December 15, 2017

December 15th, 2017
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 0.0998 % 2,471.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0998 % 4,535.3
Floater 3.72 % 3.86 % 33,421 17.74 4 0.0998 % 2,613.7
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1095 % 3,130.3
SplitShare 4.69 % 4.14 % 67,513 3.49 5 -0.1095 % 3,738.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1095 % 2,916.7
Perpetual-Premium 5.36 % 1.08 % 54,145 0.09 20 0.1238 % 2,839.4
Perpetual-Discount 5.23 % 5.28 % 70,367 14.93 14 0.2058 % 3,006.9
FixedReset 4.28 % 4.35 % 147,976 6.11 98 0.2490 % 2,474.7
Deemed-Retractible 5.07 % 5.28 % 89,168 5.93 30 0.2005 % 2,940.4
FloatingReset 2.76 % 2.78 % 38,230 3.90 8 -0.0760 % 2,681.5
Performance Highlights
Issue Index Change Notes
NA.PR.W FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-15
Maturity Price : 22.21
Evaluated at bid price : 22.50
Bid-YTW : 4.37 %
RY.PR.M FixedReset 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-15
Maturity Price : 23.05
Evaluated at bid price : 24.15
Bid-YTW : 4.28 %
W.PR.H Perpetual-Premium 1.20 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-01-14
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 2.05 %
BMO.PR.W FixedReset 1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-15
Maturity Price : 22.34
Evaluated at bid price : 22.65
Bid-YTW : 4.29 %
BMO.PR.T FixedReset 1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-15
Maturity Price : 22.37
Evaluated at bid price : 22.73
Bid-YTW : 4.30 %
TRP.PR.G FixedReset 1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-15
Maturity Price : 23.12
Evaluated at bid price : 24.30
Bid-YTW : 4.58 %
Volume Highlights
Issue Index Shares
Traded
Notes
HSB.PR.C Deemed-Retractible 230,819 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-01-14
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 3.38 %
NA.PR.A FixedReset 223,700 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-15
Maturity Price : 25.00
Evaluated at bid price : 26.55
Bid-YTW : 3.73 %
HSB.PR.D Deemed-Retractible 110,600 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-01-14
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 3.33 %
TD.PF.H FixedReset 71,610 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 3.86 %
TRP.PR.K FixedReset 65,992 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-31
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 4.03 %
BNS.PR.R FixedReset 62,700 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.14
Bid-YTW : 3.61 %
There were 17 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.E Perpetual-Premium Quote: 25.26 – 25.55
Spot Rate : 0.2900
Average : 0.2221

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-01-14
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : 1.08 %

TRP.PR.E FixedReset Quote: 22.76 – 23.00
Spot Rate : 0.2400
Average : 0.1736

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-15
Maturity Price : 22.43
Evaluated at bid price : 22.76
Bid-YTW : 4.47 %

CM.PR.Q FixedReset Quote: 24.28 – 24.47
Spot Rate : 0.1900
Average : 0.1252

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-15
Maturity Price : 23.16
Evaluated at bid price : 24.28
Bid-YTW : 4.43 %

BNS.PR.D FloatingReset Quote: 23.19 – 23.34
Spot Rate : 0.1500
Average : 0.0910

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.19
Bid-YTW : 3.90 %

TRP.PR.C FixedReset Quote: 16.80 – 17.00
Spot Rate : 0.2000
Average : 0.1442

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-15
Maturity Price : 16.80
Evaluated at bid price : 16.80
Bid-YTW : 4.58 %

MFC.PR.M FixedReset Quote: 22.68 – 22.85
Spot Rate : 0.1700
Average : 0.1187

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.68
Bid-YTW : 5.60 %

KML.PR.C Settles Firm On Decent Volume

December 15th, 2017

Kinder Morgan Canada Limited has announced:

that it has completed its previously announced offering of cumulative redeemable minimum rate reset preferred shares, Series 3 (the “Series 3 Preferred Shares”) for aggregate gross proceeds of $250 million. The Company issued 10,000,000 Series 3 Preferred Shares, including 2,000,000 Series 3 shares issued as a result of the full exercise of the underwriter’s option, through a syndicate of underwriters led by CIBC Capital Markets, Scotiabank, RBC Capital Markets and TD Securities.

