Rush to liquidity leads to junk sell-off

February 26th, 2015

Andrew Allentuck was kind enough to quote me in his January, 2015, piece Rush to liquidity leads to junk sell-off:

Given the higher level of risk caused by increased duration and the reduced liquidity caused by a bank’s need to cut holdings of dicey bonds, spreads between corporate bond prices and, especially, subinvestment-grade bonds are going to increase, says James Hymas, president of Hymas Investment Management Inc. in Toronto: “It is liquidity, not default risk, that is moving prices and yields in the junk debt market.”

Bonds can improve portfolio stability

February 26th, 2015

Andrew Allentuck was kind enough to quote me in his November, 2014, piece Bonds can improve portfolio stability:

Still, care should be taken not to err too far on the side of safety. “When you compare a 10-year – and longer – Government of Canada bond with a high, investment-grade corporate bond of similar term, you can see a spread of 150 bps,” says James Hymas, president of Hymas Investment Management Inc. in Toronto. “The spread on yield is not all compensation for risk. Only 20 bps to 30 bps covers the credit risk. The rest is liquidity, and most retail investors give up too much yield to get the liquidity.”

“Burrito bonds” may cause indigestion

February 26th, 2015

Andrew Allentuck was kind enough to quote me in his November, 2014, piece “Burrito bonds” may cause indigestion:

The 8% cash interest payment is £80 a year on the £1,000 note, or £320 over four years. The weekly free burrito boosts the return. During the four-year term, a bondholder would get 208 free burritos. Each burrito costs £6; that’s £1,248 worth of burritos. Add the £320 cash interest and the total return on the investment would be £1,568 – or 157% of an interest-equivalent return.

In contrast, the Bank of England currently offers 1.5% on its five-year gilts. On a £1,000 note, that would buy you two and half burritos a year. Not surprising, the burrito bond issue was heavily oversubscribed, given the current climate of low interest rates that provide insufficient income.

Even without the nosh, the Chilango bond would find takers, says James Hymas, president of Hymas Investment Management Inc. in Toronto, “especially when you offer 8% on a bond.”

Chilango has very fancy website and trumpet the success of the bond issue.

It’s time to get used to low interest rates

February 26th, 2015

Andrew Allentuck was kind enough to quote me in his October, 2014, piece It’s time to get used to low interest rates:

So, how long can the price of money hover in the low single digits?

“Yields at present are not sustainable, for real rates are below the replacement cost of capital,” says James Hymas, president of Hymas Investment Management Inc. in Toronto. “However, if we get into deflation, then the negative real interest rates prevailing now will turn positive. For now, investor sentiment does not show deflationary expectations, but there are many tripwires in the Middle East, Ukraine, and in the Baltic republics.”

Product shelf now includes green bonds

February 26th, 2015

Andrew Allentuck was kind enough to quote me in his October, 2014, piece Product shelf now includes green bonds:

In January 2014, the Commonwealth of Massachusetts issued a green bond called the Juvenile Justice Pay for Success Initiative. That US$9-million issue – and companion issues from Bank of America in negotiation at time of writing – are designed to provide funds to deter young criminals from committing more crimes.

Each person the program keeps out of jail for a year saves Massachusetts US$12,500 a year, according to a Bloomberg LP report. The state would win, social service agencies would win and the deterred criminals presumably would win. It’s all good economics designed to capture and monetize external matters, but there’s a critical flaw in the plan: those who are to be deterred have no direct interest in paying the bondholders.

It’s early in the life of these bonds and, so far, there have been no defaults. But bonds with an iffy payment mechanism need justification beyond yield to maturity.

These “stay out of jail” bonds were priced with huge payoffs if they work – and, of course, big losses if they don’t. In August 2012, the State of New York issued a US$9.6-million “social impact bond” designed to reduce recidivism. The investor, Goldman Sachs Group Inc. in this case, will receive US$9.6 million. But if recidivism were to drop by more than 10%, Goldman would get a payoff of up to US$2.1 million. If recidivism does not drop by at least that much, Goldman could lose as much as US$2.4 million.

The balance point is a change of plus or minus 10% in the recidivism rate of a defined set of convicted felons. “The risk is great,” says James Hymas, president Hymas Investment Management Inc. in Toronto. “And this is really equity in bond clothing.”

February 25, 2015

February 25th, 2015

There are many revolving doors in the world … this one is minor:

Michelle Choi, an analyst for Moody’s Investors Service, gave a credit rating to bonds issued by a New Jersey town in September. In October, she switched sides and started working for the town’s underwriter, Morgan Stanley.

Choi is one of hundreds of employees at Moody’s and other credit-rating companies, including Standard & Poor’s and Fitch Ratings, who’ve gone to work for Wall Street since the 2008 financial crisis exposed the conflicts at the heart of the ratings business.

While there’s no evidence that Choi’s job-hunting influenced the grade she gave Evesham Township’s debt, the rising number of job changes in the industry raises a question: can credit analysts be impartial about grading bonds while looking for employment at banks that underwrite them?

The ratings companies say the answer is yes. An academic study by longtime industry observers suggests otherwise.

Meanwhile, the SEC proudly trumpeted its compliance results:

Each year, the BSA Review Group makes hundreds of referrals based on information gleaned initially from SAR reporting. Some statistics drive home the usefulness of the information we receive through SARs:
• In the last six months or so we have been averaging around one temporary restraining order or asset freeze per month that was initiated based upon SARs reviewed by that group.
• In the last year or so, the SEC has brought actions against seven alleged Ponzi or pyramid schemes collectively involving over $100 million, and has opened a number of investigations or examinations into other possible Ponzi schemes, based on information we first obtained from SARs.
• Also in the last year or so, we’ve charged eight people with insider trading in cases where we allege they collectively earned well over $10 million – again based on information we first obtained from SAR reporting.
• Over the past three and a half years, the SEC has initiated hundreds of exams and investigations based on the leads generated by the group from SARs and other BSA reports.
• And the number of investigations or exams that the SEC has opened based on information first discovered in SARs has essentially doubled each of the past two years.

I share these statistics to illustrate the important point that the AML programs you oversee are critical in helping to expose fraud, the exploitation of vulnerable investors, and other misconduct. The quality of the reporting, and the industry expertise that you lend to your reports, often makes it possible for us to act more quickly than we otherwise could. And it increases the chance that we will be able to hold wrongdoers responsible and, we hope, recover investor losses.

It doesn’t sound like much to justify $7-billion in annual costs and the impetus given to terrorists, does it? And, of course, the whole programme was portrayed as an anti-terror weapon, since that is a more popular idea than just another intrusive “crime detection” programme.

And here’s a little more evidence that compliance costs are out of control:

Costs remain a challenge for the [HSBC] Group, with adjusted operating expenditure up by USD 2.2 billion, due to higher regulatory and compliance costs as well as inflationary pressures. Reporting a cost-income ratio of 67% in 2014 (59.6% in 2013), the Group has moved away from its previous target of a cost-income ratio in the mid-50s and is now just aiming to achieve positive jaws on an adjusted basis.

Who cares if any business gets done, as long as regulators are employed?

