July 19, 2016

July 20th, 2016

The White House has published a study pooh-poohing the theory that student debt has begun to harm the economy:

The White House just released a big report on student debt that contains all the familiar horrors about for-profit schools, indebted dropouts and students defaulting on their loans. But it has an interesting conclusion: That growing stack of $1.3 trillion in student debt is helping, not hurting, the U.S. economy.

That conclusion is sure to rankle the many student advocates and special-interest groups—from real-estate agents to employers seeking new tax breaks for their young workers—that argue student debt is a big “drag” on the economy. (Hillary Clinton and Donald Trump have each decried the rise in student debt.) But the 77-page report from the White House Council of Economic Advisers backs up its claim with numerous charts and studies from economists and academics.

The report itself, titled INVESTING IN HIGHER EDUCATION:
BENEFITS, CHALLENGES, AND THE STATE OF STUDENT DEBT
, rebuts my main concern:

The rise in student loan debt has created challenges for some borrowers with lower earnings, but has not been a major factor in the macroeconomy.

  • • Despite its steady rise over the past decade, aggregate student loan debt remains small relative to aggregate income. In 2015, total student loan debt was 9 percent of aggregate income, up from 3 percent in 2003. By itself this is considerably smaller than the rise in mortgage debt prior to the crisis and it has also been accompanied by a reduction in other forms of consumer debt.
  • • Additional student debt, as an investment in education, is associated with additional income, putting many households in a better position to buy homes or start businesses. By age 26, households with student debt are more likely to buy a house than those that did not attend college. By age 34, college attendees with and without student debt are equally likely to buy a home, and both much more likely than those without a college education. Research studies have found that conditional on a given education, higher student debt explains, at most, a small fraction of the decline in homeownership among younger households.
  • • At the same time, the increase in defaults on student loans as well as the increase in high-loan balances for low earners can be real concerns at the individual level, potentially leading to compromised credit and reduced home buying for some individuals.

My problem with the paper is that it concentrates on proving that post-secondary education is still worth-while, even if it involves taking on debt, which isn’t quite the problem I have focussed on. Debt+Degree is better than nothing, sure, but Degree is better than Debt+Degree! And the paper does admit that yes, there is a measureable effect on home ownership rates:

Work by Mezza et al. (2016) tries to identify the causal relationship and finds a larger, negative estimate of student debt on homeownership.31 Using only the variation in student loan debt due to differences in home-state tuition, they estimate that a 10 percent increase in student loan debt leads to a 1 to 2 percentage point decline in homeownership rates for the borrower. Their estimated effect of student loan debt on homeownership is larger than the Cooper and Wang (2014) or Houle and Berger (2015) studies. It is important to note that all of these studies focus on younger households, so it is possible that rising student loans have delayed but not reduced lifetime homeownership. In addition, these studies hold constant the level of education such that they focus only on the impact of debt, not on the education that the debt helped to fund, thereby excluding the positive boost to homeownership from increased education-related earnings.

As discussed on May 31, 2016 there is at least some reason to believe that student debt has harder-to-measure effects than the simple home-ownership binary:

A 2013 report by the think tank Demos found that student debt has a negative effect on income, by making borrowers more risk-averse and discouraging them from moving to another city or taking gambles on new jobs or launching a new business.

This paper, by Robert Hiltonsmith, titled At What Cost? How Student Debt Reduces Lifetime Wealth, was not addressed by the White House researchers.

There is also the underlying problem with student debt, that the ready availability of loans has caused tuition to skyrocket and that this additional revenue for the universities has not led to any meaningful increase in the quality of their product, but merely to an increase in the quantity of their administrators and the amount of marketing frills they offer (such as improved accommodation, meals, football stadiums, etc.).

So, while I appreciate the intervention of the White House in the issue, I do not consider their pronouncement to be the final words on this matter.

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 -0.3418 % 1,666.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.3418 % 3,044.4
Floater 4.93 % 4.68 % 89,945 16.08 4 -0.3418 % 1,754.5
OpRet 4.85 % 1.86 % 45,617 0.12 1 -0.2765 % 2,842.5
SplitShare 5.11 % 5.50 % 97,164 2.32 5 0.1367 % 3,369.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1367 % 2,628.7
Perpetual-Premium 5.49 % -13.03 % 83,740 0.09 12 -0.0260 % 2,676.3
Perpetual-Discount 5.25 % 5.26 % 100,799 15.03 26 0.2646 % 2,821.1
FixedReset 5.07 % 4.39 % 153,270 7.17 88 0.1067 % 2,003.0
Deemed-Retractible 5.03 % 4.52 % 123,850 0.44 33 0.0099 % 2,752.4
FloatingReset 2.94 % 4.64 % 32,175 5.15 11 -0.0249 % 2,115.6
Performance Highlights
Issue Index Change Notes
BAM.PR.R FixedReset -1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-19
Maturity Price : 15.50
Evaluated at bid price : 15.50
Bid-YTW : 4.83 %
GWO.PR.N FixedReset -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.25
Bid-YTW : 9.64 %
TRP.PR.B FixedReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-19
Maturity Price : 11.59
Evaluated at bid price : 11.59
Bid-YTW : 4.30 %
MFC.PR.J FixedReset 1.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.13
Bid-YTW : 7.24 %
HSE.PR.C FixedReset 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-19
Maturity Price : 17.80
Evaluated at bid price : 17.80
Bid-YTW : 5.59 %
IFC.PR.C FixedReset 1.47 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.90
Bid-YTW : 8.04 %
Volume Highlights
Issue Index Shares
Traded
Notes
NA.PR.A FixedReset 152,277 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-15
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 4.57 %
FTS.PR.E OpRet 114,400 YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2016-08-31
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 1.86 %
IAG.PR.G FixedReset 71,872 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.45
Bid-YTW : 7.18 %
RY.PR.H FixedReset 68,204 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-19
Maturity Price : 18.66
Evaluated at bid price : 18.66
Bid-YTW : 4.18 %
CM.PR.P FixedReset 59,362 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-19
Maturity Price : 18.35
Evaluated at bid price : 18.35
Bid-YTW : 4.18 %
PWF.PR.G Perpetual-Premium 55,976 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-08-18
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : -29.96 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
VNR.PR.A FixedReset Quote: 17.81 – 19.40
Spot Rate : 1.5900
Average : 1.0190

