DBRS Cautious on TA Australia Deal

March 23rd, 2015

TransAlta Corporation has announced:

entered into an investment agreement with TransAlta Renewables Inc. (“TransAlta Renewables”) (TSX: RNW) pursuant to which TransAlta Renewables has agreed to invest in TransAlta’s Australian power generation and gas pipeline portfolio (the “Portfolio”) and fund the remaining project costs for the South Hedland gas-fired project for a combined value of approximately $1.78 billion (the “Transaction”). The Portfolio consists of 575 MW of power generation from six operating assets and the South Hedland project currently under construction, as well as the recently commissioned 270 km gas pipeline. TransAlta Renewables’ investment will consist of the acquisition of securities which track the cash flows of the Portfolio.

“TransAlta created TransAlta Renewables in 2013 to unlock the underlying value in our contracted assets and to fund our growth” said Dawn Farrell, President and CEO. “This transaction highlights the value of our Australian investment strategy, finances the South Hedland plant, generates cash to strengthen our balance sheet and provides greater financial flexibility. The transaction significantly benefits both companies as TransAlta remains the majority shareholder and sponsor of TransAlta Renewables.”

DBRS comments:

Initially, the Transaction is expected to have a minimal impact on the credit quality of TAC as the Transaction is to be funded with all equity at OpCo. In the medium term, the ratings of TAC will likely be influenced by OpCo’s funding strategy related to the South Hedland gas-fired project under construction which requires a substantial investment of approximately $570 million (approximately $70 million spent in 2014). OpCo is contemplating funding alternatives associated with the South Hedland project. In the interim, the intercompany credit facility increase from TAC gives OpCo time to assess alternatives. DBRS will treat the funding alternative review as an event and assess OpCo’s actions and the resulting impact on TAC’s ratings when the funding plan is finalized.

DBRS acknowledges that the new OpCo structure creates another source of equity and could serve as a lower cost of capital for future growth opportunities; however, as TAC’s ownership in OpCo decreases and OpCo’s asset portfolio grows, the integration between TAC and OpCo could weaken. In this case, DBRS will increasingly weigh in on deconsolidated analysis for both TAC and CHD, which could ultimately result in a rating differential between TAC and CHD. TAC’s rating could be pressured if it significantly increases its exposure to construction and development risk as well as merchant risk of greenfield projects, and funds new projects with debt. This may not have a material impact on CHD if OpCo continues to fully hedge power production through PPAs with investment-grade counterparties and maintains reasonable financial metrics. Construction cost overrun risk associated with the South Hedland project is manageable given that the majority of the budgeted investment is either under fixed- price engineering, procurement and construction contracts or fixed fee to the off-taker, Horizon Power, a state government-owned corporation for existing assets.

Finally, since the lower-risk assets of TAC have been transferred to OpCo and this trend is expected to continue, holders of TAC’s direct external debt are facing structural subordination risk should OpCo raise a material amount of third-party debt in the future. OpCo has not raised any new external recourse debt since its inception in 2013 as TAC has provided virtually all necessary funding requirements to date. As such, TAC’s rating has not taken meaningful structural subordination effects into account, except outstanding debt related to CHD (which was grandfathered to OpCo at its inception in 2013). TAC’s ratings will likely be affected negatively should OpCo issue a material amount of third-party debt in the future as this will create structural subordination challenges for TAC’s bondholders.

TransAlta has four series of preferreds outstanding, all FixedResets: TA.PR.D, TA.PR.F, TA.PR.H and TA.PR.J.

Implied Volatility gives a murky picture. The Implied Volatility (which is of the Market Reset Spread, remember) is extremely low, but it could be simply that the highest spread issue, TA.PR.J, resetting at +380bp on 2019-9-30, is simply ridiculously expensive and is throwing everything off.

impVol_TA_150323
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New Issue: VSN FixedReset, 5.00%+427

March 23rd, 2015

Veresen Inc. has announced:

it has agreed to issue 8,000,000 Cumulative Redeemable Preferred Shares, Series E (“Series E Preferred Shares”) at a price of $25.00 per share for total gross proceeds of $200 million on a bought deal basis. The Series E Preferred Shares will be offered to the public through a syndicate of underwriters co-led by Scotiabank, TD Securities Inc. and RBC Capital Markets.

The holders of Series E Preferred Shares will be entitled to receive fixed cumulative dividends at an annual rate of 5.00%, representing $1.25 per share, payable quarterly for an initial period up to but excluding June 30, 2020, as and when declared by the Board of Directors of Veresen. The first quarterly dividend payment date is scheduled for June 30, 2015. The dividend rate will reset on June 30, 2020 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 4.27%.

Subject to regulatory approval, the Series E Preferred Shares are redeemable by Veresen, in whole or in part, on June 30, 2020 and on June 30 of every fifth year thereafter at a price of $25.00 per share plus accrued and unpaid dividends.

The holders of Series E Preferred Shares will have the right to convert all or any part of their shares into Cumulative Redeemable Preferred Shares, Series F (“Series F Preferred Shares”), subject to certain conditions, on June 30, 2020, and on June 30 of every fifth year thereafter. The holders of Series F Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and when declared by the Board of Directors of Veresen, at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 4.27%.

The offering is expected to close on or about April 1, 2015, subject to customary closing conditions. Net proceeds from the offering will be used to repay amounts outstanding under the credit facility that Veresen entered into for purposes of financing its acquisition of a 50% convertible preferred interest in Ruby Pipeline Holding Company, L.L.C., the entity which indirectly owns the Ruby pipeline system.

The Series E Preferred Shares will be issued pursuant to a prospectus supplement that will be filed with the securities regulatory authority in each of the provinces of Canada under Veresen’s short form base shelf prospectus dated September 20, 2013. An application has been made to list the Series E Preferred Shares and the Series F Preferred Shares on the Toronto Stock Exchange.

This issue will join VSN.PR.A, a FixedReset 4.40%+292 that commenced trading 2012-2-14 and VSN.PR.E, a FixedReset 5.00%+301 that commenced trading 2013-10-21. One more and I can start calculating Implied Volatility!

Both extant issues were hit hard on the day: VSN.PR.A closed at 21.45-55, with the bid down 1.7% on the day, while VSN.PR.C closed at 24.00-12, with the bid down 3.7%.

March 20, 2015

March 20th, 2015

Greek bank depositors not only have to deal with the potential for bank failure should Greece exit the Euro, but I’m sure they’re also worried about a punitive tax on deposits in good banks. So they’ve found another option:

GreekCash
Click for Big

It nice to see a supervisor fired for poor supervision:

Citigroup Inc. fired a trader on Friday for allegedly mismarking an inflation-options book and dismissed his boss for lax oversight, according to a person familiar with the matter.

Carl Bonde lost his job in New York after the bank determined he’d inflated the value of his trading positions by less than $30 million, the person said. Keith Price, head of U.S. inflation trading, was dismissed for his failure to supervise Bonde, said the person, who asked not to be identified discussing a personnel matter.

