eMail To A Client

August 1st, 2015

There has been a very steep decline in the Canadian preferred share index in 2015 – so steep, in fact, that some investors are selling simply because their investment has lost value, which has to be one of the worst trade techniques ever (it imposes a form of negative convexity on your portfolio, among other bad things).

Still, it is unnerving. Look at the graph of the value of an investment in CPD, as published by Blackrock:

prefsYTD_150731
Click for big

This isn’t the smooth ride that some were expecting! The broad TXPR index was down 4.10% on the month and is down 11.47% over the past year. The FixedReset TXPL index has fared even worse, down 5.31% on the month and a horrific 17.26% on the year. I don’t have figures for the BMO-CM 50 at this time, but if I plug in the TXPR results for July, I can draw the following graph, which shows the rolling twelve month and twenty four month total returns from December 31, 1992:

prefIndexReturns_150731
Click for Big

So both the one- and two-year returns for the index now show losses exceeded only by the depths of the Credit Crunch in the 20+ years of data I have available. And, I will note, the four year total return for TXPR is now negative – in fact, you have to go back to January, 2011, to find a starting point that will give you a better than zero return through the period.

So I received an eMail from a client that said, in part:

But my real problem is that in trying to decide whether to stay in your fund or pull out, I do not know what I am betting on. The prospect of rising CDN interest rates (seems unlikely that would help), the overall Cdn economy? Something else?

What is your take on what it would take for preferred values to start moving in the right direction?

What follows is my answer, with minor edits to ensure anonymity and to reflect the medium of the message.

I can appreciate your concern.

Your first investment was valued on 2012-11-19; the second on 2013-1-21.

From the end of November, 2012, to June, 2015, the fund’s total return (reinvesting dividends, before fees) was -0.35%, compared to the BMO-CM “50″ index return of -3.64%. TXPR (the broad S&P/TSX Preferred Share index) returned -4.04%, while TXPL (S&P/TSX, FixedResets only) returned -9.65%.

For the period beginning 2013-1-31 I find: Fund, -1.95%; BMO, -4.86%; TXPR, -5.56%; TXPL, -11.42%.

So the problem is not with the fund so much as it is with the market.

The indices are currently comprised of about 1/3 Straight Perpetuals, 2/3 FixedResets. For an idea of what has happened to Straights, see the attached Chart #22 from the July PrefLetter, which shows the interest-equivalent spread between Straight Perpetuals and long-term Corporate bonds (the “Seniority Spread”).

PL_150710_Body_Chart_22
Click for Big

Market Yields changed as follows, from November 28, 2012 to June 30 , 2015
Five Year Canadas: 1.31% … 0.81%
Long Canadas: 2.38% … 2.37%
Long Corporates: 4.2% … 4.0%
Straight Perpetuals: 4.88% … 5.20%
Interest-Equivalent Straight Perpetuals: 6.35% … 6.76%

These changes have had the effect of widening the Seniority Spread from 215bp to 276bp. I can think of two rationales for this widening:
i) the retail investors who dominate the preferred share space are demanding a higher spread to compensate for perceived risks of losses once “interest rates start to rise”; that is, they are reacting more than the institutional investors in the bond market to risks of loss. This could be due to higher risk-aversion (defining “risk” as chance of loss), less binding duration constraints on the portfolio, simple lack of sophistication, or any combination of these three considerations. Note that I have not made a formal study of the subject and there may be other factors, but those are the ones that occur to me through my experience talking to investors.
ii) Straight Perpetual yields are being pushed up (or at least supported) by FixedReset yields (see chart FR-44, below, from the extract from the July PrefLetter ). This would be due to a perception amongst investors that Straight Perpetuals are more “risky” (whatever that means!) than FixedResets and hence deserving of a positive spread; note that this effect is not observed when comparing sovereign inflation-indexed bonds to nominals (the Inflation Risk Premium).

PL_150710_App_FR_Chart_44
Click for Big
These spreads use Yield-To-Worst, not Current Yield
This is Chart FR-44

With respect to FixedResets, it is clear from the horrible performance of TXPL referenced above relative to that of the broader TXPR (which one can approximate as being comprised of about 2/3 TXPL throughout the period of interest, although it has, of course, varied, with FixedReset issuance slightly overcompensating for capital losses) that FixedResets have been whacked.

I have hypothesized a rationale for this underperformance in the attached extract from PrefLetter under the heading “An Experimental Data Series”, to wit: in the face of declines in the Five-Year Canada yield (which is the basis for the resets of of this type of preferred share), investors are attempting to maintain a constant yield irregardless of what is happening with other yields. This is hard to justify on rational grounds, but there has always been an element of irrationality in preferred share pricing! Thus, declines in the GOC-5 yield have been 100% compensated for by declines in price, without referencing yields of comparable long-term instruments; this contradicts one of the features of FixedResets that was used (perhaps inadvertently through indiscriminate use of the term “interest rates”) to help sell the issues when they were developed – that price would remain constant given parallel shifts in the yield curve (with credit spreads assumed, again implicitly, to be constant).

PL_150710_App_FR_Chart_48
Click for Big

This 100% dependence of FixedReset price on GOC-5 has a very large effect, as derived in the last equation on page 3 of the extract:
i) The base Modified Duration of FixedResets is equal to (1 / EFCY). The term EFCY (“Expected Future Current Yield”) is about 3.75%, implying a Modified Duration of about 27 – not only far higher than long bonds, but dependent upon more volatile five-year yields to boot!
ii) The term (25/P) in the equation implies negative convexity

So to summarize, I feel that the poor performance of the market since your initial investment is due to:
i) very high dependence of FixedReset prices on GOC-5 levels, which has contradicted prior assumptions of an equal and opposite co-dependence on long-term yield levels.
ii) maintenance of a spread to PerpetualDiscounts, which has prevented Straight Perpetuals from participating in price increases due to declines in long-term corporate yields.

PL_150710_App_FR_Chart_43
Click for Big
The “Bozo Spread” is the Current Yield of PerpetualDiscounts less the Current Yield of FixedResets
It is not yet clear whether the market pays more attention to these Current Yields, or to the Yields-to-Worst, when relating FixedResets to PerpetualDiscounts

I will also note that to a certain extent, we’ve seen this movie before: during the Credit Crunch Floating Rate issues performed appalling poorly, since their dividends were linked to contemporary (as opposed to expected!) Canada Prime while their yields were linked to PerpetualDiscounts (see my contemporary article and the next chart)

floaterTotalReturn
Click for Big
Negative Total Return Over Fifteen Years!

So, while I can appreciate your dismay regarding the performance of your investment, I will point out that:
i) the key consideration is not past performance but how the characteristics of the asset class may be expected to fit into your portfolio requirements going forward.

ii) Expected income per unit in the fund has actually increased over the period, from $0.4643 in December 2012 to $0.5217 in June 2015 (see MAPF Performance: June 2015 ). This calculation is dependent upon various assumptions which you may or may not accept, but it represents my best guess!

iii) The increase in spreads over the period implies a significant reduction in expected income should you switch to another Fixed Income type of investment at this time.

iv) Expected future performance of FixedResets is highly geared to GOC-5, insofar as we can accept that the last equation on page 3 of the July PrefLetter extract reflects market reality. While I agree that we might be waiting a while for GOC-5 to increase substantially, I will suggest that current levels must be at or near a bottom. Mind you, I’ve been suggesting that continually for several years now and been wrong every time, so you may wish to disregard that particular exercise in market timing!

v) Expected future performance of Straights should be better than that of corporate long bonds over the medium term; and corporate long bonds should in turn outperform long Canadas; in both cases due to moderation of current high (by historical standards) spreads

I hope all this helps. I realize that I have used a fair bit of jargon in this eMail (and, what’s worse, jargon that I’ve developed myself!) so if there is anything in the above that makes no sense, feel free to ask for clarification. And, of course, if you would like to discuss this further prior to making an investment decision, that’s fine too – whether by eMail or telephone.

Sincerely,

July 31, 2015

July 31st, 2015

Nothing happened today.

The Canadian preferred share market took another whacking to close the month, with PerpetualDiscounts losing 58bp, FixedResets down 56bp and DeemedRetractibles off 23bp. The Performance Highlights table is suitably horrible. Volume was very low.

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_150731
Click for Big

TRP.PR.B, which resets 2020-6-30 at +128, is bid at 24.56 to be $0.76 rich, while TRP.PR.D, resetting 2019-4-30 at +238, is $0.84 cheap at its bid price of 20.00.

impVol_MFC_150731
Click for Big

Another good fit today!

Most expensive is MFC.PR.F, resetting at +141bp on 2016-6-19, bid at 16.95 to be 0.62 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 20.80 to be $0.79 cheap.

impVol_BAM_150731
Click for Big

The fit on the BAM issues was particularly horrible today.

