February PrefLetter Released!

February 11th, 2013

The February, 2013, 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 February edition has no special appendix, but contains the usual detailed updates of the DeemedRetractible and FixedReset segments of the market.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the February, 2013, issue, while the “Next Edition” will be the March, 2013, issue, scheduled to be prepared as of the close March 8 and eMailed to subscribers prior to market-opening on March 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!

BNA 2012 Annual Report

February 10th, 2013

BAM Split Corp., issuer of BNA.PR.B, BNA.PR.C, BNA.PR.D and BNA.PR.E, has released its Annual Report to September 30, 2012.

Figures of interest are:

MER: (excluding dividends on preferred shares, issue costs and Class A Preferred Share redemption premium) 0.0%. You don’t see that number very often! A more precise calculation from the Income Statement shows that the expenses totalled $319,000 for the year, or about 3bp p.a. on net assets.

The expenses are wel itemized, however, and are a delight for voyeurs. I found the Listing Fees of $96,000 and Rating Fees of $6,000 to be most interesting.

Average Net Assets: This must be calculated if we’re to find the second decimal point on the MER. On 2011-9-30, total assets were 1.541-billion; on 2012-9-30, 1.802-billion. I used the lower figure.

Underlying Portfolio Yield: Given the fund’s portfolio composition and investment policy, deviations from the raw yield on BAM.A will not be material. This is currently 1.446%

Income Coverage: Dividends & Interest of $28.731-million less expenses (before amortization of issue costs) of $0.319-million is $28.412-million, to cover preferred (both junior and senior, which is not standard) dividends of $28.5-million is 100%.

The Brookfield guys never miss an accounting trick. They have on their books deferred issuance costs of $4.556-million, which reduces the value of the preferreds and hence increases the value of the Capital Units. Split Share Corporations normally expense their issuance costs immediately upon issue, but doing it this way means that the Capital Unit Value, and hence the Unit Value, is higher than it would be otherwise. This amounts to about $0.16 per unit. Naturally, keeping it on the books means you’ve got to charge it to annual expenses via amortization, but nobody’s going to look at that for analytical purposes. I didn’t! Strictly speaking, though, the $0.16 should be deducted from the NAVPU when calculating Asset Coverage.

February PrefLetter Now In Preparation!

February 8th, 2013

The markets have closed and the February 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 February edition may contain an appendix updating the data regarding tax effects on high-coupon FixedResets. Or it may not! I’ll know for sure late on Sunday …

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 February 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 February issue.

February 8, 2013

February 8th, 2013

Some pension notes from the States:

Scituate, Rhode Island, population 10,329, operates a pension plan for its police department. The plan is underfunded to the tune of $8.4 million, a liability that has quadrupled since 1999. That doesn’t sound like a big shortfall until you realize that Scituate’s pension plan has only 33 participants, meaning that it is short by more than a quarter million dollars per employee.

Worse, Scituate isn’t alone. Rhode Island, with just 41 cities and towns, has 36 separate municipal pension systems, and their unfunded liabilities total more than $2.3 billion. Most, like Scituate’s, are less than 50 percent funded. Cranston, Rhode Island’s third-largest city, has funded just 17 percent of its $330 million pension liability. All but one of these plans have fewer than a thousand members.

The more promising long-term fix, floated by some Rhode Island lawmakers including State Treasurer Gina Raimondo, is to close municipal pension plans and have one pension system for municipal workers overseen by the state government. This would build on the progress Rhode Island has made in improving its statewide pension systems, which already cover some local employees. A 2011 reform improved the largest system’s funding ratio from 48 percent to 61 percent. Benefits were restructured so that some of the risk of investment returns is shifted from taxpayers to employees.

What a great way to balance the books! Just renege on your promises!

It was a positive day for the Canadian preferred share market, with PerpetualPremiums winning 12bp (as the median YTW dipped below zero again), FixedResets gaining 1bp and DeemedRetractibles up 3bp. Volatility was normal. Volume was above average.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.2747 % 2,574.0
FixedFloater 4.19 % 3.51 % 25,820 18.30 1 -0.0441 % 3,879.2
Floater 2.58 % 2.90 % 72,230 19.94 5 -0.2747 % 2,779.3
OpRet 4.75 % 2.12 % 35,170 0.31 5 -0.0153 % 2,608.5
SplitShare 4.56 % 4.28 % 36,783 4.27 2 0.0992 % 2,922.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0153 % 2,385.2
Perpetual-Premium 5.24 % -0.64 % 84,884 0.13 29 0.1159 % 2,356.0
Perpetual-Discount 4.84 % 4.89 % 140,785 15.63 4 0.0406 % 2,649.5
FixedReset 4.90 % 2.82 % 274,292 3.53 78 0.0064 % 2,491.6
Deemed-Retractible 4.87 % 1.62 % 149,126 0.29 45 0.0327 % 2,435.6
Performance Highlights
Issue Index Change Notes
TRI.PR.B Floater -1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-08
Maturity Price : 23.33
Evaluated at bid price : 23.61
Bid-YTW : 2.21 %
FTS.PR.H FixedReset -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-08
Maturity Price : 23.73
Evaluated at bid price : 25.68
Bid-YTW : 2.82 %
IFC.PR.A FixedReset 1.03 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.42
Bid-YTW : 3.06 %
Volume Highlights
Issue Index Shares
Traded
Notes
MFC.PR.D FixedReset 161,327 TD crossed 142,600 at 26.71.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.70
Bid-YTW : 2.22 %
HSB.PR.D Deemed-Retractible 80,750 National crossed blocks of 30,000 shares, 24,000 and 25,000, all at 25.85.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-03-10
Maturity Price : 25.50
Evaluated at bid price : 25.75
Bid-YTW : -0.65 %
FTS.PR.G FixedReset 71,000 National crossed 50,000 at 25.15.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-08
Maturity Price : 24.75
Evaluated at bid price : 25.15
Bid-YTW : 3.60 %
GWO.PR.G Deemed-Retractible 34,053 Nesbitt crossed 12,000 at 25.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 4.25 %
RY.PR.X FixedReset 30,810 TD crossed 22,400 at 26.49.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.50
Bid-YTW : 2.13 %
HSB.PR.E FixedReset 29,950 Scotia bought 16,300 from National at 26.56.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.55
Bid-YTW : 2.57 %
There were 37 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.C Floater Quote: 18.00 – 19.00
Spot Rate : 1.0000
Average : 0.6876