How ’bout them equities, eh?

Global stocks powered to their best weekly rally in nearly two years, sending two of the biggest equity benchmarks to the brink of records, on speculation the U.S. Federal Reserve will leave interest rates at zero past mid-year while European policy makers press stimulus.

The MSCI All-Country World Index surged 3.2 percent for the five days, pushing the Nasdaq Composite Index to within 7 points of wiping out all its losses since the Internet bubble. The Stoxx Europe 600 Index soared 1.9 percent to close 0.4 percent from its March 2000 high.

Other benchmark indexes also gained during the week. The Standard & Poor’s 500 Index rose 2.7 percent to 2,108.10 in the five days, 0.4 percent away from a record. In London, the FTSE 100 Index hit a fresh record, climbing above 7,000 for the first time. The Russell 2000 Index gained 2.8 percent to an all-time high.

Capital Power Corporation, proud issuer of CPX.PR.A, CPX.PR.C and CPX.PR.E, has been confirmed at Pfd-3(low) by DBRS:

DBRS Limited (DBRS) has today confirmed the rating of the Preferred Shares of Capital Power Corporation (CPC or the Company) at Pfd-3 (low) with a Stable trend. CPC’s Preferred Shares rating is based on the credit quality of its subsidiary, Capital Power L.P. (CPLP; rated BBB). Please see the CPLP rating report dated March 20, 2015, for more information on the credit quality of CPLP. The one-notch differential in the ratings of CPC and CPLP reflects the structural subordination at CPC.

CPC’s financial risk profile is based on its deconsolidated credit metrics. As CPC has no bonds/debentures issued at the parent level and is not expected to issue any debt in the foreseeable future, its adjusted leverage primarily consists of its preferred shares outstanding, which are treated as debt by DBRS. In the adjusted debt-to-capital calculation, the amount of preferred shares over the 20% preferred shares-to-equity threshold (defined as the percentage of preferred shares outstanding divided by total equity, excluding preferreds and minority interest) is treated as debt by DBRS. In 2014, CPC had $464 million of preferred shares outstanding, of which $67 million was treated as debt. As such, CPC’s unconsolidated debt-to-capital ratio was approximately 3% in 2014, which remains supportive of the current rating category. In addition, the unconsolidated fixed charge coverage ratio is expected to remain high at around five times.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 78bp, FixedResets up 10bp and DeemedRetractibles gaining 2bp. The Performance Highlights table has a good length, capped by winning PerpetualDiscounts. Volume was extremely 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_150320
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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.81 to be $1.31 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.37 cheap at its bid price of 24.92.

impVol_MFC_150320
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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.L, resetting at +216 on 2019-6-19, bid at 24.48 to be $0.72 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 26.05 to be $0.63 cheap.

impVol_BAM_150320
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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.R, resetting at +230bp on 2016-6-30, bid at 21.53 to be $0.56 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.51 and appears to be $0.93 rich

impVol_FTS_150320
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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 16.60, looks $1.28 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.70 and is $0.92 rich.

pairs_FR_150320
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Investment-grade pairs predict an average over the next five years of about 0.00% – except for one outlier, TRP.PR.A / TRP.PR.F, which has a break-even of -0.63%. The DC.PR.B / DC.PR.D pair has gone from the extreme to the ludicrous and now predicts an average bill rate over the next 4 3/4 years of -2.36%

pairs_FF_150320
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 -3.1190 % 2,282.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 -3.1190 % 3,991.5
Floater 3.32 % 3.21 % 63,097 19.21 3 -3.1190 % 2,426.9
OpRet 4.07 % 0.93 % 105,377 0.25 1 -0.0397 % 2,765.8
SplitShare 4.46 % 4.31 % 57,630 4.43 5 -0.1429 % 3,216.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0397 % 2,529.1
Perpetual-Premium 5.29 % 1.26 % 57,461 0.09 25 0.0516 % 2,522.3
Perpetual-Discount 4.96 % 5.02 % 172,159 15.24 9 0.7483 % 2,822.9
FixedReset 4.38 % 3.42 % 241,019 16.83 85 0.0976 % 2,432.4
Deemed-Retractible 4.90 % -1.43 % 112,770 0.11 37 0.0171 % 2,659.5
FloatingReset 2.49 % 2.90 % 86,537 6.31 8 -0.0748 % 2,333.7
Performance Highlights
Issue Index Change Notes
BAM.PR.K Floater -9.54 % A nonsensical closing bid, courtesy of those hard-working bank employees at the Toronto Stock Exchange. The issue traded 4,040 shares in a range of 15.41-72. As with the same issue on March 10, it is not clear whether this is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 14.03
Evaluated at bid price : 14.03
Bid-YTW : 3.55 %
ENB.PR.Y FixedReset -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 20.15
Evaluated at bid price : 20.15
Bid-YTW : 4.14 %
TRP.PR.F FloatingReset -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 3.25 %
SLF.PR.H FixedReset -1.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.36
Bid-YTW : 4.39 %
CGI.PR.D SplitShare -1.21 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 3.60 %
BNS.PR.Z FixedReset 1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.55
Bid-YTW : 3.33 %
IAG.PR.G FixedReset 1.10 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.69
Bid-YTW : 2.99 %
BAM.PR.R FixedReset 1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 21.53
Evaluated at bid price : 21.53
Bid-YTW : 3.69 %
MFC.PR.L FixedReset 1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.48
Bid-YTW : 3.62 %
CIU.PR.C FixedReset 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 16.86
Evaluated at bid price : 16.86
Bid-YTW : 3.25 %
BAM.PR.N Perpetual-Discount 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 22.70
Evaluated at bid price : 23.04
Bid-YTW : 5.15 %
BAM.PF.C Perpetual-Discount 1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 23.12
Evaluated at bid price : 23.45
Bid-YTW : 5.17 %
CU.PR.F Perpetual-Discount 1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 23.63
Evaluated at bid price : 24.00
Bid-YTW : 4.71 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.M FixedReset 276,913 Recent inventory blow-out.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 22.99
Evaluated at bid price : 24.61
Bid-YTW : 3.36 %
POW.PR.D Perpetual-Premium 230,738 Nesbitt crossed blocks of 50,000 shares, 110,600 and 60,000, all at 25.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-04-19
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 1.26 %
IAG.PR.G FixedReset 167,264 Nesbitt crossed 160,600 at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.69
Bid-YTW : 2.99 %
NA.PR.S FixedReset 162,676 TD crossed 125,000 at 25.40.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 23.34
Evaluated at bid price : 25.32
Bid-YTW : 3.15 %
RY.PR.J FixedReset 157,750 RBC crossed 69,800 at 24.99 and 16,000 at 25.00. RBC bought blocks of 17,700 and 19,900 from Nesbitt at 24.99.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 23.14
Evaluated at bid price : 24.97
Bid-YTW : 3.40 %
ENB.PR.N FixedReset 146,462 RBC crossed 139,000 at 21.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 4.20 %
BMO.PR.S FixedReset 142,232 Nesbitt crossed 48,300 at 25.06. RBC crossed 52,800 at 25.06 and 25,000 at 25.12.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 23.30
Evaluated at bid price : 25.20
Bid-YTW : 3.08 %
RY.PR.E Deemed-Retractible 137,605 Nesbitt crossed blocks of 65,100 and 70,000, both at 25.55.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-04-19
Maturity Price : 25.25
Evaluated at bid price : 25.57
Bid-YTW : -7.21 %
ENB.PR.D FixedReset 105,044 RBC crossed blocks of 35,000 and 51,400 at 19.54.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 19.40
Evaluated at bid price : 19.40
Bid-YTW : 4.21 %
CM.PR.Q FixedReset 102,874 RBC crossed 35,500 at 24.87.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 23.09
Evaluated at bid price : 24.86
Bid-YTW : 3.45 %
ENB.PR.F FixedReset 102,498 Nesbitt sold 18,500 to RBC at 20.00 and crossed 42,900 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 19.92
Evaluated at bid price : 19.92
Bid-YTW : 4.26 %
BMO.PR.T FixedReset 101,392 TD crossed 50,000 and 45,000 at 24.95.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 23.10
Evaluated at bid price : 24.71
Bid-YTW : 3.09 %
There were 49 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.K Floater Quote: 14.03 – 15.89
Spot Rate : 1.8600
Average : 1.1308