The Company intends to use the proceeds from the offering to indirectly subscribe for preferred units in Kinder Morgan Canada Limited Partnership, which, in turn, intends to use such proceeds to, directly or indirectly, finance the development, construction and completion of the Trans Mountain Expansion Project and Base Line Terminal project as well as potential future growth opportunities, to repay indebtedness and for general corporate purposes.
The Series 3 Preferred Shares will begin trading today on the TSX under the symbol KML.PR.C. S&P and DBRS have assigned this series a rating of P-3 (High) and Pfd-3 (high), respectively.

Dividends on the Series 3 Preferred Shares are expected to be $1.3000 per share annually, payable quarterly on the 15th day of February, May, August and November, as and when declared by the Board of Directors of the Company, for the initial fixed rate period to but excluding February 15, 2023. The first dividend, if declared, will be payable February 15, 2018, in the amount of $0.22082 per share.

All of the Company’s dividends are designated “eligible dividends” for Canadian income tax purposes.

KML.PR.C is a FixedReset, 5.20%+351M520, announced 2017-12-6. It will be tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

The issue traded 508,130 shares today in a range of 24.94-00 before closing at 24.99-00. Vital statistics are:

KML.PR.C FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-15
Maturity Price : 23.15
Evaluated at bid price : 24.99
Bid-YTW : 5.13 %

December 14, 2017

December 14th, 2017
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 -0.1423 % 2,469.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.1423 % 4,530.8
Floater 3.72 % 3.87 % 33,302 17.72 4 -0.1423 % 2,611.1
OpRet 0.00 % 0.00 % 0 0.00 0 0.2667 % 3,133.7
SplitShare 4.68 % 4.09 % 67,851 3.49 5 0.2667 % 3,742.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2667 % 2,919.9
Perpetual-Premium 5.36 % 4.77 % 54,778 2.16 20 0.0334 % 2,835.8
Perpetual-Discount 5.24 % 5.29 % 71,233 14.93 14 0.1419 % 3,000.7
FixedReset 4.29 % 4.36 % 149,794 6.11 98 -0.0961 % 2,468.6
Deemed-Retractible 5.08 % 5.30 % 89,159 5.93 30 -0.1356 % 2,934.5
FloatingReset 2.75 % 2.78 % 39,498 3.90 8 0.1251 % 2,683.6
Performance Highlights
Issue Index Change Notes
SLF.PR.D Deemed-Retractible -1.14 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.61
Bid-YTW : 6.89 %
SLF.PR.E Deemed-Retractible -1.14 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.69
Bid-YTW : 6.88 %
NA.PR.W FixedReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-14
Maturity Price : 22.04
Evaluated at bid price : 22.27
Bid-YTW : 4.42 %
CU.PR.I FixedReset 1.18 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-01
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 3.50 %
PWF.PR.P FixedReset 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-14
Maturity Price : 17.45
Evaluated at bid price : 17.45
Bid-YTW : 4.49 %
BIP.PR.A FixedReset 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-14
Maturity Price : 23.29
Evaluated at bid price : 24.55
Bid-YTW : 5.16 %
IFC.PR.F Deemed-Retractible 1.64 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 5.30 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.H FixedReset 348,545 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.07
Bid-YTW : 3.84 %
TRP.PR.J FixedReset 144,875 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.45
Bid-YTW : 3.78 %
BNS.PR.H FixedReset 125,605 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-01-26
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 3.72 %
BAM.PR.Z FixedReset 124,657 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-14
Maturity Price : 22.83
Evaluated at bid price : 24.12
Bid-YTW : 4.72 %
HSB.PR.C Deemed-Retractible 69,369 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-01-13
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 3.21 %
MFC.PR.N FixedReset 64,390 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.60
Bid-YTW : 5.57 %
There were 45 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
SLF.PR.D Deemed-Retractible Quote: 21.61 – 21.93
Spot Rate : 0.3200
Average : 0.1934