The cheapest issue relative to its peers is BAM.PR.Z, resetting at +296bp on 2017-12-31, bid at 21.37 to be $1.49 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 23.45 and appears to be $1.30 rich.

impVol_FTS_150731
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 21.40, looks $0.81 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 20.25 and is $0.84 cheap.

pairs_FR_150731A
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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of +0.02%, with one outlier above 1.00%. There are no junk outliers.

pairs_FF_150731
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 -0.7937 % 2,005.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.7937 % 3,506.9
Floater 3.66 % 3.69 % 56,377 18.08 3 -0.7937 % 2,132.2
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1603 % 2,776.6
SplitShare 4.58 % 4.95 % 62,897 3.16 3 -0.1603 % 3,254.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1603 % 2,539.0
Perpetual-Premium 5.57 % 5.17 % 71,550 14.44 13 0.5753 % 2,491.9
Perpetual-Discount 5.43 % 5.46 % 84,676 14.71 24 -0.5762 % 2,611.5
FixedReset 4.72 % 3.83 % 207,733 16.03 88 -0.5645 % 2,233.8
Deemed-Retractible 5.11 % 5.12 % 105,251 5.48 34 -0.2309 % 2,581.5
FloatingReset 2.40 % 3.23 % 46,521 6.05 10 -0.1139 % 2,266.1
Performance Highlights
Issue Index Change Notes
FTS.PR.J Perpetual-Discount -7.29 % Not even close to having any resemblance to reality. Perhaps the market maker was overwhelmed by the enormous volume of 1,450 shares, which traded in a range of 23.60-66. I have not checked whether this lamentable state of affairs is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 21.60
Evaluated at bid price : 21.88
Bid-YTW : 5.51 %
TRP.PR.D FixedReset -4.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.01 %
MFC.PR.L FixedReset -3.95 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.65
Bid-YTW : 5.78 %
BAM.PR.Z FixedReset -3.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 21.37
Evaluated at bid price : 21.37
Bid-YTW : 4.44 %
MFC.PR.K FixedReset -3.75 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.80
Bid-YTW : 5.58 %
PWF.PR.T FixedReset -3.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 22.79
Evaluated at bid price : 23.75
Bid-YTW : 3.29 %
IAG.PR.A Deemed-Retractible -3.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.72
Bid-YTW : 6.57 %
TRP.PR.E FixedReset -2.64 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 21.03
Evaluated at bid price : 21.03
Bid-YTW : 3.87 %
ENB.PR.D FixedReset -2.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 16.15
Evaluated at bid price : 16.15
Bid-YTW : 4.95 %
TRP.PR.F FloatingReset -2.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 17.08
Evaluated at bid price : 17.08
Bid-YTW : 3.42 %
IFC.PR.C FixedReset -1.96 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 5.07 %
BAM.PR.C Floater -1.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 12.75
Evaluated at bid price : 12.75
Bid-YTW : 3.73 %
ENB.PR.T FixedReset -1.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 17.00
Evaluated at bid price : 17.00
Bid-YTW : 4.95 %
BAM.PR.B Floater -1.87 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 13.09
Evaluated at bid price : 13.09
Bid-YTW : 3.64 %
ENB.PR.B FixedReset -1.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 4.97 %
ELF.PR.G Perpetual-Discount -1.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 21.60
Evaluated at bid price : 21.85
Bid-YTW : 5.47 %
SLF.PR.I FixedReset -1.79 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.03
Bid-YTW : 4.62 %
BAM.PR.T FixedReset -1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 18.17
Evaluated at bid price : 18.17
Bid-YTW : 4.29 %
POW.PR.D Perpetual-Discount -1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 22.33
Evaluated at bid price : 22.60
Bid-YTW : 5.57 %
ENB.PR.N FixedReset -1.64 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 17.40
Evaluated at bid price : 17.40
Bid-YTW : 4.98 %
ENB.PR.Y FixedReset -1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 17.02
Evaluated at bid price : 17.02
Bid-YTW : 4.82 %
CU.PR.C FixedReset -1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 23.44
Evaluated at bid price : 23.80
Bid-YTW : 3.28 %
MFC.PR.M FixedReset -1.52 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.01
Bid-YTW : 5.13 %
GWO.PR.L Deemed-Retractible -1.46 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 5.77 %
BMO.PR.Y FixedReset -1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 22.82
Evaluated at bid price : 24.10
Bid-YTW : 3.52 %
SLF.PR.C Deemed-Retractible -1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.40
Bid-YTW : 6.60 %
GWO.PR.H Deemed-Retractible -1.33 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.01
Bid-YTW : 6.06 %
PWF.PR.S Perpetual-Discount -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 22.20
Evaluated at bid price : 22.55
Bid-YTW : 5.33 %
SLF.PR.G FixedReset -1.26 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.49
Bid-YTW : 7.23 %
FTS.PR.F Perpetual-Discount -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 23.12
Evaluated at bid price : 23.40
Bid-YTW : 5.31 %
ENB.PR.P FixedReset -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 17.00
Evaluated at bid price : 17.00
Bid-YTW : 4.94 %
BAM.PF.A FixedReset -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 21.70
Evaluated at bid price : 21.95
Bid-YTW : 4.22 %
ENB.PF.E FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 18.29
Evaluated at bid price : 18.29
Bid-YTW : 4.98 %
ENB.PF.A FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 18.35
Evaluated at bid price : 18.35
Bid-YTW : 4.92 %
RY.PR.H FixedReset -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 21.77
Evaluated at bid price : 22.12
Bid-YTW : 3.45 %
ENB.PR.J FixedReset -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 17.61
Evaluated at bid price : 17.61
Bid-YTW : 4.96 %
NA.PR.S FixedReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 22.15
Evaluated at bid price : 22.66
Bid-YTW : 3.51 %
SLF.PR.H FixedReset -1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.25
Bid-YTW : 6.25 %
BAM.PF.E FixedReset -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 21.34
Evaluated at bid price : 21.63
Bid-YTW : 4.03 %
SLF.PR.E Deemed-Retractible -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.65
Bid-YTW : 6.50 %
MFC.PR.G FixedReset 1.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.51
Bid-YTW : 3.98 %
TD.PR.S FixedReset 1.26 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.93
Bid-YTW : 2.83 %
CIU.PR.C FixedReset 1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 16.34
Evaluated at bid price : 16.34
Bid-YTW : 3.18 %
HSE.PR.G FixedReset 1.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 22.10
Evaluated at bid price : 22.70
Bid-YTW : 4.72 %
BAM.PR.K Floater 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 12.91
Evaluated at bid price : 12.91
Bid-YTW : 3.69 %
BAM.PR.X FixedReset 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 16.19
Evaluated at bid price : 16.19
Bid-YTW : 4.11 %
PWF.PR.O Perpetual-Premium 7.38 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-10-31
Maturity Price : 25.75
Evaluated at bid price : 25.90
Bid-YTW : 3.31 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.Z Perpetual-Discount 62,792 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 23.53
Evaluated at bid price : 23.85
Bid-YTW : 5.26 %
RY.PR.O Perpetual-Discount 34,405 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 23.36
Evaluated at bid price : 23.66
Bid-YTW : 5.20 %
ENB.PR.B FixedReset 33,687 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 4.97 %
CU.PR.C FixedReset 30,775 RBC crossed 24,800 at 24.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 23.44
Evaluated at bid price : 23.80
Bid-YTW : 3.28 %
SLF.PR.H FixedReset 27,240 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.25
Bid-YTW : 6.25 %
HSB.PR.D Deemed-Retractible 26,865 RBC bought 18,800 from anonymous at 25.00.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 5.12 %
There were 18 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
FTS.PR.J Perpetual-Discount Quote: 21.88 – 23.42
Spot Rate : 1.5400
Average : 0.9873

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 21.60
Evaluated at bid price : 21.88
Bid-YTW : 5.51 %

IAG.PR.A Deemed-Retractible Quote: 21.72 – 22.70
Spot Rate : 0.9800
Average : 0.7410

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.72
Bid-YTW : 6.57 %

TRP.PR.D FixedReset Quote: 20.00 – 20.64
Spot Rate : 0.6400
Average : 0.4307

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.01 %

BAM.PF.E FixedReset Quote: 21.63 – 22.20
Spot Rate : 0.5700
Average : 0.3903

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 21.34
Evaluated at bid price : 21.63
Bid-YTW : 4.03 %

RY.PR.J FixedReset Quote: 23.70 – 24.15
Spot Rate : 0.4500
Average : 0.2830

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 22.65
Evaluated at bid price : 23.70
Bid-YTW : 3.52 %

TRP.PR.F FloatingReset Quote: 17.08 – 17.70
Spot Rate : 0.6200
Average : 0.4645

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-31
Maturity Price : 17.08
Evaluated at bid price : 17.08
Bid-YTW : 3.42 %

July 30, 2015

July 30th, 2015

Too bad none of this activity is taking place in Canada. We spend our billions on pipelines to ship the raw material out of the country.:

While the collapse in oil and gas prices since the middle of last year caused energy companies to slash investment in oil wells, Thursday’s report on second-quarter GDP showed an interesting dynamic taking shape — investment in factories has been running full bore.

It may be surprising on the surface, given that manufacturing has simmered down this year on the heels of a weaker global economy, but spending on all types of production facilities increased at a 65 percent annualized pace in the second quarter. That was almost enough to offset a 68 percent plunge in investment in wells and mines that marked the biggest drop in 29 years.

Outlays for factory-related structures jumped even more from January through March — surging at a 95 percent pace. Over the last four quarters, investment in plants increased an average 64 percent, the strongest since records began in 1958.

Spending on chemical plant construction in the private sector stood at a seasonally adjusted annual rate of $48.4 billion in May, up almost 10 percent from a month earlier, according to the latest data from the Census Bureau. During the first five months of this year, an unadjusted $15.9 billion was spent on chemical plants, more than double the $7 billion for the same period in 2014.

In another bit of sensible news that is, obviously, not from Canada, electric car owners are being paid for flex-time:

One hundred owners of BMW AG’s i3 hatchback receive $1,000 upfront to participate in Pacific Gas & Electric Co.’s 18-month trial, which starts this week and is confined to the San Francisco Bay Area. Peter Berman, a 70-year-old, semi-retired Los Altos psychologist, was selected from about 400 applicants.

“My understanding is that we’ll get a text message that says ‘Hey, you’re charging your car right now, can you back off for an hour?’” said Berman, who began leasing his $40,000-plus i3 in October. “This is the wave of the future. We can’t continue to be dependent on gas and oil and coal for our energy use. I’m really curious as to how this is all going to unfold.”

The PG&E-BMW pilot is one of myriad experiments under way worldwide as utilities try to anticipate what will happen if (or when) millions of electric vehicles pour onto city streets and highways. Power companies see both challenge and promise. Yes, electric cars could put more pressure on the grid if everyone plugs them in at the same time. But utilities could also tap batteries for backup power when the grid is under strain or temporarily knocked out in an emergency, paying drivers for the electricity harvested from their parked cars.

But how about the Pan-Am Games, huh? Weren’t they something? The memories will distract us from obsessing over the fact that even the Brits are moving ahead of us in ejector bed technology.

I haven’t passed on any drone news in almost a week now, so here’s some more on air traffic control:

The Google concept, called Project Wing, would enable people to get products delivered “in short order,” even in the most populated areas, Dave Vos, the project’s leader, said here today (July 29) at a NASA-sponsored conference on drones. Project Wing was first described publicly in August 2014, when test flights of early prototypes were conducted in Australia, The Atlantic reported.

