Manulife Buries Poorly Performing Manulife Preferred Income Fund

December 14th, 2014

A division of Manulife Financial Corp. announced on October 17:

the receipt of the required approvals from securityholders to proceed with certain of the previously announced proposed fund mergers. It is currently anticipated that the mergers will be implemented at the close of business on or about October 24, 2014 and on or about November 7, 2014, as detailed below.

Fund Mergers
For the mergers listed below, Manulife Investments has received the following approvals from securityholders to proceed with implementing the mergers on or about October 24, 2014:

Terminating Fund Continuing Fund Approval status
Manulife International Value Equity Class Manulife International Value Equity Fund Approved
Manulife Preferred Income Fund Manulife Preferred Income Class Approved

The inception date of the surviving fund was August 1, 2013 and accordingly performance reports date back only to then.

The last performance data I have for the non-surviving fund may provide a clue as to why the old fund was dropped, but only very nasty, cynical people would dream of a connection:

Performance to September 30, 2014
Period BMO-CM “50″ Index Manulife Preferred Income Fund
One Month -0.76% -1.07%
Three Months -0.11% +0.15%
One Year +4.14% +3.07%
Three Years +3.67% +1.48%
Five Years +5.74% +2.91%

December 12, 2014

December 12th, 2014

Well, that was a week and a half!

U.S. stocks sank, with the Dow Jones Industrial Average capping its biggest weekly drop in three years, as oil continued to slide and Chinese industrial data raised concern over a global economic slowdown.

Materials stocks declined the most in the Standard & Poor’s 500 Index, losing 2.9 percent as a group, while energy shares dropped 2.2 percent. International Business Machines Corp., DuPont Co. and Exxon Mobil Corp. sank at least 2.9 percent to lead declines in all 30 Dow stocks.

The S&P 500 lost 1.6 percent to 2,002.33 at 4 p.m. in New York, extending losses in the final hour to cap a weekly drop of 3.5 percent. The Dow sank 315.51 points, or 1.8 percent, to 17,280.83. The Dow slid 3.8 percent for the week, its biggest decline since November 2011.

Canada did worse:

Canadian stocks tumbled with equities around the world, capping the worst week in three years, as the continuing selloff in oil fueled concerns over a global economic slowdown.

Energy stocks dropped with oil prices as RMP Energy Inc. and Pacific Rubiales Energy Corp. slid at least 7.9 percent. Consumer-discretionary stocks sank as Amaya Inc. plunged 18 percent. Talisman Energy Inc. soared 17 percent on speculation of a deal with Repsol SA.

The Standard & Poor’s/TSX Composite Index (SPTSX) fell 173.22 points, or 1.3 percent, to 13,731.9 at 4 p.m. in Toronto. The equity gauge dropped 5.1 percent over five days, its worst weekly decline since September 2011. Trading in S&P/TSX stocks was 12 percent above the 30-day average at this time of day.

But it’s an ill wind…:

Inflation is moribund and bond buyers love it.

As crude oil leads a collapse in commodity prices, a German gauge of the outlook for inflation over the next five years has fallen below zero. With no increases in consumer prices in sight, bondholders’ interest and repayments are worth more, inflaming demand for fixed income. The longest maturities are setting the pace from Europe to the U.S.

The rush for bonds pushed yields in Germany and six other euro-area nations to record lows today, while in the U.S, 30-year yields closed at the lowest level since 2012, according to data compiled by Bloomberg. Adding to the momentum is the prospect that central-bank measures to rekindle inflation would involve efforts to keep down borrowing costs, including so-called quantitative easing from the European Central Bank

and Treasuries…:

Treasuries rallied, with 10-year yields reaching the lowest in eight weeks, as a plunge in crude oil raised concern global inflation is slipping further below central-bank targets before the Federal Reserve meets next week.

The notes posted the biggest weekly decline in yield since June 2012 as crude oil futures fell below $58 a barrel in New York. Fed policy makers will review whether to retain the vow to hold interest rates at virtually zero for a “considerable time.” The biggest U.S. jobs gains in November since January 2012 fueled speculation last week of quicker interest-rate increases, while reports showing slowing factory output in China’s and financial turmoil in Greece represent additional economic headwinds for the U.S.

Treasury 10-year note yields fell eight basis points, or 0.08 percentage point, to 2.08 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices, after reaching the lowest level since Oct. 16. The 2.25 percent security rose 23/32 or $7.19 per $1,000 face amount, to 101 15/32. The yield has fallen 22 basis points this week, the most since June 2012.

So it seems as if the CSE is introducing market-makers:

Following the successful completion of a pilot project with two symbols, the CSE is now accepting applications for Market Makers for all CSE-listed securities. As outlined in the November 14 notice the CSE is modifying its market making programme to improve execution quality and service for retail investors. Market Makers will have the following responsibilities in their assigned stocks:
  • •Maintain a bid/ask spread goal
  • •Provide a Guaranteed Minimum Fill for eligible orders
  • •Provide automatic odd lot execution, so that all incoming market or better limit odd lot orders will be auto traded at the bid/ask if they cannot be filled by booked odd lot orders;
  • •Ensure a reasonable bid/ask in the context of current market conditions
  • •Undergo periodic performance reviews

If the Toronto Stock Exchange is any guide, then:

  • The bid/ask spread goal will neither be publicized nor enforced
  • The size of the Guaranteed Minimum Fill will be top secret information, available only to those who pay for it
  • Automatic odd lot execution will be fine. Yay!
  • A reasonable bid/ask spread will be good fodder for jokes
  • performance reviews will not be public and nobody will ever lose their assignment

DBRS downgraded Timmy’s:

DBRS Limited (DBRS) has today downgraded the Issuer Rating of Tim Hortons Inc. (THI or the Company) to BB (low) and its Senior Unsecured Debt to B, with a recovery rating of RR6; the trends are Stable. This action follows the Company’s announcement that it has received regulatory approval for and its shareholders have voted in favour of the proposed transaction to create a new global quick-service restaurant leader that would own both THI and Burger King Worldwide, Inc. (Burger King) under a new parent company, Restaurant Brands International (RBI). DBRS has removed the ratings from Under Review with Negative Implications.

Financial Risk Profile
In terms of financial profile, RBI is expected to have balance sheet debt of over $9 billion and preferred shares of $3 billion. Combined with pro forma earnings, DBRS estimates the combined entity will have lease-adjusted debt-to-EBITDAR excluding the preferred shares of approximately 6.23 times (x) and fixed-charge coverage of 1.96x, including the preferred dividend, credit metrics considered at the lower-end of the B range of ratings. That said, the combined entity should nevertheless generate meaningful levels of free cash flow (based on solid operating cash flow and low maintenance capex) beginning in 2016 and could deleverage significantly through a combination of debt repayment and earnings growth.

But, wonder of wonders, the Canadian preferred share market had a very good day, with PerpetualDiscounts up 8bp, FixedResets rocketing up 62bp and DeemedRetractibles gaining 3bp. Not surprisingly, given the averages, the lengthy Performance Highlights table is dominated by FixedReset winners. Volume was high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:

  • based on Implied Volatility Theory only
  • are relative only to other FixedResets from the same issuer
  • assume constant GOC-5 yield
  • assume constant Implied Volatility
  • assume constant spread

Here’s TRP:

impVol_TRP_141212
Click for Big

So according to this, TRP.PR.A, bid at 19.90, is $1.29 cheap, but it has already reset. TRP.PR.B, bid at 17.20, resetting 2015-6-30 is about 0.21 rich and TRP.PR.C, bid at 18.65, resetting 2016-1-30 is fairly priced. The TRP issues seem to be steadily rationalizing, but there continues to be pressure on TRP.PR.A.

impVol_MFC_141212
Click for Big

It looks like we’re back in the situation in which eight of the nine issues are well-behaved in accordance with theory, but extraordinary pressure on the lowest-spread issue, MFC.PR.F, is distorting the whole calculation. According to the distorted fit, MFC.PR.F, resetting at +141 on 2016-6-19 is about $0.62 cheap, while MFC.PR.L, resetting at +216 on 2019-6-19, is about $0.61 rich.

BAM is a little difficult to figure out:

impVol_BAM_141212
Click for Big

As with MFC, it looks as if extraordinary cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, may be throwing off the Implied Volatility calculation; be that as it may, BAM.PR.X is bid at 20.10 and appears to be $0.99 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 25.02 and appears to be $1.43 rich.

impVol_FTS_141212
Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 18.90, looks $0.81 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 24.62, looks $0.82 expensive and resets 2019-3-1

And now it’s time for PrefLetter!