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.61
Bid-YTW : 6.89 %

CU.PR.C FixedReset Quote: 21.70 – 21.99
Spot Rate : 0.2900
Average : 0.2148

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-14
Maturity Price : 21.39
Evaluated at bid price : 21.70
Bid-YTW : 4.51 %

GWO.PR.T Deemed-Retractible Quote: 24.78 – 25.00
Spot Rate : 0.2200
Average : 0.1450

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.78
Bid-YTW : 5.29 %

RY.PR.M FixedReset Quote: 23.87 – 24.22
Spot Rate : 0.3500
Average : 0.2796

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-14
Maturity Price : 22.92
Evaluated at bid price : 23.87
Bid-YTW : 4.34 %

TD.PF.C FixedReset Quote: 22.57 – 22.74
Spot Rate : 0.1700
Average : 0.1072

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-14
Maturity Price : 22.26
Evaluated at bid price : 22.57
Bid-YTW : 4.34 %

NA.PR.X FixedReset Quote: 26.55 – 26.74
Spot Rate : 0.1900
Average : 0.1315

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-15
Maturity Price : 25.00
Evaluated at bid price : 26.55
Bid-YTW : 3.81 %

December 13, 2017

December 13th, 2017

The FOMC hiked the US policy rate 25bp:

Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Averaging through hurricane-related fluctuations, job gains have been solid, and the unemployment rate declined further. Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters. On a 12-month basis, both overall inflation and inflation for items other than food and energy have declined this year and are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Hurricane-related disruptions and rebuilding have affected economic activity, employment, and inflation in recent months but have not materially altered the outlook for the national economy. Consequently, the Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong. Inflation on a 12‑month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-1/4 to 1‑1/2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

Voting for the FOMC monetary policy action were Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Patrick Harker; Robert S. Kaplan; Jerome H. Powell; and Randal K. Quarles. Voting against the action were Charles L. Evans and Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate.

As always, it’s interesting to read about the dissent, which we may expect to see fleshed out in speeches. The accomplished and confident nature of the FOMC’s members is such a contrast to the pompous declarations we read in Canada!

The implementation note states:

The Committee directs the Desk to continue rolling over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing during December that exceeds $6 billion, and to continue reinvesting in agency mortgage-backed securities the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities received during December that exceeds $4 billion. Effective in January, the Committee directs the Desk to roll over at auction the amount of principal payments from the Federal Reserve’s holdings of Treasury securities maturing during each calendar month that exceeds $12 billion, and to reinvest in agency mortgage-backed securities the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities received during each calendar month that exceeds $8 billion. Small deviations from these amounts for operational reasons are acceptable.

…which is interpreted as:

In another move that could tighten monetary conditions, the Fed confirmed that it would step up the monthly pace of shrinking its balance sheet, as scheduled, to $20 billion beginning in January from $10 billion.

Markets seem to have been hoping for more fire and brimstone:

An improving economic outlook should give the upcoming Jerome Powell-led Fed a free pass to continue along Yellen’s gradualist path toward interest-rate normalization. In a key change to its statement, the Federal Open Market Committee omitted prior language saying it expected the labor market would strengthen further. The dollar and Treasury yields were already falling after the so-called core gauge of U.S. inflation, which excludes food and energy costs, unexpectedly slowed. Yellen said elevated stock prices doesn’t mean equities are overvalued.

“Markets are generally interpreting the meeting as a dovish hike,” said Marvin Loh, senior global market strategist at Bank of New York Mellon Corp. in Boston. “The improved view in 2018 may be driven by tax reform, which will not have a long-lasting impact.”