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-08
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 2.94 %

FTS.PR.H FixedReset Quote: 25.68 – 26.15
Spot Rate : 0.4700
Average : 0.2723

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-08
Maturity Price : 23.73
Evaluated at bid price : 25.68
Bid-YTW : 2.82 %

PWF.PR.P FixedReset Quote: 25.96 – 26.38
Spot Rate : 0.4200
Average : 0.2462

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-08
Maturity Price : 23.68
Evaluated at bid price : 25.96
Bid-YTW : 2.91 %

PWF.PR.H Perpetual-Premium Quote: 25.77 – 26.11
Spot Rate : 0.3400
Average : 0.2265

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-03-10
Maturity Price : 25.00
Evaluated at bid price : 25.77
Bid-YTW : -27.74 %

PWF.PR.K Perpetual-Premium Quote: 25.18 – 25.63
Spot Rate : 0.4500
Average : 0.3454

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.18
Bid-YTW : 4.61 %

TRI.PR.B Floater Quote: 23.61 – 24.24
Spot Rate : 0.6300
Average : 0.5357

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-08
Maturity Price : 23.33
Evaluated at bid price : 23.61
Bid-YTW : 2.21 %

HSB Downgraded by DBRS

February 8th, 2013

DBRS has announced that it:

has today downgraded all the ratings of HSBC Bank Canada following the downgrade of the ratings of HSBC Holdings plc (the Parent; see DBRS’s HSBC Holdings plc press release dated February 8, 2013). The outlook on all ratings is Stable. The ratings have been removed from Under Review with Negative Implications, where they were placed on July 20, 2012.

DBRS ratings of HSBC Bank Canada, including the Long-Term Deposits and Senior Debt (no guarantee) rated AA (low) and Subordinated Debt (no guarantee) at A (high), are based largely on the relationship HSBC Bank Canada has with the Parent, which is one of the largest global banking groups. DBRS’s Issuer Rating – Long-Term of the Parent is AA with a Stable trend.

Under DBRS’s global bank rating methodology, DBRS has assigned HSBC Bank Canada a support assessment of SA1, reflecting a strong expectation of timely support from the Parent.

Given the strategic nature of the relationship between HSBC and the Parent, but lack of an explicit guarantee, the non-guaranteed long-term deposits and senior debt rating of HSBC has been assigned a rating that is one notch lower than HSBC Holdings plc.

The press release on HSBC Holdings states:

The downgrade takes into account HSBC’s recent fines and customer redress costs (including anti money laundering in the US and Payment Protection Insurance (PPI) in the UK), which demonstrate a weaker operational risk profile than is commensurate with the prior rating level. Moreover, DBRS expects the process for HSBC to raise compliance standards across the Group to be a lengthy and costly process. DBRS notes that HSBC already made major organisational changes to its structure in 2011, whereby control has been more centralised within the global businesses and functions rather than spread across multiple geographies, and that these changes should underpin the ongoing reforms. However, in DBRS’s view it is a significant challenge to successfully reform procedures and strengthen controls in large, complex banking organisations, such as HSBC.

…the Group has increased its spending on anti-money laundering, remedial measures, and an overhaul of controls and procedures, and intends to bring all controls globally to its highest global standard. DBRS considers that it is difficult to assess the full cost and revenue impact of meeting these higher standards, but expects it to be a drag on profitability.

Hurray! They’re going to spend more on anti-money laundering! It reminds me of John Allison’s remark:

And then there was the Patriot Act, which was supposed to catch terrorists. I’ve talked to many people in government and they all do this dancing act, but the fact is there has never been a single terrorist caught and convicted because of the Patriot Act. The Act cost the banking industry more than $5 billion annually, and I would argue that no one is going to be caught. If you are dumb enough to get caught under the Patriot Act, you are going to get caught anyway. The only significant conviction of the Patriot Act was Eliot Spitzer, the governor of New York, who was convicted of soliciting prostitutes under a law designed to catch terrorists.

The DBRS announcement in July that HSB was on Review-Negative was reported on PrefBlog.

HSBC Bank Canada is the issuer of HSB.PR.C, HSB.PR.D (both DeemedRetractibles) and HSB.PR.E (FixedReset). All are tracked by HIMIPref™ and assigned to the indicated subindices. All are now rated Pfd-2.

February 7, 2013

February 7th, 2013

Pension underfunding is becoming socially acceptable:

Some of Ontario’s largest companies, facing massive deficits in their pension plans, are turning to their employees in a bid to help solve a deepening funding crisis.

Chrysler Canada Inc., ArcelorMittal Dofasco Inc. and other companies – large and small – have asked their employees to let them take advantage of a special Ontario government rule that allows companies to stretch contributions to underfunded defined-benefit pension funds to 10 years from five.

FSCO forecast that the average fund would have assets that would cover just 72 per cent of liabilities at the end of 2011, compared with 87 per cent at the end of 2010.

ArcelorMittal Dofasco shows a typical decline. As of Dec. 31, 2011, assets in the plan for non-unionized employees of the steel maker covered 52 per cent of liabilities, versus 65 per cent a year earlier.

In 2004, Don Pether, then chief executive officer of Dofasco Inc., (before it was taken over by ArcelorMittal) pointed to its fully funded pension plan as offering “a strategic advantage.” But in recent years, record low interest rates and lower returns on investments have caused the deficit, spokeswoman Marie Verdun said Wednesday.

Members of the ArcelorMittal Dofasco plan recently turned down the steel maker’s proposal to stretch out the funding.

It’s a difficult question for workers. On the one hand, crippling the company’s ability to operate doesn’t make a lot of sense. But on the other hand, making such a concession without getting something pretty solid in return doesn’t make a lot of sense either.

And what will the lenders think? It will be most interesting to see what happens as a result of the Indalex ruling:

But insolvency lawyers say this “deemed trust” issue simply creates more headaches for companies with big defined-benefit pension plans and those who lend them money.

This part of the ruling means lenders to thousands of companies with large defined-benefit pension plans just saw themselves pushed back in the line of creditors, behind potentially massive pension shortfalls, said D.J. Miller, an insolvency lawyer with Thornton Grout Finnigan in Toronto.

“All of those lenders that have money advanced right now, thinking they are in first position on inventories and accounts receivable, are sitting behind what can be a deficit that can be in the tens or hundreds of millions of dollars,” said Ms. Miller, who acted for the Insolvency Institute of Canada, which intervened in the case before the Supreme Court.

