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Archive for November, 2015

New Issue: ALA FixedReset, 5.25%+419M525

Friday, November 13th, 2015

that it will issue 4,000,000 Cumulative 5-Year Minimum Rate Reset Redeemable Preferred Shares, Series I (the “Series I Preferred Shares”), at a price of $25.00 per Series I Preferred Share (the “Offering”) for aggregate gross proceeds of $100 million on a bought deal basis. The Series I Preferred Shares will be offered to the public through a syndicate of underwriters co-led by RBC Capital Markets, BMO Capital Markets and Scotiabank.

Holders of the Series I Preferred Shares will be entitled to receive a cumulative quarterly fixed dividend for the initial period ending on but excluding December 31, 2020 (the “Initial Period”) at an annual rate of 5.25%, payable on the last day of March, June, September and December, as and when declared by the Board of Directors of AltaGas. The first quarterly dividend payment is payable on March 31, 2016 and shall be $0.46387 per Series I Preferred Share. The dividend rate will reset on December 31, 2020 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield plus 4.19%, provided that, in any event, such rate shall not be less than 5.25% per annum. The Series I Preferred Shares are redeemable by AltaGas, at its option, on December 31, 2020 and on December 31 of every fifth year thereafter.

Holders of Series I Preferred Shares will have the right to convert all or any part of their shares into Cumulative Redeemable Floating Rate Preferred Shares, Series J (the “Series J Preferred Shares”), subject to certain conditions, on December 31, 2020 and on December 31 every fifth year thereafter. Holders of Series J Preferred Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 4.19%, as and when declared by the Board of Directors of AltaGas.

The Offering is expected to close on or about November 23, 2015. Net proceeds will be used to reduce outstanding indebtedness and for general corporate purposes. AltaGas has granted to the underwriters an option, exercisable in whole or in part at any time up to 48 hours prior to closing of the Offering, to purchase up to an additional 2,000,000 Series I Preferred Shares at a price of $25.00 per share.

The Series I Preferred Shares will be issued pursuant to a prospectus supplement that will be filed with securities regulatory authorities in Canada under AltaGas’ short form base shelf prospectus dated August 10, 2015. The Offering is only being made by way of a prospectus. The prospectus contains important detailed information about the securities being offered. The Offering is subject to receipt of all necessary regulatory and stock exchange approvals.

Later, they announced:

that as a result of strong investor demand for its previously announced offering of Cumulative 5-Year Minimum Rate Reset Redeemable Preferred Shares, Series I (the “Series I Preferred Shares”), the size of the offering has been increased to 8,000,000 Series I Preferred Shares, for aggregate gross proceeds of $200,000,000. The syndicate of underwriters is being co-led by RBC Capital Markets, BMO Capital Markets, and Scotiabank.

So this is the third new issue to come with a reset floor, following BAM.PF.H and CU.PR.I. The structure is proving popular!

This issue joins the ALA.PR.A, ALA.PR.E and ALA.PR.G FixedResets, which have Issue Reset Spreads of +266, +317 and +308, respectively (also trading is ALA.PR.B, the Strong Pair with ALA.PR.A). Four issues with a wide range of spreads is enough to make an approximation of an Implied Volatility calculation, but it’s not terribly informative:

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Probably not entirely coincidentally, the ALA was confirmed at Pfd-3 by DBRS today:

DBRS Limited (DBRS) has today confirmed the Issuer Rating and the Medium-Term Notes (MTNs) rating of AltaGas Ltd. (AltaGas or the Company) at BBB and its Preferred Shares – Cumulative rating at Pfd-3, all with Stable trends. The ratings reflect the Company’s well-diversified business risk profile with nearly 90% of the Company’s earnings generated from relatively low-risk predictable regulated utility returns and fee-based medium- to long-term contacts in the power and gas segments with investment-grade counterparties.
…
DBRS believes that the Company’s credit metrics are at reasonable levels for the current rating based on its business risk profile. Company’s capital expenditures (excluding acquisitions) for 2016 are expected to be comparable with the $600 million to $700 million range expected for the full year 2015, primarily for the completion of the Townsend gas processing facility (expected in service in mid-2016) in the gas segment and system betterment programs and upgrades in the utilities segment. DBRS expects leverage to rise modestly in the near term but become more manageable once projects are placed in service and provide incremental cash flow. DBRS expects AltaGas to fund its growth projects and acquisitions with a prudent mix of debt and equity in order to maintain company’s debt-to-capital ratio in the low-50% range.