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 14.03
Evaluated at bid price : 14.03
Bid-YTW : 3.55 %

CGI.PR.D SplitShare Quote: 25.30 – 25.80
Spot Rate : 0.5000
Average : 0.3579

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 3.60 %

TD.PR.Z FloatingReset Quote: 23.85 – 24.26
Spot Rate : 0.4100
Average : 0.2781

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.85
Bid-YTW : 2.94 %

MFC.PR.K FixedReset Quote: 24.32 – 24.80
Spot Rate : 0.4800
Average : 0.3627

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.32
Bid-YTW : 3.62 %

BMO.PR.R FloatingReset Quote: 23.90 – 24.20
Spot Rate : 0.3000
Average : 0.2021

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.90
Bid-YTW : 2.87 %

ENB.PR.T FixedReset Quote: 20.48 – 20.79
Spot Rate : 0.3100
Average : 0.2233

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-20
Maturity Price : 20.48
Evaluated at bid price : 20.48
Bid-YTW : 4.18 %

March 19, 2015

March 19th, 2015

TIPS are in high demand:

The U.S. Treasury Department can thank the Federal Reserve for the surge in demand at Thursday’s auction of inflation-protected bonds.

The $13 billion in 10-year Treasury Inflation-Protected Securities, or TIPS, were sold at a yield of 0.2 percent, the lowest at an auction of the debt since May 2013. The Fed indicated Wednesday it isn’t in a rush to raise interest rates, leaving the door open for economic growth to stoke inflation.

Ten-year break-evens, the difference between yields on 10-year Treasury inflation protected securities and nominal equivalents, show investors expect U.S. consumer prices to rise 1.79 percent a year for the coming decade, up from a 2015 low of 1.49 percent on Jan. 14.

The gauge rose as much as 0.09 percentage point Thursday as rising prices for TIPS pulled their yields down and further away from yields on benchmark 10-year notes.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 11bp, FixedResets gaining 10bp and DeemedRetractibles off 2bp. There was no real pattern in the Performance Highlights table, other than that it was dominated by winners; Floaters did well. Volume was well 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_150319
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.68 to be $1.23 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.40 cheap at its bid price of 24.85.

impVol_MFC_150319
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 24.20 to be $0.47 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.85 to be $0.82 cheap.

impVol_BAM_150319
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.R, resetting at +230bp on 2016-6-30, bid at 21.29 to be $0.71 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.45 and appears to be $0.90 rich

impVol_FTS_150319
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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 16.70, looks $1.23 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.71 and is $0.91 rich.

pairs_FR_150319
Click for Big

Investment-grade pairs predict an average over the next five years of about 0.00% – except for one outlier, TRP.PR.A / TRP.PR.F, which has a break-even of -0.40%. The DC.PR.B / DC.PR.D pair has gone from the extreme to the ludicrous and now predicts an average bill rate over the next 4 3/4 years of -2.78%

pairs_FF_150319
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 1.8624 % 2,356.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.8624 % 4,120.0
Floater 3.22 % 3.21 % 63,980 19.22 3 1.8624 % 2,505.0
OpRet 4.07 % 0.76 % 106,654 0.25 1 0.1589 % 2,766.9
SplitShare 4.46 % 4.44 % 57,559 4.42 5 0.0159 % 3,221.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1589 % 2,530.1
Perpetual-Premium 5.29 % 0.08 % 56,492 0.09 25 0.1567 % 2,521.0
Perpetual-Discount 4.99 % 4.99 % 164,926 15.17 9 0.1124 % 2,801.9
FixedReset 4.38 % 3.52 % 241,768 16.69 85 0.1007 % 2,430.0
Deemed-Retractible 4.90 % -1.42 % 110,252 0.12 37 -0.0224 % 2,659.1
FloatingReset 2.49 % 2.93 % 87,529 6.31 8 0.2894 % 2,335.5
Performance Highlights
Issue Index Change Notes
HSE.PR.A FixedReset -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 16.78
Evaluated at bid price : 16.78
Bid-YTW : 3.97 %
TRP.PR.C FixedReset -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 16.69
Evaluated at bid price : 16.69
Bid-YTW : 3.74 %
MFC.PR.C Deemed-Retractible 1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.04
Bid-YTW : 5.02 %
BAM.PR.B Floater 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 15.56
Evaluated at bid price : 15.56
Bid-YTW : 3.20 %
TRP.PR.D FixedReset 1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 22.99
Evaluated at bid price : 24.34
Bid-YTW : 3.40 %
BAM.PR.C Floater 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 15.42
Evaluated at bid price : 15.42
Bid-YTW : 3.23 %
FTS.PR.H FixedReset 1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 3.45 %
ENB.PR.Y FixedReset 1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 20.42
Evaluated at bid price : 20.42
Bid-YTW : 4.19 %
TRP.PR.F FloatingReset 1.87 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 19.05
Evaluated at bid price : 19.05
Bid-YTW : 3.21 %
BAM.PR.K Floater 2.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 15.51
Evaluated at bid price : 15.51
Bid-YTW : 3.21 %
ELF.PR.H Perpetual-Premium 2.87 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-17
Maturity Price : 25.00
Evaluated at bid price : 25.78
Bid-YTW : 5.11 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.M FixedReset 483,371 Inventory blow-out sale.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 22.96
Evaluated at bid price : 24.53
Bid-YTW : 3.46 %
TD.PF.B FixedReset 222,494 TD crossed blocks of 50,000 shares, 49,700 and 100,000, all at 24.88.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 23.16
Evaluated at bid price : 24.86
Bid-YTW : 3.17 %
RY.PR.H FixedReset 184,144 RBC crossed 168,700 at 24.94
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 23.16
Evaluated at bid price : 24.86
Bid-YTW : 3.17 %
SLF.PR.I FixedReset 135,882 Nesbitt crossed 118,700 at 25.30.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.24
Bid-YTW : 3.58 %
BAM.PF.A FixedReset 73,320 Nesbitt crossed 64,600 at 25.25.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 23.37
Evaluated at bid price : 25.20
Bid-YTW : 3.72 %
GWO.PR.L Deemed-Retractible 71,300 Scotia crossed 20,000 at 26.18; Nesbitt crossed 50,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-04-18
Maturity Price : 26.00
Evaluated at bid price : 26.18
Bid-YTW : -5.25 %
There were 43 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
ENB.PF.E FixedReset Quote: 22.20 – 22.48
Spot Rate : 0.2800
Average : 0.1834