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 -0.8015 % 2,501.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.8015 % 3,960.6
Floater 3.03 % 3.13 % 61,910 19.42 4 -0.8015 % 2,659.4
OpRet 4.41 % -5.72 % 28,284 0.08 2 -0.1369 % 2,752.0
SplitShare 4.30 % 4.07 % 44,928 3.72 5 -0.1096 % 3,175.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1369 % 2,516.4
Perpetual-Premium 5.44 % 1.31 % 74,566 0.08 20 0.0137 % 2,475.1
Perpetual-Discount 5.23 % 5.15 % 111,129 15.21 15 0.0750 % 2,632.9
FixedReset 4.28 % 3.64 % 224,047 16.51 75 0.6184 % 2,516.2
Deemed-Retractible 5.00 % 1.32 % 97,795 0.21 40 0.0279 % 2,600.9
FloatingReset 2.56 % 2.12 % 64,801 3.53 5 -0.3147 % 2,533.4
Performance Highlights
Issue Index Change Notes
TRP.PR.A FixedReset -2.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 19.90
Evaluated at bid price : 19.90
Bid-YTW : 4.07 %
TRP.PR.C FixedReset -2.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 18.65
Evaluated at bid price : 18.65
Bid-YTW : 3.98 %
BAM.PR.C Floater -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 3.14 %
BAM.PR.B Floater -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 16.61
Evaluated at bid price : 16.61
Bid-YTW : 3.15 %
FTS.PR.H FixedReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 18.90
Evaluated at bid price : 18.90
Bid-YTW : 3.70 %
CU.PR.C FixedReset 1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 23.56
Evaluated at bid price : 25.25
Bid-YTW : 3.60 %
BNS.PR.R FixedReset 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.65
Bid-YTW : 3.25 %
IFC.PR.C FixedReset 1.10 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.80
Bid-YTW : 2.26 %
MFC.PR.C Deemed-Retractible 1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.90
Bid-YTW : 5.62 %
BAM.PR.R FixedReset 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 23.72
Evaluated at bid price : 25.02
Bid-YTW : 3.64 %
BNS.PR.Q FixedReset 1.26 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-10-25
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 2.97 %
FTS.PR.K FixedReset 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 23.09
Evaluated at bid price : 24.62
Bid-YTW : 3.44 %
ENB.PR.T FixedReset 1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 22.12
Evaluated at bid price : 22.69
Bid-YTW : 4.23 %
BAM.PF.F FixedReset 1.31 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.53
Bid-YTW : 3.98 %
NA.PR.S FixedReset 1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 23.35
Evaluated at bid price : 25.45
Bid-YTW : 3.60 %
TRP.PR.E FixedReset 1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 23.24
Evaluated at bid price : 25.20
Bid-YTW : 3.67 %
IFC.PR.A FixedReset 1.72 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.00
Bid-YTW : 4.39 %
MFC.PR.L FixedReset 1.87 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.04
Bid-YTW : 3.66 %
BMO.PR.M FixedReset 1.91 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 3.15 %
MFC.PR.F FixedReset 1.93 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.15
Bid-YTW : 4.92 %
BAM.PF.A FixedReset 1.96 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 3.87 %
BNS.PR.P FixedReset 2.15 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 2.60 %
BAM.PF.B FixedReset 2.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 23.18
Evaluated at bid price : 24.88
Bid-YTW : 3.90 %
GWO.PR.N FixedReset 2.54 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.16
Bid-YTW : 5.19 %
MFC.PR.H FixedReset 2.93 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.01
Bid-YTW : 2.72 %
PWF.PR.T FixedReset 5.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 23.37
Evaluated at bid price : 25.44
Bid-YTW : 3.61 %
Volume Highlights
Issue Index Shares
Traded
Notes
IAG.PR.E Deemed-Retractible 148,462 Nesbitt crossed 148,400 at 25.98.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-30
Maturity Price : 26.00
Evaluated at bid price : 25.97
Bid-YTW : 4.43 %
ENB.PR.Y FixedReset 122,022 RBC crossed 97,800 at 21.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 21.58
Evaluated at bid price : 21.91
Bid-YTW : 4.30 %
FTS.PR.M FixedReset 106,445 Scotia crossed blocks of 53,200 and 40,000, both at 25.15.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 23.23
Evaluated at bid price : 25.20
Bid-YTW : 3.71 %
MFC.PR.N FixedReset 71,890 Recent new issue.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.01
Bid-YTW : 3.74 %
TRP.PR.A FixedReset 53,405 Will reset at 3.266%.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 19.90
Evaluated at bid price : 19.90
Bid-YTW : 4.07 %
CM.PR.E Perpetual-Premium 48,584 Called for redemption 2015-1-31.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-11
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : -0.97 %
There were 45 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
NEW.PR.D SplitShare Quote: 32.47 – 33.35
Spot Rate : 0.8800
Average : 0.6946

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.47
Bid-YTW : 3.52 %

PWF.PR.P FixedReset Quote: 20.60 – 21.18
Spot Rate : 0.5800
Average : 0.4300

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 20.60
Evaluated at bid price : 20.60
Bid-YTW : 3.67 %

TRP.PR.D FixedReset Quote: 24.59 – 25.16
Spot Rate : 0.5700
Average : 0.4215

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 23.06
Evaluated at bid price : 24.59
Bid-YTW : 3.75 %

TRP.PR.C FixedReset Quote: 18.65 – 19.10
Spot Rate : 0.4500
Average : 0.3112

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 18.65
Evaluated at bid price : 18.65
Bid-YTW : 3.98 %

IGM.PR.B Perpetual-Premium Quote: 26.05 – 26.50
Spot Rate : 0.4500
Average : 0.3421

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 4.96 %

TRP.PR.B FixedReset Quote: 17.20 – 17.49
Spot Rate : 0.2900
Average : 0.1856

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-12
Maturity Price : 17.20
Evaluated at bid price : 17.20
Bid-YTW : 3.81 %

IGM.PR.B Downgraded To P-2(high) by S&P

December 12th, 2014

Standard & Poor’s has announced:

it reviewed its ratings on 37 global asset managers by applying its new ratings criteria for the sector (see “Key Credit Factors For Asset Managers,” published Dec. 9, 2014). As a result, we have taken rating actions on these entities (see ratings list). We also took rating actions on certain subsidiaries as a result of applying our new criteria to their parents. The rating actions were driven by revisions to our criteria rather than a sudden change of the issuers’ creditworthiness.

We define asset managers as companies that derive a majority of their revenues from management and performance fees for managing third-party money or assets on the behalf of retail or institutional investors. We rate asset managers under a similar framework to our corporate criteria. Our assessment reflects these companies’ business risk profiles, their financial risk profiles, and other factors that may modify the stand-alone credit profile.

We have now removed the under criteria observation (UCO) identifier from our ratings on all of the entities listed below.

We anticipate publishing, for most issuer credit ratings or outlooks that change, research updates within 30 business days. We anticipate publishing research updates in the first or second quarters of 2015 for those entities that we did not change our issuer credit ratings or outlooks on under the new criteria.

IGM Financial Inc.
Issuer Credit Rating A/Stable/A-1 A+/Stable/A-1
Senior Unsecured A A+
Preferred Stock BBB+ A-
P-2(High) P-1(Low)

The criteria have been published and discussed by S&P. We can look forward to publication of the specific reasons for the IGM downgrade.

AZP.PR.B, TRP.PR.A & FFH.PR.C: Convert or Not?

December 12th, 2014

It seems that some of the communications received by shareholders on the conversion are not particularly enlightening – I received the following complaint earlier this week:

Just to let you know that the conversion of series C to D is based on the 90 day Tbill rate not the 5 year GOC rate as noted on your prefinfo.com listing. I wish I would have checked this before as shares are now converting Dec 31. I do not understand notice from FFH that I would be getting $1.1445 per share which works out to 4.578 % share. I assume the 90 day rate is 0.90 + 3.15 % works out to 4.05 %.

I answered him:

Yes, if you convert to D, you will receive the 90-day bill rate plus 315bp, reset quarterly, with the first quarter’s dividend having been set at $0.25212 per share, payable on March 31, 2015.

However, if you retain your C, you will receive the 5 Year GOC Rate plus 315bp, which on December 2 was equal to a total of 4.578%, or $1.14450 per share per year, which is what the prefinfo.com description is referring to. This rate will not be reset until the next exchange date, 2019-12-31.

It is your choice as to whether you retain your C or convert to D. It’s a difficult question which I will address on PrefBlog.com on Thursday night. The first link in the next paragraph has some preliminary advice on the matter.

For more information on the reset, see http://prefblog.com/?p=26994, http://prefblog.com/?p=26996 and http://prefblog.com/?p=27036

If you have any ideas on how the prefinfo.com description can be made more clear, please let me know!

So the resets for the three captioned issues have been set, but the question remains – should they be converted into the FixedResets, which will pay a spread over three-month bills, reset quarterly, or not?

First, we will construct a table:

Imminent Resets
Issue Resets To Convertible to
Bills +X bp
Company Deadline for Conversion Instruction
TRP.PR.A 3.266% +192bp 2014-12-16-5pm
FFH.PR.C 4.578% +315bp 2014-12-16-5pm
AZP.PR.B 5.570% +418bp 2014-12-16-5pm
Note that the deadline given is the one given for receipt of instructions by the company. Your broker’s deadline will be earlier so don’t waste any time if you want to convert

Next, we will take a look at similar pairs currently trading:

Fixed Reset Fixed Rate Floating Reset Spread over Bills Bid Price
Fixed Reset
Bid Price
Floating Reset
Break-Even 3-Month Bill Rate
BNS.PR.P 3.35% BNS.PR.A 205 25.16 25.70 2.01%
TD.PR.S 3.371% TD.PR.T 160 25.23 25.31 1.87%
BMO.PR.M 3.39% BMO.PR.R 165 24.65 25.45 2.71%
BNS.PR.Q 3.61% BNS.PR.B 170 25.38 25.39 1.92%
TD.PR.Y 3.5595% TD.PR.Z 168 25.32 25.27 1.82%
BNS.PR.R 3.83% BNS.PR.C 188 25.39 25.45 2.02%
RY.PR.I 3.52% RY.PR.K 193 25.41 25.66 1.86%
DC.PR.B 5.688% DC.PR.D 410 25.07 25.00 1.51%

For further details of how the Break-Even Bill Rate is calculated, see the posts Pairs Equivalency Calculator and Strong Pairs. Basically, the idea is that the next time you have to make a choice, you won’t care which one of the pairs you are holding, because you’ll be able to convert. Therefore, the break-even bill rate is the rate at which the difference in total expected dividends equals the current difference in price.

The above table provides the material for the following chart:

FixedFloatingResetPairs_141211

At some point in the future, there might be a sufficient spread of future exchange dates, sufficient data points and sufficient knowledge by the market that there will be slope to the curve drawn, whence it will be possible to calculate the predicted future course of 3-month bill rates … but we’re not there yet!

The average for the investment grade issues is 2.03%, but this is distorted by the high figure of 2.71% for the BMO.PR.M / BMO.PR.R pair. The lowest reasonable expectation for break-even rates on the three issues of interest is about 1.80% and the high is about 2.00%. So let’s plug in those numbers and see what we get.

Estimation of FloatingReset Trading Prices
  Estimated Price
of FloatingReset
FixedReset Price of
FixedReset
2014-12-11
if breakeven 1.80% if breakeven 2.00%
TRP.PR.A 20.40 20.88 21.09
FFH.PR.C 23.83 24.21 24.41
AZP.PR.B 11.80 12.12 12.28

Given these data, I recommend that all the FixedResets be converted to FloatingResets, on the grounds that a worth-while capital gain may result from conversion if these new pairs trade comparably to current pairs; but I will note that in the conversion of DC.PR.B / DC.PR.D the average break-even rate traded by the market changed substantially between the decision date and the first trading date of the FloatingReset and made a mockery of my calculations. All you can do is play the odds … and cross your fingers!