Here’s a view that the bond market doesn’t care much about the Fed:

Traders are taking the Federal Reserve chair’s comments over the past two days — labor market market isn’t fully healed and inflation is too low — as confirmation that the Fed is very unlikely to raise interest rates in the first half of the year. Economists including UBS Group AG’s Drew Matus and JPMorgan Chase & Co.’s Michael Feroli saw in her message reasons to reaffirm their calls for the first increase to come by June.

But there’s a third view about how Yellen’s testimony applies to the bond market, as expressed by Jim Bianco, the founder of Bianco Research LLC in Chicago: It doesn’t really matter.

In his alternative scenario, “everybody’s right,” Bianco said, in that the Fed could start raising its benchmark rate from near zero, like economists predict, and yields remain low, like traders seem to be anticipating.

With almost $2 trillion of sovereign debt in Europe offering negative yields, demand for U.S. fixed-income assets is unlikely to evaporate regardless of what the Fed does. That demand — coming in part from overseas — will ensure that bond prices remain high and yields low.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 13bp, FixedResets off 7bp and DeemedRetractibles down 10bp. The Performance Highlights table is lengthy, dominated by FixedResets on both sides of the fence. Volume was high.

PerpetualDiscounts now yield 4.93%, equivalent to 6.41% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.65%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 275bp, a sharp widening from the 260bp reported February 18.

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_150225
Click for Big

The new issue has caused a large change in the curve-fitting for the TRP series of FixedResets, which is discussed at greater length on the post announcing the new issue. TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.40 to be $1.36 rich, while the new issue, resetting 2020-11-30 at +296, is $1.03 cheap at its issue price of 25.00.

impVol_MFC_150225
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.00 to be $0.57 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.92 to be $0.57 cheap.

impVol_BAM_150225
Click for Big

The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.X, resetting at +180bp on 2017-6-30, bid at 17.51 to be $0.67 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.63 and appears to be $1.11 rich.

impVol_FTS_150225
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 16.90, looks $0.80 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.63 and is $1.01 rich.

pairs_FR_140225
Click for Big

Most of the investment grade break-even rates are a little below zero.

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

pairs_FF_140225
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 -1.7968 % 2,291.1
FixedFloater 4.42 % 3.57 % 18,906 18.30 1 -1.1494 % 4,000.0
Floater 3.15 % 3.29 % 65,511 18.96 4 -1.7968 % 2,435.6
OpRet 4.08 % 1.38 % 110,211 0.31 1 0.0000 % 2,760.4
SplitShare 4.41 % 4.20 % 28,416 3.55 6 0.4648 % 3,212.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,524.1
Perpetual-Premium 5.33 % -0.55 % 56,589 0.08 24 0.0768 % 2,515.2
Perpetual-Discount 4.94 % 4.93 % 142,172 15.64 10 0.1293 % 2,800.8
FixedReset 4.42 % 3.37 % 212,278 16.79 79 -0.0655 % 2,411.3
Deemed-Retractible 4.91 % 0.17 % 102,710 0.17 39 -0.0961 % 2,652.6
FloatingReset 2.43 % 2.86 % 93,221 6.39 7 -0.0861 % 2,324.2
Performance Highlights
Issue Index Change Notes
BAM.PR.K Floater -2.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 14.98
Evaluated at bid price : 14.98
Bid-YTW : 3.36 %
BAM.PR.C Floater -2.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 15.12
Evaluated at bid price : 15.12
Bid-YTW : 3.33 %
ENB.PF.C FixedReset -1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 21.57
Evaluated at bid price : 21.91
Bid-YTW : 4.06 %
BAM.PR.X FixedReset -1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 17.51
Evaluated at bid price : 17.51
Bid-YTW : 3.93 %
BAM.PR.B Floater -1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 15.30
Evaluated at bid price : 15.30
Bid-YTW : 3.29 %
ENB.PF.E FixedReset -1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 21.67
Evaluated at bid price : 22.06
Bid-YTW : 4.06 %
MFC.PR.F FixedReset -1.59 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.55
Bid-YTW : 5.81 %
ENB.PF.A FixedReset -1.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 21.58
Evaluated at bid price : 21.90
Bid-YTW : 4.07 %
PWF.PR.A Floater -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 2.78 %
SLF.PR.G FixedReset -1.25 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.41
Bid-YTW : 6.20 %
BAM.PR.G FixedFloater -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 21.79
Evaluated at bid price : 21.50
Bid-YTW : 3.57 %
MFC.PR.M FixedReset -1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.54
Bid-YTW : 3.68 %
MFC.PR.N FixedReset -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 3.64 %
ENB.PR.F FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 4.19 %
MFC.PR.L FixedReset 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 3.79 %
PVS.PR.B SplitShare 1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 4.20 %
TRP.PR.A FixedReset 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 19.85
Evaluated at bid price : 19.85
Bid-YTW : 3.49 %
MFC.PR.I FixedReset 1.33 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 2.84 %
TRP.PR.C FixedReset 1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 16.60
Evaluated at bid price : 16.60
Bid-YTW : 3.46 %
FTS.PR.H FixedReset 1.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 16.90
Evaluated at bid price : 16.90
Bid-YTW : 3.13 %
CU.PR.C FixedReset 2.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 23.25
Evaluated at bid price : 24.33
Bid-YTW : 3.16 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.A FixedReset 118,915 TD crossed blocks of 12,000 at 24.80 and 25,000 at 24.77, sold 11,900 to Desjardins at 24.80 and 25,800 to anonymous at 24.82. Nesbitt crossed 40,000 at 24.80.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 23.10
Evaluated at bid price : 24.75
Bid-YTW : 3.02 %
BMO.PR.S FixedReset 113,266 Scotia crossed blocks of 25,000 and 50,000, both at 25.00. TD crossed 15,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 23.20
Evaluated at bid price : 24.92
Bid-YTW : 3.06 %
OSP.PR.A SplitShare 78,932 Recent new issue.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2020-03-31
Maturity Price : 10.00
Evaluated at bid price : 10.10
Bid-YTW : 4.81 %
BMO.PR.T FixedReset 75,733 RBC crossed 20,000 at 24.70. TD crossed blocks of 25,000 and 15,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 23.05
Evaluated at bid price : 24.57
Bid-YTW : 3.04 %
RY.PR.E Deemed-Retractible 62,900 Nesbitt crossed 60,000 at 25.53.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-27
Maturity Price : 25.25
Evaluated at bid price : 25.49
Bid-YTW : -6.80 %
SLF.PR.G FixedReset 44,686 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.41
Bid-YTW : 6.20 %
There were 43 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.T FixedReset Quote: 25.04 – 25.59
Spot Rate : 0.5500
Average : 0.3383

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 23.27
Evaluated at bid price : 25.04
Bid-YTW : 3.11 %

NEW.PR.D SplitShare Quote: 32.43 – 33.43
Spot Rate : 1.0000
Average : 0.8380

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.43
Bid-YTW : 2.94 %

BAM.PR.G FixedFloater Quote: 21.50 – 21.99
Spot Rate : 0.4900
Average : 0.3745

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 21.79
Evaluated at bid price : 21.50
Bid-YTW : 3.57 %

CM.PR.P FixedReset Quote: 24.42 – 24.75
Spot Rate : 0.3300
Average : 0.2150

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-25
Maturity Price : 22.96
Evaluated at bid price : 24.42
Bid-YTW : 3.09 %

MFC.PR.B Deemed-Retractible Quote: 24.57 – 24.94
Spot Rate : 0.3700
Average : 0.2720

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.57
Bid-YTW : 4.86 %

MFC.PR.G FixedReset Quote: 25.54 – 25.77
Spot Rate : 0.2300
Average : 0.1541

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-19
Maturity Price : 25.00
Evaluated at bid price : 25.54
Bid-YTW : 3.02 %

February 24, 2015

February 25th, 2015

Unintended consequences? Or a simple macro-economic effect on free markets?