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 21.77
Evaluated at bid price : 22.20
Bid-YTW : 4.21 %

GWO.PR.P Deemed-Retractible Quote: 26.30 – 26.56
Spot Rate : 0.2600
Average : 0.1722

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-03-31
Maturity Price : 25.25
Evaluated at bid price : 26.30
Bid-YTW : 4.40 %

MFC.PR.H FixedReset Quote: 25.85 – 26.15
Spot Rate : 0.3000
Average : 0.2163

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.85
Bid-YTW : 2.85 %

SLF.PR.I FixedReset Quote: 25.24 – 25.49
Spot Rate : 0.2500
Average : 0.1698

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.24
Bid-YTW : 3.58 %

PWF.PR.P FixedReset Quote: 18.60 – 18.93
Spot Rate : 0.3300
Average : 0.2503

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-19
Maturity Price : 18.60
Evaluated at bid price : 18.60
Bid-YTW : 3.43 %

PWF.PR.L Perpetual-Premium Quote: 25.35 – 25.65
Spot Rate : 0.3000
Average : 0.2225

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 3.91 %

March 18, 2015

March 18th, 2015

Lucky Assiduous Readers! It’s time for me to get on my favourite hobby-horse again … one I’ve been riding for over twenty five years now … and will probably keep flogging even if it dies:

GICs also have a psychological benefit because, unlike bonds, GIC prices don’t change when interest rates rise or fall.

” GIC prices don’t change when interest rates rise or fall.”

This is not correct. Reported GIC prices generally don’t change, but the actual price you can get for it (if transferable) does – and so does the actual value of the cash flows.

The brokerage industry’s obfuscation of value with respect to GICs is going to be yet another competitive advantage for the banks when CRM2 and mandatory performance reporting come into force.

For a longer rant, see my essay Preferred Shares and GICs; those who are more interested in cheap entertainment can just look at the comments to the Globe story.

But the big news of the day was FOMC press release:

Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

There was no dissent.

And the markets went wild!

The Federal Reserve dropped an assurance it will be “patient” in raising interest rates, ending an era in its communications policy and opening the door for higher borrowing costs as early as June.

“An increase in the target range for the federal funds rate remains unlikely at the April” meeting, the Federal Open Market Committee said in a statement Wednesday in Washington. Fed officials also lowered their median estimate for the federal funds rate at the end of 2015 to 0.625 percent, compared with 1.125 percent in December forecasts.

Stocks rose, erasing earlier losses, after the FOMC announcement. The Standard & Poor’s 500 Index was up 0.6 percent at 2,087.04 as of 2:11 p.m. in New York. Ten-year Treasury notes yielded 1.99 percent, down 6 basis points.

In December, the FOMC dropped a clause from its statement that it would hold rates low for a “considerable time” and instead said it would be “patient” in weighing an increase.

In fact, the market took the release as a whole to be a dovish indicator:

Money-market futures traders cut the odds of a Federal Reserve interest-rate increase below 50 percent until December after Chair Janet Yellen lowered her outlook for growth and the pace of policy tightening.

The likelihood that policy makers will lift their benchmark rate from near zero in September fell to 39 percent from 55 percent on Tuesday, according to calculations by Bloomberg using federal fund futures contracts. Futures traders have wiped out the chance of an increase in June, assigning it an 11 percent probability.

While the policy-setting Federal Open Market Committee dropped a commitment to be “patient” when raising rates, a key shift was policy makers’ lowering of their median estimate for benchmark borrowing costs during the next two years, according to Brian Smedley, an interest-rate strategist at Bank of America Corp. in New York. The fresh set of estimates reduced the median for the federal funds rate at the end of 2015 to 0.625 percent, compared with a December forecast of 1.125 percent.

The OECD is not impressed by Canada’s prospects:

Smacked by the oil crash, Canada has taken a big hit in a new OECD economic forecast.

In its updated projections released Wednesday, the Organization for Economic Co-operation and Development cut its outlook for growth in Canada this year to 2.2 per cent, down from 2.6 per cent in its November forecast.

For 2016, the group now sees growth of 2.1 per cent, down from 2.4 per cent.

“Oil and commodity exporters are facing weaker growth prospects as the result of lower prices,” the OECD said.

Like Canada, the forecast for Brazil has been cut.

“The main class of countries for which near-term growth prospects have worsened since the November 2014 economic outlook is the commodity exporters,” the OECD said.

“The interim projections are significantly lower for oil-exporters Canada and Brazil, with short-term growth prospects in Brazil also being restrained by monetary and fiscal tightening and increasing political uncertainty,” it added.

“Growth has already slowed in many other oil-exporting countries, and with the fall in commodity prices going well beyond oil, exporters of metals, coal and some agricultural commodities also face less favourable growth prospects this year.”

It was a mildly positive day for the Canadian preferred share market, with PerpetualDiscounts gaining 3bp, FixedResets flat, and DeemedRetractibles up 6bp. The overall calmness masked a lot of volatility, with a fairly lengthy Performance Highlights table dominated by losing FixedResets. Volume was very high.

PerpetualDiscounts now yield 4.99%, equivalent to 6.49% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.7%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 280bp, a widening from the 270bp reported March 11.