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-19
Maturity Price : 17.81
Evaluated at bid price : 17.81
Bid-YTW : 4.97 %

GWO.PR.L Deemed-Retractible Quote: 25.75 – 26.15
Spot Rate : 0.4000
Average : 0.2742

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-31
Maturity Price : 25.50
Evaluated at bid price : 25.75
Bid-YTW : 3.99 %

BNS.PR.G FixedReset Quote: 26.60 – 26.90
Spot Rate : 0.3000
Average : 0.1961

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-07-25
Maturity Price : 25.00
Evaluated at bid price : 26.60
Bid-YTW : 4.08 %

BAM.PR.X FixedReset Quote: 13.69 – 13.97
Spot Rate : 0.2800
Average : 0.2175

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-19
Maturity Price : 13.69
Evaluated at bid price : 13.69
Bid-YTW : 4.70 %

SLF.PR.J FloatingReset Quote: 12.30 – 12.74
Spot Rate : 0.4400
Average : 0.3801

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.30
Bid-YTW : 11.36 %

POW.PR.C Perpetual-Premium Quote: 25.85 – 26.01
Spot Rate : 0.1600
Average : 0.1030

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-08-18
Maturity Price : 25.00
Evaluated at bid price : 25.85
Bid-YTW : -31.40 %

BCE.PR.I / BCE.PR.J : Convert Or Hold?

July 20th, 2016

It will be recalled that BCE.PR.I will reset to 2.75% effective August 1.

Holders of BCE.PR.I have the option to convert to the RatchetRate issue, BCE.PR.J, which pays a percentage of Canada Prime on the par value of $25.00. The percentage is currently 100% and will not decline unless the trading price of BCE.PR.J rises above $25, which seems rather unlikely in the current environment. The deadline for notifying the company of the intent to convert is July 22, 2016; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion.

It will also be noted that holders of BCE.PR.J have the option of converting to BCE.PR.I. After the dust settled following the last Exchange Date five years ago, about 25% of the total was BCE.PR.J.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., BCE.PR.I and BCE.PR.J, which will have another Exchange Date in five years). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedFloater / RatchetRate Strong Pair graphically by plotting the implied average Canada Prime rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_FF_160719
Click for Big

There’s a fair bit of scatter, but most pairs are within shouting distance of a 2.70% breakeven rate – that is, most pairs are priced such that the total return of the component issues will be equal if Canada Prime remains at 2.70% until the relevant Exchange Date.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

And, of course, since BCE.PR.I will reset to 2.75%, this is equivalent to saying the prices currently and the prices expected to be effective following the Exchange Date are roughly equal. I do not believe that any gains can be expected to be made, or losses expected to be avoided, by holding either issue.

However, on a looking forward basis, I find it more believable that the average Canada Prime over the next five years will exceed 2.70% than I find it to believe that the rate will average lower than current.

Therefore, I recommend that holders of BCE.PR.I convert to BCE.PR.J and that holders of BCE.PR.J continue to hold their shares.

Note that conversion rights are dependent upon at least one million shares of each series being outstanding after giving effect to holders’ instructions; e.g., if only 100,000 shares of BCE.PR.I will remain after all instructions are executed, then all BCE.PR.I will be converted and no BCE.PR.J will convert to BCE.PR.I. And the other way ’round, of course, if practically everybody wants to hold BCE.PR.I. However, this is relatively rare: all 51 Strong Pairs currently extant have some version of this condition and all but six have both series outstanding.

July 18, 2016

July 18th, 2016

So guess who’s financing your mortgage!

Canadian Imperial Bank of Commerce has become Canada’s first bank to benefit from Europe’s rush to debt with subzero yields.

CIBC sold €1.25-billion ($1.79-billion) worth of six-year covered bonds – with a yield of negative-0.009 per cent – on Monday. According to a person familiar with the transaction, investor demand was so strong that the value of orders roughly doubled the deal size.

Not only is CIBC the first Canadian bank to issue such debt at a negative rate, it is also the first non-European bank to do so. In March, Germany’s Berlin Hype was the first lender to borrow at negative rates, cashing in on a hunger for quality debt, coupled with Europe’s unique fixed-income markets.

At the start of this month, nearly $12-trillion (U.S.) worth of government debt carried negative yields. As CIBC’s latest foray into the market highlights, the phenomenon is now spreading to other types of bonds, as investors search for securities that pay at least a tiny yield – or cost less to own than sovereign bonds.

Update: Here is a link to a brief explanation of Covered Bonds

Wal-Mart is continuing its battle with Visa:

Wal-Mart Stores Inc. can no longer count Marlene Gosparini and her employer as regular customers in Thunder Bay after the world’s largest retailer stopped accepting Visa Inc. credit cards at its three stores in the Canadian city.

Wal-Mart prepared its Thunder Bay customers for the change in June when it posted a statement on its website. There were signs in stores leading up to the shift, and on Monday store greeters, employees and managers approached customers as they walked in to remind them of the change. Some cashiers even offered customers a chance to sign up for a Wal-Mart Mastercard.

Visa ran ads in Thunder Bay’s newspaper Monday offering cardholders a C$25 online gift card for making purchases of C$75 or more at Thunder Bay grocery stores.

Wal-Mart’s Canada unit, which pays more than C$100 million to accept credit cards annually, called the fees Visa charges “unacceptably high” in a June 11 statement on its website.