As stated above, the company deadline for receipt of instructions is 2014-12-16-5pm for each of these issues, but brokerage deadlines will be earlier, so don’t waste any time instructing your broker to instruct the company to convert your shares if you wish to convert.

December 11, 2014

December 11th, 2014

The war on markets continues:

Citigroup Inc. (C) and Goldman Sachs Group Inc. were among 10 banks fined for failing to shield analysts from pressure to promote stocks a decade after a U.S. crackdown sought to end Wall Street conflicts of interest.

The investment banks promised favorable research to Toys “R” Us Inc. and its private-equity owners in 2010 to win roles in its initial public offering, the Financial Industry Regulatory Authority said today in a statement. The regulator fined the firms a total of $43.5 million, faulting them for “implicitly or explicitly” making promises that their analysts would give positive coverage. Six of the 10 firms didn’t have adequate supervisory procedures to prevent the practice.

Such silliness. Everything needs to be sold and brokerages are sales organizations; pretending otherwise just leads to problems and building an incentive to get around the rules right into the rules. The tension inherent in the current pretense of objectivity is unsustainable; however, as with all other unsustainable financial market tensions, it is impossible to tell just how the situation will eventually resolve.

Rob Carrick of the Globe writes a piece titled Preferred shares will not protect you like bonds will :

Where preferreds do not deliver is in a stock market decline. As the example of the past month shows, you get only a modest buffer against the broader market’s losses. Bonds, by contrast, will often rise in price as stocks sink.

Investors who hold preferred shares have to ask themselves the same question as people who have migrated from bonds to dividend-paying common shares. The question is this: What’s my priority – protecting my portfolio by hedging against stock market risk, or generating an attractive flow of income? If you’re in preferred shares for the income and can live with sliding share prices, then consider them as a bond substitute or companion. If portfolio buoyancy is your goal, then look to bonds and move your preferred shares over the equity side of your portfolio.

Let’s look at part of that again:

Bonds, by contrast, will often rise in price as stocks sink.

What kind of bonds? Long, short, corporate, government? How often will they rise in price as stocks sink? How much? What was the trigger for the decline in stocks? This is all very vague, but ever since Ben Graham made his silly mistake it’s been a very popular fallacy.

As mentioned yesterday, I read through the BoC Financial Stability Report article by Ian Foucher and Kyle Gray titled Exchange-Traded Funds: Evolution of Benefits, Vulnerabilities and Risks:

  • The global market for exchange-traded funds (ETFs) has exhibited strong growth in recent years, reaching US$2.3 trillion by the end of 2013. ETFs have clear advantages for investors, such as low-cost portfolio diversification and the liquidity of an exchange-traded product. However, recent disruptions in certain ETF products have highlighted the need to better understand the vulnerabilities and risks associated with this market.
  • ETFs are generally perceived by investors as having equity-like liquidity, but in times of stress, this liquidity may prove illusory for some funds. Synthetic ETFs also carry additional counterparty and collateral risk. If any of these risks materialized, it could trigger an investor run, which could negatively impact the underlying market as well as other similar funds.
  • The synthetic ETF market in Canada has a high concentration of counterparty risk compared with other jurisdictions. However, given the small size of this market segment, it does not represent a significant vulnerability for the Canadian financial system. Nonetheless, rapid changes in the ETF market imply that authorities need to monitor developments closely.

Well, it’s nice to have Canadian data and Canada-centric discussion, but there’s nothing really new that I can see. See the post Synthetic ETFs a Threat to Financial Stability? for links to a paper on the subject by Srichander Ramaswamy.

And let’s look at another part:

If portfolio buoyancy is your goal, then look to bonds and move your preferred shares over the equity side of your portfolio

Well, for most people that’s a pretty stupid goal, frankly. Ask not what you can do for your portfolio. Ask rather what your portfolio can do for you.

Q: Why did you scrimp and save for forty years?

A: Well, you see, my investment objective is portfolio buoyancy.

If portfolio buoyancy is your goal – for some bizarre reason that almost certainly has nothing to do with your actual life – even CAPM will tell you the right answer: reduce market exposure.

What kind of bonds? Maybe junk energy bonds?

The danger of stimulus-induced bubbles is starting to play out in the market for energy-company debt.

Since early 2010, energy producers have raised $550 billion of new bonds and loans as the Federal Reserve held borrowing costs near zero, according to Deutsche Bank AG. With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year.

“Anything that becomes a mania — it ends badly,” said Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management. “And this is a mania.”

But after the series of bad days we’ve been having, insurance sure would be nice!

luckInsurance

Well, according to my figures it was a mixed day on the Canadian preferred share market, but it will be remembered from yesterday that the Toronto Stock Exchange sold me moronic data for FTS.PR.F, making it down 11.87% on a bid/bid basis; today it has bounced back 11.16% and that has screwed up the figures again, which are PerpetualDiscounts up 60bp, FixedResets down 54bp and DeemedRetractibles gaining 4bp. The S&P/TSX indices, which use price/price to calculate returns, are TXPR down 54bp and TXPL down 81bp, so it was a pretty rough day. There is yet another lengthy list of performance highlights which is yet again dominated by losing FixedResets – although it is nice to see SLF.PR.G and MFC.PR.F, recent heavy heavy heavy losers, on the plus side of the ledger for a change. Volume was very high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:

  • based on Implied Volatility Theory only
  • are relative only to other FixedResets from the same issuer
  • assume constant GOC-5 yield
  • assume constant Implied Volatility
  • assume constant spread

Here’s TRP:

impVol_TRP_141211
Click for Big

So according to this, TRP.PR.A, bid at 20.40, is $1.08 cheap, but it has already reset. TRP.PR.B, bid at 17.25, resetting 2015-6-30 and TRP.PR.C, bid at 19.11, resetting 2016-1-30 are both fairly priced. The TRP issues seem to be steadily rationalizing, but there continues to be pressure on TRP.PR.A.

impVol_MFC_141211
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Excellent performance by MFC.PR.F today restored the Implied Volatility calculation to approximately what is was on December 8. Implied Volatility is very high at 38% – which indicates to me that the market accepts a relatively high degree of directionality (towards par) in future prices – MFC.PR.F, resetting at +141 on 2016-6-19 is about $0.85 cheap, while MFC.PR.H, resetting at +313 on 2017-3-19, is about $1.02 cheap.

As shown by the next two charts, the curve-fitting for MFC is much less ambiguous than it has been for the past two days.

impVol_MFC_141211_varSpread
Click for Big
impVol_MFC_141211_varVol
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Click for Big

BAM is a little hard to figure out.

impVol_BAM_141211
Click for Big

As with MFC on December 9 and December 10, it looks as if extraordinary cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, may be throwing off the Implied Volatility calculation; but that would leave the remaining issues trading at an very high Implied Volatility without any reason – whereas the MFC issues have, at a minimum, a chance of becoming subject to NVCC rules.

As calculated, though, BAM.PR.X, bid at 20.10, seems about $0.84 cheap while BAM.PR.R, resetting at +230 on 2016-6-30 and bid at 24.72, seems $1.40 rich.

impVol_FTS_141211
Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 19.10, looks $0.66 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 24.31, looks $0.66 expensive and resets 2019-3-1

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 -0.1226 % 2,521.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.1226 % 3,992.6
Floater 3.01 % 3.10 % 62,468 19.50 4 -0.1226 % 2,680.9
OpRet 4.40 % -9.95 % 27,474 0.08 2 0.1567 % 2,755.8
SplitShare 4.29 % 4.03 % 41,608 3.72 5 0.2125 % 3,178.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1567 % 2,519.9
Perpetual-Premium 5.44 % -1.15 % 74,743 0.08 20 0.0118 % 2,474.8
Perpetual-Discount 5.23 % 5.13 % 110,442 15.23 15 0.5967 % 2,630.9
FixedReset 4.31 % 3.79 % 215,621 16.45 75 -0.5437 % 2,500.7
Deemed-Retractible 5.00 % -1.37 % 101,195 0.21 40 0.0430 % 2,600.2
FloatingReset 2.55 % 2.03 % 63,755 3.46 5 -0.1100 % 2,541.4
Performance Highlights
Issue Index Change Notes
IFC.PR.A FixedReset -5.29 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.61
Bid-YTW : 4.70 %
PWF.PR.T FixedReset -4.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 22.89
Evaluated at bid price : 24.12
Bid-YTW : 4.00 %
MFC.PR.H FixedReset -2.24 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.27
Bid-YTW : 4.07 %
BMO.PR.M FixedReset -2.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.65
Bid-YTW : 3.52 %
TRP.PR.A FixedReset -2.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 20.40
Evaluated at bid price : 20.40
Bid-YTW : 4.14 %
CU.PR.C FixedReset -1.96 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 23.48
Evaluated at bid price : 25.00
Bid-YTW : 3.78 %
BMO.PR.Q FixedReset -1.85 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.90
Bid-YTW : 3.67 %
BAM.PF.B FixedReset -1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 22.96
Evaluated at bid price : 24.30
Bid-YTW : 4.14 %
BAM.PR.Z FixedReset -1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 23.44
Evaluated at bid price : 25.20
Bid-YTW : 4.33 %
MFC.PR.L FixedReset -1.68 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.58
Bid-YTW : 3.96 %
ENB.PR.T FixedReset -1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 21.94
Evaluated at bid price : 22.40
Bid-YTW : 4.42 %
BAM.PR.X FixedReset -1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 20.10
Evaluated at bid price : 20.10
Bid-YTW : 4.27 %
FTS.PR.M FixedReset -1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 23.16
Evaluated at bid price : 25.00
Bid-YTW : 3.87 %
TRP.PR.E FixedReset -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 23.10
Evaluated at bid price : 24.80
Bid-YTW : 3.86 %
BNS.PR.P FixedReset -1.33 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 3.27 %
BAM.PF.A FixedReset -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 23.28
Evaluated at bid price : 25.02
Bid-YTW : 4.27 %
FTS.PR.K FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 22.97
Evaluated at bid price : 24.31
Bid-YTW : 3.62 %
NA.PR.S FixedReset -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 23.24
Evaluated at bid price : 25.10
Bid-YTW : 3.79 %
BNS.PR.Y FixedReset -1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.60
Bid-YTW : 3.50 %
BNS.PR.Z FixedReset -1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.11
Bid-YTW : 3.59 %
FTS.PR.J Perpetual-Discount -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 23.39
Evaluated at bid price : 23.75
Bid-YTW : 5.02 %
BNS.PR.R FixedReset -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.39
Bid-YTW : 3.47 %
SLF.PR.G FixedReset 2.77 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.05
Bid-YTW : 5.49 %
MFC.PR.F FixedReset 5.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.75
Bid-YTW : 5.28 %
FTS.PR.F Perpetual-Discount 11.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 23.70
Evaluated at bid price : 24.01
Bid-YTW : 5.13 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.A FixedReset 275,974 Will reset at 3.266% effective December 31. Desjardins crossed 200,000 at 20.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 20.40
Evaluated at bid price : 20.40
Bid-YTW : 4.14 %
MFC.PR.N FixedReset 189,774 Recent new issue.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.02
Bid-YTW : 3.79 %
ENB.PR.N FixedReset 63,796 TD crossed 21,800 at 23.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 22.36
Evaluated at bid price : 23.02
Bid-YTW : 4.42 %
ENB.PR.B FixedReset 58,272 TD crossed 39,700 at 23.10.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 22.44
Evaluated at bid price : 22.90
Bid-YTW : 4.22 %
TRP.PR.E FixedReset 56,600 RBC crossed 50,000 at 25.27.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 23.10
Evaluated at bid price : 24.80
Bid-YTW : 3.86 %
BAM.PR.Z FixedReset 47,893 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 23.44
Evaluated at bid price : 25.20
Bid-YTW : 4.33 %
There were 53 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IFC.PR.A FixedReset Quote: 22.61 – 24.07
Spot Rate : 1.4600
Average : 0.8330