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_150318
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.55 to be $1.15 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.32 cheap at its bid price of 24.90.

impVol_MFC_150318
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.M, resetting at +236 on 2019-12-19, bid at 24.95 to be $0.40 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.99 to be $0.67 cheap.

impVol_BAM_150318
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.R, resetting at +230bp on 2016-6-30, bid at 21.33 to be $0.61 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.41 and appears to be $0.91 rich.

impVol_FTS_150318
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 16.42, looks $1.45 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.82 and is $1.09 rich.

pairs_FF_150318
Click for Big

Investment-grade pairs predict an average over the next five years of about 0.00% – except for one outlier, TRP.PR.A / TRP.PR.F, which has a break-even of -0.75%. The DC.PR.B / DC.PR.D pair has gone from the extreme to the ludicrous and now predicts an average bill rate over the next 4 3/4 years of -2.06%

pairs_FR_150318
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 -1.2762 % 2,313.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.2762 % 4,044.7
Floater 3.28 % 3.28 % 64,441 19.05 3 -1.2762 % 2,459.2
OpRet 4.07 % 1.38 % 108,246 0.25 1 -0.0397 % 2,762.6
SplitShare 4.46 % 4.42 % 57,844 4.43 5 -0.0040 % 3,220.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0397 % 2,526.1
Perpetual-Premium 5.30 % 1.28 % 56,233 0.08 25 -0.1768 % 2,517.1
Perpetual-Discount 5.00 % 4.99 % 164,286 15.43 9 0.0281 % 2,798.8
FixedReset 4.39 % 3.51 % 244,388 16.67 85 -0.0036 % 2,427.6
Deemed-Retractible 4.90 % -1.61 % 106,628 0.12 37 0.0587 % 2,659.6
FloatingReset 2.50 % 2.93 % 90,485 6.31 8 -0.0214 % 2,328.8
Performance Highlights
Issue Index Change Notes
ELF.PR.H Perpetual-Premium -2.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 24.58
Evaluated at bid price : 25.06
Bid-YTW : 5.56 %
MFC.PR.F FixedReset -2.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.90
Bid-YTW : 5.82 %
SLF.PR.G FixedReset -2.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.66
Bid-YTW : 6.31 %
TRP.PR.C FixedReset -2.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 16.86
Evaluated at bid price : 16.86
Bid-YTW : 3.70 %
HSE.PR.A FixedReset -2.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 16.98
Evaluated at bid price : 16.98
Bid-YTW : 3.92 %
BAM.PR.C Floater -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 15.17
Evaluated at bid price : 15.17
Bid-YTW : 3.28 %
BMO.PR.Q FixedReset -1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.25
Bid-YTW : 3.61 %
MFC.PR.L FixedReset -1.19 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.06
Bid-YTW : 3.89 %
BAM.PR.K Floater -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 15.12
Evaluated at bid price : 15.12
Bid-YTW : 3.29 %
BAM.PR.B Floater -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 15.35
Evaluated at bid price : 15.35
Bid-YTW : 3.24 %
ENB.PR.T FixedReset -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 20.39
Evaluated at bid price : 20.39
Bid-YTW : 4.31 %
GWO.PR.N FixedReset -1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.35
Bid-YTW : 5.83 %
PWF.PR.P FixedReset -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 18.71
Evaluated at bid price : 18.71
Bid-YTW : 3.41 %
FTS.PR.M FixedReset 1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 23.23
Evaluated at bid price : 25.15
Bid-YTW : 3.34 %
MFC.PR.N FixedReset 1.44 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.66
Bid-YTW : 3.67 %
CIU.PR.C FixedReset 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 16.65
Evaluated at bid price : 16.65
Bid-YTW : 3.45 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.G Perpetual-Premium 322,060 Called for redemption April 30.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-04-17
Maturity Price : 25.00
Evaluated at bid price : 25.29
Bid-YTW : -0.26 %
RY.PR.M FixedReset 315,655 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 22.91
Evaluated at bid price : 24.40
Bid-YTW : 3.48 %
FTS.PR.H FixedReset 230,857 TD crossed blocks of 41,900 and 70,000 at 16.94, then crossed 110,900 at 16.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 16.42
Evaluated at bid price : 16.42
Bid-YTW : 3.51 %
W.PR.H Perpetual-Premium 194,892 Desjardins crossed blocks of 96,300 and 96,800 at 25.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 24.87
Evaluated at bid price : 25.18
Bid-YTW : 5.55 %
CU.PR.C FixedReset 165,965 Desjardins crossed 159,200 at 24.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 23.16
Evaluated at bid price : 24.11
Bid-YTW : 3.39 %
BNS.PR.R FixedReset 145,300 Nesbitt crossed 62,700 and 75,000 at 25.67.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.64
Bid-YTW : 3.05 %
BMO.PR.T FixedReset 144,975 Nesbitt crossed 46,900 and 75,000 at 24.79. TD sold 19,900 to anonymous at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 23.10
Evaluated at bid price : 24.70
Bid-YTW : 3.18 %
RY.PR.B Deemed-Retractible 114,122 Nesbitt crossed 111,200 at 25.65.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-04-17
Maturity Price : 25.25
Evaluated at bid price : 25.62
Bid-YTW : -9.44 %
There were 56 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
ELF.PR.H Perpetual-Premium Quote: 25.06 – 26.00
Spot Rate : 0.9400
Average : 0.5411

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 24.58
Evaluated at bid price : 25.06
Bid-YTW : 5.56 %

BAM.PR.K Floater Quote: 15.12 – 15.89
Spot Rate : 0.7700
Average : 0.5081

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 15.12
Evaluated at bid price : 15.12
Bid-YTW : 3.29 %

MFC.PR.L FixedReset Quote: 24.06 – 24.54
Spot Rate : 0.4800
Average : 0.3081

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.06
Bid-YTW : 3.89 %

FTS.PR.J Perpetual-Premium Quote: 24.60 – 25.25
Spot Rate : 0.6500
Average : 0.4875

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 24.18
Evaluated at bid price : 24.60
Bid-YTW : 4.84 %

MFC.PR.C Deemed-Retractible Quote: 23.75 – 24.23
Spot Rate : 0.4800
Average : 0.3527

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.75
Bid-YTW : 5.18 %

FTS.PR.H FixedReset Quote: 16.42 – 16.83
Spot Rate : 0.4100
Average : 0.2940

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-18
Maturity Price : 16.42
Evaluated at bid price : 16.42
Bid-YTW : 3.51 %

March 17, 2015

March 17th, 2015

The Bank of Canada rate cut is making a difference where it counts:

Bank of Montreal has renewed the mortgage war among Canada’s banks, slashing the posted rate on its five-year fixed mortgage to 2.79 per cent from 2.99 per cent, even as Ottawa and the International Monetary Fund fret over the state of Canada’s overheating housing market.

Toronto-Dominion Bank quickly rushed to match BMO’s rate special, saying it will drop its five-year fixed mortgage rate from 3.09 per cent to 2.79 starting Wednesday.

It hadn’t occurred to me that deferred prosecution settlements for criminal charges were actually bureaucratic job creation schemes, but that’s the way it is!

Deferred prosecution and non-prosecution agreements, as they are called, have been widely used by the Justice Department in recent years in investigations ranging from sanctions violations to market manipulation. A decision to revoke such a deal with a bank would be unprecedented.

Such settlements require the banks to admit responsibility and cooperate with ongoing investigations. Critics including Securities and Exchange Commission Chair Mary Jo White, who pioneered such agreements, argue the deals have been overused and don’t curb misconduct. The Justice Department defends the settlements, saying they force banks to correct wrongdoing and allow oversight.

