Archive for June, 2015

SLF.PR.J Listed; One Hundred Shares Trade

Tuesday, June 30th, 2015

As earlier reported on PrefBlog, there was a 50% conversion from the FixedReset, SLF.PR.G, to the FloatingReset SLF.PR.J

SLF.PR.G will pay 2.275% (on its par value of $25), or $0.142188 per share per quarter, until its next exchange date of 2020-6-30. SLF.PR.J will pay the three month Canada treasury bill rate, plus 141bp, reset quarterly, throughout its existence.

As both of these issues are issued by an insurance holding company and neither has an NVCC clause, I have added a DeemedMaturity entry to the call schedule; I am therefore assuming that these will be called at par on or before 2025-6-30. See the heading “DeemedRetractibles” on the Format of PrefLetter page for more information. Please note carefully that this is the result of my analysis and is neither a binding commitment of the issuer nor guaranteed in any way.

Vital statistics are:

SLF.PR.G FixedReset YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.27
Bid-YTW : 7.48 %
SLF.PR.J FloatingReset YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.50
Bid-YTW : 7.31 %

At the indicated bid prices, the break-even three-month bill rate (the average bill rate at which the total return of the two elements of the Strong Pair will be equal until the next Exchange Date) is 1.08%, so far above the average for all investment grade FixedReset / FloatingReset Strong Pairs (irrespective of Exchange Date) of 0.36% that this pair constitutes an outlier. If the average rate exceeds 1.08% then SLF.PR.J will outperform SLF.PR.G over the period (measured from today’s bid prices).

pairs_FR_150630
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TRP.PR.H Listed; 39% Conversion

Tuesday, June 30th, 2015

TransCanada Corporation has announced:

that 5,466,595 of its 14,000,000 fixed rate Cumulative Redeemable First Preferred Shares, Series 3 (Series 3 Shares) were tendered for conversion into floating-rate Cumulative Redeemable First Preferred Shares, Series 4 (Series 4 Shares). As a result of the conversion TransCanada has 8,533,405 Series 3 Shares and 5,466,595 Series 4 Shares issued and outstanding. The Series 3 Shares will continue to be listed on the Toronto Stock Exchange (TSX) under the symbol TRP.PR.B. The Series 4 Shares will begin trading on the TSX today under the symbol TRP.PR.H.

The Series 3 Shares will continue to pay on a quarterly basis, for the five-year period beginning on June 30, 2015, as and when declared by the Board of Directors of TransCanada, a fixed dividend based on an annual fixed dividend rate of 2.152 per cent.

The Series 4 Shares will pay a floating quarterly dividend for the five-year period beginning on June 30, 2015, as and when declared by the Board of Directors of TransCanada. The floating quarterly dividend rate for the Series 4 Shares for the first quarterly floating rate period (being the period from June 30, 2015 to but excluding September 30, 2015) is 1.945 per cent and will be reset every quarter.

For more information on the terms of, and risks associated with an investment in, the Series 3 Shares and the Series 4 Shares, please see the Corporation’s prospectus supplement dated March 4, 2010 which can be found under the Corporation’s profile on SEDAR at www.sedar.com or on the Corporation’s website.

No shares traded today and the closing quote, as reported by the Toronto Stock Exchange, was 14.35-25.00.

Vital statistics are:

TRP.PR.B FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-30
Maturity Price : 14.65
Evaluated at bid price : 14.65
Bid-YTW : 3.74 %
TRP.PR.H FloatingReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-30
Maturity Price : 14.35
Evaluated at bid price : 14.35
Bid-YTW : 3.81 %

At the indicated bid prices, the break-even three-month bill rate (the average bill rate at which the total return of the two elements of the Strong Pair will be equal until the next Exchange Date) is 0.26%, slightly below the average for all investment grade FixedReset / FloatingReset Strong Pairs (irrespective of Exchange Date) of 0.36%. Thus, if the average rate exceeds 0.26% then TRP.PR.H will outperform TRP.PR.B over the period (measured from today’s bid prices), which seems like a pretty good bet.

pairs_FR_150630
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BSC.PR.B Proposes Term Extension For Capital Units; Preferreds To Be Redeemed On Schedule

Tuesday, June 30th, 2015

The Bank of Nova Scotia has announced:

BNS Split Corp. II (the “Company”) announced today that its Board of Directors has approved a proposal to reorganize the Company. The reorganization will permit holders of Capital Shares to extend their investment in the Company beyond the scheduled redemption date of September 22, 2015 for an additional five years. The Preferred Shares will be redeemed on the same terms originally contemplated in their share provisions. Holders of Capital Shares who do not wish to extend their investment and all holders of Preferred Shares will have their shares redeemed on September 22, 2015.

The reorganization will involve (i) the extension of the originally scheduled redemption date, (ii) a special retraction right to enable holders of Capital Shares to retract their shares as originally contemplated should they not wish to extend their investment and (iii) the issuance of a new class of preferred shares in order to provide continuing leverage for the Capital Shares. The Company may also offer additional Capital Shares at the time of the preferred share offering.

A special meeting of holders of the Capital Shares will be held on August 7, 2015 to consider and vote upon the proposed reorganization. Details of the proposed reorganization will be outlined in an information circular to be prepared and delivered to holders of Capital Shares of record on July 9, 2015 in connection with the special meeting and will be available on www.sedar.com. Implementation of the proposed reorganization will also be subject to applicable regulatory approval including the Toronto Stock Exchange.

BNS Split Corp. II is a mutual fund corporation created to hold a portfolio of common shares of The Bank of Nova Scotia. Capital Shares and Preferred Shares of BNS Split Corp. II are listed for trading on The Toronto Stock Exchange under the symbols BSC and BSC.PR.B respectively.

BSC.PR.B was last mentioned on PrefBlog when there was a partial call for redemption last September. BSC.PR.B is tracked by HIMIPref™ but is relegated to the Scraps index on volume concerns.

June 29, 2015

Tuesday, June 30th, 2015

Greece finally shut down its banking system:

Greece moved to avert the collapse of its financial system, shutting lenders and imposing capital controls as of Monday, a measure that will deepen the recession and risk driving the nation toward an exit from the euro.

The move to husband resources followed the breakdown of aid talks with the international creditors late Friday and the European Central Bank decision to freeze its lifeline to Greek banks. On the streets, lines at ATMs and gas stations signified how daily life was about to be disrupted.

With cash flooding out at a record pace and its financial backstop gone, Greece would become the second euro-area country, after Cyprus in 2013, to declare a bank holiday and impose capital controls. European officials, meantime, discussed quarantining Greece from the rest of the currency bloc, while keeping it from spinning out of the euro’s orbit.

The optimism vanished after midnight on Friday when Tsipras shocked his counterparts across the region with his call for a July 5 referendum on the austerity demanded by creditors, just days before the June 30 expiry of the current bailout and a $1.7 billion payment due to the IMF.

In the aftermath, Greeks lined up this weekend to get access to as much of their money as they could. Two senior Greek bank executives said as many as 500 of the country’s more than 7,000 ATMs had run out of cash as of Saturday morning. Skai television reported as much as 1 billion euros ($1.1 billion) was withdrawn.

Greek bank deposits shrank by 30 billion euros between January and May this year to 129.9 billion euros, according to data released by Bank of Greece on its website on Thursday.

On Sunday night, long queues formed at numerous gas stations in Athens, reflecting doubts over the country’s ability to keep importing fuel. Lines at ATMs receded, as machines emptied.

That means that a Fairfax bet has gone bad:

Investors led by Canada’s Fairfax, which previously made successful bets on Bank of Ireland during the financial crisis, in April last year bought about 1.3 billion shares in Eurobank, according to the firm’s 2014 letter to shareholders. The stake amounts to about 9 percent of the share capital today and is valued at about 191 million euros. The shares are now worth less than half the 31 cents that investors in the share sale paid.

And there are various apocalyptic scenarios being touted:

It has the potential to prompt a Greek withdrawal from NATO, increase the influx of refugees into Europe and threaten Greek support for international sanctions against Russia over Ukraine.

“Greece spiraling into chaos would be a significant strategic disruption for Europe and therefore for the U.S.,” retired U.S. Admiral James Stavridis, a former NATO supreme allied commander, said in an interview. “There’s more to this crisis than money and the financial markets.”

If Greece ultimately is pushed off the euro currency for defaulting on its debt, it could seek revenge by pulling out of the North Atlantic Treaty Organization, blocking European Union sanctions on Russia or forcing the U.S. from its naval base in Crete, said Stavridis, a Greek-American who is dean of the Fletcher School of Law and Diplomacy at Tufts University in Massachusetts.

“A Greece that feels unloved and pushed out is less likely to be helpful” to the U.S. and Europe, he said.

But it’s an ill wind that blows nobody any good:

What is a crisis in Greece is an opportunity for Seamus Fahy 1,700 miles away in Dublin.

Fahy is offering a 15 percent discount for Greeks who want to store cash and valuables at Merrion Vaults, where 3,000 deposit boxes are protected underground in Dublin’s city center. He says he’s had about 20 Greek customers in recent months as concern mounted about how long the nation could stay in the euro region.

“If you lived in Athens, and had 200,000 euros, wouldn’t you try to get it out?” asks Fahy, a diamond dealer who opened the vaults in 2013, just off one of the city’s main Georgian-era squares, close to the Irish prime minister’s complex in Dublin.