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November 11, 2015

Thursday, November 12th, 2015

There is speculation that negative interest rates are nothing special:

Now that Sweden and Switzerland have shown that negative benchmark interest rates don’t necessarily result in flights to cash, asset bubbles or banking strains, the global giants of central banking may be more willing to embrace sub-zero borrowing costs the next time their economies slide.
…
European Central Bank President Mario Draghi is open to reducing the rate he charges banks to leave money in his coffers overnight further into negative territory. Bank of England Governor Mark Carney has also revised his thinking to say the U.K. benchmark could fall below 0.5 percent if needed having previously worried deeper cuts would roil money markets.

Meantime, Fed Chair Janet Yellen said last week that “if circumstances were to change” then “potentially anything, including negative interest rates, would be on the table.” One of her policy-setting colleagues has already advocated them for next year.

Plumbing new depths the next time economies stumble would continue the pattern of the past few decades in which each of the peaks and troughs in rates were more often than not lower than in the previous business cycle.

It appears that I am no longer the only person in Canada who understands that trailer fees are only one of many broker incentives:

Canadian Oil Sands Ltd. is accusing Suncor Energy Inc. of buying support for its $4.3-billion hostile takeover bid, as the largest Syncrude owner seeks more time to drum up a richer offer.

In a red, bold-lettered “warning” sign posted on its website, Canadian Oil Sands says Suncor is paying brokers to get Canadian Oil Sands’ investors to tender their shares – a strategy it says shows Suncor’s bid is “exploitive” and “opportunistic.”

“Knowing the weakness of their bid, they feel it is necessary to pay brokers and incentivize them to encourage clients to tender their shares,” the notice reads.

“We don’t think that’s right. We think our shareholders should decide for themselves, free from the influence of brokers being financially compensated to do Suncor’s work for them.”

I eagerly await cries of astonished horror from the regulators.

I ran across two good papers on sub-prime today; the first, by Christopher Palmer, is titled Why Did So Many Subprime Borrowers Default During the Crisis: Loose Credit or Plummeting Prices?:

The foreclosure rate of subprime mortgages increased markedly across 2003-2007 borrower cohorts — subprime mortgages originated in 2006-2007 were roughly three times more likely to default within three years of origination than mortgages originated in 2003-2004. Many have argued that this surge in subprime defaults represents a deterioration in subprime lending standards over time. I quantify the importance of an alternative hypothesis: later cohorts defaulted at higher rates in large part because house price declines left them more likely to have negative equity. Using loan-level data, I find that changing borrower and loan characteristics explain approximately 30% of the difference in cohort default rates, with almost of all of the remaining heterogeneity across cohorts attributable to the price cycle. To account for the endogeneity of prices, I employ a nonlinear instrumental-variables approach that instruments for house price changes with long-run regional variation in house-price cyclicality. Control function results confirm that the relationship between price declines and defaults is causal and explains the majority of the disparity in cohort performance. I conclude that if 2006 borrowers had faced the same prices the average 2003 borrower did, their annual default
rate would have dropped from 12% to 5.6%.

The second, by Christopher L. Foote, Kristopher S. Gerardi and Paul S. Willen, is titled Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis:

We present 12 facts about the mortgage crisis. We argue that the facts refute the popular story that the crisis resulted from finance industry insiders deceiving uninformed mortgage borrowers and investors. Instead, we argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. We then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those wrong beliefs than they are to explain the Dutch tulip bubble 400 years ago. Economists should acknowledge the limits of our understanding of asset price bubbles and design policies accordingly
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Fact 1: Resets of adjustable-rate mortgages did not cause the foreclosure crisis
…
Fact 2: No mortgage was “designed to fail”
…
Fact 3: There was little innovation in mortgage markets in the 2000s
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Fact 4: Government policy toward the mortgage market did not change much from 1990 to 2005
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Fact 5: The originate-to-distribute model was not new
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Fact 6: MBSs, CDOs and other “complex financial products” had been widely used for decades
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Fact 7: Mortgage investors had lots of information
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Fact 8: Investors understood the risks
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Fact 9: Investors were optimistic about house prices
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Fact 10: Mortgage market insiders were the biggest losers
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Fact 11: Mortgage market outsiders were the biggest winners
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Fact 12: Top-rated bonds backed by mortgages did not turn out to be “toxic.” Top-rated bonds in collateralized debt obligations (CDOs) did.