In order to take to the skies, drones need to not only communicate with people on the ground, but also with other high-fliers that are delivering small packages, taking aerial surveys or doing other work, Vos said.

Key to this vision of a drone-filled future is the use of existing cellular phone infrastructure.

“We don’t need to develop new protocols,” Vos said at the conference.

In his vision, drones would be outfitted with an automatic dependent surveillance-broadcast (ADS-B) receiver that would enable the unmanned fliers to communicate with each other, as well as with ground-based systems. Existing ADS-B systems in aircraft allow them to locate their position using satellites, and then rebroadcast that location to a ground-based station. This type of multi-way communication could enable the drones to avoid obstacles in midflight and fly safely to their destination, Vos said.

A drone equivalent of air traffic control systems will also be needed, Vos said. Google envisions cellular carriers and other private companies collaborating with the Federal Aviation Administration (FAA) to craft a drone air traffic safety system.

Nowadays, of course, there are only two things worth reading: technology news and um, something else, probably. So here’s an insurance industry projection:

A black Volkswagen Golf rolls along at 12 mph on an empty road in the heart of Virginia’s horse country. Suddenly the dashboard lights up, and there’s a warning sound. The driver ignores it. A moment later, the VW brakes hard—all on its own—and comes to a stop a foot in front of an inflated box painted to look like the rear end of a car. The Insurance Institute for Highway Safety (IIHS) has been running tests like this a few times a month at its research center in Ruckersville, Va. The objective is to vet automakers’ latest crash avoidance technologies, like the one in the Golf, to identify the most effective ones.

The auto insurance industry is having its Napster moment. Like record companies at the dawn of online music file sharing, Allstate, Geico, State Farm, and others are grappling with innovations that could put a huge dent in their revenue. As carmakers automate more aspects of driving, accidents will likely plunge and car owners will need less coverage. Premiums consumers pay could drop as much as 60 percent in 15 years as self-driving cars hit the roads, says Donald Light, head of the North America property and casualty practice for Celent, a research firm. His message for insurers: “You have to be prepared to see that part of your business shrink, probably considerably.”

For example, a system introduced on the 2013 Honda Accord beeps when cars get too close to traffic ahead or leave their lane without signaling. It has had a measurable effect on the frequency of some types of claims: Bodily injury liability losses dropped 40 percent and medical payments decreased 27 percent, according to a 2014 study of insurance claims data by the Highway Loss Data Institute, IIHS’s sister organization.

The bottom line: Insurers collected $195 billion in auto premiums from U.S. drivers last year. By 2030, consumers could pay 60 percent less.

It was a grim day for the Canadian preferred share market, with PerpetualDiscounts losing 82bp, FixedResets down 42bp and DeemedRetractibles off 36bp. Floaters were taken outside and shot. The Performance Highlights table is lengthy. 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_150730
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 21.60 to be $0.58 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $1.04 cheap at its bid price of 14.90.

impVol_MFC_150730
Click for Big

Another good fit today!

Most expensive is MFC.PR.I, resetting at +286bp on 2017-9-19, bid at 24.90 to be 0.48 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 24.21 to be $0.39 cheap.

impVol_BAM_150730
Click for Big

The cheapest issue relative to its peers is BAM.PR.Z, resetting at +296bp on 2017-12-31, bid at 22.22 to be $0.89 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 21.85 and appears to be $1.27 rich.

impVol_FTS_150730
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 21.41, looks $0.84 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 20.24 and is $0.84 cheap.

pairs_FR_150730
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of +0.03%, with one outlier above 1.00%. There is one junk outlier, also above +1.00%.

pairs_FF_150730
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 -5.0559 % 2,021.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 -5.0559 % 3,534.9
Floater 3.63 % 3.66 % 56,735 18.14 3 -5.0559 % 2,149.2
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1467 % 2,781.1
SplitShare 4.57 % 4.76 % 61,537 3.17 3 -0.1467 % 3,259.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1467 % 2,543.0
Perpetual-Premium 5.60 % 5.48 % 71,512 14.11 13 -0.8312 % 2,477.7
Perpetual-Discount 5.40 % 5.40 % 85,216 14.76 24 -0.8233 % 2,626.6
FixedReset 4.69 % 3.82 % 210,382 16.04 88 -0.4211 % 2,246.5
Deemed-Retractible 5.10 % 5.17 % 105,394 5.48 34 -0.3644 % 2,587.5
FloatingReset 2.40 % 3.18 % 46,922 6.05 10 -0.3687 % 2,268.7
Performance Highlights
Issue Index Change Notes
BAM.PR.K Floater -7.69 % Exaggerated, since the range for the day was 13.24-76, with a VWAP of 13.62 on volume of 3,681. It looks like a trade of 300 shares late in the day overwhelmed the market’s capacity to absorb selling pressure. I have not checked whether this lamentable state of affairs is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 12.72
Evaluated at bid price : 12.72
Bid-YTW : 3.74 %
PWF.PR.O Perpetual-Premium -7.34 % Ridiculous, since the range for the day was 26.03-12 (VWAP 26.04) on volume of 3,300 shares. I have not checked whether this lamentable state of affairs is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 23.83
Evaluated at bid price : 24.12
Bid-YTW : 6.04 %
BAM.PR.B Floater -4.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 13.34
Evaluated at bid price : 13.34
Bid-YTW : 3.57 %
HSE.PR.E FixedReset -3.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 22.18
Evaluated at bid price : 22.80
Bid-YTW : 4.69 %
CU.PR.G Perpetual-Discount -3.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 21.32
Evaluated at bid price : 21.32
Bid-YTW : 5.37 %
BAM.PR.C Floater -3.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 13.00
Evaluated at bid price : 13.00
Bid-YTW : 3.66 %
ENB.PR.J FixedReset -2.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 17.80
Evaluated at bid price : 17.80
Bid-YTW : 4.91 %
CU.PR.F Perpetual-Discount -2.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 5.39 %
BAM.PR.Z FixedReset -2.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 21.97
Evaluated at bid price : 22.22
Bid-YTW : 4.24 %
MFC.PR.L FixedReset -2.36 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.50
Bid-YTW : 5.25 %
MFC.PR.C Deemed-Retractible -2.36 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.52
Bid-YTW : 6.60 %
MFC.PR.B Deemed-Retractible -2.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.01
Bid-YTW : 6.46 %
TD.PF.F Perpetual-Discount -2.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 23.35
Evaluated at bid price : 23.65
Bid-YTW : 5.20 %
ENB.PF.C FixedReset -1.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 18.44
Evaluated at bid price : 18.44
Bid-YTW : 4.90 %
ENB.PR.B FixedReset -1.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 16.30
Evaluated at bid price : 16.30
Bid-YTW : 4.87 %
TRP.PR.B FixedReset -1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 14.65
Evaluated at bid price : 14.65
Bid-YTW : 3.37 %
TRP.PR.C FixedReset -1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 14.90
Evaluated at bid price : 14.90
Bid-YTW : 3.71 %
ENB.PR.F FixedReset -1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 16.92
Evaluated at bid price : 16.92
Bid-YTW : 4.92 %
HSE.PR.G FixedReset -1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 21.90
Evaluated at bid price : 22.37
Bid-YTW : 4.80 %
MFC.PR.G FixedReset -1.63 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.21
Bid-YTW : 4.14 %
RY.PR.J FixedReset -1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 22.69
Evaluated at bid price : 23.78
Bid-YTW : 3.50 %
POW.PR.B Perpetual-Discount -1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 23.95
Evaluated at bid price : 24.20
Bid-YTW : 5.57 %
ENB.PF.G FixedReset -1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 18.79
Evaluated at bid price : 18.79
Bid-YTW : 4.88 %
ENB.PF.E FixedReset -1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 18.49
Evaluated at bid price : 18.49
Bid-YTW : 4.92 %
GWO.PR.N FixedReset -1.48 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.00
Bid-YTW : 7.45 %
FTS.PR.F Perpetual-Discount -1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 23.41
Evaluated at bid price : 23.68
Bid-YTW : 5.25 %
GWO.PR.R Deemed-Retractible -1.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.05
Bid-YTW : 5.98 %
TRP.PR.A FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 18.76
Evaluated at bid price : 18.76
Bid-YTW : 3.64 %
BAM.PR.X FixedReset -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 15.95
Evaluated at bid price : 15.95
Bid-YTW : 4.17 %
RY.PR.N Perpetual-Premium -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 23.67
Evaluated at bid price : 24.00
Bid-YTW : 5.17 %
TRP.PR.D FixedReset -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 20.91
Evaluated at bid price : 20.91
Bid-YTW : 3.83 %
GWO.PR.I Deemed-Retractible -1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 6.28 %
RY.PR.Z FixedReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 21.80
Evaluated at bid price : 22.15
Bid-YTW : 3.40 %
ENB.PR.D FixedReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 4.84 %
SLF.PR.J FloatingReset -1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.06
Bid-YTW : 7.08 %
TD.PR.S FixedReset -1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.62
Bid-YTW : 3.04 %
POW.PR.D Perpetual-Discount -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 22.69
Evaluated at bid price : 22.98
Bid-YTW : 5.47 %
RY.PR.M FixedReset -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 22.58
Evaluated at bid price : 23.62
Bid-YTW : 3.44 %
CM.PR.O FixedReset -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 22.19
Evaluated at bid price : 22.75
Bid-YTW : 3.41 %
PWF.PR.S Perpetual-Discount -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 22.45
Evaluated at bid price : 22.85
Bid-YTW : 5.26 %
BMO.PR.Q FixedReset -1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.56
Bid-YTW : 3.79 %
TD.PF.E FixedReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 22.97
Evaluated at bid price : 24.51
Bid-YTW : 3.51 %
ENB.PR.T FixedReset 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 17.33
Evaluated at bid price : 17.33
Bid-YTW : 4.85 %
HSE.PR.C FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 21.66
Evaluated at bid price : 22.00
Bid-YTW : 4.49 %
NA.PR.S FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 22.30
Evaluated at bid price : 22.90
Bid-YTW : 3.47 %
BIP.PR.A FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 21.64
Evaluated at bid price : 22.00
Bid-YTW : 4.88 %
NA.PR.W FixedReset 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 21.32
Evaluated at bid price : 21.60
Bid-YTW : 3.56 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.Z Perpetual-Discount 282,348 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 23.49
Evaluated at bid price : 23.81
Bid-YTW : 5.27 %
BMO.PR.R FloatingReset 107,377 Anonymous crossed 100,400 at 23.15.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.25
Bid-YTW : 3.18 %
TRP.PR.B FixedReset 86,020 Scotia crossed 80,000 at 14.95.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 14.65
Evaluated at bid price : 14.65
Bid-YTW : 3.37 %
ENB.PR.Y FixedReset 65,913 RBC crossed 50,000 at 17.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 17.29
Evaluated at bid price : 17.29
Bid-YTW : 4.74 %
ENB.PR.F FixedReset 60,058 RBC crossed 47,700 at 17.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 16.92
Evaluated at bid price : 16.92
Bid-YTW : 4.92 %
ENB.PR.H FixedReset 47,166 TD crossed 22,500 at 15.87.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 15.85
Evaluated at bid price : 15.85
Bid-YTW : 4.75 %
There were 37 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.O Perpetual-Premium Quote: 24.12 – 26.13
Spot Rate : 2.0100
Average : 1.1237