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 0.3973 % 1,672.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.3973 % 3,054.8
Floater 4.91 % 4.66 % 91,277 16.14 4 0.3973 % 1,760.5
OpRet 4.84 % -0.49 % 42,239 0.12 1 0.0791 % 2,850.4
SplitShare 5.12 % 5.52 % 98,621 2.32 5 0.0000 % 3,364.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,625.1
Perpetual-Premium 5.49 % -12.31 % 82,363 0.09 12 -0.0552 % 2,677.0
Perpetual-Discount 5.26 % 5.27 % 101,498 15.02 26 0.0763 % 2,813.7
FixedReset 5.07 % 4.39 % 149,974 7.17 88 0.0827 % 2,000.9
Deemed-Retractible 5.03 % 4.62 % 125,656 3.33 33 -0.1412 % 2,752.1
FloatingReset 2.94 % 4.69 % 32,774 5.15 11 -0.0447 % 2,116.1
Performance Highlights
Issue Index Change Notes
MFC.PR.K FixedReset -1.99 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.27
Bid-YTW : 8.37 %
MFC.PR.N FixedReset -1.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.37
Bid-YTW : 7.75 %
MFC.PR.M FixedReset -1.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.42
Bid-YTW : 7.78 %
SLF.PR.J FloatingReset -1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.25
Bid-YTW : 11.42 %
MFC.PR.L FixedReset -1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.98
Bid-YTW : 7.91 %
HSE.PR.E FixedReset -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-18
Maturity Price : 19.25
Evaluated at bid price : 19.25
Bid-YTW : 5.62 %
FTS.PR.H FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-18
Maturity Price : 13.80
Evaluated at bid price : 13.80
Bid-YTW : 4.00 %
IAG.PR.A Deemed-Retractible -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.31
Bid-YTW : 6.32 %
VNR.PR.A FixedReset -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-18
Maturity Price : 17.70
Evaluated at bid price : 17.70
Bid-YTW : 5.00 %
GWO.PR.I Deemed-Retractible -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.28
Bid-YTW : 6.23 %
GWO.PR.N FixedReset 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.40
Bid-YTW : 9.49 %
TRP.PR.B FixedReset 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-18
Maturity Price : 11.71
Evaluated at bid price : 11.71
Bid-YTW : 4.25 %
HSE.PR.A FixedReset 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-18
Maturity Price : 11.54
Evaluated at bid price : 11.54
Bid-YTW : 5.22 %
BNS.PR.R FixedReset 1.32 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.88
Bid-YTW : 4.05 %
SLF.PR.H FixedReset 1.80 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.44
Bid-YTW : 8.63 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.J Perpetual-Discount 132,750 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-18
Maturity Price : 23.11
Evaluated at bid price : 23.52
Bid-YTW : 5.10 %
TRP.PR.J FixedReset 116,945 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 4.59 %
BAM.PF.E FixedReset 74,000 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-18
Maturity Price : 18.76
Evaluated at bid price : 18.76
Bid-YTW : 4.64 %
BNS.PR.A FloatingReset 72,500 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.05
Bid-YTW : 3.99 %
PWF.PR.O Perpetual-Premium 58,897 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-10-31
Maturity Price : 25.50
Evaluated at bid price : 25.75
Bid-YTW : 1.56 %
FTS.PR.K FixedReset 46,145 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-18
Maturity Price : 17.91
Evaluated at bid price : 17.91
Bid-YTW : 4.07 %
There were 23 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
SLF.PR.J FloatingReset Quote: 12.25 – 12.76
Spot Rate : 0.5100
Average : 0.3143

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.25
Bid-YTW : 11.42 %

HSE.PR.A FixedReset Quote: 11.54 – 11.97
Spot Rate : 0.4300
Average : 0.2887

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-18
Maturity Price : 11.54
Evaluated at bid price : 11.54
Bid-YTW : 5.22 %

FTS.PR.J Perpetual-Discount Quote: 23.52 – 23.85
Spot Rate : 0.3300
Average : 0.2357

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-18
Maturity Price : 23.11
Evaluated at bid price : 23.52
Bid-YTW : 5.10 %

SLF.PR.I FixedReset Quote: 18.28 – 18.62
Spot Rate : 0.3400
Average : 0.2617

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.28
Bid-YTW : 7.90 %

CM.PR.Q FixedReset Quote: 19.95 – 20.28
Spot Rate : 0.3300
Average : 0.2546

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-18
Maturity Price : 19.95
Evaluated at bid price : 19.95
Bid-YTW : 4.37 %

TRP.PR.C FixedReset Quote: 12.50 – 12.79
Spot Rate : 0.2900
Average : 0.2147

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-18
Maturity Price : 12.50
Evaluated at bid price : 12.50
Bid-YTW : 4.43 %

July PrefLetter Released!

July 18th, 2016

The July, 2016, 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 appendix reporting on DeemedRetractibles is included. The appendix dealing with FixedResets was not prepared, but will be published next month. In the future, these two appendices will alternate; purchasers of a single issue may obtain a copy of the ‘other’ appendix from me on request.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the July, 2016, issue, while the “Next Edition” will be the August, 2016, issue, scheduled to be prepared as of the close August 12 and eMailed to subscribers prior to market-opening on August 15.

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.

But Adrian2 now advises:

Well, as of now, FileApp is free (again?).

So cross your fingers!