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.61
Bid-YTW : 4.70 %

PWF.PR.T FixedReset Quote: 24.12 – 25.56
Spot Rate : 1.4400
Average : 0.9067

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 22.89
Evaluated at bid price : 24.12
Bid-YTW : 4.00 %

TD.PR.S FixedReset Quote: 25.23 – 26.35
Spot Rate : 1.1200
Average : 0.6319

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.23
Bid-YTW : 3.15 %

BAM.PF.B FixedReset Quote: 24.30 – 24.92
Spot Rate : 0.6200
Average : 0.3781

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 22.96
Evaluated at bid price : 24.30
Bid-YTW : 4.14 %

MFC.PR.H FixedReset Quote: 25.27 – 25.94
Spot Rate : 0.6700
Average : 0.4360

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.27
Bid-YTW : 4.07 %

FTS.PR.K FixedReset Quote: 24.31 – 24.96
Spot Rate : 0.6500
Average : 0.4235

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-12-11
Maturity Price : 22.97
Evaluated at bid price : 24.31
Bid-YTW : 3.62 %

December 10, 2014

December 11th, 2014

The Boston Fed published a paper by Daniel Cooper and J. Christina Wang titled Student Loan Debt and Economic Outcomes:

This policy brief advances the growing literature on how student loan debt affects individuals’ other economic decisions. Specifically, it examines the impact of student loan liabilities on individuals’ homeownership status and wealth accumulation. The analysis employs a rich set of financial and demographic control variables that are not available in many of the existing studies that use credit bureau data. Overall, student debt lowers the likelihood of homeownership for a group of students who attended college during the 1990s. There is also a fairly strong negative correlation between student loan debt and wealth (excluding student loan debt) for a group of households with at least some college experience.

Indeed, student loan debt has now surpassed credit card debt to become the second largest amount of household debt outstanding after mortgage debt (see Figure 1). Unlike credit card debt and other household liabilities, however, student debt cannot be discharged in bankruptcy.

Consistent with the previous literature on socio-economic inequality in the United States, African Americans and Hispanics have substantially less wealth than Caucasians. This negative effect is largely reversed, however, among those minority homeowners with student loan debt outstanding. This result likely reflects the fact that, among minorities, those who pursued higher education—even if they had to borrow to do so—likely have greater earning power and can accumulate more assets while they are young than minorities who did not attend college.

They also published an interesting paper by Claire Greene and Scott Schuh titled U.S. Consumers’ Holdings and Use of $100 Bills:

Conventional wisdom asserts that $100 bills are often associated with crime and foreign cash holdings, leading some commentators to call for their elimination; in light of this view, it is useful to examine the legal, domestic use of cash. This report uses new data from the 2012 Diary of Consumer Payment Choice (DCPC) to evaluate consumer use of $100 bills as a means of payment. On a typical day in the United States, 5.2 percent of consumers have a $100 bill in their pocket, purse, or wallet. But only 22 percent of U.S. consumers have at least $100 in their wallet, pocket, or purse. Of these cash-intensive consumers, the main association with holding a $100 bill is the amount of cash carried. A consumer who carries $400 to $699 has a 64 percent probability of carrying at least one $100 bill.

Recently, Harvard economist Kenneth Rogoff called for the total elimination of $100 bills.4 According to Rogoff (2014), the evidence suggests that, in most countries, more than 50 percent of currency is used to facilitate anonymous transactions for tax evasion or other illegal activities.

The DCPC shows that consumers still use cash heavily as a means of payment. U.S. consumers age 18 and older carry an average of $56 on their person (pocket, purse, or wallet), and the median consumer carries $22. Cash is still the most common method of payment for consumers (40.3 percent of the number of payments per month), even though the dollar value of these payments is relatively low (14.2 percent of value per month) because the average cash payment is small ($20.73). Only 6.6 percent of reported cash payments by number of transactions (12.3 percent by value) were in categories that were not well defined or documented and, therefore, might be more likely to be associated with criminal or underground economic activity.

Over the last three decades, the value of 100s shipped by the Fed to depository institutions has increased dramatically relative to other denominations. This could be due in part to inflation, to the elimination of the larger denominations, and/or to an increase in demand for U.S. currency outside the United States. Hundreds represented just about 10 percent of the value of cash shipped in January 1974, compared with 45 percent in 2010.8 In 2013, the value of $100 bills in circulation was $925 billion—enough for every person in the United States (including children) to hold $3,000 in $100 bills.

On any given day in October 2012, 5.2 percent of U.S. consumers carried at least one $100 bill in their pocket, purse, or wallet (on person). This statistic is somewhat incomplete because only consumers carrying at least $100 of cash (total of all denominations) could be carrying a $100 bill. As shown in Figure 6, cash holdings on person by U.S. consumers are skewed toward values much less than $100: 78 percent of consumers carried $99 or less, including 28 percent who carried $19 or less. A small proportion of consumers carry the largest amounts of cash in value. Only 22 percent of U.S. consumers carried $100 or more; just 8 percent carried $200 or more. Therefore, it is necessary to ask who carries $100 before asking who carries a $100 bill.

Among consumers who carry $100 or more, about one in six (17.6 percent) carries at least one $100 bill. The probability of carrying a $100 bill rises as a consumer’s total cash on person increases, as shown in Figure 8. For consumers carrying between $400 and $699, the probability of carrying $100 bill is more than 60 percent. The probability jumps to 94 percent when cash holdings exceed $700. In addition, as cash on person increases, consumers carry more $100 bills (Figure 9).

If they are carrying at least $100 and all other factors are equal, women are more likely than men to carry a $100 bill or bills and people younger than 25 are more likely than people 25 years old or older to carry a $100 bill or bills. No other demographic characteristics are helpful in explaining the probability of holding a $100 bill by a consumer who carries at least $100.

Patricia L. Olasker and Mindy Gilbert of Davies Ward Phillips & Vineberg LLP have submitted a comment letter on the National Securities Regulator legislation:

The PCMA introduces numerous substantive changes from the current securities law of Ontario. These include:
  • •change to the long-standing and widely used definition of “misrepresentation”;
  • •the broadening of the insider trading prohibition to include conduct that stops short of a sale of a security and to include transactions in securities of non-reporting companies;
  • •change to the exception to the tipping prohibition;
  • •introduction of a novel fiduciary relationship between underwriters and their clients;
  • •unprecedented regulation of shareholders holding 20% or more of a public company as if they were “market participants”; and
  • •introduction of a novel “obstruction” prohibition prohibiting the withholding of information from the regulatory authority and potentially intruding on the solicitor/client relationship.


We are also concerned about the extent to which the PCMA takes a platform approach to legislation. Not only are entire areas of the law proposed to be addressed in regulations, but the legislation omits a number of well-established elements of securities law. We believe that fundamental established elements of the existing law should be enshrined in the legislation itself. The commentary accompanying the release of the draft legislation noted that the platform approach was intended to promote “regulatory flexibility allowing the Authority to respond to market developments in a timely manner”. Our concern with this is threefold:

  • 1.It allows for legislation by regulatory fiat with limited political accountability.
  • 2.It undermines one of the key features of a sound capital market − namely, stability and predictability in the legal and regulatory regime, which are essential to transaction planning. With vast sections of the law, including key cornerstone elements, being left to regulation, there is significant risk of instability in the law, with the potential for substantive changes to be effected through a process subject to no more discipline than a 90-day request for comments.
  • 3.We are sceptical of the premise that more regulatory flexibility is required than exists under the current regime. In fact, with the introduction of the federal Capital Markets Stability Act, which will allow the cooperative regulator to act to address systemic risks to the capital markets, one could argue that less rather than more regulatory flexibility is necessary at the PCMA level.

    This echoes many of the concerns raised by Jeffrey MacIntosh.

    And the BOC has published a paper by Gregory Bauer titled International House Price Cycles, Monetary Policy and Risk Premiums:

    Using a panel logit framework, the paper provides an estimate of the likelihood of a house price correction in 18 OECD countries. The analysis shows that a simple measure of the degree of house price overvaluation contains a lot of information about subsequent price reversals. Corrections are typically triggered by a sharp tightening in the monetary policy interest rate relative to a baseline level in each country. Two different assessments of the current and future baseline estimates of monetary policy interest rates are provided: a simple Taylor rule and one extracted from a term structure model. A case study based on the Canadian housing market is presented.

