Archive for November, 2013

November 12, 2013

Wednesday, November 13th, 2013

Good times to be in corporate finance:

Canadian companies are borrowing more than ever, breaking records for selling new debt in a push to lock in low interest rates before borrowing costs rise.

Corporations and financial institutions have set a new mark for fixed-income sales this year by issuing more than $100-billion in debt, higher than the full-year record set in 2012.

As usual, Canadian banks dominate bond sales this year, raising $47-billion, up 23 per cent from 2012, according to CIBC. However, non-bank borrowers have increased their game, raising an usually large amount of debt, helping to push total issuance to sky-high levels.

ETFs and mutual funds have the great virtue of increasing liquidity for retail investors – I often recommend bond ETFs to clients. But the mismatch between retail liquidity and underlying liquidity is getting worrisome:

A recent presentation by Citi’s Matt King, includes a chart entitled “Entrance with No Exit” that has been costing me sleep. Mr. King’s chart asserts that if and when a significant percentage of the holders of almost $900-billion (U.S.) invested in U.S. corporate debt mutual funds and ETFs (investment grade plus high yield debt) want to sell, there may not be anyone to bid for them.

In the past, large banks carried enormous portfolios of both investment grade and high yield debt issues and provided liquidity to the market – buying bonds when the market was weak and selling when it was strong.

Since the financial crisis, however, U.S. banks have responded to regulatory pressure over proprietary trading and capital requirements by drastically reducing their holdings – from about $300-billion to less than $100-billion – while mutual fund and ETF fixed income assets have almost doubled from just under $500-billion.

There’s $900-billion in corporate debt funds and ETFs and a tenth of that in the banking system so, there is no way the banks can offset a buyers strike in bond funds if it occurs.


Click for Big

If an apocalypse happens due to this, it will be bargain season for long term investors, but those who need the cash – or even the margin – might find themselves a little embarrassed.

Decreased liquidity in corporate bonds was discussed on November 5, while US regulatory moves to extend their power over asset managers was discussed November 6. Does anybody else see a pattern here? Mark my words, there will be enforced ‘gating’ of mutual fund and ETF redemptions soon (ETF redemptions coming in big blocks from arbitrageurs). All that power has to go somewhere! We will then see ETFs trading at a discount to NAV, and a lot of very unhappy mutual fund fund clients.

So what’s the solution? As far as I can tell, there ain’t one. Companies will have to keep a little extra cash on hand in case the markets decide to shut down for a while; investors will have to keep a little more cash on hand than otherwise for the same reason. Ultimately, the benefits of allowing retail decent access to the corporate bond markets outweighs the harms … but you can bet the regulators won’t see it that way. Nobody must be hurt! If anybody is ever hurt by anything, it’s because of a Wall Street conspiracy!

It was a day of small gains for the Canadian preferred share market, with PerpetualDiscounts winning 10bp, FixedResets gaining 5bp and DeemedRetractibles up 7bp. Surprisingly, the Performance Highlights table is relatively lengthy. FloatingResets traded up a storm today on big blocks through Nesbitt, with an assist from Scotia, although there is no way of telling whether or not they were ‘real’ crosses or internal crosses; 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 0.2622 % 2,522.0
FixedFloater 4.16 % 3.44 % 30,800 18.47 1 -0.7391 % 4,033.7
Floater 2.94 % 2.97 % 59,658 19.78 3 0.2622 % 2,723.0
OpRet 4.61 % 1.19 % 67,910 0.37 3 0.1868 % 2,660.4
SplitShare 4.74 % 5.13 % 65,290 3.92 6 0.0807 % 2,961.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1868 % 2,432.7
Perpetual-Premium 5.57 % 3.88 % 124,296 0.09 11 0.1290 % 2,309.0
Perpetual-Discount 5.57 % 5.55 % 176,877 14.51 27 0.1010 % 2,364.9
FixedReset 4.96 % 3.33 % 231,281 3.31 82 0.0504 % 2,485.5
Deemed-Retractible 5.07 % 4.02 % 189,766 1.47 42 0.0677 % 2,413.9
FloatingReset 2.61 % 2.38 % 305,823 4.49 5 0.0952 % 2,458.7
Performance Highlights
Issue Index Change Notes
CIU.PR.A Perpetual-Discount -2.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-13
Maturity Price : 21.20
Evaluated at bid price : 21.20
Bid-YTW : 5.44 %
BAM.PR.X FixedReset -1.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-13
Maturity Price : 21.79
Evaluated at bid price : 22.12
Bid-YTW : 4.36 %
CU.PR.C FixedReset -1.34 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.71
Bid-YTW : 3.11 %
FTS.PR.G FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-13
Maturity Price : 22.77
Evaluated at bid price : 23.96
Bid-YTW : 4.04 %
FTS.PR.F Perpetual-Discount 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-13
Maturity Price : 22.96
Evaluated at bid price : 23.25
Bid-YTW : 5.27 %
IAG.PR.A Deemed-Retractible 1.62 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.56
Bid-YTW : 5.90 %
MFC.PR.C Deemed-Retractible 1.78 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.69
Bid-YTW : 6.28 %
TRP.PR.B FixedReset 1.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-13
Maturity Price : 20.81
Evaluated at bid price : 20.81
Bid-YTW : 3.88 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.Z FloatingReset 256,885 Nesbitt crossed 200,000 at 25.00; Scotia crossed 50,000 at 25.03.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.03
Bid-YTW : 2.52 %
BMO.PR.R FloatingReset 251,600 Nesbitt crossed 200,000 at 25.03; Scotia crossed 50,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-08-25
Maturity Price : 25.00
Evaluated at bid price : 25.04
Bid-YTW : 2.38 %
TD.PR.T FloatingReset 208,816 Nesbitt crossed 200,000 at 25.10.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 2.26 %
BNS.PR.B FloatingReset 207,987 Nesbitt crossed 200,000 at 25.02.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.03
Bid-YTW : 2.54 %
BNS.PR.Z FixedReset 115,587 Nesbitt crossed 100,000 at 23.70.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.66
Bid-YTW : 4.15 %
TRP.PR.C FixedReset 44,454 Desjardins crossed 30,000 at 22.80.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-13
Maturity Price : 22.37
Evaluated at bid price : 22.74
Bid-YTW : 3.83 %
There were 42 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CU.PR.E Perpetual-Discount Quote: 23.37 – 23.82
Spot Rate : 0.4500
Average : 0.3462