When the federal government tightened mortgage rules in 2012, overheated condo markets in Toronto and Vancouver were widely seen as the main target. But little more than two years later, it’s many smaller cities that are bearing the brunt of stricter regulations.

Winnipeg, Montreal and Moncton are grappling with a surplus of unsold condo units driven by a surge in new construction and a dwindling supply of first-time buyers in the wake of Ottawa’s decision in June, 2012, to limit mortgage insurance to amortization periods of 25 years or less from 30 years.

Meanwhile…:

Home loans from $1 million to $5 million were the fastest growing part of the jumbo market in January, according to purchase application data from the Mortgage Bankers Association. Wealthy borrowers are seeking even bigger loans this year while luxury housing prices rise and lenders lure them with competitive terms.

As first-time homebuyers struggle to qualify for mortgages in a market that’s shrinking after the housing collapse, lenders are providing more multi-million dollar loans to Americans who pose less risk. These borrowers are using the loans to purchase high-end homes in cities such as San Francisco and Miami, where prices have been climbing.

Yellen spoke gentle words of dovish restraint in her Humphrey-Hawkins testimony:

The yield on the benchmark note fell below 2 percent for the first time in a week as Yellen repeated in testimony before Congress a pledge to be “patient” means an increase is unlikely for “at least the next couple” of meetings. She said the labor market wasn’t fully healed and that she saw no evidence that inflation was rising toward the central bank’s 2 percent goal.

The benchmark 10-year yield fell eight basis points, or 0.08 percentage point, to 1.98 percent at 1:32 p.m. New York time, according to Bloomberg Bond Trader data. It rose as high as 2.10 percent earlier. The price of the 2 percent note maturing in February 2025 rose 22/32, or $6.88 per $1,000 face amount, to 100 6/32.

Treasuries remained higher after the U.S. sold $26 billion of two-year notes at a yield of 0.603 percent as the Fed’s 22 primary dealers were left with their smallest share of the securities in almost a year.

“It is important to emphasize that a modification of the forward guidance should not be read as indicating that the committee will necessarily increase the target range in a couple of meetings,” Yellen said. “We are reasonably confident that inflation will move back to our 2 percent inflation target over time.”

The Fed’s preferred gauge of inflation, the personal consumption expenditures index, has stayed below 2 percent since April 2012, and it rose just 0.7 percent in the year through December.

Traders saw a 45 percent chance the Fed will raise the benchmark rate from between zero to 0.25 percent by its September meeting, according to fed funds futures data compiled by Bloomberg. That’s down from 51 percent prior to Tuesday’s testimony.

Meanwhile, it appears that Lapdog Carney has received instructions to undermine capitalism in order to do his electoral duty for the guys that hired him:

Bank of England chief Mark Carney warned employers on Tuesday not to use near-zero inflation as an excuse to offer staff low wage settlements, as that might derail Britain’s economic recovery.

British wages have only recently started to rise faster than inflation after years of real-term falls.

Many firms will agree 2015 wage deals in coming months amid falling inflation and political uncertainty before national elections in May that are likely to be closely fought.

Carney said risks from low inflation in Britain related mainly to the labour market, not to deferred consumption as occurred in Japan, where deflation became entrenched.

Other policy makers are more concerned about the risk of inflation overshooting, however.

MPC member Martin Weale told the same parliamentary panel rates could rise sooner than markets expected. They currently price in a first rise in around a year.

Both Weale and fellow policy maker Ian McCafferty voted five times late last year to raise rates, before dropping this call in January in the face of tumbling oil prices.

Another MPC member, Kristin Forbes, said earlier on Tuesday that there could be a case to start raising rates soon due to potential future pressure from wages, financial stability risks or unsustainable borrowing patterns.

“Any could factor into a case to tighten monetary policy in the near future. But they do not currently appear to be generating a sufficient cost to merit a change in interest rates today,” she said.

This “supply and demand” nonsense is so old fashioned, isn’t it?

Speaking of government policy, it seems that Parakeet Poluz wants to be less accountable:

Stephen Poloz says the time has come for the Bank of Canada and other central banks to reinvent monetary policy by moving beyond solely targeting inflation.

Central bankers need do a better job of making sense of a host of new risks buffeting the financial system, such as exchange rate moves and globalized production chains, the Bank of Canada governor said Tuesday.

“We need to develop a monetary policy framework that integrates inflation risks and financial stability risks, both statically and dynamically, and captures much more accurately the uncertainties we face,” he said.

After all, OSFI is given a free ride on incompetence, as long as the whole system doesn’t blow up. Why shouldn’t everybody else?

However, reduced US expectations of tightening were met with reduced Canadian expectations of loosening:

Market participants, however, keyed in on one statement that strongly suggests another rate cut from the central bank is not as imminent as one would have imagined.

“So the downside risk insurance from the interest rate cut buys us some time to see how the economy actually responds,” Mr. Poloz said in his concluding remarks.

The implication of this statement is that the central bank will wait to determine whether more monetary stimulus is required to offset the “unambiguously negative” effect of the decline in oil prices.

Market participants quickly digested this new information and began to bet against a Bank of Canada rate cut next week.

On Monday, the overnight index swap market was pricing in an 82 per cent chance of 25 basis point reduction in the overnight rate to 0.5 per cent on March 4th. This belief was supported by persistently low oil prices and underwhelming economic data. Soon after Mr. Poloz’s remarks were released, the overnight index swaps suggest the consensus view is for the bank to stand pat: the implied odds of a rate cut, as of the close on Tuesday, stand at 42 per cent.

And the feds continue to make taxation more regressive:

Parliamentary Budget Officer Jean-Denis Fréchette says the Conservative government’s plan to double the contribution limit for tax-free savings accounts would cost Ottawa and the provinces billions in revenue.

In a new report released Tuesday, the PBO notes that if the current annual limit of $5,500 is doubled to $11,000, Ottawa would lose $14.7-billion a year in federal revenue by 2060 and the provinces would lose $7.6-billion a year.

The PBO also notes that doubling the contribution rate would primarily benefit well-off Canadians, making the tax break “much more regressive.”

“By 2060, gains for high wealth households project to be twice the median and ten times that of low-wealth households,” the report states.