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 23.83
Evaluated at bid price : 24.12
Bid-YTW : 6.04 %

BAM.PR.Z FixedReset Quote: 22.22 – 23.05
Spot Rate : 0.8300
Average : 0.6048

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 21.97
Evaluated at bid price : 22.22
Bid-YTW : 4.24 %

BAM.PR.K Floater Quote: 12.72 – 13.24
Spot Rate : 0.5200
Average : 0.3686

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 12.72
Evaluated at bid price : 12.72
Bid-YTW : 3.74 %

CM.PR.O FixedReset Quote: 22.75 – 23.13
Spot Rate : 0.3800
Average : 0.2441

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-30
Maturity Price : 22.19
Evaluated at bid price : 22.75
Bid-YTW : 3.41 %

TD.PR.S FixedReset Quote: 24.62 – 25.00
Spot Rate : 0.3800
Average : 0.2442

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.62
Bid-YTW : 3.04 %

SLF.PR.H FixedReset Quote: 19.45 – 20.00
Spot Rate : 0.5500
Average : 0.4171

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.45
Bid-YTW : 6.11 %

July 29, 2015

July 29th, 2015

The FOMC release was equivocal:

Growth in household spending has been moderate and the housing sector has shown additional improvement; however, business fixed investment and net exports stayed soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, a range of labor market indicators suggests that underutilization of labor resources has diminished since early this year. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey‑based measures of longer-term inflation expectations have remained stable.

The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate.

The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

There was no dissent.

Treasuries eased slightly on the news, but nothing special:

The 10-year note yield rose three basis points, or 0.03 percentage point, to 2.28 percent at 3:04 p.m. in New York, according to Bloomberg Bond Trader data. The benchmark 2.125 percent security due in May 2025 fell 7/32, or $2.19 per $1,000 face amount, to 98 21/32. The yield climbed three basis points on Tuesday.

Traders are pricing in a 39 percent probability that the Fed raises rates at or before the September meeting, based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff. That compared with a 40 percent probability before the Fed announcement.

The likelihood of a December rate increase was 71 percent, compared with 70 percent.

Meanwhile, Joe Oliver showed who’s boss at the Bank of Canada:

Last week, while addressing questions about Canada’s fragile economy, federal Finance Minister Joe Oliver was asked whether the Bank of Canada should consider using “quantitative easing” to stimulate Canada’s economy. He responded immediately, saying it’s “not on the table.” But whatever the case for the use of this approach to monetary policy, Mr. Oliver should know better than to speak about something clearly outside his purview.

Mr. Oliver can play his best role in this complex debate by staying out of it altogether.

The federal government is the sole shareholder of the Bank of Canada, whose governor is accountable to the finance minister and, through him or her, to Parliament.

But the Bank of Canada is also “operationally independent” from the federal government, and this independence is crucial to the bank’s long-term success in maintaining low and stable inflation.

Over many years and across many countries, evidence clearly shows that when elected governments get too involved in the operational details of monetary policy, inflation rises and becomes more volatile.

Mr. Oliver should be talking a lot about the current weakness of the Canadian economy, and also about what he is prepared to do – with fiscal policy – to make the situation better for Canadians. But when he faces questions about monetary policy, he should defer to the bank’s governor. To do anything else is to undermine the bank’s ability to make monetary policy in the best interests of the country.

Trouble is, the BoC is no longer “operationally independent”. That went out the window with Dodge, Chretien and Turner.

There’s some interesting discussion of bond liquidity today … fund managers are holding cash, which is market timing:

Western Asset Management Co., which oversees about $455 billion, has developed a system of ranking securities based on their perceived liquidity to make sure they’ve got plenty of easy-to-sell assets in a pinch. Loomis Sayles & Co. is “comfortable holding higher-than-average reserves, such as cash and high-quality developed market sovereign debt,” according to a report this month.

For funds that are loaded up with hard-to-trade bonds, “it could be a challenge under difficult market conditions to meet very large redemptions” without suffering huge losses, according to Michael Buchanan, Western Asset’s deputy chief investment officer, in a July 20 paper. “Overall the trend is that liquidity will continue to decline.”

The silver lining is that these measures taken by investors may end up reducing the risk of a market seizure, both because banks are safer and investors are more prepared. Both Western Asset and Loomis Sayles are planning for a dislocation in which they can be on the other side of the trade, buying bonds in the case of a forced sale.

In the July 20th interview – not a paper, as far as I can tell – Mr. Buchanan says:

Proprietary trading and hedge funds were active participants in the trading of fixed-income markets. By closing these lines of business, the regulation reduced the number of players bidding and offering securities on a daily basis, making periods of heightened volatility more violent from a mark-to-market perspective. Market regulatory modifications include a proposal by the European Commission to implement a tax of 1–10 basis points (bps) on transactions in all classes of fixed-income instruments. If finalized as proposed, it would clearly act as yet another disincentive for market-makers to commit capital to the investment community, further reducing liquidity in the market.

Maintaining portfolio liquidity for mutual funds is of significant importance, and as such, we have been increasing the use of instruments such as cash, T-Bills, ETFs and derivatives to provide additional liquidity. Across all vehicles, we are utilizing the primary market more frequently as new issues price, more often than not, at large concessions to secondary issues, and the new issues actively trade with minimal bid/offer spreads. We are also employing derivatives via indices/tranches that provide a liquidity enhancement while maintaining exposure to the given asset class. In those cases when we consider an issue for investment, we often value the on-the-run investment opportunity more than an off-the-run opportunity on a relative value basis.

The biggest reduction in liquidity has been experienced by off-the-run issues in the credit market and non-current coupon bonds in the MBS market. For example, an off-the-run issue on a 10-year bond for an investment-grade issuer trades at a 10–20 bps discount to that issuer’s on-the-run issue, versus a 5–10 bps discount that was available pre-crisis.

And Matt Levine contributes some information in his usual entertaining style:

One potential solution for that problem is to have investors just trade bonds with each other, cutting out the banks as middlemen. But it turns out that doesn’t work very well, in part because investors don’t know how much bonds are supposed to cost, and need banks to tell them:
Many bonds don’t trade for weeks or months, leaving gaps in pricing that historically were filled by banks that had more market information at their command than their customers.

On Bondcube, which announced its closure on July 22, investors who found each other on the company’s system often couldn’t agree on a price, according to a person familiar with the matter, who asked not to be identified because the information isn’t public. So bids and offers were too far apart.

Oops.

Bondcube is also a nice little lens through which to look at the felony fraud charges against the mortgage traders — Jesse Litvak, Matthew Katke and potentially others — accused of lying about this sort of price information. I find these cases very confusing, because these guys didn’t lie about any fundamental facts of the bonds they were selling. They never fudged cash-flow statements or bribed home appraisers or anything like that. Instead they (allegedly) just told customers that they’d paid 58 cents on the dollar for a bond, when really they’d paid 57, and pocketed the difference. That seems clearly irrelevant to a sophisticated investor’s view of value, and so arguably not material: If the investor thought the bond was worth 59, and paid 58.25 for it, then why does it matter that the dealer bought it for 57 instead of 58?

Of course you could still make a go of it. That’s sort of the point of Ken Griffin’s op-ed from the other day, arguing that “recent reforms and regulatory pressures have dramatically increased the number of participants who can make prices and provide liquidity across many fixed-income markets.” The bio on that piece says that “Mr. Griffin is the founder and CEO of Citadel LLC, a hedge-fund manager and securities dealer,” and I suspect there was a time when it would have left off the “securities dealer” part. But Citadel realized that when banks won’t make markets, somebody has to, and it might as well be Citadel.

Tragically, Mr. Levine let a shibboleth go by unchallenged:

But one of the most popular solutions for bond-market illiquidity, urged by BlackRock and others, is more electronic trading of bonds. At best, electronic venues would aggregate price and order information in a way that increases price discovery and liquidity. Or they might just lead to a bunch of investors twiddling their thumbs and wishing there were some dealers to make markets.

Sadly, electronic trading of bonds (of anything, in fact) harms liquidity. It’s been proven over and over again.

It was another poor day for the Canadian preferred shares market, with PerpetualDiscounts losing 25bp, FixedResets off 6bp and DeemedRetractibles down 10bp. The Performance Highlights table is lengthy but balanced. Volume was average.

PerpetualDiscounts now yield 5.34%, equivalent to 6.94% at the standard equivalency factor of 1.3x. Long corporates now yield about 4.0%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 295bp, somewhat wider than the 285bp reported July 22.

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_150729
Click for Big

TRP.PR.B, which resets 2020-6-30 at +128, is bid at 14.90 to be $0.62 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.99 cheap at its bid price of 15.20.

impVol_MFC_150729
Click for Big

Another good fit today!