    In this paper, we construct a model to forecast house price corrections in the national housing markets of 18 OECD countries. We focus on large corrections: the (real) national house price index must decline by at least 10 per cent and the correction must last at least four quarters. There are 43 such corrections in our post-1975 sample, which highlights the advantage of an international data set. More importantly for policy-makers, the corrections appear to be triggered by increases in central bank policy rates.

    In theory, it should be possible to estimate the degree of house price overvaluation and the consequent likelihood of a correction using the data from a single country only. However, it will be di¢ cult to estimate the degree of overvaluation in a given country if the values of homes in the markets are already away from their fundamental values. Regressing one upward-trending series (such as real house prices) on another trending series (such as real per capita income) will always produce a coefficient that can justify most of the current level of valuation. The addition of many other countries, with housing market cycles that may be different from that of Canada, will impose more discipline on the estimation of such a coefficient.

    Figure 2 displays the real house price index in each country along with the periods that have been identified as corrections. The country with the highest number of corrections is Spain, at six corrections between 1975Q1 and 2014Q2. Denmark has experienced …five corrections over its history. Japan records the longest duration of a housing market correction at 61 quarters, or 15 years. Other notable countries with long correction durations are Spain (26 quarters), Germany (25 quarters), Italy (25 quarters) and Sweden (25 quarters).

    Canada’’s historical record shows two such corrections. Prices declined by a total of 30 per cent over a period of six quarters starting in 1981Q3, and by 17 per cent over a one-year period beginning in 1990Q2. For comparison, the United States also saw two housing market corrections. The first occurred in 2006Q4 and lasted seven quarters, and the second began in 2009Q1 and ended …five quarters later. During these two periods, the country experienced house price declines of 10 per cent and 14 per cent, respectively.

    The Canadian and other country average amounts of overvaluation are shown in Figure 3. The average amount of overvaluation across the other 17 OECD countries (black line) shows considerable variation over time, reaching approximately 15 per cent at the height of the latest boom period. Canadian house prices (red line) were considered to be “fairly” valued in 2004, but are now estimated to be overvalued by slightly over 20 per cent (as of 2014Q2). The interquartile range of the 18 country estimates (the 25th and 75th percentile of overvaluation at each point in time) is shown in dotted lines.

    There are a number of conclusions of interest to policy-makers. First, the relatively simple way of assessing house price overvaluation has good forecasting power for subsequent corrections. The variable is signifi…cant in all specifi…cations and at all horizons. Second, while the two methods of estimating the monetary policy stance of the central banks produce similar results, the method of extracting a global risk premium from the long-term interest rate has some advantages. The expectations component is forward looking and rises well in advance of the corrections. This may be quite useful to policy-makers today who face the zero lower bound on current policy rates while the long-term rates incorporate expectations of future rate increases.

    Third, there is a distinct forecast-horizon aspect to the results. Attempting to forecast a house price decline that is going to start in the next quarter is extremely difficult. The signals from this modelling approach are very weak and would be engulfed by the noise.

    The BoC warned of rising illiquidity in the Canadian corporate bond market:

    The Bank of Canada warned that investors in the nation’s corporate bond market may be underestimating the difficulty of selling the securities in a market downturn, putting them at risk of greater losses.

    Rising holdings of corporate bonds in mutual and exchange-traded funds could exacerbate price swings if the funds are forced to sell in a rout, the central bank said in its semi-annual Financial System Review. Some market participants also “believe” dealers are reducing market-making activity, or acting as the middleman between trades, which may make it harder to unwind large positions, the bank said.

    “A potential deterioration of liquidity in Canadian corporate bond markets may not be fully priced in,” according to the report. “Market trends suggest that more sizable price swings might be observed in the future than previously, should investors seek to simultaneously unwind large positions.”

    The greater role of ETFs and mutual funds in the market could cause “price dislocations” if investors cash out and funds are forced to sell underlying corporate bond holdings at lower prices, the report said.

    I’ll try to review the Review in a while.

    Update: The Financial System Review, December 2014 isn’t really all that interesting, although I may review their article on ETFs tomorrow. The Bloomberg story is a fair synopsis of what is said about corporate bonds on pp. 21-22 of the publication, except that the bank is concerned that rising holdings by foreigners could increase exposure to external shocks.

    And, oh yeah, there was a little bit of action in the equities market:

    Canadian stocks sank the most in 17 months, sending the benchmark gauge to the lowest level since February, as crude resumed a selloff after OPEC said demand will drop next year.

    Penn West Petroleum Ltd. and Crescent Point Energy Corp. plunged at least 9.8 percent as energy producers sank to a 2012 low. Laurentian Bank of Canada (LB) dropped 5.3 percent to pace declines among financial services stocks. All 10 main groups in the benchmark index lost at least 0.4 percent.

    The Standard & Poor’s/TSX Composite Index (SPTSX) fell 342.78 points, or 2.4 percent, to 13,852.95 at 4 p.m. in Toronto. The equity gauge has dropped 4.3 percent this week, paring its advance this year to 1.7 percent. Trading volume was 38 percent above the 30-day average.

    Oil, bank and raw-materials are the biggest laggards in Canada for the first time since at least 1988, fueling concern the nation’s economy is fading just as the U.S. is taking off. The three industries, which collectively account for two-thirds of the S&P/TSX, are the worst performers among 10 groups this year, led by a 18 percent slump in energy, according to data compiled by Bloomberg.

    Which is kind of tough news for preferred share investors who have tried to escape the downturn.

    badLuck
    Click for Big

    Technically, it was a mixed day for the Canadian preferred share market, with PerpetualDiscounts losing 92bp, FixedResets down 25bp and DeemedRetractibles squeaking out a gain of 3bp; PUT THAT GUN DOWN, IT WASN’T THAT BAD! The loss for PerpetualDiscounts is grossly overstated due to some more Toronto Stock Exchanges idiocy (either with respect to its market makers, or its reporting, I’m not sure which). About 60bp of the reported tumble in PerpetualDiscounts is due to an overstatement of the bad day experienced by FTS.PR.F; see the Performance Highlights table for an explanation. The Performance Highlights table is, again, dominated by lower-spread FixedResets and has a good contingent of credit-nervous ENB issues. Volume was average.

    PerpetualDiscounts now yield 5.14% (the mispricing of FTS.PR.H is not a disaster, since this is a median figure), equivalent to 6.68% interest at the standard conversion factor of 1.3x. Long corporates now yield about 4.05%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 255bp, a significant increase from the 235bp reported November 26.

    For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

    Remember that all rich /cheap assessments are:

    • based on Implied Volatility Theory only
    • are relative only to other FixedResets from the same issuer
    • assume constant GOC-5 yield
    • assume constant Implied Volatility
    • assume constant spread

    Here’s TRP:

    impVol_TRP_141210
    Click for Big

    So according to this, TRP.PR.A, bid at 20.84, is $0.76 cheap, but it has already reset. TRP.PR.B, bid at 17.35, resetting 2015-6-30 and TRP.PR.C, bid at 19.01, resetting 2016-1-30 are both fairly priced. The TRP issues seem to be steadily rationalizing, but there continues to be pressure on TRP.PR.A.

    The MFC series continues to be weird.

    impVol_MFC_141210
    Click for Big

    Clearly MFC.PR.F, resetting at +141 on 2016-06-19, is out of step with the others and is screwing up the calculation. To the extent that one can trust both Implied Volatility Theory AND the market’s reasonably more-or-less consistent application of it, MFC.PR.F should be bid significantly higher than its current 19.75 and the calculated Implied Volatility should be higher than the distorted value of 14%. The fit is pretty poor – all one can really tell is that the Spread is more than about 80bp and the Implied Volatility is more than about 12%.

    impVol_MFC_141210_varSpread
    Click for Big
    impVol_MFC_141210_varVol
    Click for Big

    The BAM series is now also a little out of whack:

    impVol_BAM_141210
    Click for Big

    BAM.PR.X, with a +180bp spread, bid at 20.70, looks $0.80 cheap and doesn’t reset until 2017-6-30 while BAM.PR.R, with a +230bp spread, bid at 25.23, looks $1.36 rich and resets 2016-6-30. So go figure that one out, wise guy. As with the MFC series above, it seems that the extreme cheapness of the lowest-spread issue is materially distorting the calculation of Implied Volatility.

    impVol_FTS_141210
    Click for Big

    This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 19.16, looks $0.71 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 24.62, looks $0.75 expensive and resets 2019-3-1

    impVol_BCE_141210
    Click for Big

    Oddly, the fit for BCE is pretty good, with the model having no problem fitting BCE.PR.K, resetting at +188bp on 2016-12-30, to the curve formed by the other BCE FixedResets.