There’s a fascinating article on Bloomberg about the mystic quality of private equity valuations:

For the most mature startups, investors agree to grant higher valuations, which help the companies with recruitment and building credibility, in exchange for guarantees that they’ll get their money back first if the company goes public or sells. They can also negotiate to receive additional free shares if a subsequent round’s valuation is less favorable. Interviews with more than a dozen founders, venture capitalists, and the attorneys who draw up investment contracts reveal the most common financial provisions used in private-market technology deals today.

The backroom agreements are becoming more common as tech companies stay private longer, according to the interviews and financial documents obtained by Bloomberg Business. The practice obfuscates the meaning of a valuation, which can become dangerous down the road because private investors aren’t taking the same risks a public-market shareholder would. By the time a company does go public, the valuation it got from VCs may not align with its balance sheet.

Each provision covers different ways to make sure new investors get paid back, even if disaster strikes, if an initial public offering gives the company a market cap far less than its private number, or, more commonly, if the startup has to raise money again at a lower valuation. One stipulation, called senior liquidation preference, ensures that a certain group gets its money back before anyone else, including employees. Another class, called downside protection or ratchets, automatically grants additional shares in the event of a declining valuation, removing a great deal of risk that the stake will ever lose value.

The Obama administration is proposing to impose a fiduciary standard on brokers handling retirement accounts:

The plan to be issued by the Labor Department would require brokers to act in a customer’s best interest, a change that could limit the earnings of financial advisers in the handling of Americans’ $11 trillion of retirement savings.

At the heart of the proposal is an effort to tighten the legal standard for brokers handling retirement funds in individual retirement accounts and 401(k)s, which now hold more than $11 trillion. Under current rules, brokers can sell any product that is “suitable” for an investor, meaning it fits the client’s needs and tolerance for risk.

Brokers typically earn money from upfront sales commissions or fees paid by investors who purchase mutual funds. White House officials said that kind of compensation arrangement provides an incentive to recommend products that net higher fees or commissions without yielding better returns for investors. Clients lose as much as $17 billion a year from such conflicted advice, according to the Obama administration.

Subjecting brokers to a fiduciary duty, a standard that now applies to professional money managers, will lead to more lawsuits against the industry and add burdensome compliance requirements, industry groups argue.

The added costs will probably prompt brokers to drop client accounts with less than $50,000 of assets, leaving those investors to manage their own savings, according to the Securities Industry and Financial Markets Association.

So naturally every office-seeker in town is jumping on the bandwagon:

The SEC should “implement a uniform fiduciary duty for broker-dealers and investment advisers where the standard is to act in the best interest of the investor,” White said Tuesday at a conference sponsored by the Securities Industry and Financial Markets Association in Phoenix.

The SEC, which oversees the brokerage industry as a whole, has studied the issue for years without taking any regulatory action. The agency now finds itself in the middle of what promises to be one of the most bruising Wall Street lobbying battles in years.

The financial industry has been watching closely for White to reveal her position, which would break a standoff between the two Democrat and two Republican commissioners. White said she will begin talking with other commissioners about the outlines of new rules.

Some investor groups say the current rules don’t go far enough to limit conflicts of interests for brokers, who are paid by mutual funds and other companies for selling their products.

White’s support for the measures aligns her with the Obama administration and congressional Democrats. It pits her against many Republicans, who have said a fiduciary standard will be costly for brokers and could make them drop less wealthy clients.

So who’s going to sell anything? And what will happen to new issue commissions, which are formally paid by the issuer? Proxy solicitation fees?

The only way fiduciary duty can work is if it exists in isolation. Perfect isolation. That means that one guy can’t be a fiduciary to somebody and a broker to somebody else; and it means that one firm can’t have both fiduciaries and brokers, and it means that one firm can’t have subsidiaries – or even significant stock holdings – in both fiduciary firms and broking firms. And guess what? That ain’t gonna happen.

Perhaps you will say that Chinese Walls will work just as well. Perhaps you will insist that proper oversight and regulation will regulate a distinction between the buy side and the sell side. Perhaps you are a fool. Follow the money. Regulation will produce nothing more than a few cushy jobs for regulators, reams of ultimately unread paperwork generated by guys who have better things to do and a total lack of service to Granny with her $50,000 account but – on the bright side – lots of new business for banks, who will stick their clients into GOOD SAFE GICS and ZERO-RISK Principal Protected Notes!

“>Truth in Advertising
Click for Big

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_150317
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.41 to be $1.12 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.23 cheap at its bid price of 24.78.

impVol_MFC_150317
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 24.35 to be $0.63 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.86 to be $0.69 cheap.

impVol_BAM_150317
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.R, resetting at +230bp on 2016-6-30, bid at 21.44 to be $0.44 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.44 and appears to be $0.98 rich.

impVol_FTS_150317
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 16.50, looks $1.46 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.72 and is $1.07 rich.

pairs_FR_150317
Click for Big

The cancellation of the previously announced deflationary environment had an immediate effect on the implied three month bill rate, with investment-grade pairs predicting an average over the next five years of about 0.00% – except for one outlier, TRP.PR.A / TRP.PR.F, which has a break-even of -0.83%. The DC.PR.B / DC.PR.D pair has gone from the extreme to the ludicrous and now predicts an average bill rate over the next 4 3/4 years of -2.09%

pairs_FF_150317
Click for Big

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

It was a rough day for the Canadian preferred share market, with PerpetualDiscounts losing 31bp, FixedResets down 29bp and DeemedRetractibles off 7bp. Floater and FixedReset losers dominated the Performance Highlights table. Volume was average.