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 22.02 to be 0.30 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 21.75 to be $0.28 cheap.

impVol_BAM_150729
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 18.11 to be $0.94 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 21.83 and appears to be $1.18 rich.

impVol_FTS_150729
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 21.48, looks $0.90 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 20.23 and is $0.86 cheap.

pairs_FR_150729
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of +0.08%, with one outlier above 1.00%. There are no junk outliers.

pairs_FF_150729
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 0.3904 % 2,129.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.3904 % 3,723.2
Floater 3.45 % 3.45 % 57,595 18.62 3 0.3904 % 2,263.7
OpRet 0.00 % 0.00 % 0 0.00 0 0.1469 % 2,785.2
SplitShare 4.57 % 4.75 % 62,512 3.17 3 0.1469 % 3,264.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1469 % 2,546.8
Perpetual-Premium 5.55 % 4.96 % 72,456 2.25 13 -0.0950 % 2,498.4
Perpetual-Discount 5.35 % 5.34 % 85,958 14.82 24 -0.2536 % 2,648.4
FixedReset 4.67 % 3.76 % 212,944 16.12 88 -0.0562 % 2,256.0
Deemed-Retractible 5.08 % 5.18 % 104,905 5.49 34 -0.1014 % 2,597.0
FloatingReset 2.39 % 3.14 % 43,477 6.06 10 0.2127 % 2,277.1
Performance Highlights
Issue Index Change Notes
BAM.PR.X FixedReset -3.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 16.15
Evaluated at bid price : 16.15
Bid-YTW : 4.12 %
IAG.PR.A Deemed-Retractible -2.77 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.46
Bid-YTW : 6.11 %
TRP.PR.C FixedReset -2.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 15.15
Evaluated at bid price : 15.15
Bid-YTW : 3.65 %
BIP.PR.A FixedReset -2.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 21.46
Evaluated at bid price : 21.75
Bid-YTW : 4.94 %
NA.PR.W FixedReset -2.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 3.65 %
HSE.PR.G FixedReset -1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 22.13
Evaluated at bid price : 22.74
Bid-YTW : 4.71 %
BAM.PR.R FixedReset -1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 18.11
Evaluated at bid price : 18.11
Bid-YTW : 4.22 %
HSE.PR.C FixedReset -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 21.49
Evaluated at bid price : 21.77
Bid-YTW : 4.55 %
BAM.PR.B Floater -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 13.95
Evaluated at bid price : 13.95
Bid-YTW : 3.41 %
BAM.PF.E FixedReset -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 21.53
Evaluated at bid price : 21.83
Bid-YTW : 3.99 %
SLF.PR.J FloatingReset -1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.25
Bid-YTW : 6.93 %
BAM.PF.A FixedReset -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 21.92
Evaluated at bid price : 22.25
Bid-YTW : 4.15 %
FTS.PR.J Perpetual-Discount -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 23.37
Evaluated at bid price : 23.75
Bid-YTW : 5.06 %
IFC.PR.A FixedReset 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.30
Bid-YTW : 6.91 %
ENB.PF.C FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 4.80 %
ENB.PR.J FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 18.30
Evaluated at bid price : 18.30
Bid-YTW : 4.77 %
TD.PF.B FixedReset 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 21.83
Evaluated at bid price : 22.20
Bid-YTW : 3.43 %
BMO.PR.S FixedReset 1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 22.08
Evaluated at bid price : 22.55
Bid-YTW : 3.44 %
ENB.PR.D FixedReset 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 4.78 %
ENB.PR.N FixedReset 1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 17.70
Evaluated at bid price : 17.70
Bid-YTW : 4.89 %
ENB.PF.G FixedReset 1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 19.09
Evaluated at bid price : 19.09
Bid-YTW : 4.80 %
MFC.PR.F FixedReset 1.96 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.14
Bid-YTW : 6.89 %
TRP.PR.F FloatingReset 2.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 17.40
Evaluated at bid price : 17.40
Bid-YTW : 3.36 %
IFC.PR.C FixedReset 2.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.30
Bid-YTW : 4.89 %
BAM.PR.C Floater 2.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 13.41
Evaluated at bid price : 13.41
Bid-YTW : 3.55 %
Volume Highlights
Issue Index Shares
Traded
Notes
ENB.PR.Y FixedReset 261,061 TD traded two blocks of 123,000 shares each, both at 17.32.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 17.45
Evaluated at bid price : 17.45
Bid-YTW : 4.70 %
BMO.PR.Z Perpetual-Discount 96,035 New issue settled today
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 23.67
Evaluated at bid price : 24.00
Bid-YTW : 5.22 %
RY.PR.F Deemed-Retractible 92,085 RBC crossed blocks of 43,100 and 40,700, both at 24.96.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 4.06 %
ENB.PF.C FixedReset 71,415 RBC crossed 60,000 at 18.83.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 4.80 %
TRP.PR.C FixedReset 63,670 Desjardins crossed 49,800 at 15.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 15.15
Evaluated at bid price : 15.15
Bid-YTW : 3.65 %
FTS.PR.H FixedReset 51,700 TD crossed 50,000 at 16.55.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 16.43
Evaluated at bid price : 16.43
Bid-YTW : 3.34 %
There were 30 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.N FixedReset Quote: 16.24 – 16.81
Spot Rate : 0.5700
Average : 0.3261

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.24
Bid-YTW : 7.26 %

POW.PR.G Perpetual-Premium Quote: 25.17 – 25.59
Spot Rate : 0.4200
Average : 0.2699

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 24.68
Evaluated at bid price : 25.17
Bid-YTW : 5.59 %

RY.PR.I FixedReset Quote: 24.68 – 25.10
Spot Rate : 0.4200
Average : 0.2766

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.68
Bid-YTW : 3.28 %

GWO.PR.L Deemed-Retractible Quote: 25.31 – 25.79
Spot Rate : 0.4800
Average : 0.3390

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.31
Bid-YTW : 5.43 %

BIP.PR.A FixedReset Quote: 21.75 – 22.25
Spot Rate : 0.5000
Average : 0.3622

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 21.46
Evaluated at bid price : 21.75
Bid-YTW : 4.94 %

CU.PR.E Perpetual-Discount Quote: 23.23 – 23.59
Spot Rate : 0.3600
Average : 0.2266

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 22.89
Evaluated at bid price : 23.23
Bid-YTW : 5.34 %

BMO.PR.Z Whacked Hard On Light Volume; Fire Sale In Progress

July 29th, 2015

Bank of Montreal has announced:

it has closed its domestic public offering of Non-Cumulative Perpetual Class B Preferred Shares, Series 35 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 35″). The offering was underwritten on a bought deal basis by a syndicate of underwriters led by BMO Capital Markets. Bank of Montreal issued 6 million Preferred Shares Series 35 at a price of $25 per share to raise gross proceeds of $150 million.

The Preferred Shares Series 35 were issued under a prospectus supplement dated July 22, 2015, to the Bank’s short form base shelf prospectus dated March 13, 2014. Such shares will commence trading on the Toronto Stock Exchange today under the ticker symbol BMO.PR.Z.

Z is for Zombie. I have been advised that the underwriters aren’t wasting any time blowing it out of inventory – it’s being reoffered at 23.75.

BMO.PR.Z is a Straight Perpetual, 5.00%, NVCC-compliant issue, announced July 20. It will be tracked by HIMIPref™ and has been assigned to the PerpetualDiscount sub-index.

The issue traded 96,035 shares today in a range of 24.01-25 before closing at 24.00-01, 45×98. Vital statistics are:

BMO.PR.Z Perpetual-Discount YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-29
Maturity Price : 23.67
Evaluated at bid price : 24.00
Bid-YTW : 5.22 %

EMA.PR.A: Convert or Hold?

July 28th, 2015

It will be recalled that EMA.PR.A will reset to 2.555% effective August 15.

Holders of EMA.PR.A have the option to convert to FloatingResets, which will pay 3-month bills plus 184bp on the par value of $25.00. The deadline for notifying the company of the intent to convert is July 31 at 5pm; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., EMA.PR.A and the FloatingReset, EMA.PR.?, that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_FR_150728
Click for Big

The market appears to have a distaste at the moment for floating rate product; almost all of the implied rates until the next interconversion are lower than the current 3-month bill rate and the average for both investment-grade and junk issues is not far above zero! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the EMA.PR.A FixedReset, we may construct the following table showing consistent prices for its soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of EMA.PR.? FloatingReset Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread -0.25% 0.00% +0.25%
EMA.PR.A 15.10 184bp 14.10 14.36 14.62

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of EMA.PR.A continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the future path of policy rates. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Note as well that conversion rights are dependent upon at least one million shares of each series being outstanding after giving effect to holders’ instructions; e.g., if only 100,000 shares of EMA.PR.A are tendered for conversion, then no conversions will be allowed; but if only 100,000 shares of EMA.PR.A will remain after the rest are all tendered, then conversion will be mandatory. However, this is relatively rare: all 29 Strong Pairs currently extant have some version of this condition and all but two have both series outstanding.

July 28, 2015

July 28th, 2015

Nothing happened today, either. BORING!

It was another rotten day for the Canadian preferred share market, with PerpetualDiscounts losing 28bp, FixedResets off 4bp and DeemedRetractibles down 19bp. The Performance Highlights table is predictably lengthy. 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_150728
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 21.67 to be $0.56 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.83 cheap at its bid price of 15.50.

impVol_MFC_150728
Click for Big

Another good fit today!