Plans that could be close to being wound up, or plans that have large shortfalls, will attract special attention, she said: “I think all of the lenders right now are doing a very careful assessment of their portfolios to determine what their potential exposure is.”

She warned that lenders might require extra guarantees and higher rates from companies with big pension plans. Other creditors might be tempted to push a company right into full-blown bankruptcy, which would nullify the pensioners’ new rights.

Jonathan Weil of Bloomberg publicizes an interesting tidbit about the S&P lawsuit:

The U.S. Justice Department made some peculiar allegations in its lawsuit this week against S&P and its parent, McGraw-Hill Cos. According to the government, Citigroup was defrauded by S&P credit ratings on subprime mortgage bonds that Citigroup itself created and sold. Bank of America, too, allegedly was defrauded by S&P in the same way.

If this doesn’t make sense, that’s the point. The notion is far-fetched. No wonder S&P wouldn’t agree to a settlement and told the government to see it in court.

Here’s the gist. Near the end of its 119-page complaint, the Justice Department listed about two-dozen collateralized- debt obligations issued in 2007 as examples where S&P allegedly defrauded banks and credit unions. It was important that the Justice Department be able to identify such lenders as investors, because it’s suing S&P under a 1989 statute that covers frauds against federally insured financial institutions.

Under the government’s theory, Citigroup and Bank of America paid S&P for ratings that convinced the banks their own CDO offal was rock-solid. And because S&P deceived them into thinking the best of their own rubbish, these banks and other lenders suffered more than $5 billion of investment losses, according to the suit.

There’s some concern that retail could stampede out of bonds:

Falling interest rates over the past decade has meant rising bond prices, delivering dazzling returns for bond mutual funds. Investors have responded by jumping in. Mutual, closed end and exchange-traded funds now own close to 20 per cent of all investment and high-yield corporate debt in the U.S.

In Canada, investors bought a net $19-billion worth of bond funds in 2012 (compared with total investment fund net sales of $30-billion), more than two and a half times larger than sales a year earlier, as they continued to trade out of equity funds. Investors in Canada now hold $132-billion worth of bond funds, according to the Investment Funds Institute of Canada – up from just $53.5-billion at the end of 2008.

The concern now is that interest rates rise too much, too fast. Rates on 10-year U.S. Treasury bonds have climbed markedly in recent months after hitting an all-time low last July. The rate hit 2 per cent last week for the first time since April (remember, when rates rise, bond prices fall). If they continue to rise to 3 per cent, there would be a “disorderly rotation out of bonds – characterized by higher interest rates and wider credit spreads,” warned Bank of America Merrill Lynch credit strategist Hans Mikkelsen in a research note this week.

But for now

But a Canadian debt issue this week is a reminder that the bond market remains frothy by historical standards.

On Wednesday, Corus Entertainment Inc. priced a seven-year, $550-million bond deal at a yield of 4.25 per cent. The big news: That’s 3 percentage points lower than a similar offering in 2010 ($500-million, seven years), when its credit rating was the same BBB low from DBRS that it is today. (Its rating from Standard and Poor’s is one notch higher than it was in 2010, but still below investment grade.)

Better yet, sources in the Canadian bond market say there were 85 buyers, 50 per cent more than the 2010 offering.

There’s a term extension on Irish debt:

Ireland clinched a long-awaited deal on Thursday to ease the burden of its bank debts, sending its borrowing costs falling to pre-crisis levels and bolstering its chances of ending its reliance on EU-IMF loans this year.

After nearly 18 months of negotiation, Prime Minister Enda Kenny won European Central Bank (ECB) approval to stretch out the cost of bailing out Anglo Irish Bank, slicing billions off the country’s borrowing needs and cutting its budget deficit.

>Under the terms of the deal, first reported on Wednesday, Anglo’s promissory notes, with an average maturity of between seven and eight years, will be exchanged for government bonds with an average maturity of over 34 years. The first principal repayment will be made in 2038 and the last in 2053.

The finance spokesman for the opposition Sinn Fein party said the agreement would burden future generations.

“This week my youngest son began to crawl. He wasn’t even born at the time the promissory note was issued, yet he’ll be 40 years of age and this state will be paying back the toxic debts of Anglo Irish Bank,” Pearse Doherty told parliament.

Anglo Irish’s near-collapse in 2008 pressured the government into guaranteeing the entire financial sector, sucking it into a downward spiral and in late 2010, a €67.5-billion loan from the EU and IMF.

Don’t worry Mr. Doherty! It’s government debt – it will be refunded, not redeemed! Bloomberg points out approvingly:

At issue is an obligation the Irish government took on in 2010, during the rescue of the now-defunct Anglo Irish Bank. At the urging of the European Union, and in return for emergency loans from the European Central Bank, the government issued an IOU that allowed Anglo Irish to pay its bondholders. The IOU has since been a heavy burden on Irish taxpayers, requiring annual payments of more than $4 billion.

This week, the ECB effectively accepted an Irish proposal to reschedule the debt — a move that the country’s extraordinary efforts to fulfill its EU-mandated austerity program thoroughly justify. The government will exchange the IOU, which consists of 10-year promissory notes paying an 8 percent interest rate, for longer-term bonds paying about 3 percent.

And who owned the promissory notes? The Financial Times untangles it:

For Anglo, the only asset it had left that was really worth anything and could be used as collateral was the sovereign promise from the Dublin government: the promissory note.

However, the Irish central bank is now part of the eurosystem, which means the ECB must sign off on any ELA assistance for Anglo and its successors. Since the promissory note is, in essence, the one thing the ECB has as collateral for its loans, it has to make sure whatever replaces them is still legitimate collateral. That gives it a veto in any attempt to restructure the notes.

OK – so Europe has had its 10-year 8% proms forcibly converted into 30-year 3% bonds. There’s a good deal!