The best part of the latter paper is that for the first time I’ve found a little authoritative data on the default rate of AAA RMBS (politicians find it much more useful to talk about the downgrade rate):

To start with, the top-rated tranches of subprime securities fared better than many people realize. The top panel of Figure 9 is generated from data on AAA-rated bonds created in 2006 from private-label securitization deals.27 Specifically, the panel shows the fraction of these bonds on which investors suffered losses or, using industry jargon, the fraction that was “impaired.” In some of these deals, 70 percent of the underlying subprime loans terminated in foreclosure (Jozoff et al. 2012). Yet despite these massive losses, the figure shows that investors lost money on less than 10 percent of private-label AAA-rated securities. How is that possible? As many have explained, the AAA-rated securities were protected by a series of lower-rated securities which absorbed most of the losses. If a borrower defaulted and the lender was unable to recover the principal, the resulting loss would be deducted from the principal of the deal’s lower-rated tranches. For subprime deals, the degree of so-called AAA credit protection—the principal balance of the non-AAA securities—was often more than 20 percent. Given a 50 percent recovery rate on foreclosed loans, 20 percent credit protection meant that 40 percent of the borrowers could suffer foreclosure before the AAA rated investors suffered a single dollar of loss. For riskier deals, credit protection was higher, often substantially so. The key takeaway is that for subprime securities, credit protection largely worked, and investors in the AAA-rated securities were largely spared.

The relatively robust performance of private-label AAA-rated securities is explained clearly in the final report of the Financial Crisis Inquiry Commission (2011), among other sources. Yet it still surprises many people. If these AAA-rated securities didn’t suffer losses, where were the famous “toxic mortgage-related securities” that caused the financial crisis? The answer is that banks used lower-rated securities from private-label deals to construct other securities, such as the collateralized debt obligations (CDOs) discussed earlier. Recall that because these CDOs were backed by tranches of subprime securities, which were technically labeled asset-backed securities (ABS), the resulting CDOs were called ABS CDOs. The main difference between the original ABS and the ABS CDOs was that the CDOs were not backed by 2,000 or so subprime loans, but rather a collection of 90–100 lower-rated tranches of subprime ABS deals, with most of these tranches having BBB ratings. Yet the organizing principal of CDOs and the original ABS securities was the same: senior AAA-rated tranches were protected from losses by lower-rated tranches. For the original ABS, losses would occur if individual homeowners defaulted. For the CDOs, losses would occur if the BBB-rated securities from the original ABS deals defaulted.

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Figure 9. Downgrades and Impairments Among Mortgage-Backed Securities (MBS) and Collateralized Debt Obligations (CDOs). The two panels on the left show that among private-label MBS, lower-rated tranches suﬀered massive losses. However, while a large fraction of AAA-rated tranches were downgraded, the vast majority of these tranches paid oﬀ, as few of them suﬀered actual impairments. The two panels on the right show that the same is not true for CDOs. Because these bonds tended to be backed by the lower-rated tranches of private-lable MBS, both the AAA-rated and the lower-rated tranches of CDOs suﬀered signiﬁcant impairments. Source: Tables 12, 13, 17 and 18 in Financial Crisis Inquiry Commission (2010).

The difference between the ABS and CDO experiences has been discussed on PrefBlog previously, notably in the post Hull & White on AAA Tranches of Subprime.

I haven’t passed on any drone news lately … so here’s a fun drone story:

On a cool October night, after the stores in a shopping mall had closed, six young drone racers gathered in a subterranean parking garage to hone their aviation skills. Using remote-control joysticks, they navigated small X-shaped drones around pylons and beneath shopping carts, each vying for the lead.