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 22.01 to be $0.37 rich, while MFC.PR.M, resetting at +236bp on 2019-12-19, is bid at 22.32 to be $0.35 cheap.

impVol_BAM_150728
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 18.41 to be $0.85 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 22.10 and appears to be $1.26 rich.

impVol_FTS_150728
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 21.55, looks $0.90 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 20.36 and is $0.79 cheap.

pairs_FR_150728
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.01%, with one outlier above 1.00%. There are no junk outliers.

pairs_FF_150728
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 0.2446 % 2,121.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.2446 % 3,708.7
Floater 3.46 % 3.47 % 57,220 18.59 3 0.2446 % 2,254.9
OpRet 0.00 % 0.00 % 0 0.00 0 0.1070 % 2,781.1
SplitShare 4.57 % 4.91 % 62,461 3.17 3 0.1070 % 3,259.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1070 % 2,543.0
Perpetual-Premium 5.55 % 5.09 % 70,069 2.25 13 -0.1530 % 2,500.8
Perpetual-Discount 5.35 % 5.38 % 85,562 14.82 23 -0.2808 % 2,655.2
FixedReset 4.66 % 3.78 % 213,402 16.20 88 -0.0368 % 2,257.3
Deemed-Retractible 5.07 % 5.22 % 105,889 5.48 34 -0.1870 % 2,599.6
FloatingReset 2.39 % 3.17 % 43,706 6.04 10 0.4564 % 2,272.2
Performance Highlights
Issue Index Change Notes
HSE.PR.C FixedReset -2.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 21.73
Evaluated at bid price : 22.10
Bid-YTW : 4.47 %
BAM.PR.Z FixedReset -2.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 22.22
Evaluated at bid price : 22.57
Bid-YTW : 4.17 %
ENB.PR.P FixedReset -1.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 17.10
Evaluated at bid price : 17.10
Bid-YTW : 4.90 %
NA.PR.W FixedReset -1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 21.44
Evaluated at bid price : 21.70
Bid-YTW : 3.55 %
PWF.PR.K Perpetual-Discount -1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 23.19
Evaluated at bid price : 23.49
Bid-YTW : 5.28 %
NA.PR.S FixedReset -1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 22.16
Evaluated at bid price : 22.67
Bid-YTW : 3.51 %
ENB.PR.N FixedReset -1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 17.40
Evaluated at bid price : 17.40
Bid-YTW : 4.98 %
IGM.PR.B Perpetual-Premium -1.41 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.25
Evaluated at bid price : 25.26
Bid-YTW : 5.83 %
ENB.PR.Y FixedReset -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 17.36
Evaluated at bid price : 17.36
Bid-YTW : 4.72 %
BAM.PR.M Perpetual-Discount -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 21.02
Evaluated at bid price : 21.02
Bid-YTW : 5.72 %
MFC.PR.C Deemed-Retractible -1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.02
Bid-YTW : 6.28 %
SLF.PR.H FixedReset -1.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.26
Bid-YTW : 6.24 %
ENB.PR.T FixedReset -1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 4.86 %
SLF.PR.B Deemed-Retractible -1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.14
Bid-YTW : 5.92 %
BMO.PR.S FixedReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 22.05
Evaluated at bid price : 22.51
Bid-YTW : 3.51 %
HSB.PR.C Deemed-Retractible -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.76
Bid-YTW : 5.38 %
SLF.PR.A Deemed-Retractible -1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.00
Bid-YTW : 5.95 %
BMO.PR.M FixedReset -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 : 3.16 %
CU.PR.G Perpetual-Discount 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 21.83
Evaluated at bid price : 22.11
Bid-YTW : 5.15 %
BAM.PR.X FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 16.72
Evaluated at bid price : 16.72
Bid-YTW : 3.97 %
HSE.PR.E FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 22.75
Evaluated at bid price : 23.90
Bid-YTW : 4.43 %
TRP.PR.G FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 22.50
Evaluated at bid price : 23.45
Bid-YTW : 3.86 %
BAM.PR.B Floater 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 14.13
Evaluated at bid price : 14.13
Bid-YTW : 3.37 %
BAM.PF.F FixedReset 1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 22.47
Evaluated at bid price : 23.26
Bid-YTW : 3.95 %
ELF.PR.F Perpetual-Discount 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 24.22
Evaluated at bid price : 24.51
Bid-YTW : 5.44 %
SLF.PR.I FixedReset 1.83 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.43
Bid-YTW : 4.39 %
TRP.PR.H FloatingReset 2.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 15.25
Evaluated at bid price : 15.25
Bid-YTW : 2.77 %
IFC.PR.C FixedReset 2.78 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.85
Bid-YTW : 5.15 %
IAG.PR.A Deemed-Retractible 3.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.10
Bid-YTW : 5.73 %
TRP.PR.F FloatingReset 5.83 % Reverses yesterday‘s nonsense.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 17.05
Evaluated at bid price : 17.05
Bid-YTW : 3.42 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.C FixedReset 253,521 TD crossed blocks of 150,000 shares, 40,000 and 52,200, all at 15.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 15.50
Evaluated at bid price : 15.50
Bid-YTW : 3.56 %
TD.PF.E FixedReset 77,136 RBC crossed 75,000 at 24.80.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 23.04
Evaluated at bid price : 24.70
Bid-YTW : 3.47 %
TRP.PR.H FloatingReset 67,350 National bought 11,200 shares from anonymous at 15.50, then two blocks of 10,000 each and one of 25,700 from TD, all at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 15.25
Evaluated at bid price : 15.25
Bid-YTW : 2.77 %
HSE.PR.A FixedReset 33,237 Desjardins crossed 27,100 at 15.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 15.51
Evaluated at bid price : 15.51
Bid-YTW : 3.97 %
HSE.PR.G FixedReset 31,537 RBC bought 12,100 from TD at 23.21.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 22.39
Evaluated at bid price : 23.19
Bid-YTW : 4.60 %
RY.PR.Z FixedReset 20,156 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 21.91
Evaluated at bid price : 22.30
Bid-YTW : 3.37 %
There were 23 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PF.A FixedReset Quote: 22.05 – 22.78
Spot Rate : 0.7300
Average : 0.4805

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 21.71
Evaluated at bid price : 22.05
Bid-YTW : 3.47 %

CU.PR.D Perpetual-Discount Quote: 23.09 – 23.69
Spot Rate : 0.6000
Average : 0.3736

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 22.76
Evaluated at bid price : 23.09
Bid-YTW : 5.38 %

TD.PF.B FixedReset Quote: 21.95 – 22.45
Spot Rate : 0.5000
Average : 0.2987

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 21.65
Evaluated at bid price : 21.95
Bid-YTW : 3.48 %

BAM.PR.C Floater Quote: 13.12 – 13.92
Spot Rate : 0.8000
Average : 0.6261

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 13.12
Evaluated at bid price : 13.12
Bid-YTW : 3.63 %

RY.PR.M FixedReset Quote: 23.80 – 24.40
Spot Rate : 0.6000
Average : 0.4319

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-28
Maturity Price : 22.67
Evaluated at bid price : 23.80
Bid-YTW : 3.41 %

MFC.PR.K FixedReset Quote: 21.75 – 22.29
Spot Rate : 0.5400
Average : 0.4054

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.75
Bid-YTW : 5.00 %

July 27, 2015

July 28th, 2015

Nothing happened today.

It was a horrid day for the Canadian preferred share market, with PerpetualDiscounts down 56bp, FixedResets losing 71bp and DeemedRetractibles off 27bp. A very lengthy Performance Highlights table is dominated by losers. 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_150727
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 21.70 to be $0.67 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.93 cheap at its bid price of 15.40.

impVol_MFC_150727
Click for Big

Another good fit today!

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 22.06 to be $0.40 rich, while MFC.PR.M, resetting at +236bp on 2019-12-19, is bid at 22.12 to be $0.60 cheap.

impVol_BAM_150727
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 18.30 to be $0.86 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 22.20 and appears to be $1.42 rich.

impVol_FTS_150727
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 21.37, looks $0.76 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 20.44 and is $0.68 cheap.

pairs_FR_150727
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.11%, with one outlier below -1.00% (and even then, only with the help of a dummy bid!). There are no junk outliers.