The PBO report comes on the same day as a similar report from Simon Fraser University Professor Rhys Kesselman, who also noted that while the program’s cost in terms of lost revenue is relatively small for now, it will grow significantly over time.

“Like a little baby who looks cuddly and cute, this proposed initiative would grow up to be the hulking teenager who eats everyone out of house and home,” Dr. Kesselman’s report for the SFU School of Public Policy states.

I have no objections at all to tax expenditures that encourage Canadians to save for a comfortable retirement – that strikes me as being very good political policy. However, I have seen very little discussion of proposed limits in terms of actual outcomes – and no, I’m not so short-sighted and ignorant as to suggest the outcome is ‘saving a few thousand in tax this year’. The actual outcome is measured in terms of the standard of living in retirement; while I am all in favour of programmes that will help Joe Lunchbucket save a bit so he can have total retirement income of $50,000 p.a., I am firmly opposed to tax expenditures that help Edwin Plutocrat III to have total retirement income of $150,000 p.a. But we never see discussion – by which I mean actual evidence and analysis – of the cost effectiveness of this.

Just as an example – and this is not only not an actuarial study, it’s also not an intensively researched post – look at the OTPP contribution limits:

This chart shows the total contributions that will be deducted in 2015 for your Teachers’ pension based on various gross salaries.

  Annual contributions
Annual salary 2015* 2014**
$30,000 $3,450 $3,450
$40,000 $4,600 $4,600
$50,000 $5,750 $5,750
$60,000 $7,002 $7,020
$70,000 $8,312 $8,330
$80,000 $9,622 $9,640
$90,000 $10,932 $10,950
$100,000 $12,242 $12,260

The Ontario government and other employers match total annual member contributions.

So, making the (possibly erroneous) assumption that the contribution rates are intended to maintain the standard of living implied by the related salary, this leads me to conclude that RRSP contribution limits should be about $14,000 p.a.; and that this limit should be adjusted downward to reflect the impact of TSFAs. Why are we taxing Joe Lunchbucket extra in order to assist Edwin Plutocrat III to achieve retirement income far in excess of the average Canadian salary?

However, just so you know … I think that when retirees downsize their home, the cash they take out on the transaction should be eligible (up to limits reflecting the above principles) for rollover to a TSFA. Saving via mortgage payments is still saving!

S&P has given something called the Floating Rate Investment Grade Preferred Fund a rating of P-2f, but I can’t find anything more regarding this new entrant.

There were modest gains in the Canadian preferred share market today, with PerpetualDiscounts gaining 8bp, FixedResets up 9bp and DeemedRetractibles winning 17bp. The Performance Highlights table continues to be lengthy, with ENB FixedResets prominent among the winners. Volume was above average; it is noteworthy that the larger blocks changed hands well below the closing bids.

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_150224
Click for Big

The new issue has caused a large change in the curve-fitting for the TRP series of FixedResets, which is discussed at greater length on the post announcing the new issue. TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.43 to be $1.40 rich, while the new issue, resetting 2020-11-30 at +296, is $1.15 cheap at its issue price of 25.00.

impVol_MFC_150224
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.N, resetting at +230 on 2020-3-19, bid at 24.75 to be $0.65 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.91 to be $0.57 cheap.

impVol_BAM_150224
Click for Big

The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.Z, resetting at +296bp on 2017-12-31, bid at 25.31 to be $0.46 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.50 and appears to be $0.92 rich.

impVol_FTS_150224
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 16.57, looks $1.05 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.50 and is $0.96 rich.

pairs_FR_150224
Click for Big

Most of the investment grade break-even rates are a little below zero.

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

pairs_FF_150224
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 -1.4050 % 2,333.0
FixedFloater 4.37 % 3.51 % 18,322 18.38 1 0.0000 % 4,046.5
Floater 3.09 % 3.24 % 66,507 19.09 4 -1.4050 % 2,480.1
OpRet 4.08 % 1.37 % 111,855 0.31 1 0.1992 % 2,760.4
SplitShare 4.42 % 4.50 % 28,270 3.55 6 0.4068 % 3,197.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1992 % 2,524.1
Perpetual-Premium 5.33 % 2.11 % 57,807 0.08 24 -0.0539 % 2,513.3
Perpetual-Discount 4.95 % 4.82 % 111,101 15.29 10 0.0835 % 2,797.2
FixedReset 4.44 % 3.41 % 210,354 16.87 79 0.0931 % 2,412.9
Deemed-Retractible 4.91 % -0.58 % 106,636 0.10 39 0.1726 % 2,655.2
FloatingReset 2.43 % 2.83 % 88,016 6.39 7 0.1664 % 2,326.2
Performance Highlights
Issue Index Change Notes
ENB.PF.G FixedReset -3.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 21.69
Evaluated at bid price : 22.10
Bid-YTW : 4.09 %
BAM.PR.C Floater -2.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 15.45
Evaluated at bid price : 15.45
Bid-YTW : 3.26 %
BAM.PR.K Floater -1.86 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 15.31
Evaluated at bid price : 15.31
Bid-YTW : 3.29 %
BAM.PR.B Floater -1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 15.55
Evaluated at bid price : 15.55
Bid-YTW : 3.24 %
CGI.PR.D SplitShare -1.36 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 3.70 %
MFC.PR.I FixedReset -1.08 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 3.38 %
MFC.PR.J FixedReset -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 3.41 %
ENB.PR.N FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 20.63
Evaluated at bid price : 20.63
Bid-YTW : 4.18 %
ENB.PR.D FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 4.24 %
ENB.PR.B FixedReset 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 18.71
Evaluated at bid price : 18.71
Bid-YTW : 4.24 %
CU.PR.G Perpetual-Discount 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 23.56
Evaluated at bid price : 23.92
Bid-YTW : 4.70 %
GWO.PR.G Deemed-Retractible 1.58 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-26
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : -20.25 %
ENB.PR.F FixedReset 1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 19.60
Evaluated at bid price : 19.60
Bid-YTW : 4.23 %
ENB.PR.T FixedReset 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 20.08
Evaluated at bid price : 20.08
Bid-YTW : 4.17 %
MFC.PR.F FixedReset 1.89 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.85
Bid-YTW : 5.61 %
PVS.PR.B SplitShare 2.31 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.85
Bid-YTW : 4.50 %
PWF.PR.P FixedReset 2.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 3.18 %
Volume Highlights
Issue Index Shares
Traded
Notes
OSP.PR.A SplitShare 351,334 New issue settled today.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2020-03-31
Maturity Price : 10.00
Evaluated at bid price : 10.11
Bid-YTW : 4.78 %
ENB.PR.N FixedReset 286,126 Nesbitt crossed 250,000 at 20.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 20.63
Evaluated at bid price : 20.63
Bid-YTW : 4.18 %
IFC.PR.A FixedReset 181,890 RBC crossed 164,200 at 19.50.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.85
Bid-YTW : 5.83 %
PWF.PR.P FixedReset 68,678 RBC crossed 47,100 at 18.15.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 3.18 %
NA.PR.W FixedReset 54,825 Nesbitt crossed 11,300 at 24.86.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 23.11
Evaluated at bid price : 24.85
Bid-YTW : 3.01 %
BNS.PR.Y FixedReset 47,949 RBC crossed 28,600 at 22.00.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 3.72 %
There were 38 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
ENB.PF.G FixedReset Quote: 22.10 – 22.79
Spot Rate : 0.6900
Average : 0.4260