    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 0.0711 % 2,525.0
    FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0711 % 3,997.5
    Floater 2.99 % 3.11 % 61,290 19.38 4 0.0711 % 2,684.2
    OpRet 4.41 % -6.03 % 28,395 0.08 2 -0.0196 % 2,751.5
    SplitShare 4.30 % 4.02 % 38,826 3.73 5 -0.2087 % 3,171.9
    Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0196 % 2,515.9
    Perpetual-Premium 5.44 % -1.34 % 72,943 0.08 20 -0.0959 % 2,474.5
    Perpetual-Discount 5.24 % 5.14 % 111,527 15.23 15 -0.9199 % 2,615.3
    FixedReset 4.28 % 3.75 % 206,125 16.26 75 -0.2491 % 2,514.4
    Deemed-Retractible 5.00 % 1.75 % 101,180 0.14 40 0.0319 % 2,599.1
    FloatingReset 2.55 % 1.89 % 60,563 3.47 5 -0.2508 % 2,544.2
    Performance Highlights
    Issue Index Change Notes
    FTS.PR.F Perpetual-Discount -11.87 % The “Last” quote, sold to me by the Toronto Stock Exchange of 21.60-24.82 is nonsensical, since there were a number of tiny trades at 3:55pm at about 24.20 (thirteen, all of 100 shares, plus one 95-share odd-lot). The low for the day was 24.19. It is not clear whether this huge burst of market activity overwhelmed the market maker who ran home crying before the bell, or whether a bid was cancelled between the “Close” and the “Last” and I’m not going to spend time and money figuring it out either because, frankly, I’m sick of these clowns.
    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 21.60
    Evaluated at bid price : 21.60
    Bid-YTW : 5.72 %
    FTS.PR.H FixedReset -3.33 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 19.16
    Evaluated at bid price : 19.16
    Bid-YTW : 3.83 %
    TRP.PR.C FixedReset -2.76 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 19.01
    Evaluated at bid price : 19.01
    Bid-YTW : 4.09 %
    TRP.PR.A FixedReset -2.48 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 20.84
    Evaluated at bid price : 20.84
    Bid-YTW : 4.06 %
    ENB.PF.C FixedReset -2.38 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 22.46
    Evaluated at bid price : 23.36
    Bid-YTW : 4.44 %
    ENB.PF.E FixedReset -2.05 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 22.47
    Evaluated at bid price : 23.41
    Bid-YTW : 4.44 %
    ENB.PR.N FixedReset -1.86 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 22.43
    Evaluated at bid price : 23.16
    Bid-YTW : 4.38 %
    FTS.PR.J Perpetual-Discount -1.48 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 23.62
    Evaluated at bid price : 24.00
    Bid-YTW : 4.96 %
    ENB.PF.A FixedReset -1.42 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 22.57
    Evaluated at bid price : 23.56
    Bid-YTW : 4.40 %
    ENB.PF.G FixedReset -1.26 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 22.54
    Evaluated at bid price : 23.56
    Bid-YTW : 4.43 %
    MFC.PR.F FixedReset -1.25 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 19.75
    Bid-YTW : 5.87 %
    SLF.PR.G FixedReset -1.22 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 19.51
    Bid-YTW : 5.81 %
    BNS.PR.Z FixedReset -1.18 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2022-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 24.37
    Bid-YTW : 3.42 %
    BAM.PR.X FixedReset -1.00 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 20.70
    Evaluated at bid price : 20.70
    Bid-YTW : 4.22 %
    MFC.PR.B Deemed-Retractible 1.13 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 23.26
    Bid-YTW : 5.58 %
    GWO.PR.N FixedReset 1.29 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 19.61
    Bid-YTW : 5.66 %
    MFC.PR.L FixedReset 3.91 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 25.00
    Bid-YTW : 3.75 %
    Volume Highlights
    Issue Index Shares
    Traded
    Notes
    ENB.PF.C FixedReset 180,591 Nesbitt sold 10,700 to RBC at 23.89 and crossed 146,700 at 23.50.
    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 22.46
    Evaluated at bid price : 23.36
    Bid-YTW : 4.44 %
    BAM.PR.X FixedReset 105,958 Nesbitt crossed 94,700 at 20.85.
    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 20.70
    Evaluated at bid price : 20.70
    Bid-YTW : 4.22 %
    TRP.PR.A FixedReset 94,514 Will reset at 3.266% effective December 31.
    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 20.84
    Evaluated at bid price : 20.84
    Bid-YTW : 4.06 %
    HSE.PR.C FixedReset 79,500 Recent new issue.
    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 23.15
    Evaluated at bid price : 24.98
    Bid-YTW : 4.47 %
    ENB.PR.A Perpetual-Premium 65,438 Scotia bought two blocks from Nesbitt, of 26,000 and 20,000, both at 25.50.
    YTW SCENARIO
    Maturity Type : Call
    Maturity Date : 2015-01-09
    Maturity Price : 25.00
    Evaluated at bid price : 25.25
    Bid-YTW : -4.93 %
    ENB.PR.D FixedReset 59,120 Nesbitt crossed 40,000 at 23.00.
    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 22.31
    Evaluated at bid price : 22.83
    Bid-YTW : 4.21 %
    There were 33 other index-included issues trading in excess of 10,000 shares.
    Wide Spread Highlights
    Issue Index Quote Data and Yield Notes
    FTS.PR.F Perpetual-Discount Quote: 21.60 – 24.80
    Spot Rate : 3.2000
    Average : 1.7894

    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 21.60
    Evaluated at bid price : 21.60
    Bid-YTW : 5.72 %

    HSE.PR.A FixedReset Quote: 19.41 – 20.21
    Spot Rate : 0.8000
    Average : 0.5156

    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 19.41
    Evaluated at bid price : 19.41
    Bid-YTW : 4.20 %

    FTS.PR.H FixedReset Quote: 19.16 – 19.74
    Spot Rate : 0.5800
    Average : 0.3744

    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 19.16
    Evaluated at bid price : 19.16
    Bid-YTW : 3.83 %

    MFC.PR.G FixedReset Quote: 25.60 – 26.10
    Spot Rate : 0.5000
    Average : 0.3390

    YTW SCENARIO
    Maturity Type : Call
    Maturity Date : 2016-12-19
    Maturity Price : 25.00
    Evaluated at bid price : 25.60
    Bid-YTW : 3.13 %

    NEW.PR.D SplitShare Quote: 32.51 – 33.23
    Spot Rate : 0.7200
    Average : 0.5696

    YTW SCENARIO
    Maturity Type : Call
    Maturity Date : 2015-06-26
    Maturity Price : 32.07
    Evaluated at bid price : 32.51
    Bid-YTW : 3.22 %

    FTS.PR.J Perpetual-Discount Quote: 24.00 – 24.50
    Spot Rate : 0.5000
    Average : 0.3510

    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-10
    Maturity Price : 23.62
    Evaluated at bid price : 24.00
    Bid-YTW : 4.96 %

    FCS.PR.B To Mature On Schedule

    December 11th, 2014

    As indicated in the post New Issue: FCS SplitShare, Interest-Bearing, 6.00%, 4.5-Year, Faircourt Asset Management has announced (although not yet on their website):

    The net proceeds of the Offering of Preferred Securities will be used to fund the redemption of the 6.25% preferred securities of the Trust which mature on December 31, 2014.

    FCS.PR.B has been tracked by HIMIPref™ but has been relegated to the Scraps index on both credit and volume concerns. FCS.PR.B was last mentioned on PrefBlog in connection with the 2013 retraction.

    Update, 2014-12-18: They have been more verbose (although again not yet on their website):

    Faircourt Asset Management Inc., as manager for Faircourt Split Trust (TSX:FCS.UN)(TSX:FCS.PR.B) (the “Trust”) is pleased to remind the holders of the Trust’s 6.25% Preferred Securities that such 6.25% Preferred Securities are scheduled to mature on December 31, 2014. Payment of the principal will be made in accordance with the provisions of the trust indenture and first supplemental indenture governing the 6.25% Preferred Securities. Accrued interest will also be paid on December 31, 2014 to holders of record as of December 18, 2014, as per the Trust’s previously announced quarterly interest payment press release made on December 10, 2014.

    Faircourt Asset Management Inc. is the Investment Advisor for Faircourt Gold Income Corp, Metals Plus Income Corp, and Faircourt Split Trust.

    New Issue: FCS SplitShare, Interest-Bearing, 6.00%, 4.5-Year

    December 11th, 2014

    Faircourt Asset Management has announced (although not yet on their website):

    Faircourt Asset Management Inc., the manager of Faircourt Split Trust (the “Trust”) (TSX: FCS.UN; FCS.PR.B), is pleased to announce that it has filed a preliminary short form prospectus for an offering of a new series of 6.00% preferred securities (the “Preferred Securities”) in order to relever the existing trust units (the “Units”) of the Trust and additional Units and Preferred Securities on a matched basis (the “Offering”).

    The Preferred Securities are to be issued at $10.00 per Preferred Security to yield 6.00% on the issue price. The Preferred Securities have been provisionally rated Pfd-3 (low) by DBRS Limited.

    The Offering is expected to close on or about December 30, 2014. The net proceeds of the Offering of Preferred Securities will be used to fund the redemption of the 6.25% preferred securities of the Trust which mature on December 31, 2014. To the extent the net proceeds of the Offering exceed the funding requirements associated with these redemptions, the Trust may purchase additional securities to be held in the portfolio of securities of the Trust in accordance with the investment objectives and investment strategy of the Trust and subject to the investment restrictions of the Trust.

    The syndicate of agents for the Offering is being co-led by National Bank Financial Inc. and CIBC World Markets Inc., and includes Canaccord Genuity Corp., GMP Securities L.P. and Raymond James Ltd.

    The preliminary prospectus is available on SEDAR with the references “Dec 10 2014 10:59:07 ET Preliminary short form prospectus – English PDF 378 K”. I am not permitted to link directly to the preliminary prospectus since the Alberta Securities Commission has decided that this would make life too easy for retail scum like you. Suck it up, scumbags!

    DBRS has assigned a preliminary rating of Pfd-3(low):

    DBRS Limited (DBRS) has today assigned a provisional rating of Pfd-3 (low) to the 6.00% Preferred Securities to be issued by Faircourt Split Trust (the Company). The 6.00% Preferred Securities are being issued to fund the redemption of the currently outstanding 6.25% Preferred Securities, which are scheduled to mature on December 31, 2014. Additional 6.00% Preferred Securities and Trust Units may be issued on a matched basis. The 6.00% Preferred Securities will be scheduled to mature on June 30, 2019.

    The Company has advised DBRS that the initial downside protection available to holders of the 6.25% Preferred Securities is expected to be approximately 34.9% after the payment of all issuance expenses. Dividends received on the Portfolio will be used to pay a fixed cumulative quarterly distribution to holders of the 6.00% Preferred Securities, while holders of the Trust Units are expected to receive a monthly distribution of $0.02. Based on the current dividend yield on the Portfolio as of November 24, 2014, the 6.00% Preferred Securities dividend coverage ratio is expected to be approximately 0.04 times.

    The Dividend Coverage Ratio referred to by DBRS is extremely low but looks accurate. According to the 2014H1 Semi-Annual Report, the fund’s income from “Distributions and dividends” was $ 475,389 and “Interest for distribution purposes” was $27,866, is a total of $503,255. I am ignoring realized and unrealized capital gains for this purpose, as well as “Income from Derivatives” which is capital gains from options trading, and ignoring the Foreign Exchange loss.