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-13
Maturity Price : 23.06
Evaluated at bid price : 23.37
Bid-YTW : 5.24 %

BAM.PF.D Perpetual-Discount Quote: 19.69 – 19.96
Spot Rate : 0.2700
Average : 0.1909

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-13
Maturity Price : 19.69
Evaluated at bid price : 19.69
Bid-YTW : 6.33 %

MFC.PR.F FixedReset Quote: 23.30 – 23.49
Spot Rate : 0.1900
Average : 0.1302

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.30
Bid-YTW : 4.36 %

CU.PR.C FixedReset Quote: 25.71 – 25.94
Spot Rate : 0.2300
Average : 0.1704

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.71
Bid-YTW : 3.11 %

MFC.PR.I FixedReset Quote: 26.07 – 26.28
Spot Rate : 0.2100
Average : 0.1516

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-09-19
Maturity Price : 25.00
Evaluated at bid price : 26.07
Bid-YTW : 3.41 %

BNA.PR.C SplitShare Quote: 24.26 – 24.43
Spot Rate : 0.1700
Average : 0.1177

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.26
Bid-YTW : 5.22 %

November 12, 2013

Tuesday, November 12th, 2013

It might be a while before we see tapering:

Federal Reserve Bank of Atlanta President Dennis Lockhart, who has backed record stimulus, said he wants to see inflation accelerate toward the Fed’s 2 percent goal before the central bank reduces $85 billion in monthly bond purchases.

“I’d like to see some movement toward the target” before tapering, Lockhart said today in a Bloomberg Radio interview with Kathleen Hays. Inflation is “stable but too low” and a move up would “give me some confidence we are not dealing with some downside scenario that might develop,” said Lockhart, who doesn’t vote on policy this year.

It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts down 28bp, FixedResets up 20bp and DeemedRetractibles off 5bp. In the Performance Highlights table the three losers are all PerpetualDiscounts while FixedResets dominate the winning side. Volume was above average with the highlights comprised entirely of FixedResets.

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 -0.0749 % 2,515.4
FixedFloater 4.13 % 3.41 % 30,027 18.53 1 0.8772 % 4,063.8
Floater 2.95 % 2.98 % 60,317 19.75 3 -0.0749 % 2,715.9
OpRet 4.60 % 0.88 % 70,596 0.38 3 0.1663 % 2,655.4
SplitShare 4.74 % 5.12 % 67,585 3.92 6 -0.1410 % 2,958.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1663 % 2,428.1
Perpetual-Premium 5.57 % 4.84 % 123,827 0.30 11 -0.1257 % 2,306.0
Perpetual-Discount 5.57 % 5.55 % 177,579 14.51 27 -0.2795 % 2,362.6
FixedReset 4.95 % 3.21 % 234,115 3.32 82 0.1977 % 2,484.2
Deemed-Retractible 5.08 % 3.92 % 194,404 1.47 42 -0.0532 % 2,412.3
FloatingReset 2.61 % 2.41 % 283,185 4.49 5 0.0000 % 2,456.4
Performance Highlights
Issue Index Change Notes
ELF.PR.H Perpetual-Discount -1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-12
Maturity Price : 23.49
Evaluated at bid price : 23.85
Bid-YTW : 5.82 %
BAM.PF.D Perpetual-Discount -1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-12
Maturity Price : 19.55
Evaluated at bid price : 19.55
Bid-YTW : 6.37 %
FTS.PR.F Perpetual-Discount -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-12
Maturity Price : 23.01
Evaluated at bid price : 23.30
Bid-YTW : 5.35 %
IAG.PR.E Deemed-Retractible 1.05 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.25
Evaluated at bid price : 25.87
Bid-YTW : 5.50 %
IAG.PR.G FixedReset 1.16 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-30
Maturity Price : 25.00
Evaluated at bid price : 26.12
Bid-YTW : 3.15 %
BAM.PR.R FixedReset 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-12
Maturity Price : 23.65
Evaluated at bid price : 25.62
Bid-YTW : 4.13 %
HSE.PR.A FixedReset 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-12
Maturity Price : 22.64
Evaluated at bid price : 23.19
Bid-YTW : 3.98 %
TRP.PR.C FixedReset 1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-12
Maturity Price : 22.40
Evaluated at bid price : 22.78
Bid-YTW : 3.83 %
CIU.PR.A Perpetual-Discount 2.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-12
Maturity Price : 21.67
Evaluated at bid price : 21.67
Bid-YTW : 5.32 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.I FixedReset 263,640 Nesbitt crossed 260,000 at 25.18.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.17
Bid-YTW : 2.03 %
BNS.PR.Z FixedReset 168,257 Nesbitt crossed blocks of 75,000 shares, 25,000 and 50,000, all at 25.70.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.71
Bid-YTW : 4.11 %
GWO.PR.J FixedReset 53,849 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 2.34 %
CU.PR.C FixedReset 32,182 Nesbitt crossed 10,000 at 26.05.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 26.06
Bid-YTW : 2.70 %
ENB.PR.B FixedReset 30,715 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-12
Maturity Price : 23.25
Evaluated at bid price : 24.85
Bid-YTW : 4.18 %
BAM.PF.A FixedReset 28,995 TD crossed 23,100 at 25.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 4.23 %
There were 43 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
FTS.PR.E OpRet Quote: 26.17 – 26.53
Spot Rate : 0.3600
Average : 0.2131

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-12
Maturity Price : 25.75
Evaluated at bid price : 26.17
Bid-YTW : -3.57 %

SLF.PR.I FixedReset Quote: 25.94 – 26.34
Spot Rate : 0.4000
Average : 0.2687

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.94
Bid-YTW : 3.17 %

MFC.PR.C Deemed-Retractible Quote: 21.31 – 21.80
Spot Rate : 0.4900
Average : 0.3720

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.31
Bid-YTW : 6.49 %

CU.PR.E Perpetual-Discount Quote: 23.34 – 23.68
Spot Rate : 0.3400
Average : 0.2323