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 21.69
Evaluated at bid price : 22.10
Bid-YTW : 4.09 %

HSB.PR.D Deemed-Retractible Quote: 25.37 – 25.95
Spot Rate : 0.5800
Average : 0.3867

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-26
Maturity Price : 25.00
Evaluated at bid price : 25.37
Bid-YTW : -3.77 %

CGI.PR.D SplitShare Quote: 25.30 – 26.05
Spot Rate : 0.7500
Average : 0.5644

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 3.70 %

ENB.PR.J FixedReset Quote: 21.31 – 21.84
Spot Rate : 0.5300
Average : 0.3812

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 21.31
Evaluated at bid price : 21.31
Bid-YTW : 4.08 %

MFC.PR.I FixedReset Quote: 25.56 – 25.94
Spot Rate : 0.3800
Average : 0.2370

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 3.38 %

VNR.PR.A FixedReset Quote: 24.90 – 25.40
Spot Rate : 0.5000
Average : 0.3672

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-24
Maturity Price : 23.41
Evaluated at bid price : 24.90
Bid-YTW : 3.51 %

OSP.PR.A Well Bid On Good Volume

February 25th, 2015

Brompton Funds Ltd. has announced:

that Brompton Oil Split Corp. (the “Company”) has completed its initial public offering of 2,800,000 Class A shares and 2,800,000 Preferred shares for total gross proceeds of $70 million. The Class A and Preferred shares will commence trading today on the Toronto Stock Exchange under the symbol OSP and OSP.PR.A, respectively.

The Company will invest in a portfolio (the “Portfolio”) of equity securities of at least 15 large capitalization North American oil and gas issuers selected by the Manager from the S&P 500 Index and the S&P/TSX Composite Index, giving consideration to, among other metrics, attractive valuation, growth prospects, profitability, liquidity, sustainability of dividends and a strong balance sheet. The Portfolio will be focused primarily on oil and gas issuers that have significant exposure to oil, and will initially include equities of the following oil and gas issuers:

ARC Resources Ltd. Chevron Corporation Occidental Petroleum Corporation
Canadian Natural Resources Limited Encana Corporation PrairieSky Royalty Ltd.
ConocoPhillips EOG Resources Inc. Suncor Energy Inc.
Crescent Point Energy Corp. Husky Energy Inc. Vermilion Energy Inc.
Cenovus Energy Inc. Imperial Oil Limited Exxon Mobil Corporation

The investment objectives for the Class A shares are to provide holders with regular monthly non-cumulative cash distributions targeted to be 8.0% per annum on the $15.00 issue price, and the opportunity for growth in net asset value. The investment objectives for the Preferred shares are to provide holders with fixed cumulative preferential quarterly cash distributions in the amount of 5.0% per annum on the $10.00 issue price, and to return the original issue price on the maturity date, March 31, 2020.

Brompton Funds Limited is the manager and portfolio manager of the Company. In addition to Brompton Oil Split Corp., the Manager currently manages 4 other split-share funds with assets under management over $900 million. The portfolio management team is led by Laura Lau, an award winning portfolio manager with over 20 years of experience in financial services, who has a proven track record in managing flow-through funds and resource assets. The team also includes Michael Clare, an experienced energy and flow-through portfolio manager who specializes in the analysis of crude oil and natural gas markets.

The syndicate of agents for the offering was led by Scotiabank, CIBC and RBC Capital Markets and included TD Securities Inc., BMO Capital Markets, National Bank Financial Inc., GMP Securities L.P., Raymond James Ltd., Canaccord Genuity Corp., Desjardins Securities Inc., Dundee Securities Ltd., Industrial Alliance Securities Inc. and Mackie Research Capital Corporation.

OSP.PR.A commenced trading today right on schedule. It is a Split Share, 5-Year, with a 5% coupon.

The issue traded 354,334 shares today (consolidated exchanges) in a range of 10.00-15 before closing at 10.11-14.

DBRS has confirmed its provisional rating of Pfd-3(high):

DBRS Limited (DBRS) has today finalized the provisional rating of Pfd-3 (high) to the Preferred Shares to be issued by Brompton Oil Split Corp. (the Company). The Company issued an equal number of Preferred Shares and Class A Shares at an issue price of $10.00 per Preferred Share and $15.00 per Class A Share. The Preferred Shares and Class A Shares are scheduled to mature on March 31, 2020.

Net proceeds from the offering were used to invest in the common shares of at least 15 large capitalization North American oil and gas issuers (the Portfolio). The Portfolio is initially equally weighted and will be rebalanced at least semi-annually. A portion of the Portfolio’s investments are denominated in U.S. dollars; however, this exposure is expected to be hedged completely back to the Canadian dollar.

The Company has advised DBRS that 2,800,000 Preferred Shares and 2,800,000 Class A Shares were issued on the initial offering, for gross proceeds of $70,000,000. The initial downside protection available to holders of the Preferred Shares is approximately 57.3% (after offering expenses). Dividends received on the Portfolio are used to pay a fixed cumulative quarterly distribution to holders of the Preferred Shares of $0.1250 per Preferred Share ($0.50 per annum or 5.0% per annum on the initial issue price of $10.00 per Preferred Share), while holders of the Capital Shares are expected to receive a regular monthly non-cumulative cash distribution of $0.10 per Class A Share. The Preferred Share dividend coverage ratio is approximately 0.9 times, based on the initial offering size. The Company has the ability to write covered call options or engage in securities lending in order to generate additional income. The Company has also granted a security interest in the Portfolio to RBC Investor Services Trust, in its capacity as custodian of the Company’s property (the Custodian), as security for any obligations owing by the Company to the Custodian. The Custodian also has a right to exercise set-off against the Company’s property (including the Portfolio) to the extent that the Company fails to satisfy any obligations owing to the Custodian.

Vital statistics are:

OSP.PR.A SplitShare YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2020-03-31
Maturity Price : 10.00
Evaluated at bid price : 10.11
Bid-YTW : 4.78 %

What’s The Benchmark Five-Year?

February 24th, 2015

Assiduous Reader gsp of the Financial Wisdom Forum writes in and says:

as I posted on the Preferreds thread on FWF (LINK) I am having a hard time understanding which source to best trust when trying to figure out the GOC 5 year benchmark that resets are based on.

The site you link on prefblog(LINK) says the closing 5 year on Feb 20th was 0.72 while investing.com(LINK) says 0.79. The definitive source(BOC) today posted it as 0.80. I’m confused by the variance in all these quotes, especially for a closing rate.

I like to be as precise as possible when using your YTC resets spreadsheet, what’s the best source for intraday BOC 5 year quotes that I can access for free? I have no real use for real time quotes but prefer not to be out to lunch when the rate moves considerably intraday.