pairs_FF_150727
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 0.0979 % 2,115.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0979 % 3,699.6
Floater 3.47 % 3.47 % 59,232 18.59 3 0.0979 % 2,249.4
OpRet 0.00 % 0.00 % 0 0.00 0 0.0669 % 2,778.1
SplitShare 4.58 % 4.87 % 62,717 3.17 3 0.0669 % 3,255.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0669 % 2,540.3
Perpetual-Premium 5.54 % 5.04 % 70,203 4.13 13 -0.0917 % 2,504.7
Perpetual-Discount 5.34 % 5.33 % 89,167 14.84 23 -0.5602 % 2,662.6
FixedReset 4.66 % 3.72 % 216,014 16.27 88 -0.7114 % 2,258.1
Deemed-Retractible 5.06 % 4.98 % 106,723 5.50 34 -0.2719 % 2,604.5
FloatingReset 2.40 % 3.09 % 43,352 6.05 10 -0.8626 % 2,261.9
Performance Highlights
Issue Index Change Notes
TRP.PR.F FloatingReset -5.29 % Not real; the issue traded 10,456 shares today in a range of 16.98-10 and the Toronto Stock Exchange reports “No Bid” on their closing quotations (so I have input a dummy bid $1.00 below the ask). I have not checked whether this lamentable state of affairs is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 16.11
Evaluated at bid price : 16.11
Bid-YTW : 3.63 %
IFC.PR.C FixedReset -4.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.26
Bid-YTW : 5.50 %
BAM.PR.X FixedReset -3.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 16.55
Evaluated at bid price : 16.55
Bid-YTW : 4.01 %
MFC.PR.M FixedReset -3.62 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.12
Bid-YTW : 5.06 %
TRP.PR.G FixedReset -3.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 22.36
Evaluated at bid price : 23.18
Bid-YTW : 3.92 %
IAG.PR.A Deemed-Retractible -2.61 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.41
Bid-YTW : 6.13 %
ENB.PF.A FixedReset -2.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 18.55
Evaluated at bid price : 18.55
Bid-YTW : 4.86 %
IFC.PR.A FixedReset -2.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.02
Bid-YTW : 7.11 %
BAM.PR.C Floater -2.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 13.21
Evaluated at bid price : 13.21
Bid-YTW : 3.60 %
NA.PR.S FixedReset -2.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 22.36
Evaluated at bid price : 23.00
Bid-YTW : 3.44 %
ENB.PF.E FixedReset -1.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 18.61
Evaluated at bid price : 18.61
Bid-YTW : 4.89 %
ENB.PR.J FixedReset -1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 18.19
Evaluated at bid price : 18.19
Bid-YTW : 4.80 %
CU.PR.G Perpetual-Discount -1.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 21.59
Evaluated at bid price : 21.89
Bid-YTW : 5.20 %
BIP.PR.A FixedReset -1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 21.75
Evaluated at bid price : 22.15
Bid-YTW : 4.84 %
RY.PR.H FixedReset -1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 21.79
Evaluated at bid price : 22.15
Bid-YTW : 3.44 %
TD.PF.E FixedReset -1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 22.97
Evaluated at bid price : 24.51
Bid-YTW : 3.51 %
CU.PR.F Perpetual-Discount -1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 21.55
Evaluated at bid price : 21.83
Bid-YTW : 5.22 %
ENB.PR.N FixedReset -1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 17.65
Evaluated at bid price : 17.65
Bid-YTW : 4.91 %
MFC.PR.F FixedReset -1.47 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.80
Bid-YTW : 7.14 %
TD.PF.C FixedReset -1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 21.45
Evaluated at bid price : 21.72
Bid-YTW : 3.51 %
BNS.PR.D FloatingReset -1.39 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.30
Bid-YTW : 3.95 %
BAM.PF.C Perpetual-Discount -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 21.31
Evaluated at bid price : 21.31
Bid-YTW : 5.76 %
ENB.PF.G FixedReset -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 18.76
Evaluated at bid price : 18.76
Bid-YTW : 4.89 %
BMO.PR.W FixedReset -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 21.55
Evaluated at bid price : 21.84
Bid-YTW : 3.51 %
BAM.PR.T FixedReset -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 18.65
Evaluated at bid price : 18.65
Bid-YTW : 4.18 %
POW.PR.D Perpetual-Discount -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 23.09
Evaluated at bid price : 23.35
Bid-YTW : 5.39 %
ENB.PR.P FixedReset -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 17.44
Evaluated at bid price : 17.44
Bid-YTW : 4.80 %
SLF.PR.I FixedReset -1.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.01
Bid-YTW : 4.62 %
RY.PR.Z FixedReset -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 21.87
Evaluated at bid price : 22.25
Bid-YTW : 3.38 %
ENB.PR.T FixedReset -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 4.80 %
BAM.PF.A FixedReset -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 22.04
Evaluated at bid price : 22.42
Bid-YTW : 4.11 %
TD.PF.A FixedReset -1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 21.73
Evaluated at bid price : 22.08
Bid-YTW : 3.46 %
SLF.PR.E Deemed-Retractible -1.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.18
Bid-YTW : 6.16 %
PWF.PR.S Perpetual-Discount -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 22.75
Evaluated at bid price : 23.05
Bid-YTW : 5.22 %
RY.PR.O Perpetual-Discount -1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 23.86
Evaluated at bid price : 24.20
Bid-YTW : 5.08 %
BAM.PR.R FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 18.30
Evaluated at bid price : 18.30
Bid-YTW : 4.18 %
SLF.PR.C Deemed-Retractible -1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.01
Bid-YTW : 6.21 %
BMO.PR.Q FixedReset -1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.02
Bid-YTW : 3.62 %
BMO.PR.M FixedReset -1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.90
Bid-YTW : 2.99 %
TRP.PR.C FixedReset -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 15.35
Evaluated at bid price : 15.35
Bid-YTW : 3.60 %
HSE.PR.G FixedReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 22.42
Evaluated at bid price : 23.26
Bid-YTW : 4.58 %
SLF.PR.H FixedReset -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.50
Bid-YTW : 6.07 %
FTS.PR.K FixedReset 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 21.37
Evaluated at bid price : 21.37
Bid-YTW : 3.44 %
BAM.PR.K Floater 1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 13.71
Evaluated at bid price : 13.71
Bid-YTW : 3.47 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.H FixedReset 120,914 TD crossed 110,000 at 16.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 16.40
Evaluated at bid price : 16.40
Bid-YTW : 3.35 %
TRP.PR.B FixedReset 100,361 TD crossed 92,400 at 15.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 14.91
Evaluated at bid price : 14.91
Bid-YTW : 3.31 %
PWF.PR.T FixedReset 99,242 RBC crossed 70,000 at 24.65; TD crossed 24,400 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 23.18
Evaluated at bid price : 24.65
Bid-YTW : 3.12 %
TRP.PR.D FixedReset 47,545 RBC crossed 25,000 at 21.15.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 21.10
Evaluated at bid price : 21.10
Bid-YTW : 3.79 %
BAM.PR.Z FixedReset 36,803 TD crossed 25,000 at 23.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 22.54
Evaluated at bid price : 23.05
Bid-YTW : 4.06 %
TD.PF.E FixedReset 34,679 RBC crossed 24,900 at 24.80.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 22.97
Evaluated at bid price : 24.51
Bid-YTW : 3.51 %
There were 33 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IFC.PR.C FixedReset Quote: 21.26 – 22.39
Spot Rate : 1.1300
Average : 0.6807

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.26
Bid-YTW : 5.50 %

TRP.PR.F FloatingReset Quote: 16.11 – 17.11
Spot Rate : 1.0000
Average : 0.6391

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 16.11
Evaluated at bid price : 16.11
Bid-YTW : 3.63 %

MFC.PR.M FixedReset Quote: 22.12 – 22.88
Spot Rate : 0.7600
Average : 0.4740

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.12
Bid-YTW : 5.06 %

IAG.PR.A Deemed-Retractible Quote: 22.41 – 23.01
Spot Rate : 0.6000
Average : 0.4209

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.41
Bid-YTW : 6.13 %

BAM.PR.X FixedReset Quote: 16.55 – 17.00
Spot Rate : 0.4500
Average : 0.2913

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 16.55
Evaluated at bid price : 16.55
Bid-YTW : 4.01 %

BAM.PF.F FixedReset Quote: 22.94 – 23.49
Spot Rate : 0.5500
Average : 0.3915

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-27
Maturity Price : 22.29
Evaluated at bid price : 22.94
Bid-YTW : 4.02 %

New Issue: CU Straight Perpetual, 5.25%

July 27th, 2015

Canadian Utilities has announced:

it has entered into an agreement with a syndicate of underwriters co-led by BMO Capital Markets and RBC Capital Markets, and including TD Securities Inc., Scotiabank, CIBC, Canaccord Genuity Corp., and GMP Securities L.P. The underwriters have agreed to buy 5,000,000 5.25% Cumulative Redeemable Second Preferred Shares Series EE at a price of $25.00 per share for aggregate gross proceeds of $125,000,000. The proceeds will be used for capital expenditures, to repay indebtedness and for other general corporate purposes.

Canadian Utilities Limited has granted the underwriters an option to purchase at the offering price an additional 2,000,000 Series EE Preferred Shares exercisable in whole or in part at any time up to 7:00 AM (Calgary time) on the date that is two business days prior to closing. Should the option be fully exercised, the total gross proceeds of the Series EE Preferred Share offering will be $175,000,000.

The Series EE Preferred Shares will be issued to the public at a price of $25.00 per share and holders will be entitled to receive fixed cumulative preferential cash dividends, payable quarterly as and when declared by the Board of Directors of the Corporation at an annual rate of $1.3125 per share, to yield 5.25% annually. On or after September 1, 2020, the Corporation may redeem the Series EE Preferred Shares in whole or in part from time to time, at $26.00 per share if redeemed during the 12 months commencing September 1, 2020, at $25.75 per share if redeemed during the 12 months commencing September 1, 2021, at $25.50 per share if redeemed during the 12 months commencing September 1, 2022, at $25.25 per share if redeemed during the 12 months commencing September 1, 2023, and at $25.00 per share if redeemed on or after September 1, 2024.

The offering is being made only in the provinces of Canada by means of a prospectus supplement and the closing date of the issue is expected to be on or about August 7, 2015.

Implied Volatility theory suggests that this issue is somewhat expensive – the company has, as is often the case, priced the issue so that it yields the same as issues trading at a discount, thus assigning a value of zero to the ill effects of negative convexity.

impVol_CU_150727
Click for Big

July 24, 2015

July 24th, 2015

Years of back-door largesse are having an effect on Chicago’s municipal pension plan:

A plan to ease Chicago’s $20 billion public-worker pension deficit is illegal, an Illinois judge ruled, leaving the city vulnerable to another credit downgrade.

Immediately after the ruling, Standard & Poor’s said it would probably lower the city’s rating again if a solution isn’t found. S&P already cut Chicago’s rating earlier this month to BBB+, or three levels above junk.

The Illinois Constitution bars the diminishing of public pensions, state court judge Rita Novak ruled Friday. The Illinois Supreme Court in May killed similar changes to the state’s pension funds.

The pension system in Chicago is $20 billion short and is only 36 percent funded, compared with 61 percent in 2005.

It’s not just equities that are getting nailed:

A plunge in commodities is pushing investors to the sidelines as they look to sell their most vulnerable holdings, while treading cautiously around new offerings. With oil prices slumping below $48, energy bonds have lost 5.3 percent this month, and debt linked to metals and mining companies have handed lenders declines of more than 8 percent.

Leveraged loans, which are repaid before junk bonds, haven’t been immune to the turmoil. Prices of the debt have fallen to 94.5 cents on the dollar, the lowest since December, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index.

This provides some company for the loonie:

Bank of Canada Governor Stephen Poloz has sparked a fire sale on the Canadian dollar.

The currency plunged as much as 0.5 percent to C$1.3103 against its U.S. counterpart, the lowest on an intraday basis since September 2004. It fell after a private gauge of Chinese manufacturing dropped to the lowest in 15 months, signaling decreased commodities demand.

The Canadian currency fell 0.2 percent to C$1.3066 versus the U.S. dollar as of 11:57 a.m. in Toronto. That’s weaker than C$1.29, the median year-end estimate of analysts and strategists surveyed by Bloomberg. The loonie is poised for a 4.6 percent decline this month.

Traders are still pricing in the chance of another interest-rate cut, though these expectations have moderated in the last week. Trading in overnight index swaps show an implied policy rate of 0.39 percent in six months, compared to the Bank of Canada’s current 0.5 percent, Bloomberg calculations show. Last week they were pricing a rate of 0.36 percent.