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-12
Maturity Price : 23.04
Evaluated at bid price : 23.34
Bid-YTW : 5.25 %

CU.PR.F Perpetual-Discount Quote: 20.99 – 21.25
Spot Rate : 0.2600
Average : 0.1623

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-12
Maturity Price : 20.99
Evaluated at bid price : 20.99
Bid-YTW : 5.38 %

GWO.PR.I Deemed-Retractible Quote: 22.00 – 22.28
Spot Rate : 0.2800
Average : 0.1915

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 6.09 %

November 11, 2013

Tuesday, November 12th, 2013

Nothing happened today.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 8bp, FixedResets up 27bp and DeemedRetractibles off 3bp. A fairly lengthy Performance Highlights table is comprised entirely of winners, mostly FixedResets. Volume was 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 0.1687 % 2,517.3
FixedFloater 4.17 % 3.45 % 28,449 18.47 1 0.0439 % 4,028.4
Floater 2.95 % 2.97 % 61,067 19.76 3 0.1687 % 2,718.0
OpRet 4.60 % 2.28 % 69,034 0.38 3 0.3336 % 2,651.0
SplitShare 4.74 % 5.10 % 68,498 3.92 6 0.0969 % 2,963.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3336 % 2,424.1
Perpetual-Premium 5.57 % 4.88 % 125,785 0.28 11 -0.0036 % 2,308.9
Perpetual-Discount 5.55 % 5.55 % 178,527 14.55 27 -0.0823 % 2,369.2
FixedReset 4.96 % 3.39 % 230,889 3.32 82 0.2740 % 2,479.3
Deemed-Retractible 5.07 % 3.96 % 194,384 1.48 42 -0.0300 % 2,413.6
FloatingReset 2.61 % 2.41 % 293,489 4.50 5 -0.0079 % 2,456.4
Performance Highlights
Issue Index Change Notes
CIU.PR.A Perpetual-Discount 1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-11
Maturity Price : 21.21
Evaluated at bid price : 21.21
Bid-YTW : 5.44 %
ENB.PR.B FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-11
Maturity Price : 23.24
Evaluated at bid price : 24.84
Bid-YTW : 4.18 %
BMO.PR.Q FixedReset 1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.60
Bid-YTW : 3.54 %
MFC.PR.F FixedReset 1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.30
Bid-YTW : 4.36 %
GWO.PR.N FixedReset 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.08
Bid-YTW : 4.68 %
IAG.PR.A Deemed-Retractible 1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.34
Bid-YTW : 6.02 %
PWF.PR.L Perpetual-Discount 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-11
Maturity Price : 23.43
Evaluated at bid price : 23.73
Bid-YTW : 5.40 %
ENB.PR.H FixedReset 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-11
Maturity Price : 22.79
Evaluated at bid price : 24.00
Bid-YTW : 4.12 %
BAM.PR.X FixedReset 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-11
Maturity Price : 21.94
Evaluated at bid price : 22.32
Bid-YTW : 4.31 %
CU.PR.C FixedReset 1.53 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-06-01
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 2.88 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.I FixedReset 168,842 Nesbitt crossed blocks of 50,000 shares, 25,000 and 40,000, all at 25.18.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.17
Bid-YTW : 2.01 %
BNS.PR.Z FixedReset 107,130 Nesbitt crossed blocks of 50,000 and 45,000, both at 23.70.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.85
Bid-YTW : 4.03 %
GWO.PR.M Deemed-Retractible 94,538 GMP sold 21,400 to Scotia at 25.46; 12,000 to Desjardins at 25.53; and another 12,000 to Scotia again at 25.53. Desjardins crossed 12,000 at 25.53; Scotia crossed 25,000 at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.53
Bid-YTW : 5.66 %
RY.PR.D Deemed-Retractible 63,870 Nesbitt crossed blocks of 50,000 and 10,000, both at 25.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-02-24
Maturity Price : 25.25
Evaluated at bid price : 25.34
Bid-YTW : 4.07 %
IAG.PR.F Deemed-Retractible 51,700 Nesbitt crossed 50,000 at 25.50.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 5.78 %
ENB.PR.Y FixedReset 36,220 Desjardins crossed 15,000 at 23.60.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-11
Maturity Price : 22.67
Evaluated at bid price : 23.84
Bid-YTW : 4.35 %
There were 31 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PR.Y FixedReset Quote: 25.01 – 25.58
Spot Rate : 0.5700
Average : 0.3269

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.01
Bid-YTW : 3.57 %

MFC.PR.K FixedReset Quote: 24.19 – 24.57
Spot Rate : 0.3800
Average : 0.2620

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.19
Bid-YTW : 4.39 %

MFC.PR.C Deemed-Retractible Quote: 21.30 – 21.65
Spot Rate : 0.3500
Average : 0.2427

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.30
Bid-YTW : 6.50 %

BAM.PR.X FixedReset Quote: 22.32 – 22.77
Spot Rate : 0.4500
Average : 0.3463

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-11
Maturity Price : 21.94
Evaluated at bid price : 22.32
Bid-YTW : 4.31 %

BMO.PR.Q FixedReset Quote: 24.60 – 24.89
Spot Rate : 0.2900
Average : 0.2053

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.60
Bid-YTW : 3.54 %

TRP.PR.A FixedReset Quote: 24.24 – 24.50
Spot Rate : 0.2600
Average : 0.1794

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-11
Maturity Price : 23.77
Evaluated at bid price : 24.24
Bid-YTW : 3.95 %

November PrefLetter Released!

Monday, November 11th, 2013

The November, 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 regular appendices reporting on DeemedRetractibles and FixedResets are included.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the November, 2013, issue, while the “Next Edition” will be the December, 2013, issue, scheduled to be prepared as of the close December 13 and eMailed to subscribers prior to market-opening on December 16.

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!

November 8, 2013

Friday, November 8th, 2013

There was a good US jobs number:

The addition of 204,000 workers followed a revised 163,000 gain in September that was larger than initially estimated, Labor Department figures showed today in Washington. The median forecast of 91 economists surveyed by Bloomberg called for an increase of 120,000. The jobless rate rose to 7.3 percent from an almost five-year low.

