June 13, 2011

June 13th, 2011

Everything old is new again! Treasury STRIPS are popular:

Demand for zero-coupon bonds is rising so fast that Wall Street banks created $205.2 billion of them as of May, the most in three years and just $3.6 billion away from levels last seen at the beginning of 2000, according to the Treasury Department.

Zero-coupon securities due in 30 years had their best and worst months in more than two decades during the last recession. The debt returned 26.7 percent in December 2008, a month after the consumer price index plunged 1.8 percent, the biggest drop in history, according to Bank of America Merrill Lynch index data. A month later, the securities lost 24 percent.

S&P downgrades Greece:

Greece had its credit rating cut three levels by Standard & Poor’s, which branded the nation with the world’s lowest debt grade and said a restructuring looks “increasingly likely.”

The move to CCC from B reflects “our view that there is a significantly higher likelihood of one or more defaults,” S&P said in a statement today. “Risks for the implementation of Greece’s EU/IMF borrowing program are rising, given Greece’s increased financing needs and ongoing internal political disagreements surrounding the policy conditions required.”

The downgrade follows Moody’s Investors Service’s decision this month to grade Greece only one level higher and may intensify pressure on European governments to stem the region’s sovereign-debt crisis. Credit-default swaps on Greece, Ireland and Portugal surged to records today on concern governments’ struggles to resolve the turmoil will threaten their ability to pay off their debts.

US housing remains nasty:

Southern California home prices fell 8.2 percent … as unemployment remained high and mortgages were hard to obtain, DataQuick said.

The median paid in the six-county region was $280,000, down from $305,000 a year earlier and unchanged from April, the San Diego-based data seller said today in a statement. Sales fell 17 percent from May 2010 to a total of 18,394 new and resale houses and condominiums, the 11th straight year-over-year decline.

DBRS confirmed SLF:

In recent years, the requirement for additional regulatory capital at its operating subsidiaries has resulted in an increase in the Company’s consolidated financial leverage as measured by the ratio of debt plus preferred shares to total capitalization. The Company is currently operating with this ratio at greater than 30%, which, while an increase from less than 25% which it reported five years ago, is no higher than its peers. Given the Company’s relative conservatism from a business risk perspective, DBRS believes that this level is still acceptable for the Company’s current ratings, especially given that several points of the recent increase in the debt ratio reflects the reduction in shareholders’ equity related to the $1.7 billion writedown in goodwill following the implementation of IFRS. However, since higher leverage combined with weaker earnings has resulted in lower expected fixed charge coverage ratio, the Company does not have a lot of excess financial flexibility. Fortunately, the Company has excellent sources of liquidity as represented by excess regulatory capital, a highly liquid asset portfolio and about $800 million in cash on hand at the holding company level, which is available to reduce financial leverage.

… but they downgraded the Bank of Ireland:

DBRS Inc. (DBRS) today has downgraded the ratings of all dated subordinated debt issued by The Governor and Company of the Bank of Ireland (Bank of Ireland) to “C” from CCC. Furthermore, DBRS has downgraded Bank of Ireland’s Primary Capital Notes to “C” from CCC (low), as well as the Perpetual Preferred Securities of various related entities to “C” from CC. Today’s downgrade follows the announcement by the Bank of Ireland that it has commenced an offer to exchange the aforementioned securities for cash or equity and a solicitation of consents in relation to the securities. Moreover, DBRS expects to downgrade the securities discussed above to “D” at completion of the buyback; as such, the securities remain Under Review with Negative Implications, where they were placed on 3 December 2010.

In DBRS’s view, the exchange offer, when completed, is tantamount to a default as defined by DBRS policy. DBRS views the proposed exchange offer as coercive as the offer affords investors in these instruments limited options. Should investors in these instruments reject the proposed offer, at a 80-90% discount if accepting the cash option, or a 60-80% discount if accepting the equity option, on the tendered securities, they risk receiving substantially less if the proposed consent amendments are ratified. Remaining investors in these instruments would then receive 0.001% of par value, should the consent to allow the “clean-up” of residual notes be accepted by tendering investors.

Mean Joe Green used to crash through offensive lines. Mean Joe Yellow offensively crashes through your portfolio.

YLO Issues, 2011-6-13
Ticker Quote
6/10
Quote
6/13
Bid YTW
6/13
YTW
Scenario
6/13
Performance
6/13
(bid/bid)
YLO.PR.A 22.51-78 22.22-29 12.26% Soft Maturity
2012-12-30
-1.29%
YLO.PR.B 16.35-49 15.93-00 14.16% Soft Maturity
2017-06-29
-2.57%
YLO.PR.C 16.24-39 16.12-22 10.03% Limit Maturity -0.74%
YLO.PR.D 16.75-80 16.25-40 10.16% Limit Maturity -2.99%

It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts getting whacked for 30bp, FixedResets losing 5bp and DeemedRetractibles gaining 1bp. BAM and BAM-related issuers dominated the Performance table (BAM itself was ex-dividend today) and volume was actually quite good.