PerpetualDiscounts now yield 5.30%, equivalent to 6.89% 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 320bp, a slight (and perhaps spurious) widening from the 315bp reported December 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 0.0330 % 2,472.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0330 % 4,537.2
Floater 3.70 % 3.87 % 31,036 17.60 4 0.0330 % 2,614.8
OpRet 0.00 % 0.00 % 0 0.00 0 0.0471 % 3,125.4
SplitShare 4.70 % 4.14 % 68,071 3.49 5 0.0471 % 3,732.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0471 % 2,912.2
Perpetual-Premium 5.37 % 4.77 % 54,736 2.16 20 0.0571 % 2,834.9
Perpetual-Discount 5.23 % 5.30 % 67,470 14.92 14 -0.0735 % 2,996.4
FixedReset 4.28 % 4.34 % 149,155 6.12 98 0.0267 % 2,470.9
Deemed-Retractible 5.06 % 5.35 % 87,888 5.93 30 -0.1541 % 2,938.5
FloatingReset 2.76 % 2.77 % 38,226 3.90 8 -0.1032 % 2,680.2
Performance Highlights
Issue Index Change Notes
PWF.PR.P FixedReset -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-13
Maturity Price : 17.23
Evaluated at bid price : 17.23
Bid-YTW : 4.55 %
TRP.PR.B FixedReset -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-13
Maturity Price : 15.75
Evaluated at bid price : 15.75
Bid-YTW : 4.51 %
TRP.PR.E FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-13
Maturity Price : 22.38
Evaluated at bid price : 22.71
Bid-YTW : 4.47 %
TRP.PR.F FloatingReset -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-13
Maturity Price : 19.05
Evaluated at bid price : 19.05
Bid-YTW : 3.71 %
BMO.PR.Y FixedReset 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-13
Maturity Price : 23.25
Evaluated at bid price : 24.52
Bid-YTW : 4.32 %
CM.PR.O FixedReset 1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-13
Maturity Price : 22.91
Evaluated at bid price : 23.31
Bid-YTW : 4.28 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.I FixedReset 521,608 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 3.63 %
BMO.PR.B FixedReset 130,352 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.06
Bid-YTW : 3.83 %
RY.PR.R FixedReset 94,732 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.93
Bid-YTW : 3.37 %
HSB.PR.C Deemed-Retractible 56,892 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-01-12
Maturity Price : 25.00
Evaluated at bid price : 25.29
Bid-YTW : 3.44 %
CM.PR.R FixedReset 39,685 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.38
Bid-YTW : 4.19 %
HSB.PR.D Deemed-Retractible 30,738 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-01-12
Maturity Price : 25.00
Evaluated at bid price : 25.29
Bid-YTW : 3.09 %
There were 21 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CU.PR.I FixedReset Quote: 25.45 – 25.95
Spot Rate : 0.5000
Average : 0.3220

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-01
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 3.92 %

MFC.PR.F FixedReset Quote: 17.80 – 18.22
Spot Rate : 0.4200
Average : 0.2716

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.80
Bid-YTW : 7.98 %

TRP.PR.B FixedReset Quote: 15.75 – 16.12
Spot Rate : 0.3700
Average : 0.2568

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-13
Maturity Price : 15.75
Evaluated at bid price : 15.75
Bid-YTW : 4.51 %

TRP.PR.G FixedReset Quote: 23.90 – 24.29
Spot Rate : 0.3900
Average : 0.3051

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-13
Maturity Price : 22.93
Evaluated at bid price : 23.90
Bid-YTW : 4.67 %

BIP.PR.A FixedReset Quote: 24.23 – 24.46
Spot Rate : 0.2300
Average : 0.1454

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-13
Maturity Price : 23.15
Evaluated at bid price : 24.23
Bid-YTW : 5.24 %