The young men all work steady jobs, but racing drones, they said, has become a consuming new passion..
…
What the sport needs most at this stage is money, and in the last few months it has started to flow. In August, another organization, the Drone Racing League, announced a $1 million investment from the Miami Dolphins owner Stephen M. Ross through his investment arm RSE Ventures. The league’s chief executive, Nicholas Horbaczewski, would not reveal its plans, but he acknowledged reports that described races similar to video-game competitions held in large arenas. Horbaczewski said the company’s first major event would be in early 2016.
…
Pilots navigate the drones using a remote control with two joysticks that control altitude, speed and direction. They wear large goggles that broadcast live standard-definition video from a camera mounted on the front of the drone. It is this first-person-view technology, or F.P.V., that has given the sport a major boost, allowing pilots to feel as if they are in the drone. The experience, they said, is similar to the pod-racing scenes from “Star Wars: Episode I — The Phantom Menace.”

The drone frames are made of light but sturdy material like carbon fiber and are little more than small platforms for motors, a battery, electronic circuitry and four to six propellers. Most are of the four-motor variety and are thus better known among hobbyists as quadcopters, or quads, rather than drones.

“Three years ago, this technology was so expensive, so unattainable, that only the professional cinematographer could afford it,” [chief operating officer of the International Drone Racing Association Charles] Zablan said. Now, he said, a full racing kit with F.P.V. goggles can be bought for about $1,000.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 4bp, FixedResets up 24bp and DeemedRetractibles off 14bp. The Performance Highlights table continues to show a lot of churn. Volume was 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:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 20.10 to be $1.02 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.55 cheap at its bid price of 14.01.

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Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 20.65 to be 0.43 rich, while MFC.PR.F resetting at +141bp on 2016-6-19, is bid at 15.15 to be 0.50 cheap.

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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.51 to be $1.98 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 21.00 and appears to be $1.13 rich.

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FTS.PR.K, with a spread of +205bp, and bid at 19.97, looks $0.86 expensive and resets 2019-3-1. FTS.PR.H, with a spread of +145bp and resetting 2020-6-1, is bid at 14.70 and is $0.65 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.58%, with one outlier above 0.00%. There are two junk outliers above 0.00% and two below -2.00%.

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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	4.27 %	5.12 %	31,652	17.68	1	2.4984 %	1,819.2
FixedFloater	6.06 %	5.30 %	28,946	17.16	1	-4.3319 %	3,221.0
Floater	3.96 %	4.01 %	64,188	17.37	3	-2.7438 %	1,994.4
OpRet	4.84 %	4.56 %	33,233	0.78	1	0.1187 %	2,717.5
SplitShare	4.74 %	5.58 %	147,281	4.38	5	0.2806 %	3,209.3
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.2806 %	2,504.0
Perpetual-Premium	5.81 %	-1.14 %	87,406	0.08	6	-0.0859 %	2,500.3
Perpetual-Discount	5.51 %	5.63 %	83,445	14.46	33	0.0448 %	2,594.0
FixedReset	4.76 %	4.47 %	227,964	15.57	76	0.2374 %	2,149.2
Deemed-Retractible	5.17 %	5.21 %	108,240	5.42	34	-0.1377 %	2,585.1
FloatingReset	2.57 %	3.76 %	55,157	5.78	10	-0.4711 %	2,191.5