But it’s no fun being Greek:

Uncertain what might happen next, with banks and financial markets closed, across Athens people wasted little time Monday, rushing to the nearest A.T.M. to withdraw their new daily maximum of 60 euros, determined to raise every last cent while they could.

Anecdotally, how people said they would vote in the referendum had little to do with those considerations, but broke down largely along lines of age and class. Older and more affluent Greeks leaned toward voting yes and younger and poorer Greeks leaned toward no, essentially as a protest of what they viewed as foreign oppression.

Whatever the outcome, Athenians were busy adapting to the new reality on Monday, focusing more on getting through the week than worrying too far into the future. People were emptying supermarket shelves, filling up containers at gas stations and lining up at automated teller machines, hoping that the supply of hard cash would not run out before it was their turn.

Meanwhile Element Financial, proud issuer of EFN.PR.A, EFN.PR.C, EFN.PR.E and EFN.PR.G, has bought another automobile fleet operation:

Canada’s Element Financial Corp said it will buy General Electric Co’s fleet management operations in the United States, Mexico, Australia and New Zealand for $8.6-billion ($6.98-billion (U.S.) in cash.

GE also signed a memorandum of understanding to sell its European fleet businesses to Arval, a fully-owned subsidiary of BNP Paribas.

Reuters reported on Friday that Element was close to buying a large chunk of GE’s vehicle fleet management business.

GE has said the business includes $9-billion in assets. The sale would be part of a plan it unveiled in April to divest about $200 billion in GE Capital assets as it moves away from finance and focuses on manufacturing industrial equipment.

… and that’s just a start:

Element Financial Corp.’s $8.6-billion acquisition of part of General Electric Co.’s fleet management business is not the end of the company’s growth plans, according to chief executive Steve Hudson, who went so far as to name his next acquisition targets.

“This message of growth at Element is: It’s not over, it’s not over, it’s not over,” said Mr. Hudson, on a conference call with analysts Monday. “They say you have to say something three times,” he added.

None of the EFN issues are tracked by HIMIPref™ because they don’t have a credit rating. With any luck that will change in the future as they visit the capital markets more often. A credit rating is important because the threat of a highly visible public spanking serves to concentrate the minds of management and the board.

I am pleased to see that the US is slowly grinding towards T+2 settlement:

Recently, an industry-led committee of members across the securities industry issued a white paper outlining the timeline and actions required to move from a three-day (T+3) trade settlement cycle to a two-day (T+2) trade settlement cycle for securities transactions in the United States by the third quarter 2017.[1] We applaud industry’s leadership in seeking changes to mitigate risks and improve capital efficiency.

Earlier this year, the Commission’s Investor Advisory Committee encouraged the Commission and market participants to move forward on reducing the settlement cycle, which would improve investor protections and reduce systemic risks.[2]

We look forward to working with our fellow Commissioners and the staff, as well as partnering with market participants to shorten the settlement cycle as soon as possible.

Footnotes:
[1] See “Shortening the Settlement Cycle: The Move to T+2” available at LINK. Currently, the Commission’s rules require settlement of trades in equities, corporate and municipal bonds, and unit investment trusts (UIT) three business days after a trade is executed, which is commonly referred to as T+3. Trade settlement is the date upon which security ownership transfers.

[2] See “Recommendation of the Investor Advisory Committee: Shortening the Trade Settlement Cycle in U.S. Financial Markets (February 12, 2015)” available at LINK.

I’ve been advocating for T+1 for over twenty years now. I mean, just what exactly is the problem? Everything’s electronic, it’s not like we have to send guys rooting through the vaults for street name certificates any more. Shorter settlement will decrease exposure to counterparty bankruptcy.

The next obvious step is allowing all investment managers to instruct custodians electronically. A username + password is no easier to forge than a signature and all but a very small part of the volume can be subjected to a sanity check.

Alberta is increasing its minimum wage:

Alberta, one of the lowest payers of minimum wage in Canada, is becoming one of the highest.

Jobs Minister Lori Sigurdson announced Monday that the $10.20 per hour minimum wage will rise by $1 to $11.20 an hour on Oct. 1.

Sigurdson said the decision was as much about social policy as economics.

“We believe minimum wage should at least allow people to meet their basic needs,” Sigurdson told reporters.

“Paying people a decent minimum wage will translate into a better life for low-income workers and, as a result, a better life for their families and for all Albertans.”

She also said the NDP government remains on track to hike the rate to $15 an hour by 2018, in keeping with its campaign promise in the May 5 election.

Super, although the rationale is nonsensical. Alberta’s productivity growth is a disgrace:

Labour productivity growth in Ontario’s business sector in the 2000-2012 period, at 0.5 per cent per year, was the second lowest among the provinces, higher only than Alberta’s annual growth rate of 0.4 per cent (Chart II).

It is well known that Canada’s labour productivity gap with the United States has widened significantly (Baldwin and Gu, 2009). This is also true for Ontario. In real terms, labour productivity in Ontario’s business sector declined relative to the United States from 88.3 per cent in 1987 to 71.6 per cent in 2012.

Labour productivity growth in Ontario’s business sector was only one-third of the U.S. average over the 2000-2012 period (0.5 per cent versus 1.6 per cent). All eight Great Lake states (Illinois, Indiana, Michigan, New York, Ohio, Minnesota, Pennsylvania, and Wisconsin) had considerably stronger labour productivity growth than Ontario.

A higher minimum wage will force increased automation on marginal companies, or they’ll go bankrupt and good riddance. A reliance on cheap labour and favourable exchange rates is no way for Canadians to get rich.

Brookfield Renewable Energy Partners L.P., proud (indirect) issuer of BRF.PR.A, BRF.PR.B, BRF.PR.C, BRF.PR.E and BRF.PR.F, has followed up its June 23 announcement of a Normal Course Issuer Bid by announcing:

that, in connection with Brookfield Renewable Power Preferred Equity Inc.’s (“BRP Equity”) previously announced normal course issuer bid program, BRP Equity has entered into an automatic purchase plan with its designated broker to allow for purchases of its Series 1 Class A Preference Shares, Series 2 Class A Preference Shares and Series 3 Class A Preference Shares. The plan will commence on July 1, 2015 and terminate on August 6, 2015.

From time to time, when BRP Equity does not possess material non-public information about itself or its securities, it may enter into automatic purchase plans with its broker to allow for the purchase of preferred shares at times when BRP Equity ordinarily would not be active in the market due to its own internal trading blackout periods and insider trading rules. Any such plans entered into with BRP Equity’s broker will be adopted in accordance with the requirements of applicable Canadian securities laws. The series of preferred shares subject to an automatic purchase plan may vary. Outside of these periods, preferred shares will be repurchased in accordance with management’s discretion, subject to applicable law.

I haven’t seen one of these before and must confess I don’t know exactly how they work. But it would seem to indicate that the company is more serious about its NCIB than issuers usually are.

It was a violently mixed day for the Canadian preferred share market, with PerpetualDiscounts down 38bp, FixedResets off 28bp and DeemedRetractibles gaining 34bp. FixedResets dominated a very lengthy Performance Highlights table (on the bad side), joined by a healthy dollop of PerpetualDiscounts; SLF DeemedRetractibles were a feature of the good part of the table, although I can’t think why. Volume was very high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150629
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TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.49 to be $0.97 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.80 cheap at its bid price of 16.10.

impVol_MFC_150629
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Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule). The lowest spread issue, MFC.PR.F, is again noticeably off the line defined by the higher-spread issues.

Most expensive is MFC.PR.J, resetting at +261bp on 2018-3-19, bid at 24.71 to be $0.51 rich, while MFC.PR.M, resetting at +236bp on 2019-12-19, is bid at 22.65 to be $0.53 cheap.

impVol_BAM_150629
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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.20 to be $0.74 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 22.44 and appears to be $0.98 rich.

impVol_FTS_150629
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FTS.PR.H, with a spread of +145bp, and bid at 16.70, looks $0.18 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.42 and is $0.35 rich.

pairs_FR_150629
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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.25%, including the outlier TRP.PR.A / TRP.PR.F at -0.67%. On the junk side there are three outliers: FFH.PR.E / FFH.PR.F at -0.70%; BRF.PR.A / BRF.PR.B at -0.62%; and DC.PR.B / DC.PR.D at -0.24%.