July 15, 2016

July 16th, 2016
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 -0.4316 % 1,665.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.4316 % 3,042.8
Floater 4.93 % 4.69 % 90,895 16.08 4 -0.4316 % 1,753.6
OpRet 4.84 % 0.16 % 43,770 0.13 1 -0.0790 % 2,848.1
SplitShare 5.12 % 5.44 % 98,865 2.33 5 0.0644 % 3,364.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0644 % 2,625.1
Perpetual-Premium 5.48 % 1.91 % 83,368 0.29 12 0.0162 % 2,678.5
Perpetual-Discount 5.27 % 5.23 % 100,582 15.02 26 -0.1363 % 2,811.5
FixedReset 5.08 % 4.29 % 150,532 7.21 88 0.0431 % 1,999.2
Deemed-Retractible 5.03 % 4.58 % 127,093 4.85 33 -0.1965 % 2,756.0
FloatingReset 2.95 % 4.64 % 33,957 5.16 11 -0.0993 % 2,117.1
Performance Highlights
Issue Index Change Notes
BAM.PR.S FloatingReset -2.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 14.10
Evaluated at bid price : 14.10
Bid-YTW : 4.97 %
HSE.PR.G FixedReset -2.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 19.40
Evaluated at bid price : 19.40
Bid-YTW : 5.42 %
BAM.PF.F FixedReset -1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 19.24
Evaluated at bid price : 19.24
Bid-YTW : 4.68 %
PWF.PR.T FixedReset -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 3.92 %
GWO.PR.N FixedReset -1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.25
Bid-YTW : 9.56 %
FTS.PR.F Perpetual-Discount -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 23.86
Evaluated at bid price : 24.11
Bid-YTW : 5.14 %
BMO.PR.S FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 4.03 %
W.PR.H Perpetual-Discount 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 24.29
Evaluated at bid price : 24.60
Bid-YTW : 5.61 %
IFC.PR.A FixedReset 1.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.06
Bid-YTW : 9.73 %
FTS.PR.G FixedReset 1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 17.25
Evaluated at bid price : 17.25
Bid-YTW : 4.09 %
BNS.PR.D FloatingReset 1.60 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.00
Bid-YTW : 6.67 %
FTS.PR.M FixedReset 1.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 19.53
Evaluated at bid price : 19.53
Bid-YTW : 4.14 %
VNR.PR.A FixedReset 2.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 17.89
Evaluated at bid price : 17.89
Bid-YTW : 4.77 %
FTS.PR.K FixedReset 2.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 17.95
Evaluated at bid price : 17.95
Bid-YTW : 3.89 %
TRP.PR.B FixedReset 4.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 11.57
Evaluated at bid price : 11.57
Bid-YTW : 4.07 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.J FixedReset 269,775 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.38
Bid-YTW : 4.41 %
NA.PR.A FixedReset 213,280 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-15
Maturity Price : 25.00
Evaluated at bid price : 26.07
Bid-YTW : 4.58 %
HSB.PR.C Deemed-Retractible 202,869 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 5.18 %
IAG.PR.G FixedReset 110,842 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.23
Bid-YTW : 7.20 %
FTS.PR.J Perpetual-Discount 102,400 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 23.16
Evaluated at bid price : 23.55
Bid-YTW : 5.09 %
BNS.PR.O Deemed-Retractible 76,189 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-08-14
Maturity Price : 25.25
Evaluated at bid price : 25.51
Bid-YTW : -9.65 %
There were 37 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
HSE.PR.G FixedReset Quote: 19.40 – 19.90
Spot Rate : 0.5000
Average : 0.3333

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 19.40
Evaluated at bid price : 19.40
Bid-YTW : 5.42 %

SLF.PR.H FixedReset Quote: 16.15 – 16.70
Spot Rate : 0.5500
Average : 0.4057

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.15
Bid-YTW : 8.70 %

MFC.PR.I FixedReset Quote: 19.98 – 20.37
Spot Rate : 0.3900
Average : 0.2458

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.98
Bid-YTW : 6.74 %

BAM.PF.F FixedReset Quote: 19.24 – 19.60
Spot Rate : 0.3600
Average : 0.2319

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 19.24
Evaluated at bid price : 19.24
Bid-YTW : 4.68 %

BMO.PR.T FixedReset Quote: 18.61 – 18.97
Spot Rate : 0.3600
Average : 0.2332

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 18.61
Evaluated at bid price : 18.61
Bid-YTW : 4.01 %

CU.PR.D Perpetual-Discount Quote: 23.87 – 24.23
Spot Rate : 0.3600
Average : 0.2356

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-15
Maturity Price : 23.40
Evaluated at bid price : 23.87
Bid-YTW : 5.18 %

July 14, 2016

July 16th, 2016

Better late than never!

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 0.4516 % 1,672.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.4516 % 3,055.9
Floater 4.91 % 4.69 % 90,866 16.09 4 0.4516 % 1,761.2
OpRet 4.84 % -0.44 % 42,817 0.13 1 0.0791 % 2,850.4
SplitShare 5.12 % 5.21 % 98,890 2.33 5 0.0564 % 3,362.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0564 % 2,623.4
Perpetual-Premium 5.49 % 1.76 % 83,244 0.30 12 0.0162 % 2,678.0
Perpetual-Discount 5.26 % 5.20 % 101,019 15.06 26 0.0325 % 2,815.4
FixedReset 5.08 % 4.29 % 147,965 7.21 88 0.4763 % 1,998.4
Deemed-Retractible 5.02 % 4.54 % 128,975 4.86 33 -0.0766 % 2,761.4
FloatingReset 2.95 % 4.67 % 33,582 5.16 11 0.7958 % 2,119.2
Performance Highlights
Issue Index Change Notes
TRP.PR.B FixedReset -3.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 11.05
Evaluated at bid price : 11.05
Bid-YTW : 4.27 %
SLF.PR.G FixedReset -2.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.11
Bid-YTW : 9.80 %
ELF.PR.G Perpetual-Discount 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 21.86
Evaluated at bid price : 22.10
Bid-YTW : 5.39 %
TRP.PR.A FixedReset 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 14.56
Evaluated at bid price : 14.56
Bid-YTW : 4.50 %
SLF.PR.I FixedReset 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.44
Bid-YTW : 7.62 %
BNS.PR.B FloatingReset 1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.80
Bid-YTW : 4.73 %
BAM.PF.E FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 18.75
Evaluated at bid price : 18.75
Bid-YTW : 4.50 %
BAM.PR.T FixedReset 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 15.40
Evaluated at bid price : 15.40
Bid-YTW : 4.76 %
BMO.PR.Y FixedReset 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 20.36
Evaluated at bid price : 20.36
Bid-YTW : 4.17 %
IFC.PR.A FixedReset 1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.87
Bid-YTW : 9.91 %
TRP.PR.D FixedReset 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 17.72
Evaluated at bid price : 17.72
Bid-YTW : 4.33 %
MFC.PR.J FixedReset 1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.10
Bid-YTW : 7.13 %
HSE.PR.G FixedReset 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 5.31 %
BAM.PR.R FixedReset 1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 15.70
Evaluated at bid price : 15.70
Bid-YTW : 4.61 %
TRP.PR.H FloatingReset 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 10.01
Evaluated at bid price : 10.01
Bid-YTW : 4.43 %
CM.PR.Q FixedReset 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 19.98
Evaluated at bid price : 19.98
Bid-YTW : 4.23 %
SLF.PR.H FixedReset 1.39 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.10
Bid-YTW : 8.74 %
FTS.PR.K FixedReset 1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 17.44
Evaluated at bid price : 17.44
Bid-YTW : 4.01 %
MFC.PR.L FixedReset 1.46 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.11
Bid-YTW : 7.69 %
FTS.PR.H FixedReset 1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 13.85
Evaluated at bid price : 13.85
Bid-YTW : 3.79 %
MFC.PR.K FixedReset 1.50 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.56
Bid-YTW : 8.00 %
FTS.PR.M FixedReset 1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 19.15
Evaluated at bid price : 19.15
Bid-YTW : 4.22 %
TRP.PR.E FixedReset 1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 18.12
Evaluated at bid price : 18.12
Bid-YTW : 4.29 %
TRP.PR.G FixedReset 1.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 19.25
Evaluated at bid price : 19.25
Bid-YTW : 4.68 %
TRP.PR.C FixedReset 1.96 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 12.50
Evaluated at bid price : 12.50
Bid-YTW : 4.23 %
BMO.PR.R FloatingReset 2.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 4.61 %
MFC.PR.F FixedReset 2.75 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.19
Bid-YTW : 9.70 %
PWF.PR.P FixedReset 3.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 13.53
Evaluated at bid price : 13.53
Bid-YTW : 4.00 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.H FixedReset 51,873 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 18.56
Evaluated at bid price : 18.56
Bid-YTW : 4.04 %
TRP.PR.D FixedReset 45,390 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 17.72
Evaluated at bid price : 17.72
Bid-YTW : 4.33 %
SLF.PR.G FixedReset 44,854 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.11
Bid-YTW : 9.80 %
RY.PR.R FixedReset 43,797 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.93
Bid-YTW : 4.26 %
CM.PR.Q FixedReset 39,600 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 19.98
Evaluated at bid price : 19.98
Bid-YTW : 4.23 %
BNS.PR.G FixedReset 38,713 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-07-25
Maturity Price : 25.00
Evaluated at bid price : 26.53
Bid-YTW : 4.12 %
There were 38 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.B FixedReset Quote: 11.05 – 11.87
Spot Rate : 0.8200
Average : 0.5469