Performance Highlights
Issue	Index	Change	Notes
TRP.PR.B	FixedReset	-4.80 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 12.90 Evaluated at bid price : 12.90 Bid-YTW : 4.47 %
BAM.PR.G	FixedFloater	-4.33 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 25.00 Evaluated at bid price : 15.68 Bid-YTW : 5.30 %
BAM.PR.B	Floater	-3.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 12.00 Evaluated at bid price : 12.00 Bid-YTW : 3.97 %
BAM.PR.K	Floater	-3.33 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 11.90 Evaluated at bid price : 11.90 Bid-YTW : 4.01 %
TRP.PR.A	FixedReset	-2.94 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 16.50 Evaluated at bid price : 16.50 Bid-YTW : 4.65 %
FTS.PR.G	FixedReset	-1.74 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 19.16 Evaluated at bid price : 19.16 Bid-YTW : 4.36 %
BMO.PR.R	FloatingReset	-1.74 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.60 Bid-YTW : 3.73 %
BAM.PR.X	FixedReset	-1.55 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 15.86 Evaluated at bid price : 15.86 Bid-YTW : 4.79 %
BAM.PR.C	Floater	-1.49 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 11.90 Evaluated at bid price : 11.90 Bid-YTW : 4.01 %
SLF.PR.J	FloatingReset	-1.43 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 13.80 Bid-YTW : 9.15 %
TD.PR.T	FloatingReset	-1.32 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.50 Bid-YTW : 3.76 %
BAM.PF.F	FixedReset	-1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 21.71 Evaluated at bid price : 22.02 Bid-YTW : 4.61 %
SLF.PR.G	FixedReset	-1.23 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.26 Bid-YTW : 8.63 %
BAM.PR.Z	FixedReset	-1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 21.42 Evaluated at bid price : 21.76 Bid-YTW : 4.76 %
IAG.PR.A	Deemed-Retractible	-1.14 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.66 Bid-YTW : 6.68 %
TRP.PR.F	FloatingReset	-1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 14.90 Evaluated at bid price : 14.90 Bid-YTW : 3.93 %
MFC.PR.M	FixedReset	-1.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.11 Bid-YTW : 5.97 %
MFC.PR.F	FixedReset	1.00 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.15 Bid-YTW : 9.09 %
RY.PR.J	FixedReset	1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 21.92 Evaluated at bid price : 22.38 Bid-YTW : 4.15 %
TD.PF.C	FixedReset	1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 20.14 Evaluated at bid price : 20.14 Bid-YTW : 4.24 %
TRP.PR.E	FixedReset	1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 20.10 Evaluated at bid price : 20.10 Bid-YTW : 4.47 %
TRP.PR.G	FixedReset	1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 21.39 Evaluated at bid price : 21.67 Bid-YTW : 4.54 %
CM.PR.P	FixedReset	1.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 19.91 Evaluated at bid price : 19.91 Bid-YTW : 4.28 %
IAG.PR.G	FixedReset	1.38 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.76 Bid-YTW : 5.30 %
BAM.PR.T	FixedReset	1.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 18.25 Evaluated at bid price : 18.25 Bid-YTW : 4.80 %
IFC.PR.C	FixedReset	1.50 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.35 Bid-YTW : 6.57 %
PWF.PR.T	FixedReset	1.75 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 22.23 Evaluated at bid price : 22.70 Bid-YTW : 3.88 %
MFC.PR.J	FixedReset	1.90 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.55 Bid-YTW : 5.20 %
TD.PF.D	FixedReset	2.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 22.29 Evaluated at bid price : 23.00 Bid-YTW : 4.08 %
SLF.PR.H	FixedReset	2.36 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.10 Bid-YTW : 6.87 %
BAM.PR.E	Ratchet	2.50 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 25.00 Evaluated at bid price : 16.00 Bid-YTW : 5.12 %
IFC.PR.A	FixedReset	3.03 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.00 Bid-YTW : 8.36 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TRP.PR.D	FixedReset	73,026	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 19.40 Evaluated at bid price : 19.40 Bid-YTW : 4.58 %
TRP.PR.E	FixedReset	48,335	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 20.10 Evaluated at bid price : 20.10 Bid-YTW : 4.47 %
BAM.PF.A	FixedReset	37,825	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 21.24 Evaluated at bid price : 21.52 Bid-YTW : 4.72 %
TD.PF.A	FixedReset	22,048	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 4.22 %
BMO.PR.S	FixedReset	21,359	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 20.42 Evaluated at bid price : 20.42 Bid-YTW : 4.28 %
TD.PR.Z	FloatingReset	20,800	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.77 Bid-YTW : 3.64 %
There were 35 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
TRP.PR.B	FixedReset	Quote: 12.90 – 13.70 Spot Rate : 0.8000 Average : 0.4996 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 12.90 Evaluated at bid price : 12.90 Bid-YTW : 4.47 %
BAM.PR.X	FixedReset	Quote: 15.86 – 16.65 Spot Rate : 0.7900 Average : 0.5528 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 15.86 Evaluated at bid price : 15.86 Bid-YTW : 4.79 %
CU.PR.D	Perpetual-Discount	Quote: 22.40 – 22.92 Spot Rate : 0.5200 Average : 0.3677 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 22.10 Evaluated at bid price : 22.40 Bid-YTW : 5.47 %
BAM.PR.G	FixedFloater	Quote: 15.68 – 16.50 Spot Rate : 0.8200 Average : 0.7006 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 25.00 Evaluated at bid price : 15.68 Bid-YTW : 5.30 %
GWO.PR.N	FixedReset	Quote: 13.90 – 14.34 Spot Rate : 0.4400 Average : 0.3301 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 13.90 Bid-YTW : 9.94 %
BAM.PR.B	Floater	Quote: 12.00 – 12.28 Spot Rate : 0.2800 Average : 0.1798 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-11 Maturity Price : 12.00 Evaluated at bid price : 12.00 Bid-YTW : 3.97 %