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 -1.5126 % 2,343.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.5126 % 4,097.0
Floater 3.24 % 3.23 % 65,483 19.17 3 -1.5126 % 2,491.0
OpRet 4.07 % 1.21 % 100,236 0.26 1 0.0000 % 2,763.7
SplitShare 4.46 % 4.42 % 55,440 4.43 5 0.5269 % 3,221.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,527.1
Perpetual-Premium 5.29 % 0.40 % 57,945 0.08 25 -0.1250 % 2,521.5
Perpetual-Discount 5.00 % 4.99 % 152,053 15.14 9 -0.3082 % 2,798.0
FixedReset 4.39 % 3.51 % 245,770 16.68 85 -0.2937 % 2,427.6
Deemed-Retractible 4.90 % -0.14 % 107,334 0.12 37 -0.0661 % 2,658.1
FloatingReset 2.50 % 2.93 % 83,830 6.32 8 -0.0643 % 2,329.3
Performance Highlights
Issue Index Change Notes
MFC.PR.F FixedReset -2.42 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.33
Bid-YTW : 5.54 %
IAG.PR.G FixedReset -2.21 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 2.96 %
TRP.PR.C FixedReset -2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 17.23
Evaluated at bid price : 17.23
Bid-YTW : 3.62 %
SLF.PR.G FixedReset -2.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.06
Bid-YTW : 6.04 %
BAM.PR.B Floater -1.96 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 15.53
Evaluated at bid price : 15.53
Bid-YTW : 3.20 %
BAM.PR.T FixedReset -1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 21.46
Evaluated at bid price : 21.81
Bid-YTW : 3.74 %
BAM.PR.X FixedReset -1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 3.87 %
BAM.PR.K Floater -1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 15.30
Evaluated at bid price : 15.30
Bid-YTW : 3.25 %
BAM.PR.C Floater -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 15.40
Evaluated at bid price : 15.40
Bid-YTW : 3.23 %
FTS.PR.H FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 3.50 %
CU.PR.C FixedReset -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 23.07
Evaluated at bid price : 23.92
Bid-YTW : 3.42 %
IFC.PR.A FixedReset -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.06
Bid-YTW : 5.12 %
ENB.PR.H FixedReset -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 18.45
Evaluated at bid price : 18.45
Bid-YTW : 4.30 %
MFC.PR.N FixedReset -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.31
Bid-YTW : 3.85 %
ENB.PR.Y FixedReset -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 19.94
Evaluated at bid price : 19.94
Bid-YTW : 4.30 %
CIU.PR.C FixedReset 7.21 % Notoriously volatile. Rarely means anything.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 16.35
Evaluated at bid price : 16.35
Bid-YTW : 3.52 %
Volume Highlights
Issue Index Shares
Traded
Notes
SLF.PR.G FixedReset 95,348 Desjardins sold blocks of 10,800 shares, 26,100 and 13,100 to anonymous at 18.20. Desjardins then went to the well again, selling blocks of 12,500 and 12,400 to anonymous at 18.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.06
Bid-YTW : 6.04 %
GWO.PR.N FixedReset 71,710 Desjardins sold 46,700 to anonymous at 18.65, then sold 13,700 to RBC at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.55
Bid-YTW : 5.70 %
HSE.PR.E FixedReset 56,820 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 23.16
Evaluated at bid price : 25.00
Bid-YTW : 4.34 %
FTS.PR.M FixedReset 53,290 RBC crossed 50,000 at 24.98.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 23.15
Evaluated at bid price : 24.90
Bid-YTW : 3.39 %
RY.PR.M FixedReset 42,770 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 22.85
Evaluated at bid price : 24.25
Bid-YTW : 3.51 %
RY.PR.I FixedReset 41,200 Scotia crossed 40,000 at 25.41.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.42
Bid-YTW : 2.98 %
There were 34 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.F FixedReset Quote: 19.33 – 20.00
Spot Rate : 0.6700
Average : 0.4716

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.33
Bid-YTW : 5.54 %

BAM.PF.E FixedReset Quote: 24.44 – 24.80
Spot Rate : 0.3600
Average : 0.2335

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 22.96
Evaluated at bid price : 24.44
Bid-YTW : 3.61 %

TRP.PR.F FloatingReset Quote: 18.66 – 19.30
Spot Rate : 0.6400
Average : 0.5216

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 18.66
Evaluated at bid price : 18.66
Bid-YTW : 3.28 %

BMO.PR.L Deemed-Retractible Quote: 25.86 – 26.10
Spot Rate : 0.2400
Average : 0.1511

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-05-25
Maturity Price : 25.50
Evaluated at bid price : 25.86
Bid-YTW : -0.14 %

CU.PR.C FixedReset Quote: 23.92 – 24.50
Spot Rate : 0.5800
Average : 0.4962

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-17
Maturity Price : 23.07
Evaluated at bid price : 23.92
Bid-YTW : 3.42 %

MFC.PR.N FixedReset Quote: 24.31 – 24.65
Spot Rate : 0.3400
Average : 0.2576

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.31
Bid-YTW : 3.85 %

March 16, 2015

March 16th, 2015

Nothing happened today.

The Canadian preferred share market was on fire today, with PerpetualDiscounts winning 88bp, FixedResets up 28bp and DeemedRetractibles gaining 15bp. There’s a good list of winners in the Performance Highlights table. Volume was below 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_150316
click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.32 to be $1.03 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.21 cheap at its bid price of 24.80.

impVol_MFC_150316
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 24.35 to be $0.43 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 26.00 to be $0.58 cheap.

impVol_BAM_150316
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.R, resetting at +230bp on 2016-6-30, bid at 21.59 to be $0.59 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.67 and appears to be $0.99 rich.

impVol_FTS_150316
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 16.71, looks $1.36 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.79 and is $1.00 rich.

pairs_FR_150316
click for Big

The cancellation of the previously announced deflationary environment had an immediate effect on the implied three month bill rate, with investment-grade pairs predicting an average over the next five years of about 0.00% – except for one outlier, TRP.PR.A / TRP.PR.F, which has a break-even of -0.87%.

pairs_FF_150316
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 -0.1277 % 2,379.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.1277 % 4,159.9
Floater 3.19 % 3.19 % 65,776 19.27 3 -0.1277 % 2,529.2
OpRet 4.07 % 1.20 % 101,525 0.26 1 0.0397 % 2,763.7
SplitShare 4.48 % 4.56 % 51,332 4.46 5 -0.0917 % 3,204.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0397 % 2,527.1
Perpetual-Premium 5.28 % -0.62 % 58,962 0.08 25 0.2035 % 2,524.7
Perpetual-Discount 4.98 % 4.98 % 152,763 15.16 9 0.8808 % 2,806.6
FixedReset 4.38 % 3.51 % 249,495 16.75 85 0.2787 % 2,434.8
Deemed-Retractible 4.90 % -1.07 % 108,726 0.12 37 0.1548 % 2,659.8
FloatingReset 2.50 % 2.87 % 86,719 6.32 8 -0.1230 % 2,330.8
Performance Highlights
Issue Index Change Notes
CIU.PR.C FixedReset -7.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 15.25
Evaluated at bid price : 15.25
Bid-YTW : 3.78 %
TRP.PR.F FloatingReset -2.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 3.30 %
SLF.PR.H FixedReset -1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.51
Bid-YTW : 4.40 %
BAM.PF.E FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 23.04
Evaluated at bid price : 24.67
Bid-YTW : 3.56 %
CU.PR.C FixedReset 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 23.21
Evaluated at bid price : 24.20
Bid-YTW : 3.37 %
BAM.PF.C Perpetual-Discount 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 22.91
Evaluated at bid price : 23.22
Bid-YTW : 5.22 %
TRP.PR.A FixedReset 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 20.74
Evaluated at bid price : 20.74
Bid-YTW : 3.47 %
MFC.PR.C Deemed-Retractible 1.40 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.95
Bid-YTW : 5.07 %
MFC.PR.M FixedReset 1.42 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.93
Bid-YTW : 3.60 %
MFC.PR.N FixedReset 1.53 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.57
Bid-YTW : 3.71 %
FTS.PR.J Perpetual-Premium 1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 24.60
Evaluated at bid price : 25.03
Bid-YTW : 4.76 %
BAM.PR.M Perpetual-Discount 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 22.49
Evaluated at bid price : 22.78
Bid-YTW : 5.21 %
MFC.PR.F FixedReset 1.85 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.81
Bid-YTW : 5.25 %
BAM.PR.N Perpetual-Discount 1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 22.51
Evaluated at bid price : 22.77
Bid-YTW : 5.22 %
HSE.PR.A FixedReset 2.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 17.34
Evaluated at bid price : 17.34
Bid-YTW : 3.84 %
TRP.PR.C FixedReset 2.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 17.60
Evaluated at bid price : 17.60
Bid-YTW : 3.54 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.G Perpetual-Premium 229,837 Called for redemption April 30.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-04-15
Maturity Price : 25.00
Evaluated at bid price : 25.29
Bid-YTW : -0.62 %
CM.PR.Q FixedReset 85,660 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 23.02
Evaluated at bid price : 24.66
Bid-YTW : 3.57 %
BNS.PR.Y FixedReset 84,421 Scotia bought 10,000 from TD at 22.50.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.45
Bid-YTW : 3.64 %
RY.PR.M FixedReset 65,251 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 22.84
Evaluated at bid price : 24.23
Bid-YTW : 3.52 %
HSE.PR.E FixedReset 63,080 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 23.13
Evaluated at bid price : 24.92
Bid-YTW : 4.36 %
TD.PF.D FixedReset 55,955 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 23.13
Evaluated at bid price : 24.97
Bid-YTW : 3.50 %
There were 24 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CIU.PR.C FixedReset Quote: 15.25 – 16.80
Spot Rate : 1.5500
Average : 0.9596