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums down 8bp, FixedResets up 10bp and DeemedRetractibles flat. Volatility picked up a little, with Straights on the low side. Volume was above average.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.3939 % 2,581.1
FixedFloater 4.19 % 3.51 % 26,063 18.31 1 0.0441 % 3,881.0
Floater 2.58 % 2.92 % 73,040 19.91 5 0.3939 % 2,786.9
OpRet 4.75 % 2.21 % 35,384 0.31 5 0.2067 % 2,608.9
SplitShare 4.56 % 4.33 % 38,129 4.27 2 -0.0991 % 2,919.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2067 % 2,385.6
Perpetual-Premium 5.24 % 0.37 % 84,604 0.23 29 -0.0779 % 2,353.3
Perpetual-Discount 4.85 % 4.89 % 140,422 15.63 4 0.0101 % 2,648.5
FixedReset 4.90 % 2.81 % 268,116 3.38 78 0.0974 % 2,491.4
Deemed-Retractible 4.87 % 2.14 % 147,668 0.30 45 -0.0026 % 2,434.8
Performance Highlights
Issue Index Change Notes
PWF.PR.K Perpetual-Premium -1.57 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 4.68 %
HSB.PR.D Deemed-Retractible -1.32 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 4.18 %
ENB.PR.A Perpetual-Premium -1.02 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-03-09
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : -37.46 %
BNS.PR.Y FixedReset 1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.86
Bid-YTW : 2.92 %
PWF.PR.A Floater 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-07
Maturity Price : 23.48
Evaluated at bid price : 23.75
Bid-YTW : 2.18 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.T FixedReset 162,350 TD crossed 158,000 at 26.30.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-25
Maturity Price : 25.00
Evaluated at bid price : 26.30
Bid-YTW : 1.99 %
BNS.PR.X FixedReset 142,050 TD crossed 100,000 at 26.30; RBC crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-25
Maturity Price : 25.00
Evaluated at bid price : 26.32
Bid-YTW : 1.92 %
SLF.PR.A Deemed-Retractible 77,755 National crossed 40,000 at 24.90.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.89
Bid-YTW : 4.91 %
BMO.PR.O FixedReset 63,040 Nesbitt crossed blocks of 40,000 and 18,500, both at 26.35.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 26.37
Bid-YTW : 1.95 %
BNS.PR.J Deemed-Retractible 56,360 Nesbitt crossed 50,000 at 25.80.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-29
Maturity Price : 25.00
Evaluated at bid price : 25.72
Bid-YTW : 1.39 %
SLF.PR.D Deemed-Retractible 53,687 National crossed 40,000 at 24.61.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.62
Bid-YTW : 4.75 %
There were 36 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
HSB.PR.D Deemed-Retractible Quote: 25.51 – 26.04
Spot Rate : 0.5300
Average : 0.3227

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 4.18 %

ENB.PR.A Perpetual-Premium Quote: 26.25 – 26.55
Spot Rate : 0.3000
Average : 0.1960

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-03-09
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : -37.46 %

PWF.PR.R Perpetual-Premium Quote: 26.77 – 27.00
Spot Rate : 0.2300
Average : 0.1464

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.77
Bid-YTW : 4.51 %

PWF.PR.K Perpetual-Premium Quote: 25.15 – 25.46
Spot Rate : 0.3100
Average : 0.2308

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 4.68 %

PWF.PR.L Perpetual-Premium Quote: 25.56 – 25.83
Spot Rate : 0.2700
Average : 0.2075

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-31
Maturity Price : 25.25
Evaluated at bid price : 25.56
Bid-YTW : 4.40 %

CM.PR.D Perpetual-Premium Quote: 25.70 – 25.88
Spot Rate : 0.1800
Average : 0.1230

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-03-09
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : -25.03 %

February 6, 2013

February 6th, 2013

Bloomberg has an the regulatory realities of ratings:

The U.S. lawsuit against Standard & Poor’s raises pressure to accelerate competition in the ratings industry while the government itself has adopted rules that left the business dominated by the same companies whose flawed grades sparked the worst financial crisis since the Great Depression.

Ann Rutledge, a structured finance specialist, has watched her application to become an NRSRO languish at the SEC for 20 months. Her company, R&R Consulting, has yet to be granted a license because some of the eight client letters don’t meet the requirements of a credit rating as defined by the 2006 law. The statute specifies that only written testimonials that are notarized from institutional buyers attesting to its ratings may be used. R&R’s clients include pension funds, hedge funds and governments.

Rapid Ratings International Inc., a New York-based firm that uses quantitative models to grade securities, hasn’t applied for the NRSRO designation, which would allow investors to buy securities rated by the company to meet regulatory requirements, because its costs would increase by 40 percent to hire compliance staff, James Gellert, chief executive officer, said in a Jan. 7 telephone interview.

Meredith Whitney Advisory Group LLC, headed by the former Citigroup Inc. analyst, made a presentation to the SEC in November 2010 seeking NRSRO status and has yet to be approved, according to the SEC website. A woman who answered the phone in the company’s New York office Feb. 4 declined to comment on its application.

Costs have also kept PF2 Securities Evaluations Inc., a New York company that values structured products, from applying for the designation, according to Gene Phillips, a director.

Danish banks are having regulatory problems:

The Basel Committee on Banking Supervision, which brings together regulators from 27 nations including the U.S and China, last month expanded the range of easily sold assets banks must have on hand to weather a month of market turmoil. While policy makers approved company debt and equities, they kept limits on covered bonds, mortgage-backed securities that fund almost all Danish home purchases, and are rated higher than the sovereign debt of Japan, Italy and Spain.

Denmark, which doesn’t have a representative on the committee, has more of the securities outstanding per capita than any other nation, with its banks holding more than half of the 3.3 trillion-krone ($600 billion) market. Unless revised, lenders will have to find alternatives to fulfill the liquidity requirements at the same time Denmark is shrinking its issuance of government debt. Interest rates for Danish homeowners, the world’s most indebted, may also climb, creating reverberations throughout the economy, said Steen Bocian, chief economist for Danske Bank A/S, the country’s largest lender.

Household debt is about three times disposable income, and most of it is in mortgages financed by covered bonds, a form of bank financing backed by mortgages, creating Europe’s second- largest residential covered bond market after Spain. Danish banks held mortgage bonds valued at 1.52 trillion kroner, or 46 percent of the 3.3 trillion kroner outstanding, in December, the central bank said Jan. 25.

Basel has categorized government debt as level 1, allowing banks to fulfill 100 percent of their liquidity requirements with the assets. Mortgage-based debt is considered level 2, so there are caps on their use as liquid assets. Covered bonds will have a 40 percent ceiling, while securitizations can’t count for more than 15 percent of a lender’s liquidity buffer.

A major objective of Basel III is to force banks to own European government debt, since otherwise it might not get sold.

There’s another smoking gun in the LIBOR rigging scandal:

A Royal Bank of Scotland Group Plc trader colluded with a counterpart at UBS AG to pay almost 211,000 pounds ($330,000) in bribes to brokers willing to help them manipulate global interest rates, regulators said.