pairs_FF_150629
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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 1.6770 % 2,196.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.6770 % 3,840.8
Floater 3.53 % 3.52 % 61,538 18.46 3 1.6770 % 2,335.2
OpRet 4.80 % -4.51 % 22,663 0.08 1 -0.2733 % 2,773.7
SplitShare 4.60 % 4.87 % 71,459 3.25 3 -0.2943 % 3,244.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2733 % 2,536.3
Perpetual-Premium 5.49 % 4.79 % 64,971 2.33 19 -0.0781 % 2,514.6
Perpetual-Discount 5.30 % 5.21 % 119,414 15.05 15 -0.3811 % 2,659.2
FixedReset 4.56 % 3.74 % 233,855 16.02 88 -0.2822 % 2,326.6
Deemed-Retractible 5.02 % 4.38 % 112,282 0.88 34 0.3374 % 2,615.5
FloatingReset 2.85 % 3.28 % 58,478 6.01 9 -0.1329 % 2,331.6
Performance Highlights
Issue Index Change Notes
FTS.PR.M FixedReset -2.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 22.58
Evaluated at bid price : 23.50
Bid-YTW : 3.73 %
MFC.PR.M FixedReset -2.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.65
Bid-YTW : 4.86 %
PWF.PR.P FixedReset -1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 18.20
Evaluated at bid price : 18.20
Bid-YTW : 3.61 %
HSE.PR.E FixedReset -1.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 22.80
Evaluated at bid price : 24.01
Bid-YTW : 4.62 %
BAM.PR.T FixedReset -1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 20.20
Evaluated at bid price : 20.20
Bid-YTW : 4.17 %
BAM.PF.B FixedReset -1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 21.20
Evaluated at bid price : 21.20
Bid-YTW : 4.36 %
RY.PR.Z FixedReset -1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 22.14
Evaluated at bid price : 22.66
Bid-YTW : 3.62 %
HSE.PR.A FixedReset -1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 4.28 %
BAM.PR.R FixedReset -1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 4.34 %
ELF.PR.G Perpetual-Discount -1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 21.54
Evaluated at bid price : 21.80
Bid-YTW : 5.45 %
CU.PR.D Perpetual-Discount -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 23.23
Evaluated at bid price : 23.60
Bid-YTW : 5.23 %
FTS.PR.F Perpetual-Discount -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 22.96
Evaluated at bid price : 23.20
Bid-YTW : 5.33 %
CU.PR.E Perpetual-Discount -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 23.32
Evaluated at bid price : 23.70
Bid-YTW : 5.21 %
ELF.PR.F Perpetual-Premium -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 24.00
Evaluated at bid price : 24.25
Bid-YTW : 5.47 %
VNR.PR.A FixedReset -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 22.94
Evaluated at bid price : 23.70
Bid-YTW : 4.02 %
ENB.PR.D FixedReset -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 4.89 %
MFC.PR.N FixedReset -1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.58
Bid-YTW : 4.83 %
ENB.PF.A FixedReset -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.76 %
MFC.PR.K FixedReset -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.41
Bid-YTW : 4.77 %
MFC.PR.L FixedReset -1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.51
Bid-YTW : 4.79 %
TD.PF.C FixedReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 21.80
Evaluated at bid price : 22.21
Bid-YTW : 3.74 %
PWF.PR.T FixedReset 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 23.25
Evaluated at bid price : 24.88
Bid-YTW : 3.39 %
GWO.PR.H Deemed-Retractible 1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.45
Bid-YTW : 5.73 %
MFC.PR.B Deemed-Retractible 1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.53
Bid-YTW : 6.08 %
IAG.PR.G FixedReset 1.42 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 3.89 %
TRP.PR.G FixedReset 1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 23.20
Evaluated at bid price : 25.20
Bid-YTW : 3.71 %
SLF.PR.E Deemed-Retractible 1.52 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.71
Bid-YTW : 5.79 %
BAM.PF.E FixedReset 1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 21.95
Evaluated at bid price : 22.44
Bid-YTW : 4.10 %
SLF.PR.A Deemed-Retractible 1.65 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.46
Bid-YTW : 5.62 %
SLF.PR.C Deemed-Retractible 1.95 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.43
Bid-YTW : 5.90 %
SLF.PR.B Deemed-Retractible 1.98 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.67
Bid-YTW : 5.55 %
BAM.PR.C Floater 4.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 14.15
Evaluated at bid price : 14.15
Bid-YTW : 3.52 %
Volume Highlights
Issue Index Shares
Traded
Notes
HSE.PR.G FixedReset 141,625 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 22.90
Evaluated at bid price : 24.30
Bid-YTW : 4.55 %
TD.PF.B FixedReset 76,228 TD crossed 70,000 at 22.82.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 22.26
Evaluated at bid price : 22.87
Bid-YTW : 3.62 %
ENB.PR.Y FixedReset 59,313 TD crossed 45,000 at 18.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 17.87
Evaluated at bid price : 17.87
Bid-YTW : 4.88 %
SLF.PR.A Deemed-Retractible 57,158 Desjardins crossed 50,000 at 23.35.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.46
Bid-YTW : 5.62 %
PWF.PR.L Perpetual-Premium 51,000 Scotia crossed 50,000 at 25.04.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 24.67
Evaluated at bid price : 24.95
Bid-YTW : 5.18 %
RY.PR.N Perpetual-Discount 46,750 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2024-11-24
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 4.84 %
There were 55 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
ELF.PR.F Perpetual-Premium Quote: 24.25 – 24.96
Spot Rate : 0.7100
Average : 0.4669

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 24.00
Evaluated at bid price : 24.25
Bid-YTW : 5.47 %

TD.PF.C FixedReset Quote: 22.21 – 22.75
Spot Rate : 0.5400
Average : 0.3679

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 21.80
Evaluated at bid price : 22.21
Bid-YTW : 3.74 %

FTS.PR.M FixedReset Quote: 23.50 – 24.08
Spot Rate : 0.5800
Average : 0.4321

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 22.58
Evaluated at bid price : 23.50
Bid-YTW : 3.73 %

FTS.PR.I FloatingReset Quote: 16.50 – 17.00
Spot Rate : 0.5000
Average : 0.3577

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 3.60 %

RY.PR.Z FixedReset Quote: 22.66 – 23.23
Spot Rate : 0.5700
Average : 0.4300

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 22.14
Evaluated at bid price : 22.66
Bid-YTW : 3.62 %

RY.PR.H FixedReset Quote: 22.60 – 23.02
Spot Rate : 0.4200
Average : 0.2919

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-29
Maturity Price : 22.09
Evaluated at bid price : 22.60
Bid-YTW : 3.67 %

June 26, 2015

Friday, June 26th, 2015

I forgot to mention this earlier: Tiff Macklem has gone through the revolving door:

Bank of Nova Scotia appointed Tiff Macklem, a former Bank of Canada senior deputy governor, to its board of directors.

Macklem stepped down from the Ottawa-based central bank in May 2013 and has been serving as dean of the University of Toronto’s Rotman School of Management since July of that year.

“Tiff’s professional experience and understanding of the financial-services industry makes him a strong addition,” Thomas O’Neill, chairman of the board of directors at Canada’s third-largest bank by assets, said in a statement Monday.

The Russell indices were rebalanced today:

The Russell indexes are about to go through their annual rebalancing, leading to what Convergex, the global brokerage firm that’s based in New York, says will “almost certainly be the busiest trading day of the year.”

What’s more, as much as half of today’s trading volume may come in the last five minutes of the session.

Russell’s large-cap index includes 1,000 corporate names while the small-cap index has 2,000. Together they cover more than 90 percent of “reasonably investable” U.S. stocks, according to Convergex.

It will be interesting to learn whether there is any weeping from the regulators regarding institutional desk ‘trading against their clients’ by accumulating positions in advance. Why not? That’s the sort of idiotic wail we’ve heard about FX fixing.

As it happens, Convergex’ prediction didn’t come true:

About 8.9 billion shares changed hands in the U.S. today, the third-busiest session of the year. Russell’s U.S. stock indexes, including the Russell 1000 Index and the Russell 2000, are used as benchmarks for $5.2 trillion in assets, according to the company’s website.

Bloomberg published a nice chart illustrating Greek bank deposits:

GreekDeposits_150626
Click for Big

My old buddy Doug Grieve, who was on the preferred share institutional desk at Nesbitt for a long, long time, has recently become the Portfolio Manager for Lysander-Slater Preferred Share Dividend Fund.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 10bp, FixedResets gaining 30bp and DeemedRetractibles down 13bp. The Performance Highlights table is dominated by winning FixedResets – we haven’t seen that for a while! Volume was below average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150626
Click for Big

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.42 to be $0.84 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.82 cheap at its bid price of 16.25.

impVol_MFC_150626
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule). The lowest spread issue, MFC.PR.F, is again noticeably off the line defined by the higher-spread issues.

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 22.75 to be $0.46 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.83 to be $0.31 cheap.

impVol_BAM_150626
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.50 to be $0.63 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 22.08 and appears to be $0.51 rich.

impVol_FTS_150626
Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.80, looks $0.16 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.27 and is $0.18 rich.

pairs_FR_150626
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.30%, including the outlier TRP.PR.A / TRP.PR.F at -0.50%. On the junk side there are two outliers: FFH.PR.E / FFH.PR.F at -0.54%; and BRF.PR.A / BRF.PR.B at -0.25%.