This didn’t help the Treasury and gold markets much:

Treasuries sank the most since July and gold slid as a bigger-than-forecast increase in American payrolls fueled speculation the Federal Reserve may trim stimulus earlier than expected. The dollar strengthened against all 16 major peers while U.S. stocks advanced.

The yield on 10-year Treasuries jumped 14 basis points to 2.74 percent at 12:58 p.m. in New York and climbed as much as 16 basis points. Gold futures dropped 1.8 percent to $1,285.00 an ounce. The Standard & Poor’s 500 Index (SPX) rebounded 0.9 percent after tumbling 1.3 percent yesterday. French bonds fell after S&P downgraded the country’s debt. The dollar climbed 0.4 percent against the euro. AT&T Inc. and BNP Paribas SA led 21 billion euros ($28 billion) of bond sales in Europe this week, the busiest in two months.

That’s right, S&P downgraded France:

  • We believe the French government’s reforms to taxation, as well as to product, services, and labor markets, will not substantially raise France’s medium-term growth prospects, and that ongoing high unemployment is weakening support for further significant fiscal and structural policy measures.
  • Furthermore, we believe lower economic growth is constraining the government’s ability to consolidate public finances.
  • We are therefore lowering our long-term foreign and local currency sovereign credit ratings on France to ‘AA’.
  • The outlook is stable, reflecting our view that the probability that we will raise or lower the rating on France over the next two years is less than one-in-three.

Angst is rising over the Fed exit from QE:

The Fed’s financial-crisis actions — from acquiring debt in the 2008 rescues of Bear Stearns Cos. and American International Group Inc. to three rounds of quantitative easing — have led so far to the record payments. Now, the prospect of a stronger economy and rising interest rates means the value of the Fed’s bond holdings will fall at the same time its funding costs climb because the central bank pays interest on the excess reserves it holds for banks.

This could cause operating losses and invite increased scrutiny from lawmakers already critical of the central bank’s policies.

That’s a risk central bankers are grappling with as they consider when to slow the $85 billion monthly pace of their government and mortgage-backed securities purchases. Federal Reserve Bank of New York President William C. Dudley said in a speech last month that the central bank’s balance-sheet expansion does “create some budget risk” that threatens the institution’s independence.

I know a number of Asset Managers read this blog. How would you guys like a quarter like these guys?

Pacific Investment Management Co., the world’s largest fixed-income manager, had $39 billion in net redemptions during the third quarter as investors fled bonds in anticipation of rising interest rates.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 51bp, FixedResets up 22bp and DeemedRetractibles gaining 2bp. As might be expected, the Performance Highlights table is fairly lengthy, with the down side dominated by Perpetual Discounts and winners by FixedResets. Volume was very 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 -0.2058 % 2,513.0
FixedFloater 4.17 % 3.45 % 28,102 18.47 1 1.1540 % 4,026.7
Floater 2.95 % 2.98 % 62,050 19.75 3 -0.2058 % 2,713.4
OpRet 4.62 % 2.92 % 68,834 0.38 3 0.1800 % 2,642.2
SplitShare 4.74 % 5.10 % 69,402 3.93 6 0.0474 % 2,960.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1800 % 2,416.0
Perpetual-Premium 5.57 % 2.42 % 125,907 0.09 11 0.0809 % 2,309.0
Perpetual-Discount 5.55 % 5.53 % 177,655 14.57 27 -0.5123 % 2,371.1
FixedReset 4.98 % 3.50 % 231,640 3.32 82 0.2179 % 2,472.6
Deemed-Retractible 5.07 % 3.92 % 197,178 1.64 42 0.0242 % 2,414.3
FloatingReset 2.61 % 2.41 % 284,464 4.51 5 0.0000 % 2,456.6
Performance Highlights
Issue Index Change Notes
BAM.PF.C Perpetual-Discount -1.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 19.81
Evaluated at bid price : 19.81
Bid-YTW : 6.22 %
ELF.PR.H Perpetual-Discount -1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 23.73
Evaluated at bid price : 24.10
Bid-YTW : 5.75 %
BAM.PF.D Perpetual-Discount -1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 19.87
Evaluated at bid price : 19.87
Bid-YTW : 6.26 %
FTS.PR.J Perpetual-Discount -1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 22.58
Evaluated at bid price : 22.95
Bid-YTW : 5.25 %
BAM.PR.M Perpetual-Discount -1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 20.09
Evaluated at bid price : 20.09
Bid-YTW : 6.00 %
CU.PR.E Perpetual-Discount -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 23.23
Evaluated at bid price : 23.55
Bid-YTW : 5.20 %
ELF.PR.F Perpetual-Discount -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 23.09
Evaluated at bid price : 23.35
Bid-YTW : 5.72 %
BAM.PR.R FixedReset -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 23.47
Evaluated at bid price : 25.07
Bid-YTW : 4.25 %
BAM.PR.N Perpetual-Discount -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 6.03 %
TRP.PR.A FixedReset 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 23.95
Evaluated at bid price : 24.40
Bid-YTW : 3.92 %
BAM.PR.G FixedFloater 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 22.97
Evaluated at bid price : 22.79
Bid-YTW : 3.45 %
SLF.PR.G FixedReset 1.39 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.01
Bid-YTW : 3.93 %
ENB.PR.N FixedReset 1.47 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-01
Maturity Price : 25.00
Evaluated at bid price : 24.90
Bid-YTW : 4.28 %
IFC.PR.A FixedReset 1.93 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.76
Bid-YTW : 4.48 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.W Perpetual-Premium 113,050 RBC crossed 100,000 at 25.05.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 4.19 %
RY.PR.R FixedReset 110,268 Nesbitt bought blocks of 13,700 shares, 15,000 and 20,000 from RBC all at 25.30; then bought another 11,700 from TD at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.22
Bid-YTW : 2.33 %
TD.PR.O Deemed-Retractible 100,818 TD crossed 99,900 at 25.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-08
Maturity Price : 25.25
Evaluated at bid price : 25.43
Bid-YTW : -2.57 %
BNS.PR.Z FixedReset 76,515 RBC bought 61,500 from Dundee at 61,500.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.75
Bid-YTW : 4.08 %
BMO.PR.J Deemed-Retractible 74,986 TD crossed 70,000 at 25.64.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-25
Maturity Price : 25.50
Evaluated at bid price : 25.64
Bid-YTW : 1.88 %
TD.PR.Y FixedReset 58,970 TD crossed 50,000 at 24.90.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.94
Bid-YTW : 3.60 %
There were 61 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.D FixedReset Quote: 24.48 – 24.98
Spot Rate : 0.5000
Average : 0.3428