Neil Danziger, a London-based derivatives specialist at RBS, helped Tom Hayes, the former UBS employee at the center of the global investigation into rate-rigging, to bribe at least two brokers into persuading other banks to submit rates in line with their own, according to transcripts released by regulators that didn’t identify the traders by name. Two people with direct knowledge of the talks confirmed the traders’ identities. The regulators didn’t identify the brokers involved.

“Can you do me a favor,” an unidentified broker asked Danziger on Sept. 19, 2008, according to a transcript of the conversation released yesterday by the U.S. Commodity Futures Trading Commission. “You’re not going to get paid any bro for this and we’ll send you lunch around for the whole desk.” As the broker outlined the trade, he said “Take it from UBS, give it back to UBS. He wants to pay some bro,” referring to fees.

“Yeah, yeah,” Danziger replied.

Later that day, the broker asked Danziger if he could “do another 100 yards” or 100 billion, increasing the size of the transaction. “Flat switch,” the broker said. “I know I’m pushing my luck.”

RBS then entered into a wash trade with UBS that enabled the Zurich-based lender to pay about $31,000 in fees to the broker for its help in rigging Libor, the CFTC said.

Cash Store Financial Services is fighting to retain its payday loan business:

Cash Store Financial Services Inc. says it will request a hearing before Ontario’s Licence Appeal Tribunal in response to government pressure on its lending businesses.

The company says Ontario’s registrar for payday loans wants to revoke the payday lending licences of its Cash Store Inc. and Instaloans Inc. businesses.

Cash Store Financial says Ontario’s Ministry of Consumer Affairs has attempted since September, 2011, to force it to deliver payday loans in cash, rather than the electronic methods they now use.

The company says it’s unwilling to place employees and customers at risk by having them handling cash.

I cannot for the life of me determine why the Ministry wants to force them to use cash – what business is it of the Ministry? Naturally enough, I can’t find anything on the web to answer this question, as the media does nothing but re-write press releases.

This is just another example of creeping regulation. They don’t want to pass a law forbidding X, because that would expose the politicians for what they are. Instead, they install a licensing requirement and simply refuse to issue a license to those deemed unworthy. It’s pretty sleazy.

Anyway, it resulted in a downgrade by S&P:

  • •The registrar for payday loans in Ontario issued a proposal to revoke The Cash Store Financial Services Inc.’s (CSF) payday lending licenses, and
    CSF announced that it has discontinued its payday loan product in the territory.
  • •We are lowering our ratings on CSF and its senior secured notes to ‘CCC+’ from ‘B-‘.
  • •The negative outlook reflects our view that a material portion of CSF’s business is being discontinued in Ontario and that the cash flows from its new credit product may not be able to replace those lost cash flows.

It was a fairly quiet, mixed day for the Canadian preferred share market, with PerpetualPremiums down 5bp, FixedResets gaining 1bp and DeemedRetractibles off 1bp. Volatility was low. Volume continued to be quite high.

PerpetualDiscounts now yield 4.89%, equivalent to 6.36% interest at the standard conversion rate of 1.3x. Long Corporates now yield about 4.4%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 195bp, a significant narrowing from the 210bp reported January 23.

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 0.0493 % 2,571.0
FixedFloater 4.19 % 3.51 % 26,242 18.31 1 0.0000 % 3,879.2
Floater 2.59 % 2.92 % 72,348 19.91 5 0.0493 % 2,776.0
OpRet 4.76 % 2.21 % 35,726 0.39 5 -0.1147 % 2,603.5
SplitShare 4.56 % 4.32 % 39,687 4.27 2 0.1985 % 2,922.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1147 % 2,380.7
Perpetual-Premium 5.24 % -0.49 % 87,386 0.09 29 -0.0545 % 2,355.1
Perpetual-Discount 4.85 % 4.89 % 140,384 15.64 4 0.0508 % 2,648.2
FixedReset 4.90 % 2.87 % 270,680 3.38 78 0.0109 % 2,489.0
Deemed-Retractible 4.87 % 2.12 % 141,128 0.29 45 -0.0086 % 2,434.9
Performance Highlights
Issue Index Change Notes
PWF.PR.A Floater -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-06
Maturity Price : 23.20
Evaluated at bid price : 23.50
Bid-YTW : 2.20 %
TRI.PR.B Floater 1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-06
Maturity Price : 23.60
Evaluated at bid price : 23.87
Bid-YTW : 2.18 %
Volume Highlights
Issue Index Shares
Traded
Notes
GWO.PR.J FixedReset 130,653 Nesbitt sold 21,300 to Scotia at 26.00 and crossed two blocks of 50,000 each at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.98
Bid-YTW : 2.27 %
TD.PR.G FixedReset 108,562 RBC crossed 100,000 at 26.30.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.27
Bid-YTW : 2.12 %
BNS.PR.Q FixedReset 91,997 National bought 39,500 from Nesbitt at 25.16. Scotia crossed blocks of 19,800 and 25,000 at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 3.25 %
TD.PR.E FixedReset 70,222 TD crossed 56,100 at 26.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.26
Bid-YTW : 2.16 %
RY.PR.X FixedReset 63,312 TD crossed 50,000 at 26.48.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.47
Bid-YTW : 2.20 %
GWO.PR.N FixedReset 55,672 National crossed 50,000 at 24.32.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.21
Bid-YTW : 3.53 %
There were 49 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.A Floater Quote: 23.50 – 23.95
Spot Rate : 0.4500
Average : 0.3205

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-06
Maturity Price : 23.20
Evaluated at bid price : 23.50
Bid-YTW : 2.20 %

CIU.PR.C FixedReset Quote: 24.65 – 24.99
Spot Rate : 0.3400
Average : 0.2367

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-06
Maturity Price : 23.21
Evaluated at bid price : 24.65
Bid-YTW : 2.87 %

GWO.PR.N FixedReset Quote: 24.21 – 24.39
Spot Rate : 0.1800
Average : 0.1059

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.21
Bid-YTW : 3.53 %

HSB.PR.D Deemed-Retractible Quote: 25.85 – 26.00
Spot Rate : 0.1500
Average : 0.0955

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-03-08
Maturity Price : 25.50
Evaluated at bid price : 25.85
Bid-YTW : -5.62 %

BNS.PR.Y FixedReset Quote: 24.60 – 24.75
Spot Rate : 0.1500
Average : 0.0960

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.60
Bid-YTW : 3.05 %

POW.PR.D Perpetual-Premium Quote: 25.27 – 25.44
Spot Rate : 0.1700
Average : 0.1162

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.27
Bid-YTW : 4.56 %

BCE.PR.C To Reset To 3.55%

February 6th, 2013

BCE Inc. has announced:

BCE Inc. will, on March 1, 2013, continue to have Cumulative Redeemable First Preferred Shares, Series AC (“Series AC Preferred Shares”) outstanding if, following the end of the conversion period on February 19, 2013, BCE Inc. determines that at least 2.5 million Series AC Preferred Shares would remain outstanding. In such a case, as of March 1, 2013, the Series AC Preferred Shares will pay, on a quarterly basis, as and when declared by the Board of Directors of BCE Inc., a fixed cash dividend for the following five years that will be based on an annual fixed dividend rate equal to 3.550%.