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 -0.0339 % 2,475.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.0339 % 3,723.2
Floater 2.44 % 2.22 % 41,059 21.67 4 -0.0339 % 2,672.9
OpRet 4.88 % 2.67 % 68,092 0.38 9 0.1770 % 2,430.4
SplitShare 5.25 % -0.07 % 62,733 0.50 6 -0.1408 % 2,499.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1770 % 2,222.4
Perpetual-Premium 5.66 % 4.94 % 151,228 1.39 12 0.0033 % 2,076.0
Perpetual-Discount 5.46 % 5.58 % 120,360 14.42 18 -0.2975 % 2,176.6
FixedReset 5.15 % 3.26 % 186,618 2.82 57 -0.0544 % 2,313.5
Deemed-Retractible 5.07 % 4.89 % 295,150 8.18 47 0.0130 % 2,154.4
Performance Highlights
Issue Index Change Notes
FTS.PR.F Perpetual-Discount -1.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-13
Maturity Price : 23.03
Evaluated at bid price : 23.24
Bid-YTW : 5.30 %
POW.PR.B Perpetual-Discount -1.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-13
Maturity Price : 23.74
Evaluated at bid price : 24.05
Bid-YTW : 5.65 %
BAM.PR.M Perpetual-Discount -1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-13
Maturity Price : 21.30
Evaluated at bid price : 21.30
Bid-YTW : 5.60 %
BAM.PR.N Perpetual-Discount -1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-13
Maturity Price : 21.26
Evaluated at bid price : 21.26
Bid-YTW : 5.61 %
BNA.PR.E SplitShare -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 24.20
Bid-YTW : 5.49 %
BAM.PR.O OpRet 1.01 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 2.78 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.J Deemed-Retractible 84,525 Desjardins sold two blocks of 10,000 each to Nesbitt at 24.99, and crossed 45,000 at 25.00.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.95
Bid-YTW : 4.61 %
BMO.PR.Q FixedReset 64,577 Nesbitt crossed 50,400 at 25.50.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.46
Bid-YTW : 3.53 %
RY.PR.T FixedReset 46,490 RBC crossed 25,000 at 27.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-23
Maturity Price : 25.00
Evaluated at bid price : 27.35
Bid-YTW : 3.33 %
BNS.PR.N Deemed-Retractible 45,654 RBC crossed 30,000 at 25.80.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-02-26
Maturity Price : 25.00
Evaluated at bid price : 25.80
Bid-YTW : 4.76 %
CM.PR.L FixedReset 39,837 Nesbitt crossed 20,000 at 27.85.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 27.76
Bid-YTW : 2.89 %
TD.PR.G FixedReset 39,347 TD crossed 24,900 at 27.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 27.38
Bid-YTW : 3.17 %
There were 40 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRI.PR.B Floater Quote: 23.50 – 24.49
Spot Rate : 0.9900
Average : 0.6369

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-13
Maturity Price : 23.20
Evaluated at bid price : 23.50
Bid-YTW : 2.22 %

POW.PR.B Perpetual-Discount Quote: 24.05 – 24.60
Spot Rate : 0.5500
Average : 0.3618

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-13
Maturity Price : 23.74
Evaluated at bid price : 24.05
Bid-YTW : 5.65 %

FTS.PR.F Perpetual-Discount Quote: 23.24 – 23.72
Spot Rate : 0.4800
Average : 0.3085

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-13
Maturity Price : 23.03
Evaluated at bid price : 23.24
Bid-YTW : 5.30 %

MFC.PR.C Deemed-Retractible Quote: 22.41 – 22.69
Spot Rate : 0.2800
Average : 0.1803

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.41
Bid-YTW : 5.84 %

BAM.PR.R FixedReset Quote: 25.74 – 26.05
Spot Rate : 0.3100
Average : 0.2293

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-13
Maturity Price : 25.69
Evaluated at bid price : 25.74
Bid-YTW : 4.56 %

BNA.PR.E SplitShare Quote: 24.20 – 24.50
Spot Rate : 0.3000
Average : 0.2252

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 24.20
Bid-YTW : 5.49 %

NEW.PR.C: Partial Call for Redemption

June 13th, 2011

Newgrowth Corp. has announced:

that it has called 803,467 Preferred Shares for cash redemption on June 24, 2011 (in accordance with the Company’s Articles) representing approximately 22.620% of the outstanding Preferred Shares as a result of the special annual retraction of 803,467 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on June 23, 2011 will have approximately 22.620% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $13.70 per share.

In addition, holders of a further 849,325 Capital Shares and 849,325 Preferred Shares have deposited such shares concurrently for retraction on June 24, 2011. As a result, a total of 1,652,792 Capital Shares and 1,652,792 Preferred Shares, or approximately 37.5521% of both classes of shares currently outstanding, will be redeemed.

Holders of Preferred Shares that are on record for dividends but have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to but not including June 24, 2011.

Payment of the amount due to holders of Preferred Shares will be made by the Company on June 24, 2011. From and after June 24, 2011 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

Huh. It was only two months ago that their warrant offering was completely subscribed and only three months ago that I was so pleased with the growth in shares outstanding that I added it to the HIMIPref™ database. Market timing … market schmiming, that’s what I say!

NEW.PR.C is tracked by HIMIPref™ and is assigned to the SplitShare index.

New Issue: CSE FixedReset 5.00%+271

June 13th, 2011

Capstone Infrastructure Corporation has announced:

it has agreed to issue, on a bought deal basis, 3,000,000 Cumulative 5-Year Rate Reset Preferred Shares, Series A (the “Series A Shares”) at a price of $25.00 per Series A Share, for aggregate gross proceeds of $75,000,000, to a syndicate of underwriters co-led by TD Securities Inc., Macquarie Capital Markets Canada Ltd. and RBC Capital Markets for distribution to the public.

Capstone has granted the underwriters an option to purchase up to an additional 450,000 Series A Shares at $25.00 per Series A Share to cover over-allotments, exercisable in whole or in part at any time until 30 days after closing, which, if exercised in full, would increase the gross offering size to $86,250,000.

Holders of the Series A Shares will be entitled to receive a cumulative quarterly fixed dividend yielding 5.0% annually for the initial period ending July 31, 2016. Thereafter, the dividend rate will be reset every five years at a rate equal to the then current 5-year Government of Canada bond yield plus 2.71%.