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 22.95
Evaluated at bid price : 24.48
Bid-YTW : 4.17 %

FTS.PR.J Perpetual-Discount Quote: 22.95 – 23.39
Spot Rate : 0.4400
Average : 0.2871

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 22.58
Evaluated at bid price : 22.95
Bid-YTW : 5.25 %

MFC.PR.F FixedReset Quote: 23.05 – 23.39
Spot Rate : 0.3400
Average : 0.2161

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.05
Bid-YTW : 4.48 %

IFC.PR.A FixedReset Quote: 23.76 – 24.12
Spot Rate : 0.3600
Average : 0.2377

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.76
Bid-YTW : 4.48 %

GWO.PR.N FixedReset Quote: 21.83 – 22.18
Spot Rate : 0.3500
Average : 0.2433

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.83
Bid-YTW : 4.80 %

BAM.PF.C Perpetual-Discount Quote: 19.81 – 20.05
Spot Rate : 0.2400
Average : 0.1427

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-08
Maturity Price : 19.81
Evaluated at bid price : 19.81
Bid-YTW : 6.22 %

November 7, 2013

Thursday, November 7th, 2013

Maybe we will have a return to Rae Days as well!

Ontario is prepared to miss its deficit-reduction targets to avoid deep program cuts as Premier Kathleen Wynne’s government walks away from austerity.

The shift in priorities – which will effectively see the minority Liberal administration embrace deficit spending as the best way to rev up the province’s sluggish economy – will be signalled in Finance Minister Charles Sousa’s fall economic statement on Thursday, government sources told The Globe and Mail.

Policy rates were slashed in Europe:

The European Central Bank surprised the market today by cutting interest rates to a record low as falling inflation threatened its mission of keeping prices stable in the 17-country euro zone.

Wholly unexpected by the vast majority of economists, the announcement triggered an immediate fall in the euro. My mid-afternoon central European time, it was down almost 1.5 per cent against the dollar. Commodities fell while stock indexes rose.

ECB president Mario Draghi said he expected a “prolonged” period of low inflation but would not define that period, insisting he would have a better picture in December, when the next inflation gauge and other economic date are due. “It’s not going to be a short, short time,” he said at the ECB’s press conference in Frankfurt.

I’ve always said – they may be in trouble, they may always be in second place to the foreign flavour of the month, but it’s hard to make money betting against America:

Specialty operations are finding new opportunities because of 3-D printers, said Patrick Hunter, senior vice president of marketplace operations for MFG.com in Atlanta. The technology allows three-dimensional designs created on computers to be sent digitally to industrial machines, which put down layers of materials ranging from plastic to metal to create parts or products.

“It’s opened the doors to smaller shops because people aren’t tied to the large mass manufacturers,” said Hunter, whose company has been matching companies with parts makers for about a dozen years.

Low volume typically means runs of products of more than 1,000, which exceeds capacity of a home workshop, and less than 5,000 to 10,000, which is usually the minimum to get work done overseas at a factory in China, he said.

More than 58 percent of small shops added new machines for so-called additive technology in 2012, the third year of gains since the recession ended, according to Wohlers Report 2013, which tracks the industrial market for industrial 3-D printing technology from Fort Collins, Colorado.

I have long criticized the standard five-year term for mortgage loans in Canada – it makes no sense to finance a long-term asset exclusively with a short-term loan, although it makes all kinds of sense for lender. The US model, for all its myriad faults, at least matches financing certainty with asset life. But in Denmark the mismatch is even worse:

Danish mortgage banks have struggled to wean borrowers off loans funded by one-year bonds as deadlines near to demonstrate they can withstand a 12-month funding market freeze. Standard & Poor’s in July told lenders they risked downgrades if they don’t cut use of the securities over the next two years. The central bank has also criticized the bonds and the risks borrowers face if interest rates rise.

One-year bonds fund about 40 percent of home loans in Denmark. Borrowers have been attracted to record-low rates thanks to AAA-rated Denmark’s status as a haven from Europe’s debt crisis. Still, households have grown more exposed to interest-rate shocks as debt burdens soar to a world-record of 310 percent of disposable incomes, according to data compiled by the Organization for Economic Cooperation and Development.

Under the government’s proposed measure, short-term bonds would convert to longer-term securities if refinancing auctions fail or interest rates climb in auctions by more than 5 percentage points. Existing bonds would be excluded from the measure, which would go into effect Jan. 1 if approved by lawmakers.

The bonds convert if the auctions fail? Have the lessons of the financial crisis been forgotten so quickly?