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 15.25
Evaluated at bid price : 15.25
Bid-YTW : 3.78 %

CU.PR.D Perpetual-Premium Quote: 25.25 – 25.64
Spot Rate : 0.3900
Average : 0.2779

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-09-01
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 4.78 %

TRP.PR.E FixedReset Quote: 24.32 – 24.65
Spot Rate : 0.3300
Average : 0.2247

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 22.94
Evaluated at bid price : 24.32
Bid-YTW : 3.45 %

BAM.PR.K Floater Quote: 15.50 – 15.89
Spot Rate : 0.3900
Average : 0.3095

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 15.50
Evaluated at bid price : 15.50
Bid-YTW : 3.21 %

GWO.PR.F Deemed-Retractible Quote: 25.69 – 25.99
Spot Rate : 0.3000
Average : 0.2211

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-04-15
Maturity Price : 25.00
Evaluated at bid price : 25.69
Bid-YTW : -28.20 %

RY.PR.H FixedReset Quote: 24.70 – 24.95
Spot Rate : 0.2500
Average : 0.1745

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-16
Maturity Price : 23.10
Evaluated at bid price : 24.70
Bid-YTW : 3.20 %

March PrefLetter Released!

March 16th, 2015

The March, 2015, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

The regular appendices reporting on DeemedRetractibles and FixedResets are included.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the March, 2015, issue, while the “Next Edition” will be the April, 2015, issue, scheduled to be prepared as of the close April 10 and eMailed to subscribers prior to market-opening on April 13.

PrefLetter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

BSD.PR.A Hypothetical Preferred Special Retraction Right: 44% Tender

March 16th, 2015

Brookfield Soundvest Capital Management Ltd. has announced (although not yet on their website):

that holders of 1,779,807 Preferred Securities have given notice to the Trust that they wish to exercise the Preferred Special Retraction Right in the event that the extraordinary resolution to extend the term of the Preferred Securities for additional five year renewal terms following the scheduled maturity date of March 31, 2015 is approved at the upcoming meeting of holders of Preferred Securities and holders of trust units on March 27, 2015. Holders of trust units (the “Units”) have until 5:00pm (Toronto time) on March 20, 2015 to give notice to the Trust if they wish to exercise the Unit Special Retraction Right in order to provide the Trust with the ability to maintain an equal number of Units and Preferred Securities outstanding (if the extraordinary resolutions are approved). To vote at the meeting, securityholders must ensure that their voting instruction forms are received no later than 5:00pm (Toronto time) on March 25, 2015.

In addition, the Trust also announced today that the annual redemption right available to holders of Units (whether alone or together with an equal number of Preferred Securities) in November of each year will no longer be suspended in circumstances where the asset coverage on the Preferred Securities is less than 1.4 times. Although quarterly distributions on the Capital Units will remain suspended if the asset coverage continues to be below 1.4 times, recent changes in applicable securities laws have resulted in the Trust terminating the suspension of the annual redemption right in these circumstances (for the upcoming November redemption).

According to TMXMoney there are currently 4,030,225 shares outstanding, so 1,779,807 is a little over 44%.

The directors of the manager, Kevin Charlebois, George Myhal, Gail Cecil, Audrey Charlebois and Gabrielle Lenz, approved a term extension proposal for the fund that was pretty sleazy. It’s a pleasure to note that 44% of the preferred shareholders have managed to jump through their ridiculous hoops and tender to an offer that does not yet exist.

And perhaps there will be another whack of retraction attempts submitted to the company by Friday, in connection with the equally hypothetical Unit Special Retraction Right.

And with a bit of luck the term extension proposal will fail and the trust dissolved. We can hope. This manager should lose all its business.

BSD.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

FTN.PR.A: Annual Report 2014

March 16th, 2015

Financial 15 Split Inc. has released its Annual Report to November 30, 2014.

FTN / FTN.PR.A Performance
Instrument One
Year
Three
Years
Five
Years
Ten
Years
Whole Unit +16.59% +21.49% +10.66% +4.30%
FTN.PR.A +5.38% +5.38% +5.38% +5.37%
FTN +33.94% +58.33% +18.79% +4.53%
S&P/TSX Financial Index +18.77% +20.54% +13.45% +9.99%
S&P 500 Financial Index +24.64% +31.12% +14.36% -0.05%

Figures of interest are:

MER: 1.48% of the whole unit value, excluding one time initial offering expenses.

Average Net Assets: We need this to calculate portfolio yield. MER of 1.48% Total Expenses of 3,284,849 implies $222-million net assets. Preferred Share distributions of 6,781,917 @ 0.525 / share implies 12.9-million shares out on average. Average Unit Value (beginning & end of year) = (17.76 + 17.14) / 2 = 17.45. Therefore 12.9-million @ 17.45 = 225-million average net assets. Good agreement between these two methods! Call it 224-million average.

Underlying Portfolio Yield: Dividends received (net of withholding) of 5,526,373 divided by average net assets of 224-million is 2.47%

Income Coverage: Net Investment Income of 2,242,511 divided by Preferred Share Distributions of 6,781,917 is 33%.