Holders of Series A Shares will have the right, at their option, to convert their shares into Cumulative Floating Rate First Preferred Shares, Series B (the “Series B Shares”), subject to certain conditions and the Corporation’s right to redeem the Series A Shares as described below, on July 31, 2016 and on July 31 every five years thereafter. Holders of the Series B Shares will be entitled to receive cumulative quarterly dividends at a rate set quarterly equal to the then current three-month Government of Canada Treasury Bill yield plus 2.71%.

Holders of Series B Shares may convert their Series B Shares into Series A Shares, subject to certain conditions and the Corporation’s right to redeem the Series B Shares as described below, on July 31, 2021 and on July 31 every five years thereafter.

The Series A Shares will not be redeemable prior to July 31, 2016. On July 31, 2016 and on July 31 every five years thereafter, the Corporation may, subject to certain conditions, redeem all or any part of the Series A Shares at a cash redemption price per share of $25.00 together with all declared and unpaid dividends. The Corporation may redeem all or any part of the Series B Shares at a cash redemption price per share of $25.00 together with all declared and unpaid dividends in the case of redemptions on July 31, 2021 and on July 31 every five years thereafter or $25.50 together with all declared and unpaid dividends in the case of redemptions on any other date after July 31, 2016.

Standard & Poor’s, a division of the McGraw Hill Companies, Inc. (“S&P”), has assigned a preliminary rating of P-3 for the Series A Shares.

The net proceeds of the offering will be used to fund the Corporation’s final equity commitment to the Amherstburg solar power facility, to fund future potential acquisitions and for general corporate purposes. The Series A Shares will be offered in all provinces and territories of Canada by way of a short-form prospectus. The offering is expected to close on or about June 30, 2011 and is subject to the receipt of all necessary regulatory approvals.

Great! A junk FixedReset to fund solar power! I was hoping for one of these … not.

June PrefLetter Released!

June 13th, 2011

The June, 2011, 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 June edition contains two short appendices: one discussing changes in DeemedRetratctible analysis due to the Canadian Imperial Bank of Commerce’s recent announcement that it was seeking NVCC status for three of its issues; and another discussing Yellow Media and the recent cataclysm that has befallen its preferred shares.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the June, 2011, issue, while the “Next Edition” will be the July, 2011, issue, scheduled to be prepared as of the close July and eMailed to subscribers prior to market-opening on July 11.

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!

June PrefLetter Now in Preparation!

June 11th, 2011

The markets have closed and the June edition of PrefLetter is now being prepared.

PrefLetter is the monthly newsletter recommending individual issues of preferred shares to subscribers. There is at least one recommendation from every major type of preferred share with investment-grade constituents. The recommendations are taylored for “buy-and-hold” investors.

The June edition will contain two short appendicies: one discussing changes in DeemedRetratctible analysis due to the Canadian Imperial Bank of Commerce’s recent announcement that it was seeking NVCC status for three of its issues; and another discussing Yellow Media and the recent cataclysm that has befallen its preferred shares.

Those taking an annual subscription to PrefLetter receive a discount on viewing of my seminars.

PrefLetter is now available to all residents of Canada.

The June issue will be eMailed to clients and available for single-issue purchase with immediate delivery prior to the opening bell on Monday. I will write another post when the new issue has been uploaded to the server … so watch this space carefully if you intend to order “Next Issue” or “Previous Issue”! Until then, the “Next Issue” is the May issue.

Carrick: Why the preferred-shares party might be winding down

June 10th, 2011

Rob Carrick wrote an article with the title Why the preferred-shares party might be winding down, which quoted me extensively:

There are two reasons why bank rate resets will be redeemed at the earliest opportunity, argues James Hymas, president of Hymas Investment Management Inc. and a preferred share specialist. The first is that the dividend these shares must pay on reset is a reflection of a financial marketplace in crisis and not today’s much calmer environment.

“Now, banks wouldn’t have to pay more than 100 basis points over Government of Canada bonds,” Mr. Hymas said. “Even some of the junkier issues [of rate-reset preferred shares] are coming out at a spread of 200 basis points.”

The other reason why banks are expected to redeem their rate-reset preferreds and, in fact, other preferred-share issues as well, is a new set of global banking rules that will be gradually phased in ahead of a 2022 implementation date. The rules will not allow banks to include preferred shares in the key measure of their financial solidity.

Banks are expected to phase out their preferred-share holdings as a result, and this suggests almost all rate resets are going to be redeemed at the first opportunity.

Mr. Hymas said 2014 is when most bank-issued rate resets will hit their first reset/redemption date. Should investors get out now? “Those looking for a long-term investment can do much better elsewhere,” Mr. Hymas said.

He suggests looking at bank and insurance company perpetual preferred shares. Generally, perpetuals have no fixed redemption date and offer no rate-reset potential. Really, they’re a lot like open-ended bonds with no maturity date.

Mr. Hymas argues that most perpetuals issued by banks are a different animal because the 2022 regulatory deadline is almost like a drop-dead date for redemption. In fact, he regards them as being nearly as good as retractable preferred shares, which have a preset date for redemption.

Retractables are considered a desirable kind of preferred share because they offer an escape hatch that perpetuals lack.

The term “deemed retractable” has been coined by Mr. Hymas to describe bank perpetuals that he expects to be redeemed by 2022. An example of this type of share from his recommended list is Royal Bank of Canada Series AD, which have a dividend yield of about 4.6 per cent based on a share price of $24.37. If you hold until redemption at $25, your total return (share price gain plus dividends) is a littler bit higher.

There’s some uncertainty right now about whether insurance companies will be bound by the same rules as banks on preferred shares. Mr. Hymas thinks they will be, and he therefore suggests insurance company perpetuals as another potential landing spot for people selling bank-issued rate resets.

