November 18, 2011

There has been an interesting paper published by John (Xuefeng) Jiang, Mary Harris Stanford and Yuan Xie titled Does it Matter Who Pays for Bond Ratings? Historical Evidence:

We test whether Standard and Poor’s (S&P) assigns higher bond ratings after it switches from investor-pay to issuer-pay fees in 1974. Using Moody’s rating for the same bond as a benchmark, we find that when S&P charges investors and Moody’s charges issuers, S&P’s ratings are lower than Moody’s. Once S&P adopts issuer-pay, its ratings increase and no longer differ from Moody’s. More importantly, S&P only assigns higher ratings for bonds that are subject to greater conflicts of interest, measured by higher expected rating fees or lower credit quality. These findings suggest that the issuer-pay model leads to higher ratings.

It was a mildly good day for the Canadian preferred share market, with PerpetualDiscounts up 2bp, FixedResets gaining 4bp and DeemedRetractibles winning 10bp. There were only four entries on the Performance Highlights table, but they were all winners. Volume was extremely low.

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

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.0643 % 2,131.1
FixedFloater 4.81 % 4.52 % 28,695 17.25 1 0.0000 % 3,203.7
Floater 3.38 % 3.39 % 156,508 18.72 2 -0.0643 % 2,301.0
OpRet 4.94 % 1.98 % 51,820 1.49 7 0.0493 % 2,489.5
SplitShare 5.78 % 6.33 % 55,707 5.18 3 0.6955 % 2,537.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0493 % 2,276.4
Perpetual-Premium 5.57 % -0.61 % 102,124 0.13 13 0.0225 % 2,157.6
Perpetual-Discount 5.30 % 5.31 % 101,968 14.77 17 0.0169 % 2,299.1
FixedReset 5.10 % 2.96 % 225,466 2.49 63 0.0375 % 2,351.1
Deemed-Retractible 5.03 % 4.40 % 206,159 3.65 46 0.1035 % 2,223.0
Performance Highlights
Issue Index Change Notes
ELF.PR.F Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-11-18
Maturity Price : 22.80
Evaluated at bid price : 23.09
Bid-YTW : 5.80 %
HSB.PR.C Deemed-Retractible 1.11 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-30
Maturity Price : 25.25
Evaluated at bid price : 25.55
Bid-YTW : 4.75 %
BNA.PR.C SplitShare 1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 21.59
Bid-YTW : 6.79 %
SLF.PR.E Deemed-Retractible 1.42 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.46
Bid-YTW : 6.54 %
Volume Highlights
Issue Index Shares
Traded
Notes
SLF.PR.I FixedReset 54,750 Recent new issue.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-12-31
Maturity Price : 25.00
Evaluated at bid price : 24.63
Bid-YTW : 4.39 %
RY.PR.R FixedReset 53,400 Scotia crossed 50,000 at 27.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 27.00
Bid-YTW : 2.57 %
ENB.PR.B FixedReset 40,059 RBC crossed 12,000 at 25.40.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-11-18
Maturity Price : 23.26
Evaluated at bid price : 25.40
Bid-YTW : 3.68 %
CM.PR.E Perpetual-Discount 32,876 TD crossed 10,000 at 25.05.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-11-18
Maturity Price : 24.73
Evaluated at bid price : 25.04
Bid-YTW : 5.63 %
CM.PR.G Perpetual-Discount 32,725 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-11-18
Maturity Price : 24.52
Evaluated at bid price : 24.85
Bid-YTW : 5.47 %
RY.PR.Y FixedReset 31,621 Scotia crossed 25,000 at 27.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-11-24
Maturity Price : 25.00
Evaluated at bid price : 27.45
Bid-YTW : 2.68 %
There were 15 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BMO.PR.P FixedReset Quote: 26.87 – 27.18
Spot Rate : 0.3100
Average : 0.1843

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.87
Bid-YTW : 2.97 %

BAM.PR.K Floater Quote: 15.50 – 15.94
Spot Rate : 0.4400
Average : 0.3345

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-11-18
Maturity Price : 15.50
Evaluated at bid price : 15.50
Bid-YTW : 3.42 %

ELF.PR.F Perpetual-Discount Quote: 23.09 – 23.43
Spot Rate : 0.3400
Average : 0.2540

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-11-18
Maturity Price : 22.80
Evaluated at bid price : 23.09
Bid-YTW : 5.80 %

POW.PR.D Perpetual-Discount Quote: 24.70 – 24.97
Spot Rate : 0.2700
Average : 0.1849

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-11-18
Maturity Price : 24.40
Evaluated at bid price : 24.70
Bid-YTW : 5.11 %

IAG.PR.F Deemed-Retractible Quote: 26.05 – 26.35
Spot Rate : 0.3000
Average : 0.2164

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 5.50 %

FTS.PR.G FixedReset Quote: 25.70 – 25.97
Spot Rate : 0.2700
Average : 0.2111

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-11-18
Maturity Price : 23.88
Evaluated at bid price : 25.70
Bid-YTW : 3.44 %

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