Posted in Market Action, Sub-Prime! | 3 Comments »

November 10, 2015

Wednesday, November 11th, 2015

SNC-Lavalin thinks it would be helpful if we had a no-fault justice system with no judiciary:

SNC-Lavalin Group Inc. is pressing Canada’s new Liberal government to adopt corporate corruption settlement deals like those in place in the United Kingdom and the United States, saying federal charges laid against the company are hurting its ability to compete against rivals in Group of 7 countries.
…
SNC is expending significant effort explaining its situation and Canada’s legal system to potential clients, Mr. Bruce added in an interview with The Globe and Mail. He said although those conversations are getting easier over time, ongoing reputational issues continue to affect the company’s ability to bid for work.

“Effectively, we are locked in the court system,” he said, “[It’s] by trial until you’re either found guilty or not guilty.”
…
Differing interests are at play. SNC wants to resolve the matter without admitting guilt, which could damage its ability to bid for contracts internationally and at home. Ottawa has been trying to get tougher on companies involved in corruption after being rebuked for years on the international stage for its perceived failure to take the matter seriously.

Prosecutors in February laid rare corruption and fraud charges against Montreal-based SNC, Canada’s largest engineering firm, related to its business in Libya.

Well, I don’t know why we’re so eager to save Libyans from corruption (Libya is still a foreign country, as far as I know), but that’s a part of law that is currently beside the point. It appears that Mr. Bruce would rather have nice quiet chats with federal bureaucrats regarding allegations of wrongdoing and pay a ~~license fee~~ administrative penalty in lieu of court-ordered fines. He also thinks it would be pleasant to avoid admitting wrongdoing, which will make it much harder for aggrieved third parties to go to what is quaintly known as ‘public court’ to seek redress.

I have no doubt that the law can be improved – and certainly the complete destruction of a company due to relatively limited wrongdoing by a tiny part of it seems disproportionate – but the holus-bolus replacement of the judiciary by well connected political operatives does not sound like much of an improvement to me.

Allister Heath of The Telegraph has some well expressed views on economics:

Seeking to predict the unpredictable has certainly kept a lot of people employed in the City of London, and for good reason: there is an immense and unquenchable appetite for their services. Being proved wrong time and again doesn’t really matter: what counts is the plausibility of the forecast and of the way in which it is delivered. In extremis, economics becomes a branch of showbusiness: entertainment and therapy dressed up as science.

We all want to know what exactly will happen to the economy, interest rates and inflation over the next few years; but economies are complex, non-linear systems that cannot meaningfully be predicted by inputting a few variables into a computer. They are just too random for that – and in any case, the data and statistics at our disposal are too imprecise and subject to endless, drastic revisions. We don’t really know what is happening to the economy today, so how can we possibly know with any degree of precision what will happen in three years’ time? The best we can do is what Nobel prize-winning economist F.A. Hayek called “pattern predictions” and scenario-based forecasts; attempts at spurious accuracy are scientistic rather than scientific, he argued.

It was a mixed, mostly negative day for the Canadian preferred share market, with PerpetualDiscounts off 22bp, FixedResets down 40bp and DeemedRetractibles gaining 15bp. The Performance Highlights table is ridiculously long, as has been the case all year, with a notable preponderance of losers. Volume was slightly below average.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.88 to be $0.76 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.76 cheap at its bid price of 14.06.

Click for Big

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 20.70 to be 0.56 rich, while MFC.PR.F resetting at +141bp on 2016-6-19, is bid at 15.00 to be 0.64 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.54 to be $2.07 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 21.06 and appears to be $1.09 rich.

Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 20.13, looks $0.93 expensive and resets 2019-3-1. FTS.PR.H, with a spread of +145bp and resetting 2020-6-1, is bid at 14.70 and is $0.73 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.58%, with no outliers. There are two junk outliers above 0.00% and two below -2.00%.