There will be a major new investment management firm in the States … led by Hillary Clinton! The firm’s gimmick will be an emphasis on long-term investment; I think the marketing slogan will be ‘Buy, Hold and Prosper’:

Hillary Clinton sharpened her criticism against what she sees as Wall Street excess by targeting investors who demand short-term corporate measures like share buybacks and dividends to pump up a company’s stock price.

“We need a new generation of committed, long-term investors to provide a counter-weight to the hit-and-run activists,” the Democratic presidential candidate said Friday in a speech at New York University’s Stern School of Business. She contrasted her favored approach with investors who agitate for immediate change “no matter how much it discourages and distracts management from pursuing strategies that would add the most long-term value.”

“Real value comes from long-term growth, not short-term profits,” said Clinton, 67. “It comes from building companies, not stripping them; from creating good jobs, not eliminating them; from seeing workers as assets to cultivate, not costs to be cut.”

Clinton is proposing that the top 43.4 percent tax rate on short-term capital gains be extended to apply to assets held for less than two years, compared with the current one-year threshold. Beyond that, she would implement a sliding scale of long-term capital gains rates, and taxpayers in the top bracket would have to keep holdings for at least six years to get today’s rate of 23.8 percent, which would remain the lowest available.

With a top investment manager like Clinton in charge, performance at this new firm is virtually certain to be better than that at all the firms run by dummies. Where do I send my money?

Geez, I haven’t mentioned drones since May 5; it’s a good thing there’s a Bloomberg piece on drone traffic control:

Google Inc., the company that brought order to the Internet, has set its sights on doing the same for the flocks of commercial drones expected to someday clog the skies.

The search-engine pioneer is joining some of the biggest companies in technology, communications and aviation — including Amazon.com Inc., Verizon Communications Inc. and Harris Corp. — in trying to create an air-traffic control system to prevent mid-air collisions.

But don’t expect a big federally operated network of control towers. The government hasn’t said who will run the system or how it will operate, and is asking for ideas.

At least 14 companies, including Google, Amazon, Verizon and Harris, have signed agreements with NASA to help devise the first air-traffic system to coordinate small, low-altitude drones, which the agency calls the Unmanned Aerial System Traffic Management. More than 100 other companies and universities have also expressed interest in the project, which will be needed before commercial drones can fly long distances to deliver goods, inspect power lines and survey crops.

PrecisionHawk, a Raleigh, North Carolina, drone company with about 100 employees, began developing its own drone traffic control system because the large agriculture and oil companies it flies for wanted something to keep tabs on unmanned flights. “Our clients need it,” Tyler Collins, the program’s director, said.

In a recent demonstration over a North Carolina cattle farm, Collins and his team intentionally steered a quad-copter drone toward an imagined crop duster at work on an adjacent farm, the kind of hazardous scenario PrecisionHawk employees have seen in the real world.

Within seconds an alert popped up on the operator’s smartwatch: “WARNING, nearing no-fly zone.” When the operator ignored the warning, an autopilot took over and flew the whirring machine back to safety.

PrecisionHawk’s system can automatically block its drones from flying into danger, such as around airports and other aircraft. And it makes a drone’s real-time flight track available so others can stay away.

CU Inc., proud issuer of CIU.PR.A and CIU.PR.C, has announced:

it will issue $400,000,000 of 3.964% Debentures maturing on July 27, 2045, at a price of $100.00 to yield 3.964%. This issue was sold by BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., TD Securities Inc., Scotia Capital Inc. and CIBC World Markets Inc. Proceeds from the issue will be used to finance capital expenditures, to repay existing indebtedness, and for other general corporate purposes of ATCO Electric Ltd. and ATCO Gas and Pipelines Ltd.

CIU.PR.A is a PerpetualDiscount yielding 5.11% at today’s bid price of 22.77; the interest-equivalent is 6.64%, a spread of 268bp over these new long bonds.

It was a poor day for the Canadian preferred share market, with PerpetualDiscounts flat, FixedResets down 40bp and DeemedRetractibles off 11bp. The Performance Highlights table is its usual exaggerated length. 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_150724
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TRP.PR.B, which resets 2020-6-30 at +128, is bid at 14.98 to be $0.62 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.74 cheap at its bid price of 15.50.

impVol_MFC_150724
Click for Big

Another good fit today!

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 22.05 to be $0.18 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 22.00 to be $0.19 cheap.

impVol_BAM_150724
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 18.50 to be $0.88 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 22.10 and appears to be $1.12 rich.

impVol_FTS_150724
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 21.10, looks $0.51 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 20.45 and is $0.66 cheap.

pairs_FR_150724A
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of 0.07%, with no outliers. There are two junk outliers, one above +1.00% and one below -1.00%.

pairs_FF_150724
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 0.0000 % 2,113.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0000 % 3,696.0
Floater 3.47 % 3.52 % 60,052 18.47 3 0.0000 % 2,247.2
OpRet 0.00 % 0.00 % 0 0.00 0 0.0535 % 2,776.3
SplitShare 4.58 % 4.93 % 63,595 3.18 3 0.0535 % 3,253.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0535 % 2,538.6
Perpetual-Premium 5.53 % 4.94 % 70,321 2.27 13 -0.0336 % 2,506.9
Perpetual-Discount 5.31 % 5.31 % 92,888 14.90 23 -0.0037 % 2,677.6
FixedReset 4.63 % 3.79 % 213,536 16.11 88 -0.3952 % 2,274.3
Deemed-Retractible 5.05 % 4.92 % 106,941 3.30 34 -0.1106 % 2,611.6
FloatingReset 2.36 % 3.06 % 43,624 6.06 10 -0.1553 % 2,281.6
Performance Highlights
Issue Index Change Notes
FTS.PR.G FixedReset -2.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 20.45
Evaluated at bid price : 20.45
Bid-YTW : 3.71 %
BAM.PR.Z FixedReset -2.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 22.53
Evaluated at bid price : 23.03
Bid-YTW : 4.14 %
ENB.PR.J FixedReset -2.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 18.55
Evaluated at bid price : 18.55
Bid-YTW : 4.79 %
HSE.PR.A FixedReset -2.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 15.81
Evaluated at bid price : 15.81
Bid-YTW : 4.02 %
BAM.PR.T FixedReset -2.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 18.89
Evaluated at bid price : 18.89
Bid-YTW : 4.22 %
FTS.PR.K FixedReset -1.86 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 21.10
Evaluated at bid price : 21.10
Bid-YTW : 3.57 %
TRP.PR.F FloatingReset -1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 17.01
Evaluated at bid price : 17.01
Bid-YTW : 3.40 %
HSE.PR.E FixedReset -1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 22.64
Evaluated at bid price : 23.65
Bid-YTW : 4.55 %
HSE.PR.C FixedReset -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 21.94
Evaluated at bid price : 22.40
Bid-YTW : 4.47 %
ENB.PF.G FixedReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 4.90 %
MFC.PR.K FixedReset -1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 4.90 %
ELF.PR.G Perpetual-Discount -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 22.07
Evaluated at bid price : 22.30
Bid-YTW : 5.35 %
SLF.PR.J FloatingReset -1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.42
Bid-YTW : 6.77 %
BMO.PR.S FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 22.33
Evaluated at bid price : 22.95
Bid-YTW : 3.50 %
CM.PR.Q FixedReset -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 22.82
Evaluated at bid price : 24.11
Bid-YTW : 3.56 %
POW.PR.D Perpetual-Discount -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 23.36
Evaluated at bid price : 23.65
Bid-YTW : 5.31 %
BAM.PR.M Perpetual-Discount 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 21.18
Evaluated at bid price : 21.18
Bid-YTW : 5.67 %
BAM.PF.C Perpetual-Discount 1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 21.31
Evaluated at bid price : 21.60
Bid-YTW : 5.66 %
BAM.PR.N Perpetual-Discount 2.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 5.59 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.B FixedReset 110,982 TD crossed 99,200 at 14.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 14.98
Evaluated at bid price : 14.98
Bid-YTW : 3.40 %
TRP.PR.C FixedReset 105,026 TD crossed 100,000 at 15.28.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 15.51
Evaluated at bid price : 15.51
Bid-YTW : 3.69 %
BAM.PF.F FixedReset 94,553 Desjardins crossed 94,000 at 23.25.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 22.40
Evaluated at bid price : 23.12
Bid-YTW : 4.05 %
IFC.PR.A FixedReset 77,200 Nesbitt crossed 67,500 at 18.65.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.44
Bid-YTW : 6.86 %
RY.PR.O Perpetual-Discount 70,078 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 24.12
Evaluated at bid price : 24.48
Bid-YTW : 5.02 %
RY.PR.A Deemed-Retractible 61,566 RBC crossed 50,000 at 24.97.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-08-23
Maturity Price : 25.00
Evaluated at bid price : 24.92
Bid-YTW : 3.79 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.B FixedReset Quote: 14.98 – 15.74
Spot Rate : 0.7600
Average : 0.4321

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 14.98
Evaluated at bid price : 14.98
Bid-YTW : 3.40 %

MFC.PR.L FixedReset Quote: 22.05 – 22.99
Spot Rate : 0.9400
Average : 0.7237

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.05
Bid-YTW : 4.97 %

BAM.PR.N Perpetual-Discount Quote: 21.50 – 22.05
Spot Rate : 0.5500
Average : 0.3722

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 5.59 %

FTS.PR.G FixedReset Quote: 20.45 – 21.20
Spot Rate : 0.7500
Average : 0.5741

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 20.45
Evaluated at bid price : 20.45
Bid-YTW : 3.71 %

BAM.PR.Z FixedReset Quote: 23.03 – 23.59
Spot Rate : 0.5600
Average : 0.4147

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 22.53
Evaluated at bid price : 23.03
Bid-YTW : 4.14 %

CM.PR.Q FixedReset Quote: 24.11 – 24.75
Spot Rate : 0.6400
Average : 0.5014

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-07-24
Maturity Price : 22.82
Evaluated at bid price : 24.11
Bid-YTW : 3.56 %