April 18, 2012

Chapter 4 of the IMF Global Financial Stability Report is a fascinating review of longevity risk:

Private pension providers and governments are particularly exposed to longevity risk and this risk is greatly increased in the current low-interest-rate environment. In line with other estimates in the literature, the analysis in this chapter finds that the liabilities of U.S. pension plans would rise by 9 percent for a three-year increase in longevity. Governments may be even more exposed: many not only sponsor defined benefit pension plans for their employees, but maintain extensive old-age social security systems covering most of the population. In addition, the government is likely liable for the “tail” of longevity risk: in the case of a longevity shock affecting the entire population, the private sector would likely be overwhelmed by the financial consequences. In that case, the losses are likely to be assumed by the government in some way, including through pension fund guarantee schemes that take on the pension liabilities of failing institutions and social security schemes that aim to prevent old age poverty.

However, the section that attracted press attention was Chapter 2: Sovereigns, Banks, and Emerging Ma rkets: Detailed Analysis and Policies:

Looking ahead, many European banks have announced medium-term business plans with reductions in assets amounting to about $2.0 trillion in total.

The variations in the scale of bank deleveraging across scenarios are mainly driven by differences in the extent of cyclical pressures. Under the complete policies scenario – where cyclical pressures ease – assets are cut back by $2.2 trillion, mostly reflecting banks’ own business plans. By contrast, in the weak policies scenario – where cyclical pressures are stronger – banks reduce assets by $3.8 trillion (Figure 2.27). As cyclical pressures intensify, the impact on EU credit rises disproportionately. This is because with stronger cyclical headwinds, more banks need to work their way further down the deleveraging pecking order when reducing their balance sheets, and so EU and domestic credit is curtailed more.

It was an unexciting day for the Canadian preferred share market, with PerpetualPremiums off 1bp, FixedResets flat and DeemedRetractibles down 5bp. A bright spot was the floating rate sector, which again scored a lock-out on the positive side of the Performance Highlights table. Volume was slightly below average.

PerpetualDiscounts now yield 5.18%, equivalent to 6.73% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.5% so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 225bp, a marked widening from the 215bp reported April 13.

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 0.7709 % 2,397.0
FixedFloater 4.34 % 3.69 % 34,128 17.97 1 2.3364 % 3,634.2
Floater 3.01 % 3.03 % 45,539 19.67 3 0.7709 % 2,588.1
OpRet 4.75 % 2.84 % 44,202 1.16 5 -0.0306 % 2,510.6
SplitShare 5.26 % -1.05 % 86,555 0.66 4 0.1688 % 2,689.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0306 % 2,295.7
Perpetual-Premium 5.47 % 1.29 % 83,702 0.12 23 -0.0093 % 2,222.6
Perpetual-Discount 5.17 % 5.18 % 137,253 15.14 10 -0.0496 % 2,413.2
FixedReset 5.01 % 3.00 % 188,869 2.18 67 0.0011 % 2,399.1
Deemed-Retractible 4.96 % 3.85 % 203,839 1.98 46 -0.0547 % 2,309.9
Performance Highlights
Issue Index Change Notes
BAM.PR.B Floater 1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-18
Maturity Price : 17.60
Evaluated at bid price : 17.60
Bid-YTW : 3.00 %
BAM.PR.G FixedFloater 2.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-18
Maturity Price : 22.58
Evaluated at bid price : 21.90
Bid-YTW : 3.69 %
Volume Highlights
Issue Index Shares
Traded
Notes
SLF.PR.E Deemed-Retractible 202,825 Nesbitt crossed blocks of 100,000 and 99,700, both at 23.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.12
Bid-YTW : 5.57 %
CM.PR.J Deemed-Retractible 121,222 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-04-30
Maturity Price : 25.75
Evaluated at bid price : 25.98
Bid-YTW : 3.35 %
PWF.PR.F Perpetual-Premium 100,981 Nesbitt crossed 100,000 at 25.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-05-18
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : -2.67 %
TRP.PR.A FixedReset 95,852 Nesbitt crossed 90,000 at 26.05.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 3.07 %
GWO.PR.P Deemed-Retractible 93,325 Nesbitt crossed 60,000 at 25.95; RBC crossed 30,000 at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.91
Bid-YTW : 5.07 %
PWF.PR.E Perpetual-Premium 80,000 Nesbitt crossed 80,000 at 25.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 3.46 %
There were 27 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IAG.PR.A Deemed-Retractible Quote: 23.76 – 24.20
Spot Rate : 0.4400
Average : 0.3392

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.76
Bid-YTW : 5.31 %

BAM.PR.X FixedReset Quote: 25.10 – 25.40
Spot Rate : 0.3000
Average : 0.2096

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-18
Maturity Price : 23.18
Evaluated at bid price : 25.10
Bid-YTW : 3.48 %

CIU.PR.A Perpetual-Discount Quote: 24.55 – 24.83
Spot Rate : 0.2800
Average : 0.1944

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-04-18
Maturity Price : 24.25
Evaluated at bid price : 24.55
Bid-YTW : 4.73 %

PWF.PR.M FixedReset Quote: 26.27 – 26.55
Spot Rate : 0.2800
Average : 0.1956

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.27
Bid-YTW : 2.96 %

RY.PR.E Deemed-Retractible Quote: 25.61 – 25.77
Spot Rate : 0.1600
Average : 0.0979

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.61
Bid-YTW : 4.02 %

BNS.PR.O Deemed-Retractible Quote: 26.85 – 27.00
Spot Rate : 0.1500
Average : 0.1024

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-04-26
Maturity Price : 26.00
Evaluated at bid price : 26.85
Bid-YTW : 1.99 %

One Response to “April 18, 2012”

  1. [...] PerpetualDiscounts now yield 5.25%, equivalent to 6.82% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.6%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 220bp, a slight (and perhaps spurious) narrowing from the 225bp reported April 18. [...]

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