It was a positive day for the Canadian preferred share market, with PerpetualDiscounts flat, FixedResets winning 15bp and DeemedRetractibles gaining 9bp. Volatility was average by long term standards, very low by standards of the past six months. Volume was well 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 0.0000 % 2,518.2
FixedFloater 4.22 % 3.49 % 27,201 18.38 1 0.7603 % 3,980.7
Floater 2.95 % 2.97 % 62,833 19.79 3 0.0000 % 2,719.0
OpRet 4.63 % 2.97 % 69,206 0.60 3 0.0514 % 2,637.5
SplitShare 4.74 % 5.10 % 68,680 3.94 6 -0.1383 % 2,958.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0514 % 2,411.7
Perpetual-Premium 5.57 % 3.22 % 126,090 0.09 11 -0.0647 % 2,307.1
Perpetual-Discount 5.52 % 5.54 % 179,211 14.57 27 0.0032 % 2,383.3
FixedReset 4.99 % 3.55 % 232,477 3.35 82 0.1526 % 2,467.2
Deemed-Retractible 5.07 % 3.97 % 197,780 1.72 42 0.0890 % 2,413.7
FloatingReset 2.62 % 2.41 % 288,613 4.51 5 0.0079 % 2,456.6
Performance Highlights
Issue Index Change Notes
HSE.PR.A FixedReset 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-07
Maturity Price : 22.52
Evaluated at bid price : 23.01
Bid-YTW : 3.94 %
SLF.PR.G FixedReset 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.68
Bid-YTW : 4.01 %
MFC.PR.B Deemed-Retractible 1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.06
Bid-YTW : 6.24 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.K FixedReset 265,693 Nesbitt crossed two blocks of 100,000 each and one of 30,000, all at 25.51 (nice tickets!); TD crossed 30,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.53
Bid-YTW : 2.59 %
ENB.PR.T FixedReset 211,048 TD crossed 205,000 at 23.90. Another nice ticket!
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-07
Maturity Price : 22.72
Evaluated at bid price : 23.95
Bid-YTW : 4.35 %
MFC.PR.C Deemed-Retractible 188,286 RBC crossed 169,000 at 21.35.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.45
Bid-YTW : 6.40 %
RY.PR.I FixedReset 128,268 Nesbitt crossed 100,000 at 25.10; TD crossed 15,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 2.88 %
RY.PR.Y FixedReset 106,296 TD crossed 99,000 at 25.95.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-11-24
Maturity Price : 25.00
Evaluated at bid price : 25.97
Bid-YTW : 2.09 %
SLF.PR.F FixedReset 80,800 TD crossed 75,000 at 25.71.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.72
Bid-YTW : 2.50 %
There were 48 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
RY.PR.T FixedReset Quote: 25.73 – 26.24
Spot Rate : 0.5100
Average : 0.3237

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 25.73
Bid-YTW : 2.20 %

CIU.PR.A Perpetual-Discount Quote: 21.00 – 21.47
Spot Rate : 0.4700
Average : 0.2954

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-07
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 5.49 %

HSB.PR.C Deemed-Retractible Quote: 25.12 – 25.50
Spot Rate : 0.3800
Average : 0.2272

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 5.14 %

BAM.PR.K Floater Quote: 17.82 – 18.17
Spot Rate : 0.3500
Average : 0.2433

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-07
Maturity Price : 17.82
Evaluated at bid price : 17.82
Bid-YTW : 2.97 %

TRP.PR.C FixedReset Quote: 22.44 – 22.79
Spot Rate : 0.3500
Average : 0.2556

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-07
Maturity Price : 22.16
Evaluated at bid price : 22.44
Bid-YTW : 3.81 %

FTS.PR.H FixedReset Quote: 21.55 – 21.80
Spot Rate : 0.2500
Average : 0.1782

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-07
Maturity Price : 21.27
Evaluated at bid price : 21.55
Bid-YTW : 3.86 %

BBD Downgraded to Pfd-4(low) by DBRS

Thursday, November 7th, 2013

DBRS has announced that it:

has today downgraded the Issuer Rating and Senior Unsecured Debentures of Bombardier Inc. (BBD or the Company) to BB (low) and the Preferred Shares were downgraded to Pfd-4 (low). The trend on the Issuer Rating is Stable and DBRS has removed all ratings from Under Review with Negative Implications. Additionally, DBRS has discontinued the Company’s Senior Unsecured Debentures and Preferred Shares ratings effective immediately.

The rating actions mainly reflect the Company’s weak financial profile largely due to the ongoing cash burn at the Bombardier Aerospace (BA) division, with any material improvement pushed out for a longer time frame than originally expected. Today’s downgrade follows DBRS’s rating action on August 6, 2013, which placed the ratings Under Review with Negative Implications, reflecting DBRS’s view that the credit metrics have migrated outside of the previously assigned rating range due to large negative free cash flows associated with the C-series program, as well as elevated debt levels and weaker earnings. BBD released its quarterly results at the end of October 2013, further positioning the financial profile in the newly assigned BB (low) rating range. For the last 12 months (LTM) ended September 30, 2013, adjusted debt-to-EBITDA was 5.6 times (x) and adjusted cash flow-to-debt was 0.16x, with both metrics unchanged or slightly worse compared to the LTM period ended June 30, 2013.

The outlook for improvement in the financial profile is further burdened by the uncertainty of the amounts and timing of revenues from the C-series program. The length of the flight testing time frame is presently at a highly aggressive 12 months after first test flight. The potential extension of the 12-month flight-test window will make entry into service challenging before the end of 2014 (noting it was originally scheduled for the end of 2013). While the long-term outcomes of the program are yet to be determined, the recent challenges could also prove costly in terms of missed revenue opportunities from customers who are observing the C-series program from the sidelines. DBRS notes that firm orders for the C-series aircraft are at 177, far below the 300 unit target for the program. The Company has received no significant new firm orders since the Ilyushin Finance Company’s firm order for 32 CS300 aircrafts in June 2013.

In the near mid-term, the high capital expenditures, volatile aerospace market, delayed C-series deliveries and general profitability issues have further postponed the anticipated recovery in BBD’s financial profile until sometime beginning in 2015. DBRS believes that elevated capital outlays are likely to exceed the weaker cash flow from operations and free cash flow is therefore projected to be negative. Liquidity is likely to be sufficient to cover negative free cash flow over the next year, noting that total available liquidity resources totalled approximately $4.0 billion as at September 30, 2013. DBRS notes that it would not be unexpected for BBD to address its capital needs or to improve liquidity via further debt issuances, especially during the seasonally demanding quarters.

With continued elevated debt levels at September 30, 2013, and with limited ability of the BT division to cover the negative free cash flows of the BA division, especially in light of weaker profitability, the financial metrics have now fallen in line with a BB (low) rating.

The DBRS negative review was reported on PrefBlog. The issuer is rated Outlook Negative by S&P.

BBD has three issues of preferred shares outstanding: BBD.PR.B (RatchetRate), BBD.PR.C (Straight Perpetual) and BBD.PR.D (FixedFloater). All are tracked by HIMIPref™; all are relegated to the Scraps index on credit concerns.