That’s a good step downwards from its last reset in 2008 to 4.60%!

As noted earlier:

As far as deadlines for conversion go:
In order to convert your shares, you must exercise your right of conversion during the conversion period, which runs from January 15, 2013 to February 19, 2013, inclusively.

Note that brokerages will have their own deadlines for notice, which may be a few days earlier than the date on which BCE must be notified – so if you’re contemplating conversion, check well in advance!

Less than two weeks to go! So if you’re planning to convert from BCE.PR.C to or from BCE.PR.D, better start getting your ducks in a row now!

BCE.PR.D is a RatchetRate preferred, by which I mean it pays between 50% and 100% of Canada Prime on its par value of $25. The percentage paid increases when the market price of the issue is significantly less than $25, and decreases when the price is significantly above. The issue has been well below par for some time and the current percentage is 100%.

Given that Canada Prime can be estimated to be about 200bp above three-month treasury bills, this makes BCE.PR.D the rough equivalent of a FloatingReset (of which none yet exist; they will appear by conversion from FixedResets) with an Issue Reset Spread of 200bp, for as long as it trades below par. Since +200bp is a pretty skimpy spread for an issuer of BCE’s credit quality, it is reasonable to assume that it will trade below par for the next five years … while always remembering that it might not!

Given the above, we can assume that BCE.PR.D will pay 100% of Canada Prime for the next five years; thus, it will pay more dividends than BCE.PR.C if the average Canada Prime Rate over the period is more than 3.55%.

I think there’s a pretty good chance of that, and even if that turns out not to be the case, it is hard to imagine that Canada Prime will actually go down over the period, so the downside of being wrong isn’t all that terrible.

Therefore, I recommend that holders of BCE.PR.C convert to BCE.PR.D and recommend that holders of BCE.PR.D retain their holdings (at least, so far as conversion is concerned; no recommendation is made here regarding potential trades out of BCE.PR.D into any other issue).

February 5, 2013

February 6th, 2013

There are a few more details on the persecution of S&P:

The U.S. is seeking as much as $5 billion in penalties from McGraw-Hill Cos. (MHP) and its Standard & Poor’s unit as punishment for inflated credit ratings that Attorney General Eric Holder said were central to the worst financial crisis since the Great Depression.

The Justice Department probe, code-named “Alchemy,” began in November, 2009. The suit marked the culmination of a “massive, multiyear investigation” by a team of almost two dozen lawyers, Stuart Delery, principal deputy assistant attorney general said.

Over the course of the investigation, the company turned over more than 20 million pages of documents, which included e- mail between the firm’s employees, said a person familiar with the probe, who asked for anonymity to discuss details. Those e- mails, along with questions about the models used by the company to rate bonds, have become the basis for the department’s lawsuit.

According to the U.S. complaint, S&P falsely represented to investors that its credit ratings were objective, independent and uninfluenced by any conflicts of interests.

The company bent rating models to suit its business needs to the extent that one CDO analyst commented that loosening the measure of default risk for a certain security in 2006 “resulted in a loophole in S&P’s rating model big enough to drive a Mack truck through,” the U.S. said.

The Justice Department cited e-mail from S&P employees discussing the need to modify ratings criteria to win business after the company’s grades were more conservative than competitors.

“Losing one or even several deals due to criteria issues, but this is so significant that it could have an impact on future deals,” one analyst said in a May 2004 e-mail cited in the lawsuit. “There’s no way we can get back on this one but we need to address this now in preparation for future deals.”

So now the word will go out from Legal – if it hasn’t already – that any dissent or commentary running contrary to the corporate line on default models will be grounds for dismissal. This will improve credit ratings significantly!

As S&P says:

“There was robust internal debate within S&P about how a rapidly deteriorating housing market might affect the CDOs — and we applied the collective judgment of our committee-based system in good faith. The email excerpts cherry picked by DOJ have been taken out of context, are contradicted by other evidence, and do not reflect our culture, integrity or how we do business.

“The DOJ omits important context about the emails it cites. For example, the email that says deals ‘could be structured by cows’ and be rated by S&P had nothing to do with RMBS or CDO ratings or any S&P model, and the analyst had her concerns addressed with the issuer before S&P issued any rating. The DOJ also cites the fact that S&P personnel discussed proposed rating criteria with market participants as evidence of wrongdoing although under certain recent regulations, S&P is required to do just that. When the full facts are revealed in court, it will be clear the emails and anecdotes being cited do not prove any wrongdoing.

Gaz Metro secured some long term USD financing:

Gaz Métro inc. (“GMi”) announced today that it has entered into an agreement to sell to certain institutional investors in the United States on a private placement basis U.S.$200 million aggregate principal amount of 4.04% senior secured notes due 2043 and 4.19% senior secured notes due 2048 (together, the “Notes”). The Notes will be secured by a guarantee as to payment of principal and interest by Gaz Métro Limited Partnership (“Gaz Métro”), together with collateral security backed by the assets of GMi and Gaz Métro.

Not bad! and only 85-90bp over Treasuries! That’s the equivalent of financing at 3.50% in Canada!

There might be some adjustments to milkfare:

The Canadian government is prepared to knock holes in the hefty tariff walls shielding dairy producers from foreign competition and admit more European cheese into this country in return for greater access to EU markets for Canada’s beef and pork.

About 20,400 tonnes of foreign cheese currently enter Canada tariff-free annually under special arrangements with jurisdictions such as the European Union. The EU, which already has the lion’s share of this tariff-free access, is allowed to import about 13,400 tonnes of cheese annually under this deal. That’s more than 3 per cent of Canada’s current annual cheese consumption.