An example from his recommended list is the Great-West Lifeco Inc. Series I, which have a current yield of 5 per cent based on a price of $22.46. In his May newsletter, Mr. Hymas projected the yield based on a $25 redemption in 2022 at 6.25 per cent.

CNPF: US-Listed Canadian Preferred Stock ETF

June 10th, 2011

It has been announced that GLOBAL X FUNDS LAUNCHES FIRST CANADA PREFERRED ETF (CNPF):

Global X Funds, the New York based provider of exchange traded funds, today launched the Global X Canada Preferred ETF (Ticker: CNPF). This is the first ETF to target Canadian companies that issue preferred stock.

For investors seeking income, preferred shares are an asset class worth considering due to their unique combination of bond and equity characteristics. Like bonds, preferred shares generally pay stable dividends with more frequent distributions than common shares. Like equity, preferred shares trade on an exchange and have the potential to appreciate in value, offering additional income growth potential for investors. Moreover, preferred shareholders have priority over common shareholders with regard to claims on company earnings and assets, which provide some downside protection.

In addition, preferred shares of Canadian companies offer investors an opportunity to diversify outside the U.S. and increase their international issuer and currency exposure, which may help reduce overall portfolio risk. A shrinking budget deficit paired with strong economic growth and higher commodity prices make Canada a strong contender for investment dollars when compared to the current budget and debt issues of its southern neighbor (Wall Street Journal, 2011).

“CNPF provides a relatively efficient way for investors to reap the benefits of this hybrid asset class as well as receive international exposure via the Canadian issuers traded on the Toronto Stock Exchange,” said Bruno del Ama, chief executive officer of Global X Funds. “We are pleased to expand our global offering to income generating asset classes.”

The Global X Canada Preferred ETF tracks the Solactive Canada Preferred Stock Index, which is designed to measure the performance of preferred stocks from Canadian issuers traded on the Toronto Stock Exchange. The Underlying Index does not seek to directly reflect the performance of the companies issuing the preferred stock. The Underlying Index is comprised of preferred shares that meet certain criteria relating to size, liquidity, issuer rating, maturity and other requirements as determined by Structured Solutions AG. As of May 16, 2011, the three largest components of the index were Transcanada Corp., Manulife Financial Corp., and Canadian Imperial Bank.

I can think of some people who just may take issue with the statement that “This is the first ETF to target Canadian companies that issue preferred stock.”! Michael Johnson of ETFdb notes:

There are multiple ETFs listed in Canada offering exposure to the country’s preferred stock market; the Claymore S&P/TSX CDN Preferred Share Trust has more than $600 million in AUM, and the actively-managed Horizons AlphaPro Preferred Share ETF (HPR) is another options for accessing this asset class. iShares filed earlier this year for an international preferred stock ETF that would include a heavy tilt towards Canadian securities, along with issuers from Japan, New Zealand, and the U.K.

The Solactive Canada Preferred Stock Index is admirably transparent. The indexing agent is Structured Solutions AG, which is based in Frankfurt. My, aren’t we getting international! They appear to do a lot of business with Global X, a New York based firm that has a hatful of thinly sliced ETFs.

At 58bp, this ETF doesn’t have anything special going for it on the fee side. I have not yet checked – and may never check! – the composition of the index, so I won’t comment on that. I am also being lazy and not checking whether Canadian dividends will retain their character for Canadian investors when routed through a US ETF, but it’s something I would find out before plunking any money down! In the meantime, I’m wondering (a) why Americans would buy Canadian preferreds on a passive basis, when they have no tax advantage, and (b) when the first Canadian listed US Municipal bond ETF will start up.

Barron’s gave the fund a civil mention. ETFdb reports the fund has $3.75-million in market cap.

CNPF is NYSE listed and, according to Yahoo!, closed today at 14.20-12, 10×2. If that spread is any indication of normality, it might be fun to make a market in it!

Many thanks to Assiduous Reader NS for bringing this to my attention. He’s wondering whether this listing is a sign of doom … maybe it is, but more likely for the increasingly ridiculous ETF market than for Canadian preferreds.

June 10, 2011

June 10th, 2011

I find the US Municipal bond market of great interest, simply because the investor profile is so similar to that of Canadian preferred shares. I was recently looking for some estimates of holdings by investor group; now that I don’t need it any more, of course, I found it:

Citigroup Inc. analysts say there’s something missing from the Federal Reserve’s tally of the municipal-bond market’s size: more than $700 billion of the securities were bought directly by individual investors.

The Fed’s quarterly figures, released yesterday, put the market at $2.9 trillion, 37 percent of which the central bank says is owned by households. Citigroup’s analysts George Friedlander, Mikhail Foux and Vikram Rai say individuals play an even larger role, holding half of a $3.7 trillion market that has been whipsawed by speculation about municipal defaults that is now starting to ebb.

“The instability in the muni market in late 2010 was exacerbated by individual investors becoming overly concerned about the fiscal strength of state and local governments,” Rai said in an e-mail after Citigroup’s report on the market was published on June 3. “Unsurprisingly, as credit fears abated, it resulted in lower volatility and a rally in the tax-exempt and taxable market.”

Citigroup’s analysts didn’t challenge the Federal Reserve’s data on holdings by institutional investors such as mutual funds and insurance companies, which can be gleaned from corporate filings and other outside data sources. Without similar information on households, the analysts say, the Fed had to guess.

By underestimating the market, they’ve also diminished the extent to which individuals dominate it, they said. Citigroup estimates individuals they held $1.8 trillion, or half, of the municipal bonds outstanding at the end of 2010, compared with about $1.1 trillion estimated by the Federal Reserve.

“We always believed that the influence of retail investors in the municipal market was understated,” Rai said.

The Federal Reserve said it’s looking into the discrepancy, said Susan Stawick, a spokeswoman.