Using today’s quotes, we see that CBID’s site (which is the one I use) shows a “Closing Markets as of: 4:00 PM EST 23-Feb-15″ yield of 0.66% for the “Canada 5 year”, while the invest.com GOC-5 yield list yield of 0.741% for February 23 for “Canada 5-Year Bond Yield Historical Data”.

That’s a big difference for a five year! So what’s a five-year bond, anyway? Is it the same one today as it was yesterday? Just what exactly is a “five year bond”?

According to the BoC Benchmark definition:

Selected benchmark bond yields are based on mid-market closing yields of selected Government of Canada bond issues that mature approximately in the indicated terms. The bond issues used are not necessarily the ones with the remaining time to maturity that is the closest to the indicated term and may differ from other sources. The selected 2-, 5-, 10-, or 30-year issues are generally changed when a building benchmark bond is adopted by financial markets as a benchmark, typically after the last auction for that bond. The selected 3-year issue is usually updated at approximately the same time as changes are made to the 2-year, and sometimes with the 5-year. The selected 7-year issue is typically updated at approximately the same time as the 5- or 10-year benchmarks are changed. The current benchmark bond issues and their effective dates, shown in brackets, are as follows.
•2 year – 2017.02.01, 1.50% (2014.11.21);
•3 year – 2017.08.01, 1.25% (2014.10.09);
•5 year – 2020.03.01, 1.50% (2015.02.20);
•7 year – 2022.06.01, 2.75% (2015.01.26);
•10 year – 2025.06.01, 2.25% (2015.01.26);
•Long – 2045.12.01, 3.50% (2014.02.21);
•RRB – 2041.12.01, 2.00% (2010.10.21);

So that’s pretty cool! The “Five Year Benchmark”, as defined by the Bank of Canada, changed last Friday, February 20;

From their page BOC Bond Auction information, we see that their Excel spreadsheet (updated to 2015-1-31) lists two prior auctions (of $3.4-billion a pop) of the 1.5% March 1, 2020, bond, on 2014-11-26 and 2014-10-08. The three prior five year auctions were for the 1.75% September 1, 2019, issue, on 2014-8-6, 2014-5-7 and 2014-4-9, each of which also had $3.4-billion size. And we also see that there was another “five year” auction February 18 for delivery February 23. So, it would seem, that they changed their official benchmark as of the day prior to delivery of the third and final auction of the issue.

We can go back to the CBID page: at the bottom, there are quotes for individual issues and we see:

Canada 1.750 2019-Sep-01 104.85 0.66
Canada 1.500 2020-Mar-01 103.72 0.74

So – while it’s not absolutely definitive, it would appear that investing.com is quoting the yield on the 1.5% of March 2020, while CBID is quoting the 1.75% of September 2019 as the “Five Year”.

Who’s right? Who’s wrong? It’s a meaningless question: virtually everything in the bond market is quoted in terms of convention, which is often highly exasperating when discussing yields.

How does the US Treasury do it? They provide a Constant Maturity Yield:

Treasury Yield Curve Rates. These rates are commonly referred to as “Constant Maturity Treasury” rates, or CMTs. Yields are interpolated by the Treasury from the daily yield curve. This curve, which relates the yield on a security to its time to maturity is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York. The yield values are read from the yield curve at fixed maturities, currently 1, 3 and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years. This method provides a yield for a 10 year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity.

Treasury Yield Curve Methodology. The Treasury yield curve is estimated daily using a cubic spline model. Inputs to the model are primarily bid-side yields for on-the-run Treasury securities. See our Treasury Yield Curve Methodology page for details.

… and on the Treasury Yield Curve Methodology Page it states:

The Treasury’s yield curve is derived using a quasi-cubic hermite spline function. Our inputs are the Close of Business (COB) bid yields for the on-the-run securities. Because the on-the-run securities typically trade close to par, those securities are designated as the knot points in the quasi-cubic hermite spline algorithm and the resulting yield curve is considered a par curve. However, Treasury reserves the option to input additional bid yields if there is no on-the-run security available for a given maturity range that we deem necessary for deriving a good fit for the quasi-cubic hermite spline curve. For example, we are using composites of off-the-run bonds in the 20-year range reflecting market yields available in that time tranche. Previously, a rolled-down 10-year note with a remaining maturity nearest to 7 years was also used as an additional input. That input was discontinued on May 26, 2005.

More specifically, the current inputs are the most recently auctioned 4-, 13-, 26-, and 52-week bills, plus the most recently auctioned 2-, 3-, 5-, 7-, and 10-year notes and the most recently auctioned 30-year bond, plus the composite rate in the 20-year maturity range. The quotes for these securities are obtained at or near the 3:30 PM close each trading day. The inputs for the four bills are their bond equivalent yields.

Between August 6, 2004 and June 2, 2008, to reduce volatility in the 1-year Treasury Constant Maturity (CMT) rate, and due to the fact that there were no on-the-run issues between 6-months and 2-years, Treasury used an additional input to insure that the 1-year CMT rate was consistent with on-the-run yields on either side of it’s maturity range. Thus, Treasury interpolated between the secondary bond equivalent yield on the most recently auctioned 26-week bill and the secondary market yield on the most recently auctioned 2-year note and inputted the resulting yield as an additional knot point for the derivation of the daily Treasury Yield Curve. The result of that step was that the 1-year CMT was generally the same as the interpolated rate during that time period. As of June 3, 2008, the interpolated yield was dropped as a yield curve input and the on-the-run 52-week bill was added as an input knot point in the quasi-cubic hermite spline algorithm and resulting yield curve.

Between December 3, 2007 and November 7, 2008, due to Treasury’s discontinuance of 3-year notes, we added a composite rate in the 3-year range based on an average of off-the-run securities in that time tranche. This composite was replaced on November 10, 2008 with the on-the-run 3-year note upon its reintroduction.

Treasury does not provide the computer formulation of our quasi-cubic hermite spline yield curve derivation program. However, we have found that most researchers have been able to reasonably match our results using alternative cubic spline formulas.

Treasury reviews its yield curve derivation methodology on a regular basis and reserves the right to modify, adjust or improve the methodology at its option. If Treasury determines that the methodology needs to be changed or updated, Treasury will revise the above description to reflect such changes.

Yield curve rates are usually available at Treasury’s interest rate web sites by 6:00 PM Eastern Time each trading day, but may be delayed due to system problems or other issues. Every attempt is made to make this data available as soon as possible.

This is a much more sensible way to estimate what a reasonable person might call a “Five Year Yield”, with the reservation that I have always been deeply suspicious of the cubic spline curve fitting methodology. It is too abstract for me and there are mathematical problems at the knot points. But I can’t deny that it fits the data well.

While all of this may be considered illuminating, it still doesn’t really answer Assiduous Reader gsp-from-FWF’s problem: what number should he plug into his calculation in order to estimate a projected future dividend rate for FixedResets? Because the following definitions from the prospectus for RY.PR.J are pretty typical:

“Annual Fixed Dividend Rate” means, for any Subsequent Fixed Rate Period, the rate (expressed as a percentage rounded to the nearest one hundred–thousandth of one percent (with 0.000005% being rounded up)) equal to the Government of Canada Yield on the applicable Fixed Rate Calculation Date plus 2.74%.