The EU is looking for as much as 10,000 tonnes more of annual tariff-free access for cheese, Canadian dairy industry sources say, adding they do not believe Ottawa would agree to this size of this concession. The Canadian government declined to confirm this number or how much it’s prepared to offer up as part of negotiations.

This would be wonderful news for Canadian consumers if true. Remember the 30-million consumers? They’re rather more numerous than the 30,000 (?) producers.

It was a good day for the Canadian preferred share market, with PerpetualPremiums winning 20bp, FixedResets gaining 9bp and DeemedRetractibles up 13bp. Volatility was minimal. Volume was high.

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 0.3659 % 2,569.7
FixedFloater 4.19 % 3.51 % 27,162 18.31 1 0.1326 % 3,879.2
Floater 2.59 % 2.91 % 67,193 19.92 5 0.3659 % 2,774.6
OpRet 4.75 % 1.54 % 36,243 0.32 5 0.3221 % 2,606.5
SplitShare 4.57 % 4.41 % 41,120 4.27 2 0.0994 % 2,917.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3221 % 2,383.4
Perpetual-Premium 5.23 % -2.22 % 88,726 0.09 29 0.2034 % 2,356.4
Perpetual-Discount 4.85 % 4.89 % 142,944 15.65 4 0.1729 % 2,646.9
FixedReset 4.90 % 2.86 % 272,806 3.38 78 0.0938 % 2,488.7
Deemed-Retractible 4.87 % 1.62 % 140,257 0.29 45 0.1311 % 2,435.1
Performance Highlights
Issue Index Change Notes
IGM.PR.B Perpetual-Premium 1.54 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 26.00
Evaluated at bid price : 27.07
Bid-YTW : 3.49 %
Volume Highlights
Issue Index Shares
Traded
Notes
BAM.PR.J OpRet 152,075 RBC crossed 145,700 at 27.05.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-03-31
Maturity Price : 26.00
Evaluated at bid price : 27.21
Bid-YTW : 1.54 %
TD.PR.Y FixedReset 109,000 RBC crossed 50,000 at 25.13; National crossed 50,000 at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.14
Bid-YTW : 3.25 %
CM.PR.M FixedReset 90,342 RBC crossed blocks of 50,000 and 38,000, both at 26.63.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 26.66
Bid-YTW : 2.04 %
MFC.PR.I FixedReset 58,225 RBC crossed 49,000 at 26.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-09-19
Maturity Price : 25.00
Evaluated at bid price : 26.17
Bid-YTW : 3.45 %
BAM.PR.P FixedReset 55,382 Scotia crossed 40,000 at 26.90; TD crossed 10,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-30
Maturity Price : 25.00
Evaluated at bid price : 26.91
Bid-YTW : 2.69 %
BAM.PF.A FixedReset 52,501 National crossed 50,000 at 26.15.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-30
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 3.70 %
There were 49 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: 23.55 – 24.46
Spot Rate : 0.9100
Average : 0.7412

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-05
Maturity Price : 23.25
Evaluated at bid price : 23.55
Bid-YTW : 2.21 %

CU.PR.C FixedReset Quote: 26.27 – 26.50
Spot Rate : 0.2300
Average : 0.1561

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.27
Bid-YTW : 2.69 %

BNA.PR.E SplitShare Quote: 25.70 – 25.95
Spot Rate : 0.2500
Average : 0.1777

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 4.41 %

RY.PR.I FixedReset Quote: 25.52 – 25.70
Spot Rate : 0.1800
Average : 0.1165

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 2.76 %

BAM.PR.C Floater Quote: 18.05 – 19.00
Spot Rate : 0.9500
Average : 0.8998

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-05
Maturity Price : 18.05
Evaluated at bid price : 18.05
Bid-YTW : 2.93 %

GWO.PR.Q Deemed-Retractible Quote: 25.86 – 26.00
Spot Rate : 0.1400
Average : 0.0989

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.86
Bid-YTW : 4.78 %

February 4, 2013

February 5th, 2013

Looks like the market rally is over:

Individual investors rushed into stocks and bonds in January, setting the stage for the biggest month on record for deposits into U.S. mutual funds.

Long-term funds, which exclude money-market vehicles, attracted $64.8 billion in the first three weeks of the month, according to the Washington-based Investment Company Institute. The previous record was $52.6 billion for all of May 2009, according to the ICI, whose data goes back to 1984.

Signs of improvement in the U.S. economy and a rising stock market that pushed the Dow Jones Industrial Average above 14,000 today for the first time since 2007 have prompted Americans to step up their investments. Equity mutual funds gathered $29.9 billion in January’s first three weeks, more than for any full month since 2006.

There’s some talk in the US of an exchange dedicated to the exempt market and restricted to accredited investors:

A panel that advises the Securities and Exchange Commission on Friday recommended an exclusive exchange be created for micro- and small-capitalization public companies that would only be available for only high-net-worth investors.

The panel, the advisory committee on small and emerging companies, voted to urge the SEC to support the setting up of an exchange for small publicly traded companies that would only be accessible for high-income individuals such as so-called accredited investors, who must have net worths, excluding their homes, of $1 million or more or income of $200,000 or more for at least two years.

Companies listing on an exchange set up for high-net-worth investors may not be required to provide costly prospectuses and other disclosures that are necessary when retail investors are involved. Backers contend that this would drive down costs associated with public offerings and could encourage private companies to take the plunge into becoming almost-public companies. However, retail investor advocates worry that small investors would be blocked from making desired investments.

This is in addition to other speculative ideas like large ticks for small caps:

Twelve years after the U.S. switched to 1-cent increments for stock trading to save investors money, regulators and broker-dealers are considering a test of larger tick sizes.

A pilot study of bigger quoting increments to improve liquidity in less-active stocks will be debated by executives from exchanges and brokers, market makers and academics at a Securities and Exchange Commission meeting tomorrow, according to an agenda posted online. The U.S. moved to minimum ticks of a penny from sixteenths of $1 in 2001. Panelists will also discuss the effect of 1-cent price moves on capital raising and trading.

Proponents say larger increments will spur market makers to supply more buying and selling volume, particularly for less- active stocks, while skeptics say it will cause people to pay more when they trade.