    Expenses include Management Fees, Service Fees, Audit Fees, Legal Fees, Security Holder Reporting Costs, Custodial Fees, Independent Review Committee Fees and Withholding Taxes, total $456,188 (I’m leaving out Commissions and Other Portfolio Transaction Costs) leaves a net $47,067 to cover $903,204 in Preferred Security interest payments, is an income coverage of 5%. So it looks like the DBRS estimate of 4% is entirely realistic.

    This is likely to be a very small issue, but since HIMIPref™ has been tracking FCS.PR.B (which will be refunded from the proceeds of this issue), I’ll track this one too.

    Jack Mintz On Exempt Market Regulation

    December 10th, 2014

    Jack Mintz has published an excellent commentary titled Muddling Up The Market: New Exempt-Market Regulations May Do More Harm Than Good To The Integrity Of Markets:

    From private debt and equity markets to crowd funding, exempt markets have been used to raise more money for Canadian enterprises in recent years than all public offerings put together. Vastly more: Between 2010 and 2012, exempt-market offerings raised four times as much capital as the initial and secondary public offerings during the same period. The precise reasons behind the immense popularity of exempt markets can only be guessed at; it may well be due to the desire, by both issuers and by investors, to avoid the regulatory costs associated with raising capital in public markets. We are left to speculate, however, because the Canadian exempt market remains relatively unstudied, despite its enormous role in funding capital investments in Canada.

    The lack of information about exempt markets, however, is not stopping provincial regulators in Canada’s largest markets from charging ahead with new proposals for rules that would govern exempt markets. Unfortunately, with so little information available about these markets, whatever the aim of the reforms in pursuing the goals of effective market regulation, they may end up being more harmful than helpful.

    Ontario is proposing to broaden the category of investors eligible to participate in these markets under a new exemption. But the category will remain stricter than in many other markets and Ontario proposes to also put very low limits on how much each investor is allowed to put at risk. Quebec, Alberta and Saskatchewan are also proposing the same $30,000 limit for any given 12-month period. And Ontario will prohibit the sale of exemptmarket securities by agents that are related to, or affiliated with, the registrant, even if measures are employed that have previously been accepted in managing and mitigating conflicts of interest. This will have a direct and damaging impact on exempt-market dealers, who are only allowed to sell exempt-market securities.

    All of these proposals are intended to protect investors from the higher risks that are presumed of exempt markets. However, there is no evidence — given the paucity of information about them — that exempt markets necessarily pose a greater risk of fraud or poorer returns and losses than do heavily regulated public markets. And if risk is indeed higher in the exempt markets, one would expect these proposed regulations to assist high quality firms from distinguishing themselves in the exempt market from low-quality firms. However, these regulations may actually have the opposite effect, making it harder for better-quality firms to signal their worthiness to investors.

    Canadian productivity — which continues to lag relative to other developed economies — relies heavily on businesses being able to acquire capital for investing in new technologies. Canadian companies and investors appear to be voting with their feet for exempt markets in raising that capital, possibly discouraged from public markets by regulatory costs and inefficiencies. For policy-makers to layer additional regulation on top of exempt markets without fully understanding the impact that it will have, could well result in making Canadian markets, and Canada’s economy, weaker, rather than stronger.

    The paper was prompted by an initiative led by the OSC:

    Currently, Ontario primarily limits exempt markets to “accredited investors” who must satisfy certain rules, such as an investor and spouse having at least $1 million in net financial assets, or $5 million in total net assets, or net income above $200,000 (or $300,000 with a spouse) over the previous two years with a reasonable expectation of exceeding that in the current year.

    Generally, few limitations are imposed on how much equity an investor may acquire or the size of offerings of exempt securities, and there is no requirement for the issuer to provide any disclosure to the accredited investor.

    The proposed Ontario rules will broaden the category of investors to include “eligible investors” in a way that is similar, but not the same as, existing rules in all other provinces. The proposed Ontario rules would allow investors to invest in exempt securities, if they have:
    (i) $400,000 in net assets or more, including their primary residence; or
    (ii) $250,000 in net assets or more, excluding their primary residence; or
    (iii) $75,000 in net income (or, with a spouse, $125,000 of net income) in the previous two years, with the expectation of having the same or larger net income in the year of the offering.

    This is all provided that the issuer gives to the investor an offering memorandum (described below) prior to the investment.

    Each “eligible investor” will also be restricted from purchasing, in aggregate from the market as a whole, no more than $30,000 in exempt securities over a rolling 12-month period under such an offering-memorandum exemption. Investors in Ontario who are not accredited investors or eligible investors will be restricted to acquiring, in aggregate from the market as a whole, not more than $10,000 in exempt securities over a rolling 12-month period under such an offering-memorandum exemption.

    Mr. Mintz points out:

    Certainly, risks can be significant for ill-informed investors, and exempt securities can have significantly less liquidity than securities issued by some public issuers. Yet, despite these risks, the exempt markets are a significant source of capital. This raises the question of whether businesses are accepting the higher financing costs due to any additional investor risk with less information disclosure, in exchange for faster speed of raising capital and lower regulatory costs than would be faced in the public markets. In other words, are businesses and investors voting with their feet to move to exempt markets? If so, this raises questions about the effectiveness of financial-market regulations with respect to market efficiency, financial stability and investor protection, to which I now turn.

    Well, sure. While Mr. Mintz is exclusively concerned with firms raising bricks-and-mortar capital on the exempt market, Assiduous Readers will remember that my fund Malachite Aggressive Preferred Fund is not a public fund because it would cost too much. At least $500,000 for a prospectus, probably more, and grossly inflated operating costs due to the necessity for an Independent Review Committee and a Custodian; the cost of which means better distribution is absolutely required, which means membership in the big boys’ FundSERV which is not exactly cheap, and trailer fees because, bleating of do-gooders notwithstanding, ain’t nobody gonna sell it for free, (or if trailer fees are banned, I might just as well burn my money because of the ‘nobody ever got fired for buying IBM’ mindset, as well as the not-really-tied-selling-honestly in bank channels) … all of which would mean

    • higher costs for investors
    • I have to change my title to “Chief Salesman”, a job for which I am ill-suited and totally disinterested
    • I’d have to employ an ex-regulator whose job would be to tell his old buddies how totally on top of compliance he is

    Screw that, as they say in French. But it would be nice, very nice, to be able to offer the fund to a wider potential clientele.

    Mr. Mintz concludes:

    The largely unstudied exempt markets account for a major share of securities issues by Canadian businesses. This paper provides an overview of the regulatory framework, suggesting that much more effort is needed to study this important market. The exempt market plays an important economic role in Canadian capital markets — regulations should be optimal in their design to balance market efficiency, financial stability and investor protection as objectives.

    Regulations vary by province with different standards used to regulate disclosure requirements and investor qualifications for holding exempt securities. However, these regulations are set in a vacuum of information, as we do not understand the characteristics of exempt markets, the economic impact of various restrictions and alternative forms of investor protection. Certainly, regulators should consider not just the characteristics of investors but also other factors, such as different levels of disclosure, in formulating regulatory policy.

    In a recent panel discussion:

    Mr. Mintz isn’t so sure such a cap is necessary, nor is he convinced the current rules must be changed. After thorough research, he’s concluded there is almost no data on the private markets. “The first question we should be asking is: what is the problem?” he said during a panel discussion to discuss his new paper in Toronto Monday.

    When it comes to regulation, [former OSC chair] Mr. [Ed] Waitzer said, “we don’t know what works in protecting investors from fraudsters. We don’t know what works in protecting investors from themselves.” That doesn’t meant the OSC’s proposals are bad, but he believes the rules may not be necessary or the best means of protection. Instead of targeting caps on private investments, maybe regulators should simply ensure investment advisers follow their fiduciary duties, he argued.

    The OSC has responded in a letter that has been published as a PDF image, in order (as far as I can tell) to hinder public dissemination via copy-pasting. Interested parties are assured that the OSC is “taking a more balanced approach that includes important investor protections”. The letter addresses process, not evidence and argument.

    Terence Corcoran commented in the Financial Post:

    Instead of responding to the substance of Mr. Mintz’s paper, Mr. Turner waffled through hundreds of words that said nothing.

    There were ‘extensive consultations that support our proposals,’ he said. There is data, he insisted, there have been stakeholder meetings, and in any case “we believe an incremental approach to broadening access is appropriate.”

    Sounds like the precautionary principle creeping into the regulator’s office.

    And Mr. Mintz has responded:

    “I believe the Ontario Securities Commission is following a prudent path in creating an Offering Memorandum regime similar to those in Quebec, Alberta, BC and other provinces.

    However, Ontario is also considering imposing new restrictions on the exempt market that have not existed before. Particularly, the $30,000 cap on individual investments. Now, a similar cap is being considered by other provinces.

    Per my research, I remain concerned that this cap could do more harm than good by inhibiting business capital financing, especially for better companies. Further, there remains an absence of empirical evidence that a ‎cap is needed at all. Before imposing a cap like this, it is important to take a step back, gather empirical data, and understand the potential impacts of a cap on investment into the exempt market.

    Finally, I am grateful that the OSC has taken such an interest in my research. However, to the points made in the letter, I do not believe that “consultation” is a substitute for empirical, data-based research on the impacts of regulatory changes to the exempt market. The onus is on regulators to engage in this research and gather data before proposing changes that could have a significant negative impact on what is a very important source of business funding in Canada.”

    December 9, 2014

    December 10th, 2014

    Securities market participants will be gratified to learn that the tradition of administrative efficiency in Canadian securities regulation will be continued by the national securities regulator:

    Canada’s new securities regulator is facing another delay on the bumpy road to its launch in 2015.

    The group of participating provinces announced Friday that the regulations to outline the operating details of the new Cooperative Capital Markets Regulator will now be delayed until early spring and will not be out by Dec. 19, as previously anticipated.

    Greek markets are beginning to resemble Canadian ones:

    Greek stocks suffered their steepest daily fall in more than a quarter century on Tuesday and its bond yields jumped after Prime Minister Antonis Samaras brought forward a presidential election in a gamble over his, and the country’s future.

    If Mr. Samaras fails to secure victory in parliament for his presidential candidate, snap national elections will be called that the leftist Syriza party – a fierce opponent of Greece’s bailout deal with the European Union and IMF – is likely to win.

    The Athens general stock index tumbled 12.8 pe rcent, its biggest loss in a day since 1987. An index of Greece’s listed banks fell 14.7 per cent, with Attica Bank down 27.5 per cent.

