PrefBlog

I had a stray thought today regarding the HSE.PR.C reset fiasco … if they calculated the rate in good faith as of November 29, why didn’t they announce the rate on November 29?

But now it’s time for PrefLetter!

Nothing surprising in today’s FOMC release:

Information received since the Federal Open Market Committee met in October indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12‑month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee decided to maintain the target range for the federal funds rate at 1‑1/2 to 1-3/4 percent. The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective. The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate.

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 maximum employment objective and its symmetric 2 percent inflation objective. 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.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.

PerpetualDiscounts now yield 5.42%, equivalent to 7.05% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.37%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed slightly (and perhaps spuriously) to 370bp from the 375bp reported December 4.

How about them ETFs, eh?:

Canadian-listed exchange-traded funds (ETFs) recently crossed the $200-billion asset mark and record inflows are expected in 2019, amid an increase in purchases of conservative fixed-income funds from retail investors seeking more safety.

The year’s inflows to the end of November amounted to $23.5-billion, on pace with the record $26-billion flow for all of 2017, according to data from the National Bank Financial Inc. (NBF) ETF research and strategy group.

ETFs crossed the $200-billion mark on the last day of November and the month’s inflow of $4.5-billion was the highest of the year and one of the highest ever, says Daniel Straus, vice-president of ETFs and financial products research at NBF.

There’s a good article in Forbes by Steve Denning about a new indicator, the Job Quality Index.

The U.S. Private Sector Job Quality Index (JQI) assesses job quality in the United States by measuring desirable higher-wage/higher-hour jobs versus lower-wage/lower-hour jobs. The JQI results also may serve as a proxy for the overall health of the U.S. jobs market, since the index enables month-by-month tracking of the direction and degree of change in high-to-low job composition.

By tracking this information, policymakers and financial market participants can be more fully informed of past developments, current trends, and likely future developments in the absence of policy intervention. Economists and international organizations have in recent years developed other, complementary conceptions of job quality such as those addressing the emotional satisfaction employees derive from their jobs.

For the purposes of this JQI, “job quality” means the weekly dollar-income a job generates for an employee. Payment, after all, is a primary reason why people work: the income generated by a job being necessary to maintain a standard of living, to provide for the essentials of life and, hopefully, to save for retirement, among other things.

Click for Big

It’s a different world from the one where I got my start, all right.

I sent another eMail via Husky Energy’s on-line form about their anomalous reset calculation for HSE.PR.C. Still no answer, but I’m not the only one querying them.

I was pleased to see that Atlantic Power ‘fessed up to their error regarding the reset rate for AZP.PR.B. Very impressive! It isn’t “making no errors” that makes you good; errors happen all the time. It’s recognizing, acknowledging and fixing errors that makes you good.

I just wish Husky Energy was as prompt! I have used their online form to contact Investor Relations:

I would appreciate greater detail regarding the reset rate for HSE.PR.C announced December 2, specifically the Government of Canada 5-Year Bond Yield used as the basis for this calculation.

Can you please tell me the effective date and time that the Government of Canada 5-Year Bond Yield was measured for the purpose of this calculation?

Sincerely,

I urge anybody who has a spare minute today to similarly contact the company to ask this question. This is a brief, simple question regarding a matter of fact and while I appreciate that they have a lot going on at the moment, this is my third eMail to them. First be polite, then be annoying, that’s my motto!

Shaw Communications issued 30-Year Notes today:

Shaw Communications Inc. (“Shaw” or the “Corporation”) announced today the terms of an offering of C$800 million of senior notes, comprised of C$500 million principal amount of 3.30% senior notes due 2029 (the “2029 Notes”) and C$300 million principal amount of 4.25% senior notes due 2049 (the “2049 Notes”, and together with the 2029 Notes, the “Notes”).

SJR.PR.A currently yields 6.59% (equivalent to interest of 8.57%) and SJR.PR.B yields 6.89% (equivalent to interest of 8.96%), based on GOC yields of 1.54% and 1.66% respectively. A Straight Perpetual would probably yield a little less, given the current state of the markets, but that’s quite a spread! No wonder that they – and nobody else, either – aren’t issuing new preferreds!

There was nothing particularly surprising in the Bank of Canada’s policy rate announcement this morning:

The Bank of Canada today maintained its target for the overnight rate at 1 ¾ percent. The Bank Rate is correspondingly 2 percent and the deposit rate is 1 ½ percent.

The Bank’s October projection for global economic growth appears to be intact. There is nascent evidence that the global economy is stabilizing, with growth still expected to edge higher over the next couple of years. Financial markets have been supported by central bank actions and waning recession concerns, while being buffeted by news on the trade front. Indeed, ongoing trade conflicts and related uncertainty are still weighing on global economic activity, and remain the biggest source of risk to the outlook. In this context, commodity prices and the Canadian dollar have remained relatively stable.

Growth in Canada slowed in the third quarter of 2019 to 1.3 percent, as expected. Consumer spending expanded moderately, underpinned by stronger wage growth. Housing investment was also a source of strength, supported by population growth and low mortgage rates. The Bank continues to monitor the evolution of financial vulnerabilities related to the household sector. As expected, exports contracted, driven by non-energy commodities. However, investment spending unexpectedly showed strong growth, notably in transportation equipment and engineering projects. The Bank will be assessing the extent to which this points to renewed momentum in investment.

CPI inflation in Canada remains at target, and measures of core inflation are around 2 percent, consistent with an economy operating near capacity. Inflation will increase temporarily in the coming months due to year-over-year movements in gasoline prices. The Bank continues to expect inflation to track close to the 2 percent target over the next two years.

Based on developments since October, Governing Council judges it appropriate to maintain the current level of the overnight rate target. Future interest rate decisions will be guided by the Bank’s continuing assessment of the adverse impact of trade conflicts against the sources of resilience in the Canadian economy – notably consumer spending and housing activity. Fiscal policy developments will also figure into the Bank’s updated outlook in January.

David Parkinson of the Globe reminds us that:

The Bank of Canada noted that last week’s third-quarter gross domestic product report, which pegged growth at a modest 1.3-per-cent annualized rate, showed strength in consumer spending, wage growth and housing investment.

But it said it remains concerned about the high household debts that have contributed to that strength. Those have been fed by low borrowing rates, the result of a slump in global bond yields over the summer amid escalating China-U.S. trade hostilities.

Alberta got downgraded:

Alberta’s credit rating has been downgraded by Moody’s, with the agency citing the volatility in the province’s dependence on oil and continued fiscal pressures.

The province’s rating was downgraded to Aa2 stable from Aa1 negative on Tuesday.

The downgrade, the agency states, reflects Moody’s “opinion of a structural weakness in the provincial economy that remains concentrated and dependent on non-renewable resources … and remains pressured by a lack of sufficient pipeline capacity to transport oil efficiently with no near-term expectation of a significant rebound in oil-related investments.”

The agency’s rating stated that continued spending cuts will be needed for the government to balance the budget by its set target of 2022.

It’s kind of a pity that those hard-nosed conservatives in Alberta don’t have some kind of Heritage Savings Trust Fund, eh? But all the oil money got blown on low taxes and high spending.

PerpetualDiscounts now yield 5.39%, equivalent to 7.01% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.26%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 375bp from the 370bp reported November 27.