A Bank of Canada Working Paper by Katya Kartashova, Ben Tomlin examines House Prices, Consumption and the Role of Non-Mortgage Debt:
This paper examines the relationship between house prices and consumption, through the use of debt. Using unique Canadian household-level data that reports the uses of debt, we begin by looking at the relationship between house prices and debt. Using quantile regression, we find a positive and significant relationship between regional house prices and total household debt all along the conditional debt distribution. This suggests that the household-level relationship between house prices and debt goes beyond the purchase of real estate. We then find a positive relationship between house prices and non-mortgage debt (the sum of secured lines of credit, unsecured lines of credit, leases and other consumer loans, except for credit cards) for homeowners. Combining these results with the reported uses of non-mortgage debt allows us to connect house prices and nonhousing consumption – this connection is new to the literature on house prices and consumption. We conclude that the increases in house prices over the 1999-2007 period were, indeed, associated with an increase in non-mortgage debt and non-housing consumption. Our results can be thought of as the establishment of a conservative lower bound for the overall relationship between house prices and aggregate consumption.
It was a positive day for the Canadian preferred share market, with PerpetualPremiums gaining 2bp, FixedResets up 3bp and DeemedRetractibles winning 11bp. Volume was average.
PerpetualDiscounts (all four of them! from both issuers!) now yield 4.82%, the equivalent of 6.27% interest at the standard conversion factor of 1.3x. Long corporates now yield about 4.3%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 195bp, a significant decline from the 210bp reported January 2.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| 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 | -0.2394 % | 2,485.1 |
| FixedFloater | 4.25 % | 3.62 % | 28,055 | 18.01 | 1 | 0.6303 % | 3,785.6 |
| Floater | 2.80 % | 3.00 % | 54,935 | 19.75 | 4 | -0.2394 % | 2,683.3 |
| OpRet | 4.62 % | -4.95 % | 51,575 | 0.39 | 4 | 0.1145 % | 2,599.2 |
| SplitShare | 4.60 % | 4.57 % | 45,939 | 4.34 | 2 | 0.0000 % | 2,892.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1145 % | 2,376.8 |
| Perpetual-Premium | 5.26 % | -0.06 % | 77,489 | 0.75 | 30 | 0.0213 % | 2,342.1 |
| Perpetual-Discount | 4.82 % | 4.82 % | 133,896 | 15.80 | 4 | 0.0101 % | 2,663.8 |
| FixedReset | 4.92 % | 2.95 % | 204,570 | 4.01 | 78 | 0.0282 % | 2,472.7 |
| Deemed-Retractible | 4.88 % | 0.07 % | 111,061 | 0.35 | 46 | 0.1104 % | 2,434.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| NA.PR.K | Deemed-Retractible | 1.45 % | Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-02-08 Maturity Price : 25.00 Evaluated at bid price : 25.23 Bid-YTW : -12.13 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CU.PR.C | FixedReset | 283,463 | Scotia crossed 11,500 at 26.40. RBC crossed four blocks of 112,300 shares, 55,300 shares, 80,400 and 10,000, all at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 26.20 Bid-YTW : 2.95 % |
| SLF.PR.H | FixedReset | 173,040 | RBC crossed blocks of 83,200 and 21,900; and sold blocks of 35,000 and 21,900 to National, all at 25.30. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.25 Bid-YTW : 3.65 % |
| BNS.PR.Z | FixedReset | 119,512 | TD crossed 109,900 at 24.70. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.74 Bid-YTW : 3.25 % |
| POW.PR.D | Perpetual-Premium | 83,587 | TD crossed 80,000 at 25.20. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.21 Bid-YTW : 4.50 % |
| ENB.PR.P | FixedReset | 64,578 | National crossed 40,000 at 25.37. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-01-09 Maturity Price : 23.22 Evaluated at bid price : 25.36 Bid-YTW : 3.81 % |
| ENB.PR.H | FixedReset | 55,628 | TD crossed 10,000 at 25.32; National crossed 40,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-01-09 Maturity Price : 23.22 Evaluated at bid price : 25.29 Bid-YTW : 3.54 % |
| There were 32 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| PWF.PR.M | FixedReset | Quote: 25.89 – 26.15 Spot Rate : 0.2600 Average : 0.1471 YTW SCENARIO |
| TD.PR.I | FixedReset | Quote: 26.47 – 26.99 Spot Rate : 0.5200 Average : 0.4149 YTW SCENARIO |
| PWF.PR.O | Perpetual-Premium | Quote: 26.50 – 26.85 Spot Rate : 0.3500 Average : 0.2537 YTW SCENARIO |
| CIU.PR.C | FixedReset | Quote: 24.70 – 25.00 Spot Rate : 0.3000 Average : 0.2090 YTW SCENARIO |
| CM.PR.D | Perpetual-Premium | Quote: 25.56 – 25.81 Spot Rate : 0.2500 Average : 0.1731 YTW SCENARIO |
| PWF.PR.P | FixedReset | Quote: 25.44 – 25.70 Spot Rate : 0.2600 Average : 0.1966 YTW SCENARIO |