pairs_FF_150626
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 0.3124 % 2,160.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.3124 % 3,777.5
Floater 3.58 % 3.60 % 61,691 18.28 3 0.3124 % 2,296.7
OpRet 4.78 % -8.20 % 22,554 0.08 1 0.0000 % 2,781.3
SplitShare 4.58 % 4.81 % 73,896 3.26 3 0.1742 % 3,254.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,543.2
Perpetual-Premium 5.48 % 4.24 % 62,311 0.51 19 0.1339 % 2,516.6
Perpetual-Discount 5.27 % 5.20 % 116,415 15.07 15 -0.0993 % 2,669.4
FixedReset 4.55 % 3.80 % 235,375 16.09 88 0.2959 % 2,333.2
Deemed-Retractible 5.04 % 3.38 % 112,680 0.89 34 -0.1343 % 2,606.7
FloatingReset 2.49 % 2.92 % 56,168 6.09 9 0.0542 % 2,334.7
Performance Highlights
Issue Index Change Notes
BAM.PF.E FixedReset -2.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 21.70
Evaluated at bid price : 22.08
Bid-YTW : 4.24 %
BAM.PF.B FixedReset -1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 21.28
Evaluated at bid price : 21.56
Bid-YTW : 4.33 %
MFC.PR.B Deemed-Retractible -1.64 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.24
Bid-YTW : 6.24 %
FTS.PR.J Perpetual-Discount -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 23.07
Evaluated at bid price : 23.41
Bid-YTW : 5.11 %
FTS.PR.K FixedReset -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 21.27
Evaluated at bid price : 21.27
Bid-YTW : 3.80 %
BAM.PR.C Floater -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 13.51
Evaluated at bid price : 13.51
Bid-YTW : 3.69 %
MFC.PR.N FixedReset 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.83
Bid-YTW : 4.72 %
ENB.PR.D FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 17.70
Evaluated at bid price : 17.70
Bid-YTW : 4.92 %
MFC.PR.K FixedReset 1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.65
Bid-YTW : 4.68 %
NA.PR.S FixedReset 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 23.00
Evaluated at bid price : 24.32
Bid-YTW : 3.55 %
FTS.PR.H FixedReset 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 16.80
Evaluated at bid price : 16.80
Bid-YTW : 3.67 %
BMO.PR.T FixedReset 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 22.03
Evaluated at bid price : 22.51
Bid-YTW : 3.73 %
TRP.PR.E FixedReset 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 22.14
Evaluated at bid price : 22.70
Bid-YTW : 3.83 %
MFC.PR.M FixedReset 1.40 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.12
Bid-YTW : 4.63 %
MFC.PR.F FixedReset 1.47 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.25
Bid-YTW : 7.14 %
BMO.PR.W FixedReset 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 22.04
Evaluated at bid price : 22.55
Bid-YTW : 3.68 %
BAM.PR.T FixedReset 1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 20.55
Evaluated at bid price : 20.55
Bid-YTW : 4.17 %
BAM.PR.B Floater 1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 14.40
Evaluated at bid price : 14.40
Bid-YTW : 3.46 %
IAG.PR.G FixedReset 2.45 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.65
Bid-YTW : 4.13 %
TRP.PR.C FixedReset 3.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 16.25
Evaluated at bid price : 16.25
Bid-YTW : 3.92 %
TD.PF.A FixedReset 3.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 22.17
Evaluated at bid price : 22.75
Bid-YTW : 3.71 %
HSE.PR.A FixedReset 3.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 16.25
Evaluated at bid price : 16.25
Bid-YTW : 4.32 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.R FloatingReset 153,921 Desjardins bought blocks of 17,100 and 85,500 from RBC, both at 24.05. TD 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 : 24.02
Bid-YTW : 2.87 %
ENB.PR.N FixedReset 88,870 TD crossed 74,800 at 18.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 18.91
Evaluated at bid price : 18.91
Bid-YTW : 4.94 %
ENB.PR.F FixedReset 77,669 Scotia crossed 41,900 at 18.20; RBC bought 10,000 from Nesbitt at 18.25.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 18.28
Evaluated at bid price : 18.28
Bid-YTW : 4.94 %
BNS.PR.R FixedReset 71,895 Nesbitt crossed 35,000 at 25.51.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 3.18 %
CU.PR.F Perpetual-Discount 45,608 Scotia crossed 40,000 at 21.95.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 21.56
Evaluated at bid price : 21.85
Bid-YTW : 5.19 %
ENB.PR.T FixedReset 34,865 Scotia crossed 30,000 at 18.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 18.36
Evaluated at bid price : 18.36
Bid-YTW : 4.94 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.C Deemed-Retractible Quote: 22.13 – 22.99
Spot Rate : 0.8600
Average : 0.5876

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.13
Bid-YTW : 6.15 %

BAM.PF.B FixedReset Quote: 21.56 – 22.00
Spot Rate : 0.4400
Average : 0.2957

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 21.28
Evaluated at bid price : 21.56
Bid-YTW : 4.33 %

MFC.PR.B Deemed-Retractible Quote: 22.24 – 22.64
Spot Rate : 0.4000
Average : 0.2636

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.24
Bid-YTW : 6.24 %

MFC.PR.F FixedReset Quote: 17.25 – 17.84
Spot Rate : 0.5900
Average : 0.4554

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.25
Bid-YTW : 7.14 %

IFC.PR.A FixedReset Quote: 19.26 – 19.84
Spot Rate : 0.5800
Average : 0.4506

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.26
Bid-YTW : 6.46 %

CIU.PR.C FixedReset Quote: 16.56 – 17.23
Spot Rate : 0.6700
Average : 0.5541

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-26
Maturity Price : 16.56
Evaluated at bid price : 16.56
Bid-YTW : 3.65 %

June 25, 2015

Thursday, June 25th, 2015

In order to address an alarming shortage of employment opportunities for bureaucrats, the OECD has inaugurated publication of the OECD Business and Finance Outlook. The full publication is here; it’s a long paean to the glories of state intervention.

I’ve seen a lot of whining in the press about the effect of Chinese buying on the price of Vancouver real-estate, but in Sydney, Australia, it’s a full-court press:

Since announcing a crackdown on unlawful home purchases in February, the government has forced only one foreigner to sell up. Chinese already buy almost a quarter of new homes in Sydney and their outlay will more than double to A$60 billion ($46 billion) in the six years to 2020, according to Credit Suisse Group AG.

“Forget the anti-corruption,” said Ray Chan, managing director of Sydney-based Henson Properties, which sells homes almost exclusively to Chinese. “A lot of money is coming through.”

Amid concern that offshore demand is pricing locals out of the market, Treasurer Joe Hockey plans bigger fines and jail time for those flouting restrictions. Yet more than six months after a parliamentary inquiry called for a national register of the citizenship of buyers, the database is still a work in progress — leaving officials with no firm grasp of the scale of overseas purchases.

We don’t really like competition, do we?

And Bloomberg introduces us to a real live compliance guy:

Several tax brackets down from [JPMorgan Chase CEO Jamie] Dimon, Justin “the Compliance Guru” Hall is betting that Dimon’s scourge will, by contrast, ensure his own upward mobility. Hall, 28, is a compliance officer at Charles Schwab Corp.’s retail bank. He and thousands of others like him, at every company in finance, are charged with keeping their revenue-obsessed colleagues on the right side of the rules. Compliance, not banking, has been the real growth business since 2008, when free-market liberties turned to liabilities and markets collapsed.

Hall, who uses the self-awarded “guru” designation on his Linked­In profile, couldn’t be happier with his choice of career. “There’s definitely no shortage of opportunity,” he says. “You’re usually involved with all the big dogs in the company. Your visibility is huge.”

Compliance types point to these big numbers [of post-crisis fines paid] as proof that hiring a few of their ilk really pays off. JPMorgan has hired 8,000 compliance and control people since the crisis. Employees completed 800,000 hours of compliance training in the bank’s mortgage business alone in 2014.

In another era, someone like Justin Hall might have gone into plastics, or semiconductors, to make his fortune. Growing up in Chandler, Arizona, Hall spent half his time living in a trailer park with one of his divorced parents. He sold phone books and magazines door-to-door, then switched to selling phone service for WorldCom, where his charm helped him pull down $98,000 the year he turned 17. “I have a knack for picking up people’s cues,” he says.

He got into financial services in 2005 at age 18, right out of high school, through a neighbor who worked at Bank of America and told him about a job there as a credit risk analyst. After a promotion, Hall ended up on a BofA team examining Countrywide Financial and its assets before the bank took a $2 billion stake in the troubled lender in 2007. That got him into compliance. He went to college, earning a bachelor’s degree in project management and finance from the University of Phoenix in 2012 and a master’s in management of information systems from Arizona State in 2014. He joined Schwab’s in-house bank, based in Phoenix, in October, working on an oversight program for ensuring that third-party vendors comply with banks’ risk regulations.

So the 800,000 hours of compliance training (at what? Maybe $50 per hour?) and 8,000 compliance and control people (at what? Maybe $75,000 each per year?) are only the tip of the iceberg. We’ve got guys like Justin Hall, obviously a real go-getter with a knack for sales, going into the ticky-box business because that’s where the action is. What a waste. What a completely useless drag on society. And, remember, pointing at those huge fine numbers to justify the expense assumes that (i) the fines would have been avoided with the big compliance push, and (ii) the fines represent an actual business cost, rather than a completely disproportionate (as discussed on June 10) element of the war on banks.

And there’s a report brewing that will probably serve to provide a fig-leaf for yet more regulation:

Regulators including the Fed and the Treasury Department are working on a report analyzing liquidity, including the events of Oct. 15, 2014, when yields on 10-year Treasuries plunged the most since 2009.

Speaking of liquidity…:

If rising interest rates prompt investors to flee debt markets, bank bonds could be the hardest hit among corporate securities, according to Bank of America Corp.

“We’re now moving into an environment of outflows, which means a lot of investors are going to have to sell bonds for an extended period of time,” Hans Mikkelsen, head of U.S. investment-grade credit strategy at Bank of America Merrill Lynch, said in a telephone interview.

Investors will have to ignore the fundamental fact that higher rates and a stronger economy are actually good for banks, he said, because they’ll just have to offload what they can.

