF.C FixedReset 56,385 TD crossed 38,200 at 25.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 23.21
Evaluated at bid price : 25.20
Bid-YTW : 4.08 %
TRP.PR.B FixedReset 41,221 Nesbitt crossed 32,500 at 19.01
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 3.79 %
ENB.PR.Y FixedReset 40,071 TD crossed 26,700 at 23.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 22.61
Evaluated at bid price : 23.60
Bid-YTW : 4.11 %
MFC.PR.L FixedReset 37,419 TD crossed 30,000 at 25.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-06-19
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 3.66 %
There were 27 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.M Perpetual-Discount Quote: 22.30 – 23.00
Spot Rate : 0.7000
Average : 0.4491

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 21.92
Evaluated at bid price : 22.30
Bid-YTW : 5.39 %

ELF.PR.H Perpetual-Premium Quote: 25.32 – 25.75
Spot Rate : 0.4300
Average : 0.2564

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-17
Maturity Price : 25.00
Evaluated at bid price : 25.32
Bid-YTW : 5.39 %

BAM.PF.F FixedReset Quote: 25.71 – 26.15
Spot Rate : 0.4400
Average : 0.2826

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.71
Bid-YTW : 4.02 %

PWF.PR.R Perpetual-Premium Quote: 26.31 – 26.72
Spot Rate : 0.4100
Average : 0.2536

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.31
Bid-YTW : 4.63 %

MFC.PR.K FixedReset Quote: 25.01 – 25.40
Spot Rate : 0.3900
Average : 0.2400

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.01
Bid-YTW : 3.73 %

BMO.PR.R FloatingReset Quote: 25.48 – 25.85
Spot Rate : 0.3700
Average : 0.2419

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-20
Maturity Price : 25.50
Evaluated at bid price : 25.48
Bid-YTW : 0.48 %

S&P Revises Outlook on ENB to Negative

November 22nd, 2014

Standard & Poor’s has announced:

  • •We are revising our outlook on Calgary, Alta.-based Enbridge Inc. and Enbridge Pipelines Inc. (EPI), and Toronto-based Enbridge Gas Distribution Inc. (EGD) to negative from stable.
  • •We are also affirming our ‘A-’ corporate credit rating on the companies.
  • •The negative outlook on Enbridge reflects our assessment of weak forecast financial metrics at the parent level.
  • •We assess EPI and EGD to be “core” under our group rating methodology, so the negative outlook on the companies reflects that on Enbridge.


We view Enbridge’s financial risk profile as “significant.” The continuing large capital program to expand existing and build new liquids pipelines will continue to pressure financial metrics for the next several years. We forecast that financial metrics could dip below our 13% adjusted funds from operations (AFFO)-to-debt downgrade threshold under our forecast capital expenditures and financing plans. The company has brought large scale capital projects in service on time and on budget, and we expect this to continue. Financial policy has generally been credit supportive, although growing capital expenditures from new projects, and the parents support of subsidiary companies with internal equity financing, have shifted to what we believe is a more neutral stance.

The negative outlook on Enbridge reflects our view that forecast credit metrics appear to be weak, and more indicative of an “aggressive” financial risk policy than the current significant. The company has been working through an extremely large capital program in 2014, and while 2015-2016 capex is not as large, we still expect it to continue stressing financial metrics, leaving little room for larger capital programs, or potential delays to project in-service dates. We will continue to monitor Enbridge’s financial policy in the next year. The negative outlook on the subsidiaries reflects that on the parent.

Maintaining AFFO-to-debt below 13% would likely result in a downgrade. Deterioration in the business risk or a failure to deliver the capital program on time and budget could also result in a lower rating.

An outlook revision to stable would require AFFO-to-debt to stay above 13% consistently during our forecast period.

Enbridge Inc. is the issuer of (deep breath) ENB.PR.A (Straight Perpetual), ENB.PR.B, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T, ENB.PR.Y, ENB.PF.A, ENB.PF.C, ENB.PF.E and ENB.PF.G (FixedResets) and ENB.PR.U, ENB.PR.V, ENB.PF.U and ENB.PF.V (US-Pay FixedResets).

All told, I believe that total issuance comprises roughly 10% of the Canadian preferred share market, virtually all of which has come out since the issue of ENB.PR.B just over three years ago. A downgrade to junk would certainly make the market a bit more interesting for a while!

Brookfield Renewable Makes Significant Acquisition

November 22nd, 2014

Brookfield Renewable Energy Partners L.P. has announced:

an agreement to acquire a 488 MW multi-technology renewable portfolio in Brazil from Energisa S.A. The transaction represents a total enterprise value of approximately $R2.4 billion (US$935 million), subject to working capital adjustments. The equity purchase price is $R1.4 billion (US$545 million), net of assumed long-term non-recourse debt. Brookfield Renewable will acquire and fund the transaction with its institutional partners and maintain an economic interest in the portfolio of approximately 40 percent.

The acquisition will be funded through available capital from Brookfield Renewable and its institutional partners. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close in the first quarter of 2015.

Brookfield Renewable Power Preferred Equity Inc. is a wholly owned subsidiary of Brookfield Renewable Energy Partners L.P., and is the issuer of record for BRF.PR.A, BRF.PR.C, BRF.PR.E and BRF.PR.F. The first two are FixedResets, the second two are Straight Perpetuals, all are tracked by HIMIPref™ and all are relegated to the Scraps index on credit concerns.