S&P Discusses Some Observations On Canada’s Consultation Paper For A Proposed Legislative Regime For Covered Bonds:

  • On May 11, 2011, the Canadian Department of Finance released a consultation paper on its proposed covered bond legislation.
  • We believe that, in general, the introduction of specific covered bond legislation would be positive, and would likely provide further assurances for investors.
  • However, we note that the proposed codification of an overcollateralization cap may limit an issuer’s ability to manage and support its covered bond program by increasing the level of collateral and may, under our current analytical approach, potentially constrain the ability of issuers to achieve or maintain the highest potential ratings.

DBRS also commented:

One particular area of concern for DBRS is the proposed cap of 10% on the amount of overcollateralization that will be permitted for a Canadian covered bond program. In the event that additional overcollateralization is necessary to maintain a AAA rating on the covered bonds that have been issued, the 10% cap on overcollateralization may adversely affect the ratings on the existing covered bonds. However, DBRS notes that all of the existing Canadian covered bond programs rated by DBRS to date currently have required overcollateralization amounts that are less than 10%. Another area of concern for DBRS is the proposal to standardize asset valuation, particularly if an issuer is not permitted to issue covered bonds outside of the legislative framework, as the proposed asset valuation method may not be consistent with what is currently used in the Canadian covered bond programs that have been rated by DBRS to date.

Fabulous Fab is going to trial:

Fabrice Tourre, the Goldman Sachs Group Inc. (GS) trader accused of misleading investors in a collateralized debt obligation, failed to get a suit brought by the U.S. Securities and Exchange Commission dismissed.

While U.S. District Judge Barbara Jones in Manhattan did narrow some of the claims against him in her decision today, she said the SEC met its burden that Tourre violated a securities law designed to prevent fraudulent sales of securities and should stand trial on that claim.

The SEC initially sued the London-based trader in April 2010, saying he defrauded investors by not disclosing that hedge fund Paulson & Co. had helped pick the underlying securities for a CDO as Abacus and planned to bet against them. After reaching a $550 million settlement with New York-based Goldman Sachs, the SEC filed a new claim against Tourre, saying he gave the company “substantial assistance” as it misled investors.

Citing last year’s U.S. Supreme Court ruling in Morrison v. National Australia Bank, the judge threw out some claims involving Duesseldorf, Germany-based IKB Deutsche Industriebank AG, which allegedly lost almost all of its $150 million investment, and ABN Amro Bank NV, which assumed the credit risk associated with a portion of Abacus.

Jones let the case proceed on a claim against Tourre that he “knowingly, recklessly or negligently” made misrepresentations in the sale of securities to ACA Management LLC, IKB and ABN Amro.

Rhapsody in Yellow? A little cacaphonous today. The issues went ex-Dividend – good luck to anybody attempting to draw conclusions from the Dividend Drop Off Rate, which will be 100% if the total return is to be 0%.

YLO Issues, 2011-6-10
Ticker Quote
6/9
Quote
6/10
Bid YTW
6/10
YTW
Scenario
6/10
Performance
6/10
(bid/bid)
Div. Div.
DOR
YLO.PR.A 22.25-39 22.51-78 11.28% Soft Maturity
2012-12-30
+2.36% 0.265630 -98%
YLO.PR.B 16.51-64 16.24-39 13.58% Soft Maturity
2017-06-29
+0.92% 0.3125 51%
YLO.PR.C 16.85-95 16.24-39 9.95% Limit Maturity -1.12% 0.42188 145%
YLO.PR.D 17.01-41 16.75-80 9.84% Limit Maturity +1.01% 0.43125 60%

It was an off day for the Canadian preferred share market, with PerpetualDiscounts losing 12bp, FixedResets down 3bp and DeemedRetractibles shrinking 5bp. Volatility was again muted, with no entries in the Performance Highlights table, but volume picked up and was only a little below average – RY DeemedRetractibles dominated the volume table.

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 0.0000 % 2,476.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0000 % 3,724.4
Floater 2.43 % 2.22 % 42,593 21.68 4 0.0000 % 2,673.8
OpRet 4.86 % 2.78 % 69,094 0.38 9 -0.0642 % 2,426.1
SplitShare 5.24 % -0.07 % 61,254 0.51 6 -0.0899 % 2,502.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0642 % 2,218.5
Perpetual-Premium 5.66 % 4.91 % 151,976 1.40 12 -0.1460 % 2,075.9
Perpetual-Discount 5.44 % 5.53 % 120,203 14.49 18 -0.1187 % 2,183.1
FixedReset 5.14 % 3.22 % 183,838 2.82 57 -0.0337 % 2,314.7
Deemed-Retractible 5.07 % 4.87 % 304,904 8.09 47 -0.0455 % 2,154.1
Performance Highlights
Issue Index Change Notes
No individual gains or losses exceeding 1%!
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.B Deemed-Retractible 206,620 RBC crossed 198,200 at 24.95.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.89
Bid-YTW : 4.81 %
RY.PR.A Deemed-Retractible 109,675 TD crossed 43,100 at 24.36 and 25,000 at 24.35.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.30
Bid-YTW : 4.84 %
RY.PR.H Deemed-Retractible 80,810 Nesbitt crossed 75,000 at 26.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-23
Maturity Price : 25.00
Evaluated at bid price : 26.23
Bid-YTW : 4.78 %
RY.PR.E Deemed-Retractible 58,400 TD crossed 50,000 at 24.38.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.34
Bid-YTW : 4.87 %
CM.PR.K FixedReset 54,820 Nesbitt crossed 50,000 at 26.80.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-30
Maturity Price : 25.00
Evaluated at bid price : 26.75
Bid-YTW : 3.26 %
BNS.PR.J Deemed-Retractible 53,433 TD crossed blocks of 20,000 and 23,600, both at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-11-28
Maturity Price : 25.00
Evaluated at bid price : 25.54
Bid-YTW : 4.61 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.B Deemed-Retractible Quote: 22.56 – 22.89
Spot Rate : 0.3300
Average : 0.2033