Update, 2013-11-14: S&P has announced:

it corrected its global scale preferred share rating on Bombardier Inc.’s series 2 and 4 cumulative redeemable preferred shares by lowering the rating to ‘B’ from ‘B+’. Our Canada scale preferred share rating of ‘P-4’ is unaffected. In accordance with our criteria, when the corporate credit rating is non-investment-grade, we rate the preferred stock at least three notches (one rating category) below the corporate credit rating. Due to an error, we inadvertently did not revise the global rating on the preferred shares contemporaneously with the lowering of the corporate credit rating on Bombardier on Nov 14, 2012. Accordingly, we are revising the global rating at this time.

GWO.PR.J To Be Redeemed

Thursday, November 7th, 2013

Great-West Lifeco has announced:

Series J Preferred Shares

Great-West Lifeco Inc. today approved the redemption of all of its issued and outstanding Series J Preferred Shares on December 31, 2013. A formal notice and instructions for the redemption will be sent to shareholders in accordance with the rights, privileges, restrictions and conditions attached to the Series J Preferred Shares. The redemption price will be $25.00 per share, plus an amount equal to all declared and unpaid dividends thereon, less any tax required to be deducted and withheld by the Corporation.

GWO.PR.J is a FixedReset, 6.00%+307, which was announced in early November, 2008 and closed with the greenshoe fully exercised. It is tracked by HIMIPref™ and is a member of the FixedReset subindex.

November 6, 2013

Wednesday, November 6th, 2013

US regulators are making a a big move to extend their power:

BlackRock Inc. (BLK) and Fidelity Investments will be studied by U.S. regulators who are in the early stages of reviewing whether asset managers pose a potential risk to the financial system, two people with knowledge of the matter said.

The Financial Stability Oversight Council’s discussion Oct. 31 and agreement to review New York-based BlackRock and Boston-based Fidelity don’t necessarily mean the companies will be designated systemically important by the council, according to the people, who requested anonymity because the meeting was closed to the public. The panel didn’t take any formal action regarding the companies.

FSOC’s preliminary talks may presage months of wrangling between the industry and officials charged with trying to prevent a repeat of the 2008 financial crisis. Asset managers are among non-bank financial companies that the council is empowered by law to evaluate to determine whether their failure could threaten the entire system and thus require Federal Reserve oversight. BlackRock, Fidelity and the mutual-fund industry’s trade group have said money managers aren’t a threat.

Political cover for the investigation is provided by an Office of Financial Research (who?) report titled Asset Management and Financial Stability:

Reflecting these issues, this report describes:

  • • the activities of asset management firms and the funds they manage;
  • • the key factors that make the industry vulnerable to shocks: (1) “reaching for yield” and herding behaviors; (2) redemption risk in collective investment vehicles; (3) leverage, which can amplify asset price movements and increase the potential for fire sales; and (4) firms as sources of risk;
  • • the key channels through which shocks can be transmitted: exposures across funds and firms and the impacts of fire sales; and
  • • the data available to measure those activities, vulnerabilities, and channels, and the nature of the gaps in those data.

The report does not focus on particular risks posed by money market funds. In November 2012, the Council released a detailed analysis of these funds and their risks, and the Securities and Exchange Commission (SEC) recently proposed additional reforms.2
In addition, the activities and risks posed by hedge funds, private equity, and other private funds are not addressed in detail. Additional analysis will be conducted in conjunction with further analysis of data that these funds have begun to file on Form PF. The OFR, SEC, and Commodity Futures Trading Commission (CFTC) are currently evaluating these data for monitoring purposes.

Assiduous Readers will remember that in the case of Money Market Funds, the much-needed regulatory reform was beaten back by the industry and MMFs can continue to operate as zero-capital banks. I have complete faith in the regulators to get everything backwards and regulate the hell out of asset management firms.

Here’s another region with a lousy economy:

Waning European growth and inflation will put pressure on the European Central Bank (ECB) to cut interest rates in an effort to keep the fragile recovery intact.

The autumn economic update released on Tuesday by the European Commission (EC) showed that the euro-zone economy will return to growth in 2014, after two years of recession, but at a slower pace than was forecast in the spring. Inflation in the euro zone fell to just 0.7 per cent in October, the lowest rate since 2009, when the financial crisis was at its peak.

Sometimes – not very often – there is some justice in the world:

Four Deutsche Bank AG (DBK) traders who won reinstatement of their jobs after they were dismissed following an internal probe into rate-rigging were awarded 365,474 euros ($493,370) in missed salary.

The total monthly pay of the four men, who were fired in February, ranged from 10,833 euros to 22,083 euros on average, according to the written version of the judgment made Sept. 11 and released by the Frankfurt Labor Court today. The men, whose names weren’t disclosed, returned to work on Nov. 4, according to the bank.

The traders said that before they were dismissed, their bonuses for 2011 were reduced as a sanction for their allegedly inappropriate behavior and that an unidentified Deutsche Bank official said they would be compensated once “the situation had calmed down,” according to the ruling.

Deutsche Bank disputes that account, the document shows. A spokesman for Deutsche Bank, Christian Streckert, declined to immediately comment when reached by phone today.

The court said the total value of the wrongful dismissal claims is 1.9 million euros. That number reflects the pay owed to the plaintiffs, including any potential future earnings under their employment contract.

The poor regulators will have to fill in the notch they made in their red pencil! Well, never mind, there are other careers to destroy and lives to ruin. And after all, the the hysteria helps balance government budgets:

A number of finance firms, including Royal Bank of Scotland and Rabobank face billions of euros in fines next month from European Union regulators for colluding on global benchmark interest rates, reinforcing Brussels’ hard line on the sector after the financial crisis.

EU antitrust chief Joaquin Almunia is set to unveil a record fine of at least €1.5-billion ($2-billion) on six banks, including Barclays and RBS, for rigging the yen Libor interest rate benchmark, a banking source said on Wednesday.

There’s a new wrinkle in the Treasury market:

The U.S. Treasury Department will sell $10 billion to $15 billion of its first floating-rate notes Jan. 29 and said a period of political wrangling over the budget requires a delay in plans to reduce coupon auctions.

The floating-rate notes will have a two-year maturity and be the Treasury’s first new security in 17 years, the department said today in its quarterly refunding announcement. Note and bond sales next week will total $70 billion, the lowest since February 2009 and less than the $72 billion auctioned last quarter, the Treasury said.