Two factors make bank bonds an easy sell: they are widely owned and actively traded. A Bank of America survey of 94 credit investors last month showed a majority were overweight bank bonds. Trading in bank bonds made up more than 30 percent of the total volume of corporate debt traded in the past three months, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

That’s one reason bank bonds are attractive to investors. Banks including JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc. have sold $1.3 trillion of bonds since the financial crisis, according to data compiled by Bloomberg. That’s a fifth of the total $6.5 trillion investment-grade bonds issued in that period.

Six of America’s biggest banks — JPMorgan, Bank of America, Goldman Sachs, Morgan Stanley, Citigroup and Wells Fargo & Co. — are among the top 11 most actively traded names in the corporate-bond market over the past three months, Trace data show.

I’m not sure I buy that. If there’s selling pressure on bank bonds, there will be pressure on everything else. After all, if we start with a ‘fair’ market and your bank bond then goes down $1 while the quote on your less-liquid industrial bond goes down $0.50, you’re going to try to sell the industrial bond. But you won’t be able to: as soon as you get on the ‘phone, the quote’s going to drop another buck as the traders adjust their pricing matrix. This warning implicitly assumes that in a tight liquidity environment, the liquidity (price) premium is going to change to a discount, and that’s a little hard to swallow.

It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts down 26bp, FixedResets gaining 4bp and DeemedRetractibles off 4bp. Floaters got hammered. The Performance Highlights table reveals that beneath the very calm overall index result is a violent maelstrom of churning FixedResets. Volume was on the low side of average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150625
Click for Big

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.50 to be $0.98 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.98 cheap at its bid price of 16.00.

impVol_MFC_150625
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Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule). The lowest spread issue, MFC.PR.F, is again noticeably off the line defined by the higher-spread issues.

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 22.70 to be $0.58 rich, while MFC.PR.M, resetting at +236bp on 2019-12-19, is bid at 22.80 to be $0.38 cheap.

impVol_BAM_150625
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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.35 to be $0.83 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 22.75 and appears to be $1.12 rich.

impVol_FTS_150625
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FTS.PR.H, with a spread of +145bp, and bid at 16.61, looks $0.27 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.50 and is $0.46 rich.

pairs_FR_150625
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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.35%, including the outlier TRP.PR.A / TRP.PR.F at -0.53%. On the junk side there are two outliers: FFH.PR.E / FFH.PR.F at -0.65%; and BRF.PR.A / BRF.PR.B at -0.39%.

pairs_FF_150625
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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 -3.0070 % 2,153.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 -3.0070 % 3,765.7
Floater 3.60 % 3.61 % 61,865 18.27 3 -3.0070 % 2,289.6
OpRet 4.78 % -8.35 % 22,912 0.08 1 -0.1559 % 2,781.3
SplitShare 4.59 % 4.80 % 74,849 3.26 3 -0.1873 % 3,248.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1559 % 2,543.2
Perpetual-Premium 5.48 % 4.80 % 62,992 4.22 19 0.0187 % 2,513.2
Perpetual-Discount 5.27 % 5.19 % 118,412 15.09 15 -0.2593 % 2,672.0
FixedReset 4.56 % 3.86 % 235,833 16.15 88 0.0402 % 2,326.3
Deemed-Retractible 5.03 % 3.20 % 111,993 0.65 34 -0.0360 % 2,610.2
FloatingReset 2.49 % 2.99 % 57,846 6.09 9 -0.0591 % 2,333.5
Performance Highlights
Issue Index Change Notes
IAG.PR.G FixedReset -3.37 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.06
Bid-YTW : 4.43 %
BAM.PR.K Floater -3.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 13.81
Evaluated at bid price : 13.81
Bid-YTW : 3.61 %
BAM.PR.C Floater -3.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 13.65
Evaluated at bid price : 13.65
Bid-YTW : 3.65 %
BAM.PR.B Floater -2.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 14.15
Evaluated at bid price : 14.15
Bid-YTW : 3.52 %
CU.PR.D Perpetual-Discount -2.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 23.42
Evaluated at bid price : 23.81
Bid-YTW : 5.18 %
HSE.PR.A FixedReset -2.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 15.66
Evaluated at bid price : 15.66
Bid-YTW : 4.48 %
MFC.PR.F FixedReset -1.73 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.00
Bid-YTW : 7.32 %
BAM.PF.A FixedReset -1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 22.29
Evaluated at bid price : 22.80
Bid-YTW : 4.35 %
IAG.PR.A Deemed-Retractible -1.57 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.54
Bid-YTW : 5.99 %
MFC.PR.K FixedReset -1.32 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.40
Bid-YTW : 4.82 %
TRP.PR.C FixedReset -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 4.08 %
ENB.PR.H FixedReset -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 16.80
Evaluated at bid price : 16.80
Bid-YTW : 4.90 %
BMO.PR.T FixedReset -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 21.85
Evaluated at bid price : 22.25
Bid-YTW : 3.78 %
TRP.PR.G FixedReset -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 22.99
Evaluated at bid price : 24.60
Bid-YTW : 3.88 %
PWF.PR.S Perpetual-Discount -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 23.39
Evaluated at bid price : 23.75
Bid-YTW : 5.11 %
TRP.PR.E FixedReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 22.14
Evaluated at bid price : 22.70
Bid-YTW : 3.90 %
ENB.PF.A FixedReset 1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 20.20
Evaluated at bid price : 20.20
Bid-YTW : 4.78 %
NA.PR.W FixedReset 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 22.09
Evaluated at bid price : 22.66
Bid-YTW : 3.73 %
ENB.PF.E FixedReset 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 20.24
Evaluated at bid price : 20.24
Bid-YTW : 4.79 %
FTS.PR.H FixedReset 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 16.61
Evaluated at bid price : 16.61
Bid-YTW : 3.71 %
SLF.PR.G FixedReset 1.48 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.51
Bid-YTW : 7.43 %
POW.PR.G Perpetual-Premium 1.57 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-04-15
Maturity Price : 25.25
Evaluated at bid price : 25.82
Bid-YTW : 4.97 %
BAM.PR.R FixedReset 1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 19.35
Evaluated at bid price : 19.35
Bid-YTW : 4.39 %
ENB.PF.G FixedReset 1.64 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 4.76 %
ENB.PF.C FixedReset 1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 20.19
Evaluated at bid price : 20.19
Bid-YTW : 4.77 %
ENB.PR.J FixedReset 1.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 19.77
Evaluated at bid price : 19.77
Bid-YTW : 4.75 %
MFC.PR.N FixedReset 2.36 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.60
Bid-YTW : 4.85 %
MFC.PR.M FixedReset 2.70 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.80
Bid-YTW : 4.81 %
PWF.PR.P FixedReset 2.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 3.64 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.T FloatingReset 139,638 TD crossed blocks of 88,400 and 50,000, both at 24.05.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.04
Bid-YTW : 2.88 %
BNS.PR.P FixedReset 95,800 TD crossed blocks of 45,000 and 50,000, both at 25.30.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.24
Bid-YTW : 3.10 %
TD.PR.Z FloatingReset 60,929 TD crossed 60,000 at 24.05.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.01
Bid-YTW : 2.99 %
TD.PR.Y FixedReset 54,800 TD crossed 50,000 at 25.50.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.33
Bid-YTW : 3.02 %
HSE.PR.A FixedReset 50,290 Scotia crossed 40,000 at 16.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 15.66
Evaluated at bid price : 15.66
Bid-YTW : 4.48 %
BNS.PR.R FixedReset 42,860 Nesbitt crossed 35,000 at 25.53.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.52
Bid-YTW : 3.14 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.K Floater Quote: 13.81 – 14.68
Spot Rate : 0.8700
Average : 0.6878

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 13.81
Evaluated at bid price : 13.81
Bid-YTW : 3.61 %

ENB.PF.G FixedReset Quote: 20.50 – 21.00
Spot Rate : 0.5000
Average : 0.3218

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 20.50
Evaluated at bid price : 20.50
Bid-YTW : 4.76 %

BAM.PR.C Floater Quote: 13.65 – 14.60
Spot Rate : 0.9500
Average : 0.7874

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 13.65
Evaluated at bid price : 13.65
Bid-YTW : 3.65 %

TRP.PR.E FixedReset Quote: 22.70 – 23.20
Spot Rate : 0.5000
Average : 0.3489

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 22.14
Evaluated at bid price : 22.70
Bid-YTW : 3.90 %

MFC.PR.K FixedReset Quote: 22.40 – 22.80
Spot Rate : 0.4000
Average : 0.2491

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.40
Bid-YTW : 4.82 %

TD.PF.A FixedReset Quote: 22.00 – 23.06
Spot Rate : 1.0600
Average : 0.9273

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-25
Maturity Price : 21.67
Evaluated at bid price : 22.00
Bid-YTW : 3.86 %

Moody’s Downgrades ENB Preferreds To Junk

Thursday, June 25th, 2015

Moody’s Investors Service has announced that it [emphasis added]:

has downgraded the senior unsecured ratings for Enbridge Inc. (ENB) to Baa2 from Baa1; for Enbridge Energy Partners L.P. (EEP) to Baa3 from Baa2 and for Enbridge Energy Limited Partnership (EELP) to Baa2 from Baa1. Moody’s affirmed the Baa2 senior unsecured rating on Enbridge Income Fund (EIF) and the Prime-2 commercial paper rating for Enbridge (U.S.) Inc. For all these entities, the rating outlooks are stable. For a complete list of Moody’s ratings actions see the end of this press release.