“Bloomberg Screen GCAN5YR Page” means the display designated on page “GCAN5YR” on the Bloomberg Financial L.P. service (or such other page as may replace the GCAN5YR page on that service for purposes of displaying Government of Canada bond yields).

“Fixed Rate Calculation Date” means, for any Subsequent Fixed Rate Period, the 30th day prior to the first day of such Subsequent Fixed Rate Period.

“Government of Canada Yield” on any date means the yield to maturity on such date (assuming semi-annual compounding) of a Canadian dollar denominated non-callable Government of Canada bond with a term to maturity of five years as quoted as of 10:00 a.m. (Toronto time) on such date and which appears on the Bloomberg Screen GCAN5YR Page on such date; provided that, if such rate does not appear on the Bloomberg Screen GCAN5YR Page on such date, the Government of Canada Yield will mean the arithmetic average of the yields quoted to the Bank by two registered Canadian investment dealers selected by the Bank as being the annual yield to maturity on such date, compounded semi-annually, which a noncallable Government of Canada bond would carry if issued, in Canadian dollars in Canada, at 100% of its principal amount on such date with a term to maturity of five years.

And we don’t know how the GCAN5YR page is calculated (because it’s Bloomberg), although we can guess that it’s more akin to the US Treasury interpolation-on-a-fitted=curve method than it is to the Canadian pick-a-bond method because of the way the alternative calculation is stated. But that’s not a guarantee! Don’t bother calling your salesman to find out: if there’s one thing I have learnt over the course of my career, it’s that front-line staff don’t have a clue how their software works and wouldn’t understand it if they were told. They’re bankers, the sweet little dears, it’s their job to say “0.74 per cent” in a sincere voice, not to have a clue.

And, what’s more, we can’t even look up (for free) just what the GCAN5YR page might be saying at any particular point in time because fuck you, that’s why.

I don’t have Bloomberg – it’s incredibly expensive, it’s completely useless for serious work and it rots the brain – so I can’t provide any clues as to how the number might be calculated. Perhaps if some kind reader who does have access could provide a screenshot or two taken at around 4pm we can examine the matter more closely.

February 23, 2015

February 24th, 2015

Charles Kenny, a Senior Fellow with the Center for Global Development (a quite respectably ranked think-tank) writes a very good piece on Bloomberg about money laundering and regulations thereof:

In the best of cases, anti-money-laundering efforts are likely to do no more than raise the cost of transactions. A system that misses all but a fraction of a percent of criminal financial flows is almost guaranteed to miss terrorism finance in particular, which involves very small sums: The Madrid and London terror bombings cost no more than $10,000 to finance; the Sept. 11 attacks, less than $500,000. That may be one reason why none of the reported money laundering prosecutions to date have involved terror finance.

Though the regulations have limited impact on criminal activities, they still cost money. Tracking illicit money flows requires a considerable bureaucracy. Enforcing the regulations cost an estimated $7 billion in the U.S., and probably far more. Mauritius, a small, middle-income country of just 1.3 million people, has 25 government officials working on FATF implementation. That’s more people than are listed as opticians in the country. Each bank in Mauritius will also have staff tasked with carrying out customer investigations.

Perhaps most insidious, the regulations have disproportionately affected the kinds of business transactions that serve small, poor economies. FATF rules are why Merchants Bank of California cut off money transfers to Somalia last week, the last U.S. financial institution to do so. Between $160 million and $180 million of remittances will be affected by Merchants Bank’s action, but from its point of view, cutting services is the only safe course. It faced immense potential liabilities if it turned out that one of the accounts receiving funds in Somalia was linked to terrorist activity. Yet there’s no evidence any of the remittances were going to fund terror groups; most were being used to support schooling, housing, food, and other living costs for Somalis. The country is one of the poorest in the world and remittances are equal to about one-third of the country’s GDP.

No doubt, Somali expatriates will find other ways to send the money, but they will cost more and are likely to involve less savory financial institutions as intermediaries. Given that, and the link between people losing their livelihoods and terror recruitment, it is all too possible the FATF regulations will give rise to better-funded and larger terrorist groups.

Does anybody else remember 1994? And Orange County’s infamous carry-trades? It will be interesting to see what happens when policy rates rise:

Growth is on a tear, hiring is the strongest in decades and households are the most upbeat since 2011. Yet banks such as Bank of America Corp. keep plowing their burgeoning deposits into U.S. government and related debt — pushing the industry’s holdings past $2 trillion — instead of lending it all out.

Part of the buildup has to do with rules that require banks to hold more high-quality assets in the wake of the worst financial crisis since the Great Depression. But it also reflects how borrowers, particularly among Americans scarred by the housing bust, are still repairing their finances rather than going into debt to splurge on big-ticket items. And that may mean the U.S. recovery isn’t quite as robust as all the upbeat data would suggest.

Investing in government bonds is proving to be a profitable move for banks. They’re making over a full percentage point more by purchasing five-year Treasuries instead of leaving the idle cash parked at the Fed, where they earn only 0.25 percent. U.S. commercial banks held $2.83 trillion in cash as of Feb. 11, versus $2.57 trillion at the end of last year.

Having cash invested in five-year Treasuries is also netting banks an attractive spread over what they are paying depositors. The yield advantage for the notes over the average deposit rate for the four largest U.S. banks is above the norm over the past decade.

For Bank of America, the spread is about 1.44 percentage points, data compiled by Bloomberg show.

Pension troubles in New Jersey are getting harder to defer:

New Jersey Governor Chris Christie must make a $1.57 billion payment this year to the state pension system, a judge ruled while decrying the failure of the state to address a looming crisis.

“Because the state will now make nearly 70 percent less than the statutorily required $2.25 billion payment,” the expectations of workers have been “substantially impaired,” the judge ruled. “In short, the aim of the legislation is not being met.”

Jacobson’s ruling contrasts with her decision days before the last fiscal year ended June 30, when Christie said he faced a fiscal emergency. Workers sued then as well, and the judge said Christie acted reasonably in paying $696 million to the pension system to cover current employees while deferring $887 million to help close the gap left by previous governors.

The legislative and executive branches “have now had almost 10 months to find a solution to the pensions crisis for FY 2015,” Jacobson said in the latest ruling.

DBRS has confirmed Fairfax with a stable trend. I have updated the post regarding S&P’s revision to ‘Outlook Negative’.

Preferred share investors rushed to their monitors this morning to see what would happen at the start of a new week:

punch
Click for Big

It was a poor day for the Canadian preferred share market, with PerpetualDiscounts down 3bp, FixedResets losing 67bp and DeemedRetractibles off 2bp. ENB and TRP issues are prominent on the bad side of a suitably lengthy Performance Highlights table. Volume was high, with ENB issues again prominent – it looks like people are getting increasingly nervous about a possible downgrade.