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.56
Bid-YTW : 5.92 %

NA.PR.P FixedReset Quote: 27.60 – 27.90
Spot Rate : 0.3000
Average : 0.2038

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-17
Maturity Price : 25.00
Evaluated at bid price : 27.60
Bid-YTW : 2.88 %

GWO.PR.M Deemed-Retractible Quote: 25.30 – 25.60
Spot Rate : 0.3000
Average : 0.2043

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 5.60 %

TD.PR.P Deemed-Retractible Quote: 25.80 – 26.04
Spot Rate : 0.2400
Average : 0.1490

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-01
Maturity Price : 25.00
Evaluated at bid price : 25.80
Bid-YTW : 4.73 %

IAG.PR.E Deemed-Retractible Quote: 25.80 – 26.09
Spot Rate : 0.2900
Average : 0.2073

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.80
Bid-YTW : 5.47 %

FTS.PR.H FixedReset Quote: 25.58 – 25.85
Spot Rate : 0.2700
Average : 0.1991

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-07-01
Maturity Price : 25.00
Evaluated at bid price : 25.58
Bid-YTW : 3.61 %

June 9, 2011

June 9th, 2011

Today’s top news is that Interactive Brokers thinks about what they’re doing:

Interactive Brokers Group Inc., the electronic market maker and securities firm, raised margin requirements to 100 percent for some Chinese stocks, because of “elevated risk concerns,” according to a statement on its website. Sina and Sohu were among more than 100 Chinese companies on the list. The increase went into effect June 6 in stages and will be completed by the end of this week, the brokerage said.

Given the fate of other brokerages that think about what they do (by which I mean Goldman Sachs and … and … probably lots and lots of others) we can expect the invective against IB to start pouring out any day now.

The Fed may have overestimated the market’s appetite for risk:

Federal Reserve auctions of mortgage securities that the central bank assumed in the rescue of American International Group Inc. are fueling a selloff in credit markets as Wall Street rushes to hedge against losses on stockpiled debt.

Declines in credit-default swaps indexes used to protect against losses on subprime housing debt and commercial mortgages accelerated this month, reaching almost 20 percent in the past five weeks as the cost of the insurance climbs, according to Markit Group Ltd. The plunge this week started infecting everything from junk bonds to the debt of financial companies.

The Fed has been selling the $31 billion Maiden Lane II portfolio piecemeal after rejecting a $15.7 billion bid from AIG for the entire pool in March.

Wall Street banks, which through May 25 increased their holdings of corporate and asset-backed debt to the highest level in 13 months, have been using both so-called Markit ABX and CMBX indexes to hedge against the deteriorating values of mortgage debt, said Christopher Sullivan, chief investment officer at United Nations Federal Credit Union in New York. That’s contributing to the drop in prices of the underlying bonds and helped push up relative yields on speculative-grade, or junk, corporate bonds to the widest level this year.

I have complained for a long time that we, as a continent, are not spending enough on infrastructure. Here’s another datapoint:

With its intricately interdependent and increasingly complex electronic components, the U.S. electric grid operates on an ever-shrinking margin for error. The larger and more interconnected the grid becomes, the more vulnerable it is to catastrophic cascading failures. A recent article in Scientific American (see note 1) estimates that there is a one in 20 chance of a solar super-storm in the next 15 years.

The House Energy and Commerce Committee unveiled the Grid Reliability and Infrastructure Defense Act on May 20, 2011. Among the draft bill’s provisions are requirements that the Federal Energy Regulatory Commission issue orders spelling out procedures and requirements for dealing with immediate and longer-term threats to the grid.

Overview

  • The U.S. electricity transmission grid is vulnerable to solar activity.
  • Scientists estimate that there is a one in 20 chance over the next 15 years of a disabling solar storm.
  • Grid operators are looking at ways to protect it from such events.

More harrassment today from volunteer organizations using automated dialers because their time is ever so much more valuable than mine. Hint to organizers: if you want something from me, don’t insult me before I’ve even picked up the ‘phone.

YLO was boring today, so there is no Yellow Fever Report.

It was another mixed day in the Canadian preferred share market, with PerpetualDiscounts gaining 9bp, FixedResets losing 8bp and DeemedRetractibles up 4bp. There were no entries in the Performance Highlights table. Volume continued to be very sluggish.

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 -0.0695 % 2,476.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.0695 % 3,724.4
Floater 2.43 % 2.22 % 42,400 21.68 4 -0.0695 % 2,673.8
OpRet 4.86 % 2.50 % 67,999 0.38 9 0.1200 % 2,427.7
SplitShare 5.23 % -0.63 % 61,795 0.51 6 0.1650 % 2,505.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1200 % 2,219.9
Perpetual-Premium 5.65 % 4.90 % 152,214 1.40 12 0.0575 % 2,078.9
Perpetual-Discount 5.43 % 5.50 % 119,904 14.53 18 0.0862 % 2,185.7
FixedReset 5.14 % 3.22 % 183,990 2.82 57 -0.0759 % 2,315.5
Deemed-Retractible 5.07 % 4.85 % 282,263 8.12 47 0.0438 % 2,155.1
Performance Highlights
Issue Index Change Notes
No individual gains or losses exceeding 1%!
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.H Deemed-Retractible 218,632 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-07-09
Maturity Price : 25.75
Evaluated at bid price : 25.95
Bid-YTW : 1.41 %
CM.PR.J Deemed-Retractible 211,872 Desjardins crossed 50,000 at 25.00; Nesbitt crossed 100,000 at the same price; RBC crossed 50,000 at the same price again.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.99
Bid-YTW : 4.59 %
BAM.PR.H OpRet 104,732 RBC crossed two blocks of 50,000 each, both at 25.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-10-30
Maturity Price : 25.00
Evaluated at bid price : 25.59
Bid-YTW : 2.50 %
CM.PR.I Deemed-Retractible 75,280 RBC crosse 48,400 at 25.18.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-03-01
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 4.69 %
BNS.PR.O Deemed-Retractible 69,000 RBC crossed 65,000 at 26.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-05-26
Maturity Price : 25.00
Evaluated at bid price : 26.26
Bid-YTW : 4.78 %
BNS.PR.M Deemed-Retractible 67,280 Desjardins crossed 30,000 at 24.88.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.91
Bid-YTW : 4.63 %
There were 26 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.F Perpetual-Discount Quote: 24.37 – 24.72
Spot Rate : 0.3500
Average : 0.2526