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 11.05
Evaluated at bid price : 11.05
Bid-YTW : 4.27 %

VNR.PR.A FixedReset Quote: 17.45 – 18.00
Spot Rate : 0.5500
Average : 0.3977

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 17.45
Evaluated at bid price : 17.45
Bid-YTW : 4.89 %

SLF.PR.G FixedReset Quote: 14.11 – 14.70
Spot Rate : 0.5900
Average : 0.4453

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.11
Bid-YTW : 9.80 %

TRP.PR.F FloatingReset Quote: 12.94 – 13.37
Spot Rate : 0.4300
Average : 0.3001

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 12.94
Evaluated at bid price : 12.94
Bid-YTW : 4.67 %

FTS.PR.G FixedReset Quote: 16.99 – 17.47
Spot Rate : 0.4800
Average : 0.3547

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-14
Maturity Price : 16.99
Evaluated at bid price : 16.99
Bid-YTW : 4.15 %

TD.PR.T FloatingReset Quote: 21.83 – 22.30
Spot Rate : 0.4700
Average : 0.3603

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.83
Bid-YTW : 4.60 %

RON.PR.A, RON.PR.B Guaranteed By Lowes, Reducing Reporting Requirements

July 16th, 2016

Lowe’s Companies, Inc. has announced (although not yet on their website):

RONA inc. (TSX:RON.PR.A)(TSX:RON.PR.B) (“RONA”) today announced that Lowe’s Companies, Inc. (“Lowe’s”) has provided guarantees of the obligations of RONA under RONA’s outstanding Cumulative 5-Year Rate Reset Series 6 Class A Preferred Shares and Cumulative Floating Rate Series 7 Class A Preferred Shares as well as RONA’s 5.40% debentures due October 20, 2016.

The full text of the guarantees have been filed with the Canadian securities regulators and are available on RONA’s profile at www.sedar.com. As a result and in accordance with applicable securities laws and exemptions therefrom, RONA will satisfy its continuous disclosure requirements and other related reporting requirements going forward by filing copies of all disclosure and financial reporting documents Lowe’s is required to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as well as certain prescribed summary financial information for RONA, on RONA’s profile at www.sedar.com, and it will no longer be required to file full quarterly and audited annual financial statements in respect of RONA.

Recently, DBRS has discontinued rating these issues while S&P rated them P-2(low) after the takeover closed in May following the decision by preferred shareholders to scorn the $20 offer.

The preferred shareholders figured that keeping RONA as a reporting issuer would be so expensive for Lowe’s that they would gladly pay the full $25 redemption price to get rid of the obligation – I’m not sure if they counted on this maneuver!

July 13, 2016

July 14th, 2016

Today’s hot news is the Bank of Canada statement:

In Canada, the quarterly pattern of growth has been uneven. Real GDP grew by 2.4 per cent in the first quarter but is estimated to have contracted by 1 per cent in the second quarter, pulled down by volatile trade flows, uneven consumer spending, and the Alberta wildfires. A pick-up to 3 1/2 per cent is expected in the third quarter as oil production resumes and rebuilding begins in Fort McMurray. Consumer spending will also get a boost from the Canada Child Benefit.

While the fundamental elements of the Bank’s projection are similar to those presented in April, the forecast has been revised down in light of a weaker outlook for business investment and a lower profile for exports, reflecting a downward adjustment to US investment spending. Real GDP is expected to grow by 1.3 per cent in 2016, 2.2 per cent in 2017, and 2.1 per cent in 2018.

The Bank forecasts that the output gap will close somewhat later than estimated in April, towards the end of 2017. Underlying this judgement is the downward revision to business investment, which lowers the profile for both real GDP and, to a lesser extent, potential output.

While inflation has recently been a little higher than anticipated, largely due to higher consumer energy prices, it is still in the lower half of the Bank’s inflation-control range. Most measures of core inflation remain close to 2 per cent but would be lower without the impact of past exchange rate depreciation. The temporary effects of exchange-rate pass-through and past declines in consumer energy prices are expected to dissipate in late 2016, and the Bank projects that inflation will average close to 2 per cent throughout 2017 as the output gap narrows.

Overall, the risks to the profile for inflation are roughly balanced, although the implications of the Brexit vote are highly uncertain and difficult to forecast. At the same time, financial vulnerabilities are elevated and rising, particularly in the greater Vancouver and Toronto areas. The Bank’s Governing Council judges that the overall balance of risks remains within the zone for which the current stance of monetary policy is appropriate, and the target for the overnight rate remains at 1/2 per cent.