SLF.PR.G FixedReset Quote: 18.25 – 18.49
Spot Rate : 0.2400
Average : 0.1666

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 %

December 12, 2017

December 12th, 2017
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 -0.8346 % 2,471.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.8346 % 4,535.7
Floater 3.70 % 3.87 % 32,117 17.61 4 -0.8346 % 2,614.0
OpRet 0.00 % 0.00 % 0 0.00 0 0.0707 % 3,123.9
SplitShare 4.70 % 4.08 % 66,675 3.50 5 0.0707 % 3,730.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0707 % 2,910.8
Perpetual-Premium 5.37 % 4.80 % 55,726 2.16 20 0.0039 % 2,833.3
Perpetual-Discount 5.23 % 5.26 % 67,642 14.97 14 -0.0520 % 2,998.6
FixedReset 4.28 % 4.35 % 148,630 6.12 98 -0.0516 % 2,470.3
Deemed-Retractible 5.06 % 5.32 % 88,160 5.94 30 -0.1758 % 2,943.0
FloatingReset 2.76 % 2.78 % 38,949 3.90 8 0.0652 % 2,683.0
Performance Highlights
Issue Index Change Notes
HSE.PR.A FixedReset -2.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-12
Maturity Price : 16.83
Evaluated at bid price : 16.83
Bid-YTW : 4.79 %
BAM.PR.B Floater -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-12
Maturity Price : 14.59
Evaluated at bid price : 14.59
Bid-YTW : 3.89 %
TRP.PR.A FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-12
Maturity Price : 19.65
Evaluated at bid price : 19.65
Bid-YTW : 4.52 %
BAM.PR.C Floater -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-12
Maturity Price : 14.65
Evaluated at bid price : 14.65
Bid-YTW : 3.87 %
Volume Highlights
Issue Index Shares
Traded
Notes
HSE.PR.E FixedReset 174,500 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-12
Maturity Price : 23.29
Evaluated at bid price : 24.42
Bid-YTW : 5.21 %
TD.PF.H FixedReset 115,700 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 3.80 %
TRP.PR.D FixedReset 76,090 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-12
Maturity Price : 22.30
Evaluated at bid price : 22.70
Bid-YTW : 4.47 %
RY.PR.I FixedReset 65,900 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.96
Bid-YTW : 3.67 %
HSB.PR.C Deemed-Retractible 56,470 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-01-11
Maturity Price : 25.00
Evaluated at bid price : 25.29
Bid-YTW : 3.27 %
HSE.PR.A FixedReset 55,000 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-12
Maturity Price : 16.83
Evaluated at bid price : 16.83
Bid-YTW : 4.79 %
There were 15 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PVS.PR.E SplitShare Quote: 26.18 – 26.60
Spot Rate : 0.4200
Average : 0.2834

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-01-11
Maturity Price : 26.00
Evaluated at bid price : 26.18
Bid-YTW : -2.23 %

SLF.PR.B Deemed-Retractible Quote: 23.39 – 23.72
Spot Rate : 0.3300
Average : 0.1988

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.39
Bid-YTW : 5.91 %

HSE.PR.C FixedReset Quote: 23.96 – 24.28
Spot Rate : 0.3200
Average : 0.2300

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-12
Maturity Price : 23.65
Evaluated at bid price : 23.96
Bid-YTW : 4.96 %

PVS.PR.F SplitShare Quote: 25.30 – 25.55
Spot Rate : 0.2500
Average : 0.1674

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2024-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 4.63 %

CU.PR.G Perpetual-Discount Quote: 21.85 – 22.18
Spot Rate : 0.3300
Average : 0.2514

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-12
Maturity Price : 21.54
Evaluated at bid price : 21.85
Bid-YTW : 5.17 %