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-09
Maturity Price : 24.12
Evaluated at bid price : 24.37
Bid-YTW : 5.45 %

GWO.PR.J FixedReset Quote: 26.55 – 27.00
Spot Rate : 0.4500
Average : 0.3610

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-30
Maturity Price : 25.00
Evaluated at bid price : 26.55
Bid-YTW : 3.41 %

FTS.PR.F Perpetual-Discount Quote: 23.75 – 24.01
Spot Rate : 0.2600
Average : 0.1869

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-09
Maturity Price : 23.52
Evaluated at bid price : 23.75
Bid-YTW : 5.18 %

TRP.PR.A FixedReset Quote: 25.85 – 26.07
Spot Rate : 0.2200
Average : 0.1747

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-30
Maturity Price : 25.00
Evaluated at bid price : 25.85
Bid-YTW : 3.54 %

BNS.PR.O Deemed-Retractible Quote: 26.26 – 26.40
Spot Rate : 0.1400
Average : 0.1000

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-05-26
Maturity Price : 25.00
Evaluated at bid price : 26.26
Bid-YTW : 4.78 %

GWO.PR.H Deemed-Retractible Quote: 23.80 – 23.98
Spot Rate : 0.1800
Average : 0.1403

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.80
Bid-YTW : 5.45 %

June 8, 2011

June 8th, 2011

Why are so many investors unhappy with their advisors? Because they got what they deserved:

Investors would rather pay commissions for the financial advice they receive than a fee based on assets under management, said Cerulli Associates.

About 47 percent of 7,800 households surveyed prefer paying commissions, compared with 27 percent that would rather contribute a fee based on assets, according to the report released today by the Boston-based research firm. About 18 percent said they prefer paying retainer fees, which are generally lump sums negotiated between advisers and clients, and 8 percent said they opt for an hourly fee structure.

About 33 percent of investors surveyed said they didn’t know how they pay for the investment advice they receive, and 31 percent said they thought their adviser or broker provided investment advice for free. Those who were unsure of how they pay for advice were most likely to be unhappy with their financial adviser, with 47 percent reporting dissatisfaction, the study said. About 27 percent of those who said they pay commissions reported being dissatisfied.

About 64 percent of those surveyed said they believe their financial adviser is held to a fiduciary standard of care, and 63 percent of clients of the largest broker-dealers said they thought that as well.

Brokers currently must meet a standard to offer clients “suitable investments,” whereas registered investment advisers have a fiduciary obligation to put clients’ best interests first.

In January, the U.S. Securities and Exchange Commission released a report recommending a common fiduciary standard for brokers and registered investment advisers who provide personalized investment advice. The SEC is scheduled to propose a rule on the standard between August and the end of the year, according to its website. Holding brokers to a fiduciary standard won’t preclude them from accepting commissions, the SEC report said.

Perhaps somebody, somewhere, will somehow explain to me how fiduciary responsibility is compatible with a transaction-based fee structure. But I doubt it.

In trouble over hockey arenas? Try a distraction, like paternalistic, invasive regulation:

The Quebec government, desperate to head off a looming collapse of household finances when interest rates rise, has tabled a bill that would force credit card holders to boost their monthly payments and settle their debts faster.

Among the new rules proposed Wednesday by the Liberal government of Jean Charest, lenders would be required to raise the minimum monthly credit card payment to 5% of the outstanding balance from the current 2%. The measure would be phased in over three years.

The government is worried its citizens will have a hard time paying off what they owe and saving money when interest rates start their inevitable climb.

I don’t pay a lot of attention, but credit card rates aren’t all that sensitive to prime, are they?

There’s another coercive Irish tender:

DBRS Inc. (DBRS) today has downgraded the Dated Subordinated Debt rating of Irish Life & Permanent plc (IL&P or the Group) to “C” from CCC. Today’s downgrade follows the announcement by IL&P that it has commenced an offer to purchase the aforementioned securities for cash and a solicitation of consents in relation to the securities. Moreover, DBRS expects to downgrade the Dated Subordinated Debt to “D” at completion of the buyback; as such, the securities remain Under Review with Negative Implications, where they were placed on 3 December 2010.

In DBRS’s view, the purchase offer, when completed, is tantamount to a default as defined by DBRS policy. DBRS views the proposed purchase offer as coercive as the offer affords bondholders limited options. Should the bondholder reject the proposed offer, at an 80% discount on the majority of the tendered securities, they risk receiving substantially less if the proposed consent amendments are ratified. Remaining bondholders would then receive 0.001% of par value, should the consent to allow the “clean-up” of residual notes be accepted by tendering bondholders.