The downgrade of ENB reflects the reduction in financial flexibility following the company’s change in its distribution policy, the increased level of structural subordination at the ENB level, principally due to the transfer of Enbridge Pipelines Inc.(EPI) and Enbridge Pipelines Athabasca (EPA) to EIF and the ongoing capital structure complexity within the group. Dividends per share at ENB will increase by 33% in 2015, because the company changed its dividend policy to 40-50% of cash flow from operations from 60-70% of earnings. We see ENB implementing more shareholder-friendly policies at a time when the group continues to move forward with its large capital program, with increasing execution risk. Structural subordination is also increasing because EPI and EPA, the assets being transferred to EIF, will no longer be held directly by ENB. Cash flow from these assets must service obligations at EIF, including EIF’s debt, before servicing ENB creditors. This more than offsets the transfer of interests of EEP to ENB from EPI.

Rating Outlook

The outlook for the group is stable.

ENB: What could change the rating up

Given the large capital program and high leverage, an upgrade is unlikely until the completion of the capital program in 2017. Beyond that, we could raise the ratings if proportionately consolidated Debt/EBITDA is forecast in the 4-5x range on a sustained basis.

ENB: What could change the rating down

A failure to execute the capital program on time and budget or a negative deviation from our proportionately consolidated financial forecast could result in a downgrade. A deterioration in the business risk profile of the company or proportionately consolidated Debt/EBITDA sustained above 5.5x following the completion of the large capital program could also lead to a downgrade.

..Issuer: Enbridge Inc.

…. Issuer Rating, Downgraded to Baa2 from Baa1

….Preferred Stock Shelf, Downgraded to (P)Ba1 from (P)Baa3

….Senior Unsecured Shelf and MTN program, Downgraded to (P)Baa2 from (P)Baa1

….Subordinated Shelf, Downgraded to (P)Baa3 from (P)Baa2

….Pref. Stock Preferred Stock, Downgraded to Ba1 from Baa3

….Pref. Stock Preferred Stock, Downgraded to (P)Ba1 from (P)Baa3

….Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa2 from (P)Baa1

….Senior Unsecured Regular Bond/Debentures, Downgraded to Baa2 from Baa1

And yes, I checked … Ba1 is not investment grade by Moody’s definition.

This follows the downgrade by S&P to P-2(low) (still investment grade!) which was also with respect to the Dropdown.

Affected issues are: ENB.PF.A, ENB.PF.C, ENB.PF.E, ENB.PF.G, ENB.PR.A, ENB.PR.B, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T and ENB.PR.Y.

Hat-tip to Assiduous Reader gsp for bringing this development to my attention!

June 24, 2015

Wednesday, June 24th, 2015

Not much going on. TD issued sub-debt last week:

The Toronto-Dominion Bank (“TD” or the “Bank”) today announced a domestic public offering of $1.5 billion of medium term notes (non-viability contingent capital (NVCC)) constituting subordinated indebtedness of the Bank (the “Notes”). The Notes will be issued and sold through a dealer syndicate led by TD Securities Inc. The Notes will qualify as Tier 2 capital of the Bank.

The Notes are expected to be issued on June 24, 2015 and will bear interest at a fixed rate of 2.692% per annum (paid semi-annually) until June 24, 2020, and at the three-month bankers’ acceptance rate plus 1.21% thereafter (paid quarterly) until maturity on June 24, 2025.

The Bank may, at its option, with the prior approval of the Superintendent of Financial Institutions (Canada), redeem the Notes on or after June 24, 2020, in whole or in part, at par plus accrued and unpaid interest on not more than 60 nor less than 30 days’ notice to holders. Net proceeds from the issuance of the Notes will be used for general corporate purposes.

The potential for getting rid of supply management is increasing:

Canada’s protected dairy and poultry industries are in the crosshairs of the United States and other farm export powers as momentum builds toward a massive Pacific Rim trade deal.

Negotiations on the Trans-Pacific Partnership (TPP) are expected to resume shortly, with a deal possible as early as August.

The breakthrough came Wednesday when the U.S. Senate voted 60-38 to give President Barack Obama unfettered power to negotiate new trade deals.

Japan, Canada and other countries have resisted making final concessions in politically touchy areas, such as agriculture, until Congress gave Mr. Obama those trade negotiating powers.

The price of entry for Canada – one of 12 countries in the TPP talks – is expected to be a surge of duty-free dairy and chicken imports from countries such as the U.S., Australia and New Zealand.

Price of entry? That’s not a price – that’s a pay-off!

Manulife Financial Corporation, proud issuer of MFC.PR.B, MFC.PR.C, MFC.PR.F, MFC.PR.G, MFC.PR.H, MFC.PR.I, MFC.PR.J, MFC.PR.K, MFC.PR.L, MFC.PR.M and MFC.PR.N, was confirmed at Pfd-2(high) by DBRS:

DBRS Limited (DBRS) has today confirmed its ratings on Manulife Financial Corporation (Manulife or the Company) and its affiliates including The Manufacturers Life Insurance Company, its primary operating company. All trends are Stable.

The ratings reflect the Company’s strong position in a number of geographic and product markets including Canada, the United States through the John Hancock brand and in the fast-growing Asian market through the Manulife brand. The Company is also well diversified by customer, distribution channel and product line. Risk management policies and procedures are thorough and supported with advanced modelling techniques. The Company’s general account has a diversified high-quality asset portfolio. Legacy issues associated with the Company’s prior product designs continue to be a potential source of adverse reserve development, given the uncertainty in macroeconomic and regulatory environments and potential adverse policyholder behaviour. DBRS regards the Company’s reduction of market-related risks over the past few years as having been critical to maintaining its high rating. DBRS also notes that, under its methodology, with Manulife’s unexceptional financial risk metrics, it is the Company’s franchise strength and business which provide most of the rating strength.

The Company has set out a strategy to build more interactions directly with the end purchaser to augment and enhance its existing distribution channels. Manulife is in the process of implementing this strategy, which entails a significant investment in technology and new processes as well as an accompanying cultural shift. This change presents both new opportunities and risks for the organization.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 45bp, FixedResets gaining 2bp and DeemedRetractibles off 10bp. The Performance Highlights table is very lengthy, with a lot of volatility amongst the (misleadingly calm overall) FixedResets. Volume was average.

PerpetualDiscounts now yield 5.20%, equivalent to 6.76% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.15%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 260bp, a significant widening from the 250bp reported June 10.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150624
Click for Big

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.30 to be $0.76 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.76 cheap at its bid price of 16.20.

impVol_MFC_150624
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Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule). The lowest spread issue, MFC.PR.F, is again noticeably off the line defined by the higher-spread issues.

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 22.77 to be $0.73 rich, while MFC.PR.M, resetting at +236bp on 2019-12-19, is bid at 22.20 to be $0.87 cheap.

impVol_BAM_150624
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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.05 to be $1.15 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 22.85 and appears to be $1.14 rich.

impVol_FTS_150624
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FTS.PR.H, with a spread of +145bp, and bid at 16.41, looks $0.40 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.50 and is $0.49 rich.

pairs_FR_150624
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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.35%, including the outliers TRP.PR.A / TRP.PR.F at -0.38% and FTS.PR.H / FTS.PR.I at +1.15%. On the junk side there are four outliers: FFH.PR.E / FFH.PR.F at -0.88%; and BRF.PR.A / BRF.PR.B at -0.69%.