Floaters are securities with rates set periodically, and the Treasury’s notes will be referenced to the 13-week bill rate. They are the first new U.S. government debt securities since Treasury Inflation-Protected Securities were introduced in 1997.

It was a mildly positive day for the Canadian preferred share market, with PerpetualDiscounts winning 13bp, FixedResets up 10bp and DeemedRetractibles gaining 3bp. The Performance Highlights table is dominated by FixedResets with low Issue Reset Spreads. Volume was well above average.

PerpetualDiscounts now yield 5.54%, equivalent to 7.20% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.7%, so the pre-tax, interest-equivalent spread between the two is now about 250bp, a slight (and perhaps spurious, particularly given the index rebalancing as of October 31) increase from the 245bp reported October 31.

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 0.6212 % 2,518.2
FixedFloater 4.25 % 3.52 % 27,477 18.33 1 -0.8865 % 3,950.7
Floater 2.95 % 2.96 % 63,432 19.79 3 0.6212 % 2,719.0
OpRet 4.63 % 3.11 % 68,501 0.60 3 -0.0129 % 2,636.1
SplitShare 4.74 % 5.08 % 68,938 3.66 6 -0.0014 % 2,962.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0129 % 2,410.4
Perpetual-Premium 5.57 % 2.03 % 127,777 0.09 11 0.1817 % 2,308.6
Perpetual-Discount 5.52 % 5.54 % 179,750 14.55 27 0.1287 % 2,383.3
FixedReset 5.00 % 3.57 % 231,919 3.35 82 0.1046 % 2,463.4
Deemed-Retractible 5.08 % 4.05 % 197,741 1.49 42 0.0716 % 2,411.5
FloatingReset 2.62 % 2.39 % 292,554 4.51 5 0.0159 % 2,456.4
Performance Highlights
Issue Index Change Notes
FTS.PR.H FixedReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-06
Maturity Price : 21.40
Evaluated at bid price : 21.40
Bid-YTW : 3.91 %
MFC.PR.K FixedReset 1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 4.43 %
BAM.PR.X FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-06
Maturity Price : 21.99
Evaluated at bid price : 22.40
Bid-YTW : 4.21 %
SLF.PR.G FixedReset 1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.41
Bid-YTW : 4.14 %
BNS.PR.O Deemed-Retractible 1.34 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-06
Maturity Price : 26.00
Evaluated at bid price : 26.40
Bid-YTW : -11.78 %
TRP.PR.A FixedReset 1.87 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-06
Maturity Price : 23.50
Evaluated at bid price : 24.00
Bid-YTW : 3.91 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.Y FixedReset 118,962 TD crossed blocks of 50,000 and 25,000 at 25.92. RBC crossed 25,000 at the same price; Scotia crossed 12,100 at 25.95.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-11-24
Maturity Price : 25.00
Evaluated at bid price : 25.95
Bid-YTW : 2.16 %
TD.PR.Y FixedReset 104,102 TD crossed 99,900 at 24.87.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.87
Bid-YTW : 3.61 %
IAG.PR.C FixedReset 77,301 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.31
Bid-YTW : 2.15 %
ENB.PR.N FixedReset 52,348 Nesbitt crossed 19,700 at 24.50 and sold 10,000 to Scotia at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-06
Maturity Price : 22.96
Evaluated at bid price : 24.46
Bid-YTW : 4.37 %
BMO.PR.J Deemed-Retractible 51,110 TD crossed 40,000 at 25.62.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-02-25
Maturity Price : 25.50
Evaluated at bid price : 25.59
Bid-YTW : 2.49 %
TD.PR.A FixedReset 46,240 RBC bought 26,500 from Scotia at 25.18.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.19
Bid-YTW : 2.11 %
There were 44 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
RY.PR.X FixedReset Quote: 25.64 – 26.10
Spot Rate : 0.4600
Average : 0.3626

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 25.64
Bid-YTW : 2.65 %

BAM.PR.G FixedFloater Quote: 22.36 – 22.79
Spot Rate : 0.4300
Average : 0.3423

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-06
Maturity Price : 22.65
Evaluated at bid price : 22.36
Bid-YTW : 3.52 %

TRP.PR.D FixedReset Quote: 24.65 – 24.98
Spot Rate : 0.3300
Average : 0.2479

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-06
Maturity Price : 23.01
Evaluated at bid price : 24.65
Bid-YTW : 4.07 %

MFC.PR.B Deemed-Retractible Quote: 21.76 – 22.00
Spot Rate : 0.2400
Average : 0.1628

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.76
Bid-YTW : 6.40 %

RY.PR.C Deemed-Retractible Quote: 25.49 – 25.83
Spot Rate : 0.3400
Average : 0.2684

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-12-24
Maturity Price : 25.50
Evaluated at bid price : 25.49
Bid-YTW : 3.13 %

ELF.PR.G Perpetual-Discount Quote: 21.66 – 21.99
Spot Rate : 0.3300
Average : 0.2619

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-11-06
Maturity Price : 21.66
Evaluated at bid price : 21.66
Bid-YTW : 5.54 %

IAG.PR.C To Be Redeemed

Wednesday, November 6th, 2013

Industrial Alliance Insurance and Financial Services Inc. has announced:

that it has the intention to redeem, on December 31, 2013, all of its Non-Cumulative 5-Year Rate Reset Class A Preferred Shares Series C (the “Series C Preferred Shares”) then outstanding. The redemption price will be $25.00 for each Series C Preferred Share plus an amount equal to all declared and unpaid dividends, less any tax required to be deducted and withheld by Industrial Alliance. There are 4,000,000 Series C Preferred Shares outstanding as of today.

A formal notice and instructions for the redemption of the Series C Preferred Shares will be sent to all registered shareholders in accordance with the rights, privileges, restrictions and conditions attached to the Series C Preferred Shares. The redemption of the Series C Preferred Shares is subject to the approval of the Autorité des marchés financiers.

IAG.PR.C is a FixedReset, 6.20%+338, which commenced trading at a very bad time for the markets; in fact, the underwriters had great difficulty unloading the issue. It has been tracked by HIMIPref™ and is a constituent of the FixedReset subindex.