PVS.PR.B SplitShare Quote: 25.21 – 25.51
Spot Rate : 0.3000
Average : 0.2221

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 25.21
Bid-YTW : 3.63 %

December 11, 2017

December 11th, 2017
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 0.0491 % 2,492.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0491 % 4,573.9
Floater 3.67 % 3.83 % 33,430 17.70 4 0.0491 % 2,636.0
OpRet 0.00 % 0.00 % 0 0.00 0 0.1385 % 3,121.7
SplitShare 4.70 % 4.16 % 66,204 3.50 5 0.1385 % 3,728.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1385 % 2,908.7
Perpetual-Premium 5.37 % 4.79 % 56,532 2.17 20 -0.0059 % 2,833.2
Perpetual-Discount 5.23 % 5.27 % 69,855 14.96 14 0.2270 % 3,000.2
FixedReset 4.28 % 4.40 % 149,265 6.13 98 0.0938 % 2,471.5
Deemed-Retractible 5.05 % 5.27 % 89,389 5.94 30 0.1568 % 2,948.2
FloatingReset 2.76 % 2.82 % 39,482 3.91 8 0.0272 % 2,681.2
Performance Highlights
Issue Index Change Notes
IFC.PR.A FixedReset -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.41
Bid-YTW : 7.66 %
SLF.PR.C Deemed-Retractible 1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.95
Bid-YTW : 6.61 %
SLF.PR.D Deemed-Retractible 1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.01
Bid-YTW : 6.57 %
TRP.PR.G FixedReset 1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-11
Maturity Price : 23.09
Evaluated at bid price : 24.25
Bid-YTW : 4.59 %
TD.PF.D FixedReset 1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-11
Maturity Price : 23.14
Evaluated at bid price : 24.24
Bid-YTW : 4.44 %
TRP.PR.B FixedReset 1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-11
Maturity Price : 16.09
Evaluated at bid price : 16.09
Bid-YTW : 4.42 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.R FixedReset 87,924 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.90
Bid-YTW : 3.40 %
TRP.PR.G FixedReset 37,680 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-11
Maturity Price : 23.09
Evaluated at bid price : 24.25
Bid-YTW : 4.59 %
BMO.PR.D FixedReset 34,353 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-08-25
Maturity Price : 25.00
Evaluated at bid price : 25.05
Bid-YTW : 4.43 %
BAM.PF.J FixedReset 34,322 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.63
Bid-YTW : 4.47 %
MFC.PR.O FixedReset 30,812 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.71
Bid-YTW : 3.51 %
MFC.PR.C Deemed-Retractible 27,730 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.08
Bid-YTW : 6.60 %
There were 17 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IAG.PR.G FixedReset Quote: 23.66 – 24.03
Spot Rate : 0.3700
Average : 0.2393

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.66
Bid-YTW : 4.92 %

CM.PR.O FixedReset Quote: 22.98 – 23.35
Spot Rate : 0.3700
Average : 0.2437

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-11
Maturity Price : 22.59
Evaluated at bid price : 22.98
Bid-YTW : 4.35 %

BAM.PR.T FixedReset Quote: 20.90 – 21.25
Spot Rate : 0.3500
Average : 0.2413

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-11
Maturity Price : 20.90
Evaluated at bid price : 20.90
Bid-YTW : 4.69 %

GWO.PR.P Deemed-Retractible Quote: 25.37 – 25.66
Spot Rate : 0.2900
Average : 0.1882

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.37
Bid-YTW : 4.84 %

GWO.PR.I Deemed-Retractible Quote: 22.18 – 22.48
Spot Rate : 0.3000
Average : 0.2074

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.18
Bid-YTW : 6.49 %

CCS.PR.C Deemed-Retractible Quote: 23.53 – 23.88
Spot Rate : 0.3500
Average : 0.2645

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.53
Bid-YTW : 6.01 %

ENB.PF.K Soft on Modest Volume

December 11th, 2017

Enbridge Inc. has announced:

that it has closed its previously announced public offering (the Offering) of Cumulative Redeemable Minimum Rate Reset Preference Shares, Series 19 (the Series 19 Preferred Shares) through a syndicate of underwriters led by Scotiabank, BMO Capital Markets, CIBC Capital Markets and National Bank Financial. Enbridge issued 20 million Series 19 Preferred Shares, inclusive of 4 million Series 19 Preferred Shares issued on full exercise of the underwriters’ option, for gross proceeds of $500 million. The Series 19 Preferred Shares will begin trading on the Toronto Stock Exchange (TSX) today under the symbol ENB.PF.K. Proceeds from the Offering are expected to be used to partially fund capital projects, to reduce existing indebtedness and for other general corporate purposes of the Company and its affiliates.

ENB.PF.K is a FixedReset 4.90%+317M490 announced December 4. It has been added to the HIMIPref™ database but has been relegated to the Scraps subindex on credit concerns.

The issue traded 694,690 shares in a range of 24.72-88 before closing at 24.72-75. Vital statistics are:

ENB.PF.K FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-11
Maturity Price : 23.05
Evaluated at bid price : 24.72
Bid-YTW : 4.88 %

This issue looks extraordinarily expensive to me! According to Implied Volatility analysis:

impvol_enb_171211
Click for Big

With the parameters shown, the theoretical value of the new issue is 23.23, roughly equivalent to the BPO new issue that settled recently. Critics will be quick to point out that in this calculation there is zero value assigned to the minimum rate guarantee … but I’d say that’s about right!