I have no idea why they issue these things through a subsidiary, quite frankly. At any rate, the guarantee is solid enough (sample language taken from BRF.PR.E prospectus dated 2013-1-22):

As described below, the Series 5 Shares will be guaranteed by the Partnership, Brookfield Renewable Energy L.P. (“BRELP”), Brookfield BRP Holdings (Canada) Inc. (“CanHoldco”) and BRP Bermuda Holdings I Limited (“Bermuda Holdco”, and collectively with the Partnership, BRELP and CanHoldco, the “Guarantors”).

Each Series 5 Share will be fully and unconditionally guaranteed, jointly and severally, by the Guarantors as to (i) the payment of dividends, as and when declared, (ii) the payment of amounts due on redemption of the Series 5 Shares, and (iii) the payment of the amounts due on the liquidation, dissolution and winding-up of the Corporation (the “Series 5 Guarantee”). As long as the declaration or payment of dividends on the Series 5 Shares are in arrears, the Guarantors will not make any distributions or pay any dividends on their respective equity securities or make any distributions or pay any dividends on securities of any successor entity to the Guarantors. The Series 5 Guarantee will be subordinated to all of the respective senior and subordinated debt of the Guarantors that is not expressly stated to be pari passu with or subordinate to the Series 5 Guarantee and will rank senior to the equity securities of the Guarantors. The Series 5 Guarantee will rank on a pro rata and pari passu basis with the obligations of the Guarantors under similar guarantees that may be provided by the Guarantors in respect of other Class A Preference Shares of the Corporation.

The rights, obligations and liabilities of a Guarantor pursuant to the Series 5 Guarantee will terminate upon the conveyance, distribution, transfer or lease of all or substantially all of its properties, securities and assets to another Guarantor. A Guarantor may not otherwise convey, distribute, transfer or lease all or substantially all of its properties, securities and assets to another person, unless the person which acquires the properties, securities and assets of such Guarantor assumes such Guarantor’s obligations under the Series 5 Guarantee.

There is no word from the credit agencies as yet regarding their perceptions of the deal, but it will be remembered that on November 4 I reported:

Brookfield’s aggressive approach to expansion has cost Brookfield Renewable Energy Partners L.P. it’s S&P ‘Positive’outlook:
  • •We are revising our outlook on Brookfield Renewable Energy Partners L.P. (BREP) to stable from positive.
  • •The outlook revision reflects our assessment of the amount of debt being maintained at the parent level in relation to parent-only cash flow that the partnership is generating.
  • •We are also affirming our ratings on BREP and subsidiaries Brookfield Renewable Power Preferred Equity Inc. and BRP Finance ULC, including our ‘BBB’ long-term corporate credit rating on BREP.


At the same time Standard & Poor’s affirmed its ratings on BREP and subsidiaries Brookfield Renewable Power Preferred Equity Inc. and BRP Finance ULC, including its ‘BBB’ long-term corporate credit rating on BREP.

The outlook revision reflects our view of the company’s ability to generate strong remittable cash flows from its holdings and its increased level of holding company (holdco) recourse debt. The company has articulated a policy of maintaining relatively low levels of leverage at the holdco level with leverage at the holdco used opportunistically for acquisitions with equity as market conditions allow. However, during the course of the year, the company has made a number of acquisitions that, although partially funded with new equity issuance, maintained a higher level of debt at the holdco. This has resulted in lower credit metrics.

The stable outlook reflects our expectation that BREP will continue to increase its parent-only cash flow while maintaining modest amounts of debt at the holding company as well as maintaining the highly contracted and well-diversified portfolio of generation assets.

We could raise the ratings if we believe that parent-only cash flow to debt will continue at or above 30% assuming the current quality of cash flow score of ’4′.

We could lower the rating if the partnership is unable to maintain parent-only cash flow to debt above 23% or if there is deterioration in the quality of cash flow score. This could result from acquisitions financed with substantially higher levels of holding-company debt or a material change in the partnership’s contractual profile.

DBRS Improves Trend On RON.PR.A To Stable

November 21st, 2014

DBRS has announced that it:

has today confirmed the Issuer Rating and Senior Unsecured Debt rating of RONA inc. (RONA or the Company) at BB (high) and the Preferred Share rating at Pfd-4 (high). The trends have been changed to Stable from Negative. The recovery rating on the Company’s Senior Unsecured Debt has been changed to RR3. The confirmation and trend change reflect improvement in the Company’s operating performance after three consecutive years of poor relative execution in an intense competitive environment. Positive trending same-store sales in the Company’s retail network (-3.4% in Q1, -0.7% in Q2 and +2.0% in Q3) as a result of changed merchandising strategies, the repositioning of the Reno-Depot and Totem banners, and the closure of 17 underperforming stores, combined with significant cost savings from recent reorganization efforts, to result in a notable improvement to EBITDA. The Company’s financial profile also improved at the end of F2013 and into F2014 as RONA used a portion of the proceeds from the sale of its Commercial and Professional division to reduce balance-sheet debt.

DBRS expects that RONA will continue to use free cash flow to increase shareholder returns. RONA’s credit risk profile will continue to strengthen within the current rating category if operating performance continues to improve (i.e., same-store sales growth and margin expansion), and key credit metrics remain in a range considered acceptable for the current rating (i.e., lease-adjusted debt-to-EBITDAR well below 4.0x and lease-adjusted EBITDA coverage above 4.5x) in the near-to medium-term.

As previously reported, RON.PR.A was downgraded to Pfd-4(high) [Trend Negative] by DBRS in March 2013, and to P-4(high) by S&P in April 2013. The issue was hammered after the first downgrade and has not recovered.

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