pairs_FF_150624
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 -1.1976 % 2,220.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.1976 % 3,882.4
Floater 3.49 % 3.49 % 62,479 18.55 3 -1.1976 % 2,360.5
OpRet 4.78 % -10.32 % 22,806 0.08 1 0.0000 % 2,785.6
SplitShare 4.58 % 4.62 % 72,023 3.26 3 -0.4660 % 3,254.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,547.2
Perpetual-Premium 5.48 % 5.16 % 62,005 4.96 19 -0.1620 % 2,512.7
Perpetual-Discount 5.25 % 5.20 % 119,905 15.06 15 -0.4467 % 2,679.0
FixedReset 4.56 % 3.83 % 233,439 16.32 88 0.0196 % 2,325.4
Deemed-Retractible 5.03 % 3.30 % 112,119 0.89 34 -0.0970 % 2,611.1
FloatingReset 2.49 % 2.96 % 54,003 6.09 9 0.0739 % 2,334.9
Performance Highlights
Issue Index Change Notes
TD.PF.A FixedReset -4.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 21.67
Evaluated at bid price : 22.00
Bid-YTW : 3.86 %
BIP.PR.A FixedReset -2.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.47
Evaluated at bid price : 23.35
Bid-YTW : 4.82 %
NA.PR.W FixedReset -2.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 21.94
Evaluated at bid price : 22.42
Bid-YTW : 3.78 %
MFC.PR.M FixedReset -2.42 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.20
Bid-YTW : 5.15 %
GWO.PR.N FixedReset -2.31 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.92
Bid-YTW : 7.10 %
BAM.PR.M Perpetual-Discount -1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 20.69
Evaluated at bid price : 20.69
Bid-YTW : 5.77 %
IFC.PR.A FixedReset -1.63 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.26
Bid-YTW : 6.45 %
BAM.PF.F FixedReset -1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.69
Evaluated at bid price : 23.69
Bid-YTW : 4.15 %
BAM.PR.K Floater -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 14.28
Evaluated at bid price : 14.28
Bid-YTW : 3.49 %
GWO.PR.H Deemed-Retractible -1.40 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.17
Bid-YTW : 5.88 %
MFC.PR.N FixedReset -1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.08
Bid-YTW : 5.14 %
PWF.PR.P FixedReset -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 3.74 %
POW.PR.D Perpetual-Discount -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 23.71
Evaluated at bid price : 24.02
Bid-YTW : 5.20 %
RY.PR.H FixedReset -1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.14
Evaluated at bid price : 22.69
Bid-YTW : 3.71 %
PWF.PR.T FixedReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 23.19
Evaluated at bid price : 24.71
Bid-YTW : 3.48 %
PVS.PR.B SplitShare -1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.91
Bid-YTW : 4.55 %
BAM.PR.N Perpetual-Discount -1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 20.75
Evaluated at bid price : 20.75
Bid-YTW : 5.76 %
BMO.PR.T FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.02
Evaluated at bid price : 22.50
Bid-YTW : 3.73 %
BAM.PR.C Floater -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 14.10
Evaluated at bid price : 14.10
Bid-YTW : 3.53 %
ELF.PR.G Perpetual-Discount -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.28
Evaluated at bid price : 22.56
Bid-YTW : 5.35 %
BAM.PR.B Floater -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 14.52
Evaluated at bid price : 14.52
Bid-YTW : 3.43 %
POW.PR.G Perpetual-Premium -1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-04-15
Maturity Price : 25.25
Evaluated at bid price : 25.42
Bid-YTW : 5.34 %
BAM.PF.D Perpetual-Discount -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 21.25
Evaluated at bid price : 21.53
Bid-YTW : 5.71 %
ENB.PF.E FixedReset 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.85 %
CM.PR.O FixedReset 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.12
Evaluated at bid price : 22.65
Bid-YTW : 3.80 %
ENB.PF.G FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 20.17
Evaluated at bid price : 20.17
Bid-YTW : 4.84 %
MFC.PR.B Deemed-Retractible 1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.60
Bid-YTW : 6.02 %
MFC.PR.L FixedReset 1.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.77
Bid-YTW : 4.67 %
ENB.PR.D FixedReset 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 17.65
Evaluated at bid price : 17.65
Bid-YTW : 4.93 %
BAM.PF.E FixedReset 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.20
Evaluated at bid price : 22.85
Bid-YTW : 4.07 %
ENB.PF.A FixedReset 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.83 %
ENB.PR.B FixedReset 1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 4.97 %
ENB.PR.Y FixedReset 1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 18.13
Evaluated at bid price : 18.13
Bid-YTW : 4.88 %
BAM.PR.R FixedReset 1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 19.05
Evaluated at bid price : 19.05
Bid-YTW : 4.46 %
TRP.PR.E FixedReset 1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.28
Evaluated at bid price : 22.94
Bid-YTW : 3.85 %
TRP.PR.D FixedReset 2.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.05
Evaluated at bid price : 22.51
Bid-YTW : 3.89 %
BAM.PR.T FixedReset 2.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 20.23
Evaluated at bid price : 20.23
Bid-YTW : 4.24 %
HSE.PR.A FixedReset 2.96 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 15.98
Evaluated at bid price : 15.98
Bid-YTW : 4.39 %
CM.PR.P FixedReset 4.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 21.86
Evaluated at bid price : 22.30
Bid-YTW : 3.77 %
Volume Highlights
Issue Index Shares
Traded
Notes
NA.PR.S FixedReset 108,250 TD crossed 50,000 at 24.35; Desjardins crossed 57,000 at 24.30.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 22.91
Evaluated at bid price : 24.10
Bid-YTW : 3.59 %
ENB.PR.F FixedReset 106,359 Desjardins crossed 100,300 at 18.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 18.16
Evaluated at bid price : 18.16
Bid-YTW : 4.97 %
ENB.PR.D FixedReset 83,224 Scotia crossed 40,000 at 17.72 and 24,700 at 17.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 17.65
Evaluated at bid price : 17.65
Bid-YTW : 4.93 %
MFC.PR.M FixedReset 76,729 Scotia crossed 70,000 at 22.80.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.20
Bid-YTW : 5.15 %
MFC.PR.K FixedReset 75,099 Scotia crossed 70,000 at 22.69.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.70
Bid-YTW : 4.64 %
ENB.PR.B FixedReset 72,462 Scotia crossed 50,800 at 17.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 4.97 %
There were 32 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PF.A FixedReset Quote: 22.00 – 23.24
Spot Rate : 1.2400
Average : 0.7818

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 21.67
Evaluated at bid price : 22.00
Bid-YTW : 3.86 %

MFC.PR.M FixedReset Quote: 22.20 – 22.92
Spot Rate : 0.7200
Average : 0.4451

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.20
Bid-YTW : 5.15 %

BAM.PR.C Floater Quote: 14.10 – 14.89
Spot Rate : 0.7900
Average : 0.6092

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 14.10
Evaluated at bid price : 14.10
Bid-YTW : 3.53 %

PWF.PR.T FixedReset Quote: 24.71 – 25.34
Spot Rate : 0.6300
Average : 0.4563

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 23.19
Evaluated at bid price : 24.71
Bid-YTW : 3.48 %

NA.PR.W FixedReset Quote: 22.42 – 22.95
Spot Rate : 0.5300
Average : 0.3772

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-24
Maturity Price : 21.94
Evaluated at bid price : 22.42
Bid-YTW : 3.78 %

GWO.PR.N FixedReset Quote: 16.92 – 17.35
Spot Rate : 0.4300
Average : 0.2956

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.92
Bid-YTW : 7.10 %

LBS.PR.A To Get Bigger

Wednesday, June 24th, 2015

Brompton Group has announced:

Life & Banc Split Corp. (the “Company”) is pleased to announce it has filed a preliminary short form prospectus with respect to a treasury offering of class A shares and preferred shares. The class A and preferred shares have been priced at $9.65 per class A share and $10.10 per preferred share. The offering prices were determined so as to be non-dilutive to the net asset value per unit of the Company on June 23, 2015, as adjusted for dividends accrued prior to or upon settlement of the offering.

The Company invests in a portfolio of common shares of the six largest Canadian banks (“Banks”) and the four major publicly traded Canadian life insurance companies (“Lifecos”). Currently, the portfolio consists of common shares of the following Banks and Lifecos:

The Bank of Nova Scotia Royal Bank of Canada
National Bank of Canada Industrial Alliance Insurance and Financial Services Inc.
The Toronto-Dominion Bank Great-West Lifeco Inc.
Canadian Imperial Bank of Commerce Manulife Financial Corporation
Bank of Montreal Sun Life Financial Inc.

The investment objectives for the class A shares are to provide holders with regular monthly cash distributions targeted to be $0.10 per class A share and to provide the opportunity for growth in net asset value per class A share.

The investment objectives for the preferred shares are to provide holders with fixed cumulative preferential quarterly cash distributions in the amount of $0.11875 per preferred share ($0.475 per annum), representing a yield on the original issue price of 4.75% per annum, and to return the original issue price to holders of preferred shares on the maturity date of the Company, November 29, 2018.

The syndicate of agents for the offering is being led by RBC Capital Markets, CIBC and Scotiabank, and includes TD Securities Inc., BMO Capital Markets, National Bank Financial Inc., GMP Securities L.P., Raymond James Ltd., Canaccord Genuity Corp., Desjardins Securities Inc., Dundee Securities Ltd., Haywood Securities Inc., Industrial Alliance Securities Inc. and Mackie Research Capital Corporation.

What a joy it is when you can sell fund units valued at 18.93 as of June 23 for 19.75!

LBS.PR.A was last mentioned on PrefBlog when they raised 25.5-million in a similar offering in April. This issue is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Update, 2015-6-30: Final prospectus filed:

Life & Banc Split Corp. (the “Company”) is pleased to announce that it has filed a final short form prospectus with respect to a treasury offering of up to 1,860,000 class A shares and up to 1,860,000 preferred shares for aggregate gross proceeds of up to approximately $36.7 million.

June 23, 2015

Wednesday, June 24th, 2015

It’s nice to see a hint of due process in the war on banks:

First there was one. Then three. Now the U.K. Financial Conduct Authority is facing nine lawsuits for improperly identifying traders in penalty notices, in what has quickly become a nightmare for the agency.

In a London court Thursday, the FCA faced a roomful of more than 20 lawyers protesting the reputational damage their clients suffered as a result of its failure to sufficiently disguise them in bank settlement reports. The hearing was the first in a series of headaches the FCA faces on the matter and could change the future of U.K. enforcement proceedings.

“Part of deterrence is telling the story and if you’re telling it with one hand behind your back,” because you can’t allude to individuals, it will make things difficult, said FCA Chief Executive Officer Martin Wheatley in a London interview with Bloomberg last week.

The deluge of cases comes after the FCA lost a landmark appeal in May when a judge said it failed to properly hide the identity of Achilles Macris, the former JPMorgan Chase & Co. manager of the London Whale trader, in its settlement with the bank. The FCA is seeking permission to appeal the judgment to the Supreme Court. A judge will rule as soon as Tuesday on whether the other eight pending cases can proceed before the top court makes a decision on the FCA’s Macris appeal.