In addition the July 2016 Monetary Policy Report was released:

In the housing market, new construction and resale activity remain robust in British Columbia and Ontario, supported by strong demand, in part attributable to population and employment growth. The same factors are fuelling house price increases in these regions, particularly the greater Vancouver and Toronto areas. Sharply rising prices in these markets over the past year raise the possibility that prices are also being driven by self-reinforcing expectations, making them more sensitive to an adverse shock to housing demand. In contrast, housing activity and house prices in the energy-producing provinces have declined; elsewhere in the country, housing growth has been modest, with most markets appearing balanced. Over the projection horizon, the contribution of residential investment to real GDP growth is anticipated to decrease and household sector vulnerabilities to stabilize.

Incompetent traders rejoice! The world got safer for complacent, incompetent traders today!

Michael Coscia, the first person convicted of spoofing after it was made a crime under the Dodd-Frank Act, was sentenced to less than half the prison time sought by federal prosecutors.

Coscia, 54, who had argued for probation, was sentenced Wednesday to three years in prison by U.S. District Judge Harry Leinenweber in Chicago. The only explanation for Coscia engaging in fraud while he was making $150,000 a month trading futures and had a net worth of $15 million was greed, the judge said.

“This is a serious crime with serious consequences,” Leinenweber said before handing down the sentence. He noted that spoofing has been going on for a long time.

Spoofing, which became illegal under the Dodd-Frank Act, carries a maximum of 10 years in prison. The practice typically consists of systematically placing orders without intending to execute them to trick the market into thinking there’s interest in buying or selling that doesn’t actually exist.

Today’s Wall Street Journal brings an attack on Universal Basic Income:

Jason Furman, chairman of the council, suggests that multiple forces, including globalization, automation, and incarceration (many jobs are closed to ex-convicts) has reduced demand for low-skilled workers. What employers will pay for unskilled labor is below what economists refer to as the “reservation wage”: Some workers simply won’t work for so little money.

What’s the solution? If outside forces are depressing low-skilled wages, that strengthens the case for subsidizing those wages so that they will work for what employers can pay. This can be done by expanding the earned-income tax credit, which tops up poor worker’s salaries, and wage insurance, which pays a laid-off worker to accept a lower-paying job. This can’t be done through UBI, which is paid regardless of whether the recipient works, and, according to some studies, encourages some recipients to quit.

Try as I might, I fail to see a problem here. We can agree, I think, that yes, a Universal Income will decrease the number of people willing to work as a Starbucks barista for $15/hour. Many will continue to do it because they just want to get out of the house, others will do it for the extra income, but for the sake of an argument, let’s assume that the require wage goes to $20/hour.

OK, fine. This is not a problem this is just a shift to a new equilibrium in accordance with first year economics. Starbucks will raise the price of their coffee, people will buy less coffee, fewer baristas will be hired and supply will equal demand. Big deal.

The big advantage, not mentioned in the article, is that this will have the same effect on the market as a rise in the minimum wage: low skill jobs will be increasingly automated. Starbucks coffee will go to $6/cup, but there’ll be a new place down the street, Supernovabucks, with fully automated ordering (via your own ‘phone or an in-store kiosk) and robotic coffee making you can see … everything made to order in front of your eyes, with precise settings available for the thickness of the foam on your latte (or whatever it is that is supposed to be so great about Starbucks. I don’t go there). Supernovabucks stores will have only one employee on site, filling up the supply hoppers and cleaning the counters.

And all this will be a Good Thing. Productivity has increased – and it is productivity that makes us rich, not redistribution.

The other problem the WSJ article had was increased taxes. Well, of course marginal tax rates will go up – it can’t be paid for entirely by elimination of suddenly redundant social programmes. Reginald Plutocrat III will be getting his annual cheque for $10,000 and including that in his annual income; if we assume that his current average tax rate is 50% and his income is $150,000, then his average tax rate will have to increase to a little over 53% to make the whole package revenue-neutral for him. And if it’s not revenue neutral – at best – for upper income earners, then the whole thing becomes a wealth transfer from the poor to the rich, which I suspect won’t fly politically.

PerpetualDiscounts now yield 5.21%, equivalent to 6.77% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.70%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 305bp, a sharp narrowing from the 330bp reported July 6.

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 0.5814 % 1,665.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.5814 % 3,042.2
Floater 4.93 % 4.72 % 91,821 16.02 4 0.5814 % 1,753.2
OpRet 4.84 % 0.15 % 42,304 0.13 1 0.1187 % 2,848.1
SplitShare 5.12 % 5.15 % 96,964 2.34 5 0.3069 % 3,360.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3069 % 2,621.9
Perpetual-Premium 5.49 % -15.97 % 82,895 0.09 12 0.1691 % 2,677.6
Perpetual-Discount 5.26 % 5.21 % 99,863 15.07 26 -0.0292 % 2,814.5
FixedReset 5.10 % 4.30 % 148,030 7.20 88 0.2361 % 1,988.9
Deemed-Retractible 5.01 % 4.54 % 128,108 4.86 33 0.0630 % 2,763.5
FloatingReset 2.97 % 4.82 % 33,925 5.16 11 0.1504 % 2,102.5
Performance Highlights
Issue Index Change Notes
FTS.PR.H FixedReset -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 13.65
Evaluated at bid price : 13.65
Bid-YTW : 3.84 %
HSE.PR.G FixedReset -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 19.55
Evaluated at bid price : 19.55
Bid-YTW : 5.38 %
BAM.PR.C Floater 1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 10.08
Evaluated at bid price : 10.08
Bid-YTW : 4.72 %
MFC.PR.I FixedReset 1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.00
Bid-YTW : 6.72 %
TRP.PR.E FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 17.83
Evaluated at bid price : 17.83
Bid-YTW : 4.36 %
BAM.PF.B FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 17.76
Evaluated at bid price : 17.76
Bid-YTW : 4.71 %
SLF.PR.I FixedReset 1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.25
Bid-YTW : 7.76 %
MFC.PR.K FixedReset 1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.30
Bid-YTW : 8.21 %
TRP.PR.A FixedReset 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 14.41
Evaluated at bid price : 14.41
Bid-YTW : 4.55 %
VNR.PR.A FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 17.51
Evaluated at bid price : 17.51
Bid-YTW : 4.88 %
CU.PR.C FixedReset 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 16.66
Evaluated at bid price : 16.66
Bid-YTW : 4.51 %
SLF.PR.G FixedReset 1.77 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.40
Bid-YTW : 9.51 %
SLF.PR.H FixedReset 1.86 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.88
Bid-YTW : 8.93 %
TRP.PR.G FixedReset 2.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 18.90
Evaluated at bid price : 18.90
Bid-YTW : 4.77 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.Q FixedReset 81,456 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-24
Maturity Price : 25.00
Evaluated at bid price : 26.70
Bid-YTW : 4.14 %
TD.PF.C FixedReset 68,316 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 18.25
Evaluated at bid price : 18.25
Bid-YTW : 4.04 %
BNS.PR.M Deemed-Retractible 47,838 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-08-26
Maturity Price : 25.00
Evaluated at bid price : 24.99
Bid-YTW : 3.01 %
RY.PR.G Deemed-Retractible 39,500 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.11
Bid-YTW : 4.56 %
BAM.PF.G FixedReset 36,800 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 4.58 %
RY.PR.R FixedReset 36,581 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-24
Maturity Price : 25.00
Evaluated at bid price : 27.01
Bid-YTW : 4.19 %
There were 27 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BMO.PR.R FloatingReset Quote: 21.51 – 21.99
Spot Rate : 0.4800
Average : 0.3569

