November 7, 2012

With the US election over, the equity boys suddenly remembered that “fiscal cliff” thingamajig:

U.S. stocks slid, sending the Dow Jones Industrial Average to its biggest drop in a year, oil sank and Treasuries surged the most in five months as President Barack Obama’s re-election set up a budget showdown with the Republican-controlled House.

The Dow tumbled 312.95 points, or 2.4 percent, to 12,932.73 for its worst drop since Nov. 9, 2011. The Standard & Poor’s 500 Index, which is up 64 percent since Obama took office in 2009, lost 2.4 percent to 1,394.53, its lowest level since August. Ten-year U.S. yields sank 12 basis points to 1.64 percent. Oil slid almost 5 percent in its biggest decline of the year.

Obama now faces negotiating with Congress to avoid the so- called fiscal cliff of more than $600 billion in tax increases and spending cuts next year that threaten to slow U.S. growth. European stocks erased early gains as concern grew that the debt crisis was hurting Germany’s economy, while Greek police beat back anti-austerity protesters outside parliament.

“It’s a rush to safe haven,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $325 billion. “We’re selling off further on rising fears about what a fiscal cliff negotiation is going to mean here. People bring all their worst fears in. At the end of the day, you have the fiscal cliff, Europe and you see a risk-off trade.”

Ooh! “risk-off trade”! What a totally cool portfolio management concept!

S&P upgraded CI Financial Corp. (a fundco) today – not a preferred share issuer, but there were some nuggets of interest:

  • •In our view, CI Investments Inc. (CII) does not face any material regulatory barriers in making payments to its holding company, CI Financial Corp. (CI). Structural subordination exists when there are regulatory restrictions on the operating subsidiary’s ability to upstream dividends to the holding company.
  • •CII is only required to maintain positive working capital plus $100,000 to remain registered as an investment manager, which is not much of a hurdle and is really intended to keep very small firms in line.

You have no idea how much it annoys me to kept “in line”.

As of Sept. 30, 2012, CI’s tangible equity was negative C$500.8 million, the consequence of goodwill and intangible assets, which the company generated by several of its acquisitions in the recent past, the most recent being Hartford Investments Canada Corp. in December 2010. But, in our view, asset managers having negative tangible equity is not a primary concern because we focus our analysis on the predictability and sustainability of cash flow generation.
That being said, we believe a minimum of positive tangible equity is necessary to absorb unexpected losses.

It was a mixed day for the Canadian preferred share market,with PerpetualPremiums down 11bp, FixedResets gaining 4bp and DeemedRetractibles off 5bp. Volatility was minimal. Volume was slightly below average.

PerpetualDiscounts (all THREE of them! From BOTH issuers!) now yield 4.93%, equivalent to 6.41% interest at the standard equivalency factor of 1.3x. 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 slight (and perhaps spurious) rise from the 210bp reported October 31.

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 -0.0133 % 2,471.4
FixedFloater 4.13 % 3.47 % 34,576 18.39 1 0.0000 % 3,895.7
Floater 2.80 % 2.99 % 55,428 19.73 4 -0.0133 % 2,668.4
OpRet 4.61 % -0.06 % 43,592 0.63 4 0.6214 % 2,578.1
SplitShare 5.35 % 4.53 % 61,683 4.46 3 -0.0910 % 2,866.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.6214 % 2,357.4
Perpetual-Premium 5.28 % 1.43 % 74,939 0.23 29 -0.1111 % 2,313.9
Perpetual-Discount 4.90 % 4.93 % 100,994 15.57 3 0.0826 % 2,597.8
FixedReset 4.98 % 2.98 % 209,101 3.92 75 0.0402 % 2,447.0
Deemed-Retractible 4.91 % 3.52 % 128,896 1.10 46 -0.0533 % 2,395.1
Performance Highlights
Issue Index Change Notes
ELF.PR.H Perpetual-Premium -1.39 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-17
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 5.28 %
BAM.PR.O OpRet 2.53 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : -0.06 %
Volume Highlights
Issue Index Shares
Traded
Notes
NA.PR.Q FixedReset 1,663,080 New issue settled today.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-11-15
Maturity Price : 25.00
Evaluated at bid price : 25.39
Bid-YTW : 3.48 %
GWO.PR.R Deemed-Retractible 67,705 Scotia crossed 25,000 at 25.05.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.09
Bid-YTW : 4.83 %
BNS.PR.Z FixedReset 64,447 Desjardins crossed 56,000 at 25.11.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.07
Bid-YTW : 3.01 %
TD.PR.S FixedReset 49,130 RBC crossed 35,500 at 25.02.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.02
Bid-YTW : 3.07 %
CIU.PR.B FixedReset 44,100 National crossed blocks of 24,700 and 17,300, both at 26.95.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.75
Bid-YTW : 1.88 %
ENB.PR.D FixedReset 34,100 National crossed 29,300 at 25.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-11-07
Maturity Price : 23.28
Evaluated at bid price : 25.43
Bid-YTW : 3.57 %
There were 27 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.J FixedReset Quote: 25.85 – 26.28
Spot Rate : 0.4300
Average : 0.3270

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.85
Bid-YTW : 3.54 %

GWO.PR.I Deemed-Retractible Quote: 24.23 – 24.50
Spot Rate : 0.2700
Average : 0.1700

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.23
Bid-YTW : 5.01 %

BAM.PR.J OpRet Quote: 26.83 – 27.13
Spot Rate : 0.3000
Average : 0.2221

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-31
Maturity Price : 26.00
Evaluated at bid price : 26.83
Bid-YTW : 3.27 %

IGM.PR.B Perpetual-Premium Quote: 27.15 – 27.46
Spot Rate : 0.3100
Average : 0.2332

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 26.00
Evaluated at bid price : 27.15
Bid-YTW : 3.59 %

IAG.PR.A Deemed-Retractible Quote: 24.62 – 24.98
Spot Rate : 0.3600
Average : 0.2849

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.62
Bid-YTW : 4.90 %

GWO.PR.F Deemed-Retractible Quote: 25.70 – 25.95
Spot Rate : 0.2500
Average : 0.1905

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-12-07
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : -19.32 %

One Response to “November 7, 2012”

  1. [...] PerpetualDiscounts now yield 4.91%, equivalent to 6.38% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.2%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 220bp, a slight (and perhaps spurious) increase from the 215bp reported November 7. [...]

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