If the Macris ruling stands, the FCA is faced with two choices: taking years to complete investigations to give all parties the chance to participate or publishing anodyne settlements that won’t fully explain the misconduct.

While calling someone trader A in a report might seem anonymous, insiders can often figure out who’s who by references to nicknames or even position on the floor. That can damage traders’ reputation, and their ability to get another job, said Ben Rose, a London lawyer at Hickman & Rose.

“It is imperative that regulators and prosecutors prevent ‘join-the-dots’ identification,” Rose said. Regulators must “give those concerned a proper opportunity of being heard before any damaging accusations are made.”

Brookfield Renewable Energy Partners L.P., proud (indirect) issuer of BRF.PR.A, BRF.PR.B, BRF.PR.C, BRF.PR.E and BRF.PR.F, has announced:

that the Toronto Stock Exchange (the “TSX”) accepted notice of Brookfield Renewable Power Preferred Equity Inc.’s (“BRP Equity”) intention to commence a normal course issuer bid for its outstanding Class A Preference Shares (“Preferred Shares”). BRP Equity is a wholly-owned subsidiary of Brookfield Renewable. Brookfield Renewable believes that in the event that the Preferred Shares trade in a price range that does not fully reflect their value, the acquisition of Preferred Shares may represent an attractive use of available funds. There are currently five series of Preferred Shares outstanding.

I take issuer-bid announcements with a grain of salt, which is why this announcement isn’t getting a dedicated post. If they actually buy some, that will be news!

It was yet another poor day for the Canadian preferred share market, with PerpetualDiscounts losing 46bp, FixedResets down 23bp and DeemedRetractibles off 15bp. The Performance Highlights table was dominated by losers, predictably enough. Volume was slightly below average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150623
Click for Big

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.39 to be $0.96 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.86 cheap at its bid price of 16.05.

impVol_MFC_150623
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule). The lowest spread issue, MFC.PR.F, is again noticeably off the line defined by the higher-spread issues.

Most expensive is MFC.PR.J, resetting at +261bp on 2018-3-19, bid at 24.70 to be $0.53 rich, while MFC.PR.N, resetting at +230bp on 2020-3-19, is bid at 22.39 to be $0.45 cheap.

impVol_BAM_150623
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 18.76 to be $1.30 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 22.55 and appears to be $0.97 rich.

impVol_FTS_150623
Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.40, looks $0.45 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.44 and is $0.45 rich.

pairs_FR_150623A
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.40%, including the outliers TRP.PR.A / TRP.PR.F at -0.57% and FTS.PR.H / FTS.PR.I at +1.16%. On the junk side there are four outliers: FFH.PR.E / FFH.PR.F at -0.87%; DC.PR.B / DC.PR.D at -0.07%; BRF.PR.A / BRF.PR.B at -0.68%; and FFH.PR.C / FFH.PR.F at +1.26%.

pairs_FF_150623
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 1.5673 % 2,247.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.5673 % 3,929.5
Floater 3.45 % 3.44 % 64,667 18.67 3 1.5673 % 2,389.1
OpRet 4.78 % -10.47 % 23,642 0.08 1 0.0000 % 2,785.6
SplitShare 4.56 % 4.48 % 66,700 3.27 3 0.3340 % 3,269.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,547.2
Perpetual-Premium 5.47 % 3.70 % 60,571 0.51 19 -0.1182 % 2,516.8
Perpetual-Discount 5.23 % 5.18 % 118,533 15.12 15 -0.4648 % 2,691.0
FixedReset 4.56 % 3.88 % 236,639 16.14 88 -0.2287 % 2,325.0
Deemed-Retractible 5.03 % 3.29 % 111,986 0.82 34 -0.1459 % 2,613.7
FloatingReset 2.49 % 2.96 % 53,738 6.10 9 -0.2750 % 2,333.1
Performance Highlights
Issue Index Change Notes
CM.PR.P FixedReset -6.04 % Not real. The day’s range for the 29,550 shares traded was 22.30-70, with a closing price of 22.33. This is simply another example either of the Exchange’s shoddy reporting or their inability to enforce market-making responsibilities.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 21.30
Evaluated at bid price : 21.30
Bid-YTW : 3.99 %
CM.PR.O FixedReset -2.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 21.97
Evaluated at bid price : 22.41
Bid-YTW : 3.84 %
BAM.PR.Z FixedReset -2.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 22.75
Evaluated at bid price : 23.43
Bid-YTW : 4.31 %
BAM.PR.T FixedReset -2.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 19.66
Evaluated at bid price : 19.66
Bid-YTW : 4.36 %
PWF.PR.S Perpetual-Discount -2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 23.63
Evaluated at bid price : 24.01
Bid-YTW : 5.05 %
BAM.PR.R FixedReset -2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 18.76
Evaluated at bid price : 18.76
Bid-YTW : 4.53 %
CU.PR.D Perpetual-Discount -1.86 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 23.83
Evaluated at bid price : 24.25
Bid-YTW : 5.08 %
MFC.PR.B Deemed-Retractible -1.80 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.34
Bid-YTW : 6.18 %
CU.PR.E Perpetual-Discount -1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 23.62
Evaluated at bid price : 24.02
Bid-YTW : 5.13 %
BMO.PR.T FixedReset -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 22.18
Evaluated at bid price : 22.75
Bid-YTW : 3.68 %
BMO.PR.W FixedReset -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 21.95
Evaluated at bid price : 22.41
Bid-YTW : 3.71 %
NA.PR.W FixedReset -1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 22.30
Evaluated at bid price : 23.00
Bid-YTW : 3.66 %
BMO.PR.S FixedReset -1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 22.35
Evaluated at bid price : 23.00
Bid-YTW : 3.72 %
RY.PR.K FloatingReset -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.40
Bid-YTW : 2.89 %
RY.PR.Z FixedReset -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 22.34
Evaluated at bid price : 22.99
Bid-YTW : 3.62 %
BAM.PF.G FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 22.73
Evaluated at bid price : 23.90
Bid-YTW : 4.11 %
GWO.PR.I Deemed-Retractible -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.57
Bid-YTW : 5.86 %
ENB.PF.E FixedReset 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 4.90 %
IFC.PR.A FixedReset 1.14 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.58
Bid-YTW : 6.24 %
BAM.PR.B Floater 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 14.67
Evaluated at bid price : 14.67
Bid-YTW : 3.40 %
IAG.PR.A Deemed-Retractible 1.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.90
Bid-YTW : 5.77 %
ENB.PF.C FixedReset 1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 19.67
Evaluated at bid price : 19.67
Bid-YTW : 4.90 %
ENB.PR.N FixedReset 1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 18.95
Evaluated at bid price : 18.95
Bid-YTW : 4.93 %
ENB.PF.A FixedReset 1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 19.73
Evaluated at bid price : 19.73
Bid-YTW : 4.89 %
BAM.PR.K Floater 2.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 14.50
Evaluated at bid price : 14.50
Bid-YTW : 3.44 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.Z FixedReset 65,900 RBC bought 41,300 from Scotia at 23.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.77
Bid-YTW : 3.40 %
TRP.PR.E FixedReset 34,460 TD crossed 22,500 at 22.60.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 22.04
Evaluated at bid price : 22.55
Bid-YTW : 3.93 %
RY.PR.L FixedReset 33,500 Nesbitt crossed 25,000 at 25.94.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.94
Bid-YTW : 3.28 %
ENB.PR.P FixedReset 33,360 TD crossed 11,600 at 18.27.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 18.20
Evaluated at bid price : 18.20
Bid-YTW : 4.98 %
HSE.PR.G FixedReset 27,156 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 22.99
Evaluated at bid price : 24.53
Bid-YTW : 4.54 %
CM.PR.P FixedReset 26,250 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 21.30
Evaluated at bid price : 21.30
Bid-YTW : 3.99 %
There were 28 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CM.PR.P FixedReset Quote: 21.30 – 22.30
Spot Rate : 1.0000
Average : 0.6112

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 21.30
Evaluated at bid price : 21.30
Bid-YTW : 3.99 %

BAM.PR.C Floater Quote: 14.25 – 14.88
Spot Rate : 0.6300
Average : 0.4109

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 14.25
Evaluated at bid price : 14.25
Bid-YTW : 3.50 %

POW.PR.G Perpetual-Premium Quote: 25.68 – 26.31
Spot Rate : 0.6300
Average : 0.4221

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-04-15
Maturity Price : 25.25
Evaluated at bid price : 25.68
Bid-YTW : 5.09 %

BAM.PR.B Floater Quote: 14.67 – 15.15
Spot Rate : 0.4800
Average : 0.3094

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 14.67
Evaluated at bid price : 14.67
Bid-YTW : 3.40 %

BAM.PF.E FixedReset Quote: 22.55 – 23.00
Spot Rate : 0.4500
Average : 0.2879

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 22.02
Evaluated at bid price : 22.55
Bid-YTW : 4.13 %

PWF.PR.S Perpetual-Discount Quote: 24.01 – 24.50
Spot Rate : 0.4900
Average : 0.3289

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-06-23
Maturity Price : 23.63
Evaluated at bid price : 24.01
Bid-YTW : 5.05 %