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.51
Bid-YTW : 5.05 %

BAM.PF.G FixedReset Quote: 19.80 – 20.14
Spot Rate : 0.3400
Average : 0.2388

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 4.58 %

HSE.PR.G FixedReset Quote: 19.55 – 19.83
Spot Rate : 0.2800
Average : 0.1952

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 19.55
Evaluated at bid price : 19.55
Bid-YTW : 5.38 %

BNS.PR.B FloatingReset Quote: 21.57 – 21.85
Spot Rate : 0.2800
Average : 0.1978

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.57
Bid-YTW : 4.94 %

TRP.PR.D FixedReset Quote: 17.51 – 17.78
Spot Rate : 0.2700
Average : 0.1925

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 17.51
Evaluated at bid price : 17.51
Bid-YTW : 4.38 %

HSE.PR.E FixedReset Quote: 19.52 – 19.81
Spot Rate : 0.2900
Average : 0.2142

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-13
Maturity Price : 19.52
Evaluated at bid price : 19.52
Bid-YTW : 5.41 %

July 12, 2016

July 13th, 2016

It seems to me that this here internet thingamajig might be useful for business:

Home renovation chain Rona says its efforts to attract tech-savvy shoppers got a recent boost when the retailer temporarily replaced its printed flyer with an expanded digital offering.

The Montreal-based company says sales doubled at its stores across Canada despite scrapping the printed flyer during a nationwide test one week in February.

Jean Coutu, one of Canada’s largest pharmacy networks, said it’s also seeing success with its digital efforts. The company said cosmetic sales got a five per cent lift after it twice published a 20-page digital flyer this year enhanced with videos on the Montreal La Presse Plus tablet and website.

How about that new Brookfield infrastructure fund, eh?:

Brookfield Asset Management Inc. (“Brookfield”) (NYSE: BAM, TSX: BAM.A, Euronext: BAMA) announced today that it held the final close on Brookfield Infrastructure Fund III (“BIF III” or the “Fund”) with an aggregate of $14 billion of equity commitments, creating a global infrastructure fund that invests in high-quality, core infrastructure assets on a value basis.

BIF III marks the largest private fund raised by Brookfield and the largest private infrastructure fund ever raised in the industry. In the last 18 months, Brookfield has raised approximately $27 billion across its flagship private fund strategies, including the close of its flagship real estate fund, Brookfield Strategic Real Estate Partners II at $9 billion, and its flagship private equity fund, Brookfield Capital Partners IV at $4 billion. All three funds surpassed their fundraising targets.