The FRB-Boston has released a Public Policy Discussion Paper by Christopher L. Foote and Jane S. Little titled Oil and the Macroeconomy in a Changing World: A Conference Summary:

Analysis of oil-price movements is once again an important feature of economic policy discussions. To provide some background for this analysis, this paper summarizes a conference on the oil market held at the Federal Reserve Bank of Boston in June 2010. Four cross-cutting themes emerged from this symposium, which included scientific experts, market participants, business leaders, academics, and policymakers. First, the decline in real oil prices that followed the 1970s’ oil shocks is unlikely to be repeated today, because there are fewer ways in which oil-importing countries can reduce oil demand or expand domestic supplies in response to higher prices. The second lesson of the conference, however, is that any prediction about oil markets is highly uncertain, a fact illustrated by the wide confidence intervals that result when futures-market data are used to quantify forecast uncertainty. Third, there is little consensus on whether new financial investment in commodity index funds has increased the volatility of oil prices. Finally, changes in oil prices still have large effects on the economy. Some research suggests that the rapid run-up in oil prices in 2007–08 may have significantly weakened the U.S. economy in the early stages of the Great Recession.

I don’t expect the third point to get much attention from the politicians and regulators!

The Big Yellow Machine continued to break down:

YLO Issues, 2011-6-8
Ticker Quote
6/7
Quote
6/8
Bid YTW
6/8
YTW
Scenario
6/8
Performance
6/8
(bid/bid)
YLO.PR.A 22.05-30 22.30-40 12.72% Soft Maturity
2012-12-30
+1.13%
YLO.PR.B 15.77-86 16.20-42 14.17% Soft Maturity
2017-06-29
+2.73%
YLO.PR.C 17.60-98 16.91-08 9.84% Limit Maturity -3.92%
YLO.PR.D 18.00-20 17.07-25 9.95% Limit Maturity -5.17%

It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts losing 8bp, FixedResets up 11bp and DeemedRetractibles down 10bp. There was a nice little bit of volatility, mainly to the downsider for the insurer DeemedRetractibles that have done so well lately. Volume continued to be pathetic – all the players must be enjoying the good weather!

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 0.2321 % 2,478.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.2321 % 3,727.0
Floater 2.43 % 2.21 % 43,018 21.70 4 0.2321 % 2,675.7
OpRet 4.86 % 2.68 % 67,468 0.38 9 -0.1626 % 2,424.8
SplitShare 5.24 % -0.06 % 60,062 0.52 6 -0.1985 % 2,501.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1626 % 2,217.2
Perpetual-Premium 5.65 % 5.01 % 153,034 1.41 12 -0.1803 % 2,077.8
Perpetual-Discount 5.44 % 5.53 % 114,588 14.53 18 -0.0815 % 2,183.8
FixedReset 5.14 % 3.20 % 191,309 2.82 57 0.1090 % 2,317.3
Deemed-Retractible 5.07 % 4.88 % 316,962 8.14 47 -0.1038 % 2,154.2
Performance Highlights
Issue Index Change Notes
GWO.PR.I Deemed-Retractible -1.71 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.41
Bid-YTW : 5.82 %
FTS.PR.F Perpetual-Discount -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-08
Maturity Price : 23.68
Evaluated at bid price : 23.92
Bid-YTW : 5.15 %
BAM.PR.O OpRet -1.14 % YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.48 %
SLF.PR.A Deemed-Retractible -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.26
Bid-YTW : 5.62 %
PWF.PR.O Perpetual-Premium -1.02 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-11-30
Maturity Price : 25.00
Evaluated at bid price : 25.32
Bid-YTW : 5.73 %
SLF.PR.B Deemed-Retractible -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.61
Bid-YTW : 5.49 %
GWO.PR.J FixedReset 1.52 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-30
Maturity Price : 25.00
Evaluated at bid price : 26.75
Bid-YTW : 3.10 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.H Deemed-Retractible 61,870 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-07-08
Maturity Price : 25.75
Evaluated at bid price : 25.93
Bid-YTW : 2.20 %
PWF.PR.P FixedReset 57,186 TD crossed 50,000 at 25.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-08
Maturity Price : 23.41
Evaluated at bid price : 25.75
Bid-YTW : 3.67 %
CM.PR.I Deemed-Retractible 56,559 Desjardins crossed 40,000 at 25.16.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-03-01
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 4.70 %
HSE.PR.A FixedReset 56,547 RBC crossed 50,000 at 25.60.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.63
Bid-YTW : 3.84 %
RY.PR.R FixedReset 44,406 TD crossed 40,000 at 27.17.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-26
Maturity Price : 25.00
Evaluated at bid price : 27.17
Bid-YTW : 3.13 %
TD.PR.G FixedReset 41,742 TD crossed 25,000 at 27.42.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 27.40
Bid-YTW : 3.13 %
There were 21 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.I OpRet Quote: 25.61 – 25.98
Spot Rate : 0.3700
Average : 0.2886

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-07-30
Maturity Price : 25.25
Evaluated at bid price : 25.61
Bid-YTW : 2.68 %

BAM.PR.H OpRet Quote: 25.41 – 25.71
Spot Rate : 0.3000
Average : 0.2220

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2011-10-30
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 4.34 %

SLF.PR.G FixedReset Quote: 25.35 – 25.60
Spot Rate : 0.2500
Average : 0.1794

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 3.72 %

BAM.PR.O OpRet Quote: 26.00 – 26.33
Spot Rate : 0.3300
Average : 0.2634

YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.48 %

CIU.PR.A Perpetual-Discount Quote: 22.42 – 22.80
Spot Rate : 0.3800
Average : 0.3148

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-06-08
Maturity Price : 22.27
Evaluated at bid price : 22.42
Bid-YTW : 5.16 %

BNA.PR.E SplitShare Quote: 24.48 – 24.70
Spot Rate : 0.2200
Average : 0.1651

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 24.48
Bid-YTW : 5.26 %