    The decision sent 10-year Greek government bond yields up 74 basis points to 8.09 per cent.

    Canadian preferred share investors are currently looking for indicators to guide them through current market turmoil:

    imagesQWLPGS53

    The Canadian preferred share market took another good whacking today, with PerpetualDiscounts losing 41bp, FixedResets down 39bp and DeemedRetractibles off 20bp. The performance highlights table contains its usual lengthy list of FixedReset losers, but it is of interest to note that a large number of the credit-uncertain Enbridge issues were included. Volume was above average.

    For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

    Remember that all rich /cheap assessments are
    » based on Implied Volatility Theory only
    » are relative only to other FixedResets from the same issuer
    » assume constant GOC-5 yield
    » assume constant Implied Volatility
    » assume constant spread

    Here’s TRP:

    ImpVol_TRP_141209
    Click for Big

    So according to this, TRP.PR.A, bid at 21.37, is $0.44 cheap, but it has already reset. TRP.PR.B, bid at 17.46, is $0.18 cheap, but it resets 2015-6-30. TRP.PR.C, bid at 19.55, is $0.21 expensive, but it resets 2016-1-30. The TRP issues seem to be steadily rationalizing.

    The MFC series is just weird.

    ImpVol_MFC_141209
    Click for Big

    Clearly MFC.PR.F, resetting at +141 on 2016-06-19, is out of step with the others and is screwing up the calculation. To the extent that one can trust both Implied Volatility Theory AND the market’s reasonably more-or-less consistent application of it, MFC.PR.F should be bid significantly higher than its current 20.00 and the calculated Implied Volatility should be higher than the distorted value of 28%. The fit is pretty poor – all one can really tell is that the Spread is more than about 80bp and the Implied Volatility is more than about 13%.

    ImpVol_MFC_varSpread_141209

    Click for Big
    ImpVol_MFC_varVol_141209
    Click for Big

    The BAM series is now also a little out of whack:

    ImpVol_BAM_141209
    Click for Big

    BAM.PR.X, with a +180bp spread, bid at 20.91, looks $0.68 cheap and doesn’t reset until 2017-6-30 – but Implied Volatility continues to drop rapidly (a reduction in Implied Volatility flattens the curve and causes low-spread issues to underperform). BAM.PR.R, with a +230bp spread, bid at 25.34, looks $1.43 rich and resets 2016-6-30. So go figure that one out, wise guy.

    ImpVol_FTS_141209

    This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 19.82, looks $0.35 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 24.62, looks $0.53 expensive and resets 2019-3-1

    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 -0.2129 % 2,523.2
    FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.2129 % 3,994.7
    Floater 2.99 % 3.11 % 62,134 19.38 4 -0.2129 % 2,682.3
    OpRet 4.41 % -6.18 % 28,767 0.08 2 -0.2345 % 2,752.0
    SplitShare 4.29 % 4.01 % 39,096 3.73 5 0.0202 % 3,178.5
    Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2345 % 2,516.4
    Perpetual-Premium 5.44 % -1.52 % 72,150 0.09 20 0.0196 % 2,476.9
    Perpetual-Discount 5.19 % 5.12 % 112,430 15.22 15 -0.4110 % 2,639.6
    FixedReset 4.27 % 3.74 % 199,857 16.40 75 -0.3933 % 2,520.7
    Deemed-Retractible 5.00 % 1.77 % 102,744 0.21 40 -0.2029 % 2,598.2
    FloatingReset 2.54 % 1.89 % 60,996 3.47 5 0.0000 % 2,550.6
    Performance Highlights
    Issue Index Change Notes
    MFC.PR.L FixedReset -3.99 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 24.06
    Bid-YTW : 4.22 %
    MFC.PR.F FixedReset -3.61 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 20.00
    Bid-YTW : 5.72 %
    ENB.PR.H FixedReset -3.18 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 20.68
    Evaluated at bid price : 20.68
    Bid-YTW : 4.45 %
    ENB.PF.C FixedReset -2.09 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 22.73
    Evaluated at bid price : 23.93
    Bid-YTW : 4.31 %
    ENB.PR.Y FixedReset -2.05 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 21.65
    Evaluated at bid price : 22.00
    Bid-YTW : 4.40 %
    ENB.PF.G FixedReset -2.01 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 22.68
    Evaluated at bid price : 23.86
    Bid-YTW : 4.36 %
    ENB.PF.A FixedReset -1.85 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 22.73
    Evaluated at bid price : 23.90
    Bid-YTW : 4.33 %
    ENB.PF.E FixedReset -1.69 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 22.71
    Evaluated at bid price : 23.90
    Bid-YTW : 4.33 %
    ENB.PR.F FixedReset -1.48 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 22.53
    Evaluated at bid price : 23.25
    Bid-YTW : 4.24 %
    ENB.PR.P FixedReset -1.38 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 22.21
    Evaluated at bid price : 22.80
    Bid-YTW : 4.33 %
    MFC.PR.B Deemed-Retractible -1.37 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 23.00
    Bid-YTW : 5.72 %
    CU.PR.C FixedReset -1.36 % YTW SCENARIO
    Maturity Type : Call
    Maturity Date : 2017-06-01
    Maturity Price : 25.00
    Evaluated at bid price : 25.30
    Bid-YTW : 3.55 %
    BAM.PR.R FixedReset -1.36 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 23.83
    Evaluated at bid price : 25.34
    Bid-YTW : 3.79 %
    CU.PR.D Perpetual-Discount -1.36 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 23.61
    Evaluated at bid price : 24.00
    Bid-YTW : 5.12 %
    GWO.PR.I Deemed-Retractible -1.35 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 22.69
    Bid-YTW : 5.71 %
    BAM.PR.X FixedReset -1.32 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 20.91
    Evaluated at bid price : 20.91
    Bid-YTW : 4.18 %
    TRP.PR.C FixedReset -1.26 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 19.55
    Evaluated at bid price : 19.55
    Bid-YTW : 3.97 %
    SLF.PR.B Deemed-Retractible -1.20 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 23.92
    Bid-YTW : 5.35 %
    ENB.PR.J FixedReset -1.17 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 22.71
    Evaluated at bid price : 23.74
    Bid-YTW : 4.28 %
    ENB.PR.N FixedReset -1.13 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 22.67
    Evaluated at bid price : 23.60
    Bid-YTW : 4.28 %
    CU.PR.E Perpetual-Discount -1.07 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 23.61
    Evaluated at bid price : 24.00
    Bid-YTW : 5.12 %
    SLF.PR.D Deemed-Retractible -1.01 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 22.60
    Bid-YTW : 5.71 %
    CGI.PR.D SplitShare 1.09 % YTW SCENARIO
    Maturity Type : Soft Maturity
    Maturity Date : 2023-06-14
    Maturity Price : 25.00
    Evaluated at bid price : 25.09
    Bid-YTW : 3.71 %
    MFC.PR.M FixedReset 1.37 % YTW SCENARIO
    Maturity Type : Call
    Maturity Date : 2019-12-19
    Maturity Price : 25.00
    Evaluated at bid price : 25.15
    Bid-YTW : 3.76 %
    TRP.PR.B FixedReset 1.51 % YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 17.46
    Evaluated at bid price : 17.46
    Bid-YTW : 3.95 %
    SLF.PR.G FixedReset 3.40 % YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 19.75
    Bid-YTW : 5.66 %
    Volume Highlights
    Issue Index Shares
    Traded
    Notes
    HSE.PR.C FixedReset 619,946 New issue settled today.
    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 23.16
    Evaluated at bid price : 25.01
    Bid-YTW : 4.46 %
    BMO.PR.P FixedReset 133,054 YTW SCENARIO
    Maturity Type : Call
    Maturity Date : 2015-02-25
    Maturity Price : 25.00
    Evaluated at bid price : 25.32
    Bid-YTW : 0.37 %
    IAG.PR.E Deemed-Retractible 125,050 YTW SCENARIO
    Maturity Type : Call
    Maturity Date : 2015-01-30
    Maturity Price : 26.00
    Evaluated at bid price : 25.97
    Bid-YTW : 4.17 %
    TRP.PR.A FixedReset 113,648 YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 21.37
    Evaluated at bid price : 21.37
    Bid-YTW : 3.95 %
    ENB.PR.D FixedReset 83,910 YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 22.41
    Evaluated at bid price : 23.00
    Bid-YTW : 4.17 %
    TD.PF.B FixedReset 77,745 YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 23.21
    Evaluated at bid price : 25.07
    Bid-YTW : 3.63 %
    There were 39 other index-included issues trading in excess of 10,000 shares.
    Wide Spread Highlights
    Issue Index Quote Data and Yield Notes
    MFC.PR.L FixedReset Quote: 24.06 – 25.06
    Spot Rate : 1.0000
    Average : 0.5532

    YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 24.06
    Bid-YTW : 4.22 %

    PVS.PR.C SplitShare Quote: 25.61 – 26.83
    Spot Rate : 1.2200
    Average : 0.8660

    YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2017-12-10
    Maturity Price : 25.00
    Evaluated at bid price : 25.61
    Bid-YTW : 4.01 %

    ELF.PR.H Perpetual-Premium Quote: 25.35 – 26.00
    Spot Rate : 0.6500
    Average : 0.4410

    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 24.88
    Evaluated at bid price : 25.35
    Bid-YTW : 5.49 %

    GWO.PR.N FixedReset Quote: 19.36 – 19.99
    Spot Rate : 0.6300
    Average : 0.4257

    YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 19.36
    Bid-YTW : 5.81 %

    TRP.PR.C FixedReset Quote: 19.55 – 20.14
    Spot Rate : 0.5900
    Average : 0.4054

    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 19.55
    Evaluated at bid price : 19.55
    Bid-YTW : 3.97 %

    TRP.PR.D FixedReset Quote: 24.90 – 25.34
    Spot Rate : 0.4400
    Average : 0.2816

    YTW SCENARIO
    Maturity Type : Limit Maturity
    Maturity Date : 2044-12-09
    Maturity Price : 23.18
    Evaluated at bid price : 24.90
    Bid-YTW : 3.80 %