September 19, 2012

Inflation expectations can become self-fulfilling, which worries Richard Fisher:

Federal Reserve Bank of Dallas President Richard Fisher said the central bank’s third round of large-scale asset purchases has led to an increase in market expectations for higher inflation without more job creation.

“I do not see an overall argument for letting inflation rise to levels where we might scare the market,” Fisher said on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays and Vonnie Quinn. “We have seen a sharp rise in inflation expectations. If you let this get out of hand, then I think we will have a market reaction.”

Measures of expected future inflation “have ramped up pretty quickly,” Fisher said. The five-year, five-year forward breakeven rate, which projects the pace of price increases starting in 2017, rose to 2.88 percent on Sept. 14, the day after the FOMC decided on QE3. That was up half a percentage point from July 26.

Congress’s inaction on fiscal policy and excessive government regulation are holding back businesses from spending on hiring and investment, Fisher said in a later Bloomberg Television interview. The Fed’s stimulus efforts, or so-called quantitative easing, won’t work because the central bank can’t address those obstacles to growth, he said.

There might be another SEC attempt to destroy the public bond market:

The U.S. Securities and Exchange Commission should scrutinize corporate bond markets to determine if retail investors can find fair prices, said Commissioner Daniel Gallagher.

Gallagher, a Republican on the five-member commission that regulates securities trading, called for the agency to look at the imbalance of information available to retail investors and institutional traders in a speech today at a financial-markets conference hosted by Georgetown University’s McDonough School of Business in Washington.

“Retail investors continue to face significant headwinds in the bond markets,” Gallagher said. “Unlike their large institutional counterparts, retail investors generally have less expertise in the basics of bond trading and cannot tap into large dealer networks for quotes in order to shop around for the best prices available.”

Gallagher said the SEC issued a report this year on the state of the municipal securities market and should consider a similar effort with the corporate bond market, “given how large and important that market has become.” That doesn’t necessarily mean more regulation, he said.

You know what regulators mean when they say a study won’t necessarily mean more regulation, don’t you? I don’t have to spell it out for you, do I?

Westcoast Energy, proud issuer of W.PR.H and W.PR.J, has been confirmed by DBRS at Pfd-2(low):

DBRS has today confirmed the Unsecured Debentures, First Preferred Shares and Commercial Paper ratings of Westcoast Energy Inc. (Westcoast or the Company) at A (low), Pfd-2 (low) and R-1 (low), respectively, all with Stable trends. The rating actions incorporate DBRS’s expectation that Westcoast’s significant capex program (projected to be $1.2 billion in 2012, including only $426 million spent through June 30, 2012, and likely to remain elevated in the medium term), will result in negative free cash flows and pressure its credit ratios, as incremental financing will likely come from increased long-term debt issuance.

The Company’s financial profile remains relatively strong despite rising capex related to its medium-term growth program. Increasing earnings and cash flow from expansions placed in service to date have resulted in relatively strong credit ratios. Westcoast should generate sufficient cash flow to meet a significant portion of its capex and dividend payments going forward, with manageable funding needs at both Union Gas Limited and the Company. Westcoast’s consolidated credit metrics will likely continued to be pressured over the medium term as a result of its significant growth capex, although the metrics are underpinned by Westcoast’s mostly low-risk and regulated operations and will likely remain within the parameters of the current ratings.

It was a good day for the Canadian preferred share market, with PerpetualPremiums and DeemedRetractibles gaining 9bp and FixedResets up 3bp. Volatility picked up a little. Volume was average.

PerpetualDiscounts now yield 4.93%, equivalent to 6.41% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.4%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 200bp, unchanged from the September 12 report.

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

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.3641 % 2,437.9
FixedFloater 4.55 % 3.91 % 34,465 17.46 1 0.4808 % 3,502.4
Floater 3.01 % 3.01 % 59,246 19.70 3 0.3641 % 2,632.3
OpRet 4.68 % 3.37 % 56,458 1.47 4 -0.1348 % 2,541.6
SplitShare 5.46 % 4.92 % 73,252 4.58 3 -0.0133 % 2,811.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1348 % 2,324.0
Perpetual-Premium 5.28 % 2.96 % 89,330 1.03 28 0.0915 % 2,283.5
Perpetual-Discount 4.95 % 4.93 % 97,804 15.64 3 0.1252 % 2,547.3
FixedReset 4.96 % 3.13 % 173,287 4.27 72 0.0280 % 2,428.2
Deemed-Retractible 4.95 % 3.40 % 120,329 1.07 46 0.0919 % 2,369.0
Performance Highlights
Issue Index Change Notes
HSE.PR.A FixedReset -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-09-19
Maturity Price : 23.55
Evaluated at bid price : 25.80
Bid-YTW : 3.12 %
IAG.PR.A Deemed-Retractible -1.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.76
Bid-YTW : 5.29 %
TRP.PR.A FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-09-19
Maturity Price : 23.75
Evaluated at bid price : 25.70
Bid-YTW : 3.27 %
BAM.PR.Z FixedReset 1.29 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.93
Bid-YTW : 4.01 %
SLF.PR.C Deemed-Retractible 1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.30
Bid-YTW : 5.40 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.N FixedReset 115,030 TD crossed 50,000 at 26.42 and 25,000 at 26.40 and bought blocks of 10,000 and 15,000 from CIBC at 26.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 26.40
Bid-YTW : 2.57 %
ENB.PR.P FixedReset 86,060 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-09-19
Maturity Price : 23.08
Evaluated at bid price : 24.96
Bid-YTW : 3.85 %
PWF.PR.P FixedReset 74,176 Anonymous crossed 50,000 at 25.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-09-19
Maturity Price : 23.38
Evaluated at bid price : 25.15
Bid-YTW : 3.13 %
MFC.PR.A OpRet 67,347 Desjardins crossed 50,000 at 25.57.
YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 25.57
Bid-YTW : 3.37 %
CU.PR.E Perpetual-Premium 63,375 Desjardins crossed 32,900 at 26.04.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-09-01
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 4.42 %
MFC.PR.D FixedReset 45,938 Nesbitt crossed 33,000 at 26.64.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.61
Bid-YTW : 2.84 %
There were 32 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
RY.PR.T FixedReset Quote: 26.87 – 27.59
Spot Rate : 0.7200
Average : 0.4030

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.87
Bid-YTW : 2.52 %

BAM.PR.O OpRet Quote: 25.27 – 25.92
Spot Rate : 0.6500
Average : 0.4045

YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.27
Bid-YTW : 3.43 %

IAG.PR.A Deemed-Retractible Quote: 23.76 – 24.10
Spot Rate : 0.3400
Average : 0.2475

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.76
Bid-YTW : 5.29 %

FTS.PR.E OpRet Quote: 26.35 – 26.80
Spot Rate : 0.4500
Average : 0.3592

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-06-01
Maturity Price : 25.75
Evaluated at bid price : 26.35
Bid-YTW : 1.76 %

IAG.PR.G FixedReset Quote: 25.37 – 25.70
Spot Rate : 0.3300
Average : 0.2506

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.37
Bid-YTW : 3.95 %

RY.PR.L FixedReset Quote: 26.04 – 26.29
Spot Rate : 0.2500
Average : 0.1741

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 26.04
Bid-YTW : 2.91 %

One Response to “September 19, 2012”

  1. [...] PerpetualDiscounts (all three of them!) now yield 4.91%, equivalent to 6.38% interest. Long corporates now yield about 4.25% so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 215bp, a sharp increase from the 200bp reported September 19. [...]

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