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 0.6952 % 1,655.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.6952 % 3,024.6
Floater 4.96 % 4.77 % 92,820 15.94 4 0.6952 % 1,743.1
OpRet 4.85 % 1.02 % 41,628 0.14 1 0.0396 % 2,844.8
SplitShare 5.14 % 5.20 % 97,023 2.34 5 -0.0646 % 3,350.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0646 % 2,613.9
Perpetual-Premium 5.50 % -9.85 % 80,671 0.09 12 0.0944 % 2,673.1
Perpetual-Discount 5.26 % 5.21 % 100,746 15.05 26 0.2146 % 2,815.3
FixedReset 5.11 % 4.32 % 149,635 7.18 88 0.7880 % 1,984.2
Deemed-Retractible 5.02 % 4.54 % 129,840 4.86 33 0.1720 % 2,761.8
FloatingReset 2.98 % 4.85 % 35,336 5.16 11 0.2160 % 2,099.3
Performance Highlights
Issue Index Change Notes
VNR.PR.A FixedReset -1.93 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 17.31
Evaluated at bid price : 17.31
Bid-YTW : 4.93 %
TRP.PR.F FloatingReset -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 12.77
Evaluated at bid price : 12.77
Bid-YTW : 4.73 %
BAM.PR.S FloatingReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 14.60
Evaluated at bid price : 14.60
Bid-YTW : 4.80 %
IAG.PR.G FixedReset 1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.10
Bid-YTW : 7.29 %
FTS.PR.K FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 17.14
Evaluated at bid price : 17.14
Bid-YTW : 4.08 %
RY.PR.J FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 19.73
Evaluated at bid price : 19.73
Bid-YTW : 4.28 %
BMO.PR.S FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 18.75
Evaluated at bid price : 18.75
Bid-YTW : 4.08 %
MFC.PR.L FixedReset 1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.78
Bid-YTW : 7.95 %
CU.PR.F Perpetual-Discount 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 21.74
Evaluated at bid price : 22.05
Bid-YTW : 5.15 %
BAM.PF.H FixedReset 1.15 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.35
Bid-YTW : 3.74 %
HSE.PR.C FixedReset 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 17.71
Evaluated at bid price : 17.71
Bid-YTW : 5.46 %
BAM.PR.K Floater 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 10.10
Evaluated at bid price : 10.10
Bid-YTW : 4.71 %
TRP.PR.H FloatingReset 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 9.89
Evaluated at bid price : 9.89
Bid-YTW : 4.48 %
BMO.PR.M FixedReset 1.26 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.34
Bid-YTW : 4.10 %
SLF.PR.J FloatingReset 1.31 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.42
Bid-YTW : 11.21 %
TRP.PR.B FixedReset 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 11.41
Evaluated at bid price : 11.41
Bid-YTW : 4.13 %
MFC.PR.F FixedReset 1.47 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.80
Bid-YTW : 10.08 %
MFC.PR.M FixedReset 1.47 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.59
Bid-YTW : 7.54 %
MFC.PR.G FixedReset 1.50 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.00
Bid-YTW : 7.36 %
BAM.PR.B Floater 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 10.16
Evaluated at bid price : 10.16
Bid-YTW : 4.68 %
MFC.PR.J FixedReset 1.52 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.69
Bid-YTW : 7.44 %
MFC.PR.I FixedReset 1.54 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.80
Bid-YTW : 6.86 %
FTS.PR.G FixedReset 1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 16.98
Evaluated at bid price : 16.98
Bid-YTW : 4.15 %
TRP.PR.G FixedReset 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 4.87 %
BAM.PF.B FixedReset 1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 17.58
Evaluated at bid price : 17.58
Bid-YTW : 4.76 %
IFC.PR.C FixedReset 1.74 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.50
Bid-YTW : 8.18 %
IFC.PR.A FixedReset 1.81 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.61
Bid-YTW : 10.16 %
MFC.PR.N FixedReset 1.87 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.53
Bid-YTW : 7.52 %
HSE.PR.E FixedReset 1.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 5.41 %
MFC.PR.K FixedReset 1.91 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.11
Bid-YTW : 8.37 %
BAM.PF.A FixedReset 1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 18.96
Evaluated at bid price : 18.96
Bid-YTW : 4.72 %
BAM.PR.Z FixedReset 2.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 19.19
Evaluated at bid price : 19.19
Bid-YTW : 4.73 %
BIP.PR.A FixedReset 2.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 19.40
Evaluated at bid price : 19.40
Bid-YTW : 5.43 %
BAM.PF.F FixedReset 2.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 19.35
Evaluated at bid price : 19.35
Bid-YTW : 4.65 %
HSE.PR.G FixedReset 2.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 19.75
Evaluated at bid price : 19.75
Bid-YTW : 5.32 %
BAM.PR.T FixedReset 2.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 15.15
Evaluated at bid price : 15.15
Bid-YTW : 4.84 %
BAM.PF.E FixedReset 2.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 18.40
Evaluated at bid price : 18.40
Bid-YTW : 4.59 %
BNS.PR.D FloatingReset 2.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.75
Bid-YTW : 6.92 %
TRP.PR.A FixedReset 2.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 14.25
Evaluated at bid price : 14.25
Bid-YTW : 4.60 %
BAM.PF.G FixedReset 2.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 19.62
Evaluated at bid price : 19.62
Bid-YTW : 4.62 %
BAM.PR.X FixedReset 3.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 13.53
Evaluated at bid price : 13.53
Bid-YTW : 4.51 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.E OpRet 90,586 YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2016-08-31
Maturity Price : 25.00
Evaluated at bid price : 25.27
Bid-YTW : 1.02 %
NA.PR.A FixedReset 84,000 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-15
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 4.46 %
RY.PR.R FixedReset 82,144 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-24
Maturity Price : 25.00
Evaluated at bid price : 27.02
Bid-YTW : 4.18 %
IAG.PR.G FixedReset 65,410 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.10
Bid-YTW : 7.29 %
RY.PR.O Perpetual-Discount 50,804 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 24.42
Evaluated at bid price : 24.82
Bid-YTW : 4.98 %
NA.PR.X FixedReset 43,950 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-15
Maturity Price : 25.00
Evaluated at bid price : 26.33
Bid-YTW : 4.28 %
There were 27 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
VNR.PR.A FixedReset Quote: 17.31 – 17.85
Spot Rate : 0.5400
Average : 0.3848

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-07-12
Maturity Price : 17.31
Evaluated at bid price : 17.31
Bid-YTW : 4.93 %

RY.PR.L FixedReset Quote: 25.20 – 25.50
Spot Rate : 0.3000
Average : 0.1801

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 3.67 %

HSB.PR.C Deemed-Retractible Quote: 25.00 – 25.29
Spot Rate : 0.2900
Average : 0.1804

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 5.17 %

SLF.PR.G FixedReset Quote: 14.15 – 14.64
Spot Rate : 0.4900
Average : 0.3815

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.15
Bid-YTW : 9.75 %

GWO.PR.I Deemed-Retractible Quote: 22.41 – 22.75
Spot Rate : 0.3400
Average : 0.2405

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.41
Bid-YTW : 6.13 %

TD.PR.Y FixedReset Quote: 23.56 – 23.86
Spot Rate : 0.3000
Average : 0.2033

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.56
Bid-YTW : 3.93 %

CSE.PR.A: Convert Or Hold?

July 13th, 2016

It will be recalled that CSE.PR.A will reset to 3.271% effective July 31.

Holders of CSE.PR.A have the option to convert to FloatingResets, which will pay 3-month bills plus 271bp on the par value of $25.00, reset quarterly. The deadline for notifying the company of the intent to convert is 5:00 p.m. (EST) on July 18, 2016; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion. The ticker for the new FloatingReset, if it is created, has not yet been confirmed.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., BAM.PR.R and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_FR_160712
Click for Big

The market appears to have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both below zero, at -0.90% and -0.27%, respectively! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the CSE.PR.A FixedReset, we may construct the following table showing consistent prices for its soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for CSE.PR.A) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 0.00% -0.50% -1.00%
CSE.PR.A 11.35 271bp 10.88 10.41 9.95

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of CSE.PR.A continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Note as well that conversion rights are dependent upon at least one million shares of each series being outstanding after giving effect to holders’ instructions; e.g., if only 100,000 shares of CSE.PR.A are tendered for conversion, then no conversions will be allowed; but if only 100,000 shares of CSE.PR.A will remain after the rest are all tendered, then conversion will be mandatory. However, this is relatively rare: all 51 Strong Pairs currently extant have some version of this condition and all but six have both series outstanding.