Other, less dramatic, ideas were reported by the SEC:

  • Rationalize the disclosure framework for small cap companies by raising the market capitalization threshold for small reporting companies (SRCs) and extending to SRCs the benefits granted to emerging growth companies under the JOBS Act.
  • Further ease the compliance burden on SRCs by exempting SRCs from other requirements that result in significant costs for SRCs without generating information necessary to making an informed investment decision

Amidst these encouraging signs for less-fettered capital markets comes a lawsuit against S&P:

Standard & Poor’s on Monday said it expects to be the target of a U.S. Department of Justice civil lawsuit over its ratings of mortgage bonds before the recent financial crisis.

The lawsuit against the McGraw-Hill Cos. unit focuses on its ratings in 2007 of various U.S. collateralized debt obligations (CDO), S&P said.

In its statement, S&P said it “deeply regrets” how its CDO ratings failed to anticipate the fast-deteriorating mortgage market conditions, and that it has since spent $400-million to help bolster the quality of its ratings.

And instead of raising capital as they’re supposed to naughty bankers are dumping assets:

The big banks can’t get rid of their riskiest assets fast enough.

Deutsche Bank is selling €16-billion ($21.6-billion) of risk-weighted assets stuffed in a credit portfolio, according to International Financing Review.

The sale is part of a €100-billion endeavour by the German bank to unload some of its riskiest assets and get capital levels up to snuff. Under Basel III, global banks must have tangible common equity that amounts to at least 7 per cent of their risk-weighted assets, and Deutsche was one of the worst capitalized banks at the height of the financial crisis.

And the European financial transaction tax is having the expected effect:

Half a century after a U.S. tax on bond purchases spawned the $3.7 trillion-a-year Eurobond market, Europe’s plan to impose a levy on financial transactions risks triggering a similar flight.

Against the objections of nations including the U.K. and Luxembourg, European Union finance ministers agreed Jan. 22 that interested member states may design a broad-based tax that would cover trades in stocks, bonds, derivatives and other securities. The EU estimates the proposal would allow France, Germany and nine other countries to raise as much as $47 billion a year.

The Eurobond market, now the largest forum for corporate fixed-income transactions, came into being after President John F. Kennedy imposed a so-called interest-equalization tax in 1963 to make investing in foreign securities less alluring to U.S. investors and ease a balance of payments deficit.

Italy’s Autostrade per l’Italia SpA issued the first Eurobond in July 1963, a $15 million issue managed by S.G. Warburg, according to “The Eurobond Diaries,” a market history published in 1994. The U.S. move drove bond trading to London, where an unregulated market arose. So-called Belgian dentists, shorthand for wealthy entrepreneurs whose customers paid in cash, bought corporate debt and rode the “coupon train” to Luxembourg to collect interest, according to Mint Partners Ltd. bond broker Bill Blain, who joined Morgan Stanley in 1985.

“It was all driven by tax,” he said. “Who would have thought Europe would be so stupid as to actually do this now?”

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums up 8bp, FixedResets down 7bp and DeemedRetractibles gaining 2bp. Volatility was low. Volume was high.

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 0.3971 % 2,560.4
FixedFloater 4.20 % 3.52 % 27,521 18.30 1 0.0000 % 3,874.1
Floater 2.60 % 2.92 % 67,268 19.91 5 0.3971 % 2,764.5
OpRet 4.76 % 2.16 % 33,567 0.39 5 -0.1608 % 2,598.1
SplitShare 4.57 % 4.41 % 41,072 4.27 2 0.0000 % 2,914.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1608 % 2,375.8
Perpetual-Premium 5.24 % -1.45 % 89,367 0.09 29 0.0840 % 2,351.6
Perpetual-Discount 4.86 % 4.91 % 144,312 15.60 4 -0.0610 % 2,642.3
FixedReset 4.91 % 2.96 % 265,386 3.38 78 -0.0677 % 2,486.4
Deemed-Retractible 4.88 % 3.14 % 139,699 0.30 45 0.0250 % 2,431.9
Performance Highlights
Issue Index Change Notes
PWF.PR.K Perpetual-Premium 1.43 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-10-31
Maturity Price : 25.25
Evaluated at bid price : 25.50
Bid-YTW : 3.64 %
TRI.PR.B Floater 1.96 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-04
Maturity Price : 23.14
Evaluated at bid price : 23.40
Bid-YTW : 2.23 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.C OpRet 291,159 Desjardins crossed 284,200 at 25.47.
YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2013-08-31
Maturity Price : 25.00
Evaluated at bid price : 25.48
Bid-YTW : 3.79 %
IFC.PR.A FixedReset 134,772 Desjardins crossed 65,000 at 26.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.07
Bid-YTW : 3.26 %
FTS.PR.F Perpetual-Premium 108,190 Desjardins crossed 99,100 at 26.00.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-03-06
Maturity Price : 25.75
Evaluated at bid price : 26.04
Bid-YTW : 1.55 %
TRI.PR.B Floater 94,935 RBC crossed blocks of 50,000 and 13,700, both at 23.55. TD crossed 30,000 at 23.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-04
Maturity Price : 23.14
Evaluated at bid price : 23.40
Bid-YTW : 2.23 %
MFC.PR.D FixedReset 73,599 Nesbitt crossed 66,400 at 26.71.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-19
Maturity Price : 25.00
Evaluated at bid price : 26.68
Bid-YTW : 2.26 %
HSE.PR.A FixedReset 73,194 Desjardins crossed 63,600 at 26.55.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-03-31
Maturity Price : 25.00
Evaluated at bid price : 26.52
Bid-YTW : 2.58 %
There were 42 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.C Floater Quote: 18.00 – 19.00
Spot Rate : 1.0000
Average : 0.8447

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-02-04
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 2.94 %

ENB.PR.D FixedReset Quote: 25.63 – 25.90
Spot Rate : 0.2700
Average : 0.1709

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-01
Maturity Price : 25.00
Evaluated at bid price : 25.63
Bid-YTW : 3.62 %

BAM.PR.Z FixedReset Quote: 26.63 – 26.86
Spot Rate : 0.2300
Average : 0.1427

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.63
Bid-YTW : 3.47 %

RY.PR.L FixedReset Quote: 25.75 – 25.98
Spot Rate : 0.2300
Average : 0.1553

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 2.44 %

BNS.PR.L Deemed-Retractible Quote: 25.78 – 25.99
Spot Rate : 0.2100
Average : 0.1441

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-04-27
Maturity Price : 25.00
Evaluated at bid price : 25.78
Bid-YTW : 3.50 %

BAM.PF.B FixedReset Quote: 25.55 – 25.75
Spot Rate : 0.2000
Average : 0.1432

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.55
Bid-YTW : 3.89 %