LB Rating Trend Negative: DBRS

December 11th, 2017

DBRS has announced that it:

confirmed the ratings of Laurentian Bank of Canada (LBC or the Bank). The trends on all long-term ratings have been revised to Negative from Stable, while the trends on all short-term ratings remain Stable. The Bank’s Intrinsic Assessment (IA) of A (low) and Support Assessment of SA3 are unchanged. The SA3 designation, which reflects no expectation of timely external support, results in the final rating being equivalent to the IA.

In revising the trends to Negative, DBRS reflects its concern with the quality of LBC’s control functions and underwriting procedures at a sensitive time in the housing cycle and the potential impact of recent events on the Bank’s reputation and funding. These rating actions follow the Bank’s disclosure that residential prime mortgages the Bank had sold to third parties had documentation and client misrepresentation issues.

LBC continues to demonstrate a solid track record of strong asset quality resulting in low levels of impairments and loan losses. Residential mortgages make up just over half of the Bank’s loan portfolio. Out of the $18.5 billion mortgages in 2017, 50% were in Québec, where housing prices have kept pace with inflation over the last few years. Nevertheless, in DBRS’s opinion, the Bank’s more recent geographic expansion through its B2B Bank and its Commercial segments does expose LBC to heightened levels of operational risk and credit risk. Given recent events, DBRS is also concerned that risk management processes and policies have not evolved at a pace commensurate with the Bank’s growth.

While LBC has had a strong deposit funding base, thanks to its retail franchise, DBRS notes that the Bank is also reliant on broker sourced deposits that could be a more volatile source of funds should issues related to its mortgage underwriting practices persist. If the current issues persist and foster market uncertainty, LBC could face difficulty in attracting broker-sourced deposits which, in conjunction with any potential restrictions on accessing mortgage securitization conduits, could pressure the Bank’s funding and weaken its liquidity.

The Bank’s capital ratios are close to regulatory minimums and leave only a very limited buffer to absorb any significant losses. LBC’s CET1 ratio stood at 7.9% at the end of 2017, which was a slight deterioration from 8.0% at YE2016.

RATING DRIVERS
If the ongoing audits of the mortgage portfolio remain in line with current management expectations and the costs and sources of funding are not materially impacted, the ratings could be revised back to Stable. However, if further issues are discovered beyond the scope currently disclosed, or if funding costs were to materially increase, or if funding sources were to be significantly curtailed, the ratings could be downgraded. Furthermore, if DBRS were to see a material deterioration in liquidity, or a reduction in capitalization to levels closer to regulatory minimums, there could also be negative rating implications.

Laurentian’s mortgage documentation problems have been big news lately.

Affected issues are LB.PR.F (soon to be redeemed), LB.PR.H and LB.PR.J .

December PrefLetter Released!

December 10th, 2017

The December, 2017, 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.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the December, 2017, issue, while the “Next Edition” will be the January, 2018, issue, scheduled to be prepared as of the close January 12 and eMailed to subscribers prior to market-opening on January 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?).

BAM.PR.Z : Convert or Hold?

December 9th, 2017

It will be recalled that BAM.PR.Z will reset to 4.685% (paid on par) effective January 1.

Holders of BAM.PR.Z have the option to convert to FloatingResets, which will pay 3-month bills plus 296bp 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. (Toronto time) on December 18, 2017; 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 issued, will be BAM.PF.K.

BAM.PR.Z is a FixedReset, 4.80%+296, that commenced trading 2011-11-2 after being announced 2011-10-24. It is tracked by HIMIPref™ and assigned to the FixedReset subindex.

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.Z and the FloatingReset, BAM.PF.K, 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_171208
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 well below current market rates, at +0.47% and +0.51%, 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 BAM.PR.Z FixedReset, we may construct the following table showing consistent prices for its maybe-soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset BAM.PF.K (received in exchange for BAM.PR.Z) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread +1.00% +0.50% 0.00%
BAM.PR.Z 24.20 296bp 23.46 22.95 22.45

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 BAM.PR.Z 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 new pair will reflect these conditions.