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_150223
Click for Big

The new issue has caused a large change in the curve-fitting for the TRP series of FixedResets, which is discussed at greater length on the post announcing the new issue. TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.28 to be $1.37 rich, while the new issue, resetting 2020-11-30 at +296, is $1.07 cheap at its issue price of 25.00.

impVol_MFC_150223
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Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.N, resetting at +230 on 2020-3-19, bid at 24.68 to be $0.55 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.97 to be $0.62 cheap.

impVol_BAM_150223
Click for Big

The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.Z, resetting at +296bp on 2017-12-31, bid at 25.45 to be $0.41 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.52 and appears to be $0.97 rich.

impVol_FTS_150223
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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 16.61, looks $1.01 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.50 and is $0.96 rich.

pairs_FR_150223
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Most of the investment grade break-even rates are scattered around zero.

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

pairs_FF_150223
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 -0.9080 % 2,366.2
FixedFloater 4.37 % 3.52 % 18,990 18.38 1 0.0000 % 4,046.5
Floater 3.05 % 3.18 % 67,125 19.23 4 -0.9080 % 2,515.5
OpRet 4.08 % 1.99 % 112,950 0.32 1 -0.1722 % 2,754.9
SplitShare 4.32 % 4.62 % 28,133 3.55 5 -1.0670 % 3,184.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1722 % 2,519.1
Perpetual-Premium 5.33 % 1.52 % 56,568 0.08 24 0.0327 % 2,514.6
Perpetual-Discount 4.95 % 4.82 % 115,235 15.25 10 -0.0334 % 2,794.8
FixedReset 4.45 % 3.30 % 206,478 16.90 79 -0.6720 % 2,410.7
Deemed-Retractible 4.91 % 0.02 % 104,901 0.10 39 -0.0215 % 2,650.6
FloatingReset 2.43 % 2.86 % 89,472 6.39 7 -0.0308 % 2,322.4
Performance Highlights
Issue Index Change Notes
PWF.PR.P FixedReset -3.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 18.03
Evaluated at bid price : 18.03
Bid-YTW : 3.26 %
ENB.PR.T FixedReset -3.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 19.72
Evaluated at bid price : 19.72
Bid-YTW : 4.25 %
PVS.PR.B SplitShare -3.80 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.29
Bid-YTW : 5.15 %
PWF.PR.A Floater -3.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 18.26
Evaluated at bid price : 18.26
Bid-YTW : 2.74 %
ENB.PR.N FixedReset -3.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 20.42
Evaluated at bid price : 20.42
Bid-YTW : 4.22 %
MFC.PR.F FixedReset -3.34 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.50
Bid-YTW : 5.84 %
ENB.PR.P FixedReset -3.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.17 %
ENB.PF.C FixedReset -3.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 21.84
Evaluated at bid price : 22.30
Bid-YTW : 3.98 %
ENB.PR.J FixedReset -2.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 21.15
Evaluated at bid price : 21.15
Bid-YTW : 4.11 %
ENB.PF.A FixedReset -2.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 21.81
Evaluated at bid price : 22.23
Bid-YTW : 4.00 %
TRP.PR.C FixedReset -2.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 16.28
Evaluated at bid price : 16.28
Bid-YTW : 3.53 %
TRP.PR.A FixedReset -2.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 19.52
Evaluated at bid price : 19.52
Bid-YTW : 3.55 %
TRP.PR.B FixedReset -2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 14.44
Evaluated at bid price : 14.44
Bid-YTW : 3.44 %
ENB.PR.Y FixedReset -1.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 19.37
Evaluated at bid price : 19.37
Bid-YTW : 4.22 %
ENB.PR.F FixedReset -1.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 19.28
Evaluated at bid price : 19.28
Bid-YTW : 4.30 %
PVS.PR.C SplitShare -1.68 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 4.62 %
BAM.PR.T FixedReset -1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 21.52
Evaluated at bid price : 21.90
Bid-YTW : 3.58 %
ENB.PR.B FixedReset -1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 4.29 %
HSE.PR.A FixedReset -1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 3.61 %
ENB.PR.D FixedReset -1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 18.60
Evaluated at bid price : 18.60
Bid-YTW : 4.28 %
TRP.PR.D FixedReset -1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 22.66
Evaluated at bid price : 23.62
Bid-YTW : 3.36 %
PWF.PR.T FixedReset -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 23.26
Evaluated at bid price : 25.02
Bid-YTW : 3.11 %
GWO.PR.G Deemed-Retractible -1.25 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-25
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : -2.44 %
VNR.PR.A FixedReset -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 23.41
Evaluated at bid price : 24.90
Bid-YTW : 3.51 %
BAM.PR.R FixedReset -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 21.45
Evaluated at bid price : 21.45
Bid-YTW : 3.68 %
BAM.PF.E FixedReset -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 22.98
Evaluated at bid price : 24.52
Bid-YTW : 3.49 %
HSE.PR.C FixedReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 23.22
Evaluated at bid price : 25.14
Bid-YTW : 3.86 %
MFC.PR.K FixedReset -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.62
Bid-YTW : 3.89 %
BAM.PF.B FixedReset 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 22.85
Evaluated at bid price : 24.00
Bid-YTW : 3.57 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.J FixedReset 140,313 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 23.19
Evaluated at bid price : 25.13
Bid-YTW : 3.30 %
ENB.PR.T FixedReset 63,228 RBC crossed 33,000 at 19.25.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 19.72
Evaluated at bid price : 19.72
Bid-YTW : 4.25 %
TD.PR.T FloatingReset 60,470 TD crossed 41,400 at 23.82 and bought 11,500 from Scotia at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.83
Bid-YTW : 2.78 %
ENB.PF.C FixedReset 40,945 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 21.84
Evaluated at bid price : 22.30
Bid-YTW : 3.98 %
TRP.PR.C FixedReset 31,658 RBC crossed 10,000 at 16.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 16.28
Evaluated at bid price : 16.28
Bid-YTW : 3.53 %
ENB.PR.F FixedReset 28,981 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 19.28
Evaluated at bid price : 19.28
Bid-YTW : 4.30 %
There were 40 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PVS.PR.B SplitShare Quote: 24.29 – 25.30
Spot Rate : 1.0100
Average : 0.5591

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.29
Bid-YTW : 5.15 %

NEW.PR.D SplitShare Quote: 32.40 – 33.40
Spot Rate : 1.0000
Average : 0.7593

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.40
Bid-YTW : 3.17 %

PWF.PR.A Floater Quote: 18.26 – 18.96
Spot Rate : 0.7000
Average : 0.5045

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 18.26
Evaluated at bid price : 18.26
Bid-YTW : 2.74 %

MFC.PR.L FixedReset Quote: 23.80 – 24.50
Spot Rate : 0.7000
Average : 0.5105

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.80
Bid-YTW : 3.89 %

ENB.PF.A FixedReset Quote: 22.23 – 22.72
Spot Rate : 0.4900
Average : 0.3063

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-02-23
Maturity Price : 21.81
Evaluated at bid price : 22.23
Bid-YTW : 4.00 %

GWO.PR.G Deemed-Retractible Quote: 25.35 – 25.75
Spot Rate : 0.4000
Average : 0.2751

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-25
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : -2.44 %