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	4.38 %	5.26 %	29,300	17.51	1	-2.4375 %	1,774.8
FixedFloater	5.80 %	5.04 %	30,124	17.48	1	2.4375 %	3,366.9
Floater	3.85 %	3.87 %	62,651	17.66	3	3.2828 %	2,050.6
OpRet	4.85 %	4.70 %	34,609	0.78	1	0.0792 %	2,714.3
SplitShare	4.75 %	5.61 %	152,298	4.38	5	0.0901 %	3,200.3
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0901 %	2,497.0
Perpetual-Premium	5.81 %	-1.33 %	90,302	0.08	6	0.2584 %	2,502.4
Perpetual-Discount	5.52 %	5.61 %	82,634	14.47	33	-0.2220 %	2,592.8
FixedReset	4.77 %	4.51 %	220,525	15.59	76	-0.4037 %	2,144.1
Deemed-Retractible	5.16 %	5.20 %	108,816	5.42	34	0.1478 %	2,588.7
FloatingReset	2.55 %	3.78 %	54,678	5.79	10	-0.3886 %	2,201.9

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.R	FixedReset	-2.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 16.54 Evaluated at bid price : 16.54 Bid-YTW : 5.23 %
SLF.PR.G	FixedReset	-2.52 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.45 Bid-YTW : 8.46 %
GWO.PR.N	FixedReset	-2.44 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.00 Bid-YTW : 9.84 %
BAM.PR.E	Ratchet	-2.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 25.00 Evaluated at bid price : 15.61 Bid-YTW : 5.26 %
HSE.PR.A	FixedReset	-2.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 14.77 Evaluated at bid price : 14.77 Bid-YTW : 4.84 %
FTS.PR.H	FixedReset	-2.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 14.70 Evaluated at bid price : 14.70 Bid-YTW : 4.31 %
PWF.PR.P	FixedReset	-2.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 14.65 Evaluated at bid price : 14.65 Bid-YTW : 4.54 %
TD.PF.C	FixedReset	-1.87 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 19.92 Evaluated at bid price : 19.92 Bid-YTW : 4.28 %
SLF.PR.H	FixedReset	-1.84 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.66 Bid-YTW : 7.18 %
BNS.PR.Y	FixedReset	-1.73 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.45 Bid-YTW : 5.37 %
BAM.PF.G	FixedReset	-1.65 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 21.71 Evaluated at bid price : 22.08 Bid-YTW : 4.60 %
CU.PR.F	Perpetual-Discount	-1.62 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 20.71 Evaluated at bid price : 20.71 Bid-YTW : 5.45 %
MFC.PR.K	FixedReset	-1.59 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.42 Bid-YTW : 6.19 %
NA.PR.W	FixedReset	-1.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 20.06 Evaluated at bid price : 20.06 Bid-YTW : 4.29 %
BNS.PR.Z	FixedReset	-1.42 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.80 Bid-YTW : 5.77 %
BAM.PR.Z	FixedReset	-1.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 21.61 Evaluated at bid price : 22.02 Bid-YTW : 4.69 %
BIP.PR.A	FixedReset	-1.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 21.96 Evaluated at bid price : 22.45 Bid-YTW : 5.13 %
IFC.PR.A	FixedReset	-1.32 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.50 Bid-YTW : 8.77 %
TD.PF.D	FixedReset	-1.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 22.00 Evaluated at bid price : 22.51 Bid-YTW : 4.18 %
BAM.PR.T	FixedReset	-1.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 18.00 Evaluated at bid price : 18.00 Bid-YTW : 4.86 %
CM.PR.O	FixedReset	-1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 20.18 Evaluated at bid price : 20.18 Bid-YTW : 4.33 %
BMO.PR.R	FloatingReset	-1.08 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.00 Bid-YTW : 3.43 %
BAM.PF.A	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 21.40 Evaluated at bid price : 21.73 Bid-YTW : 4.67 %
BNS.PR.D	FloatingReset	-1.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.55 Bid-YTW : 5.56 %
BMO.PR.M	FixedReset	-1.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.50 Bid-YTW : 3.36 %
GWO.PR.G	Deemed-Retractible	1.06 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.78 Bid-YTW : 6.02 %
PWF.PR.T	FixedReset	1.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 21.96 Evaluated at bid price : 22.31 Bid-YTW : 3.96 %
BNS.PR.R	FixedReset	1.49 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.55 Bid-YTW : 3.77 %
TD.PF.E	FixedReset	1.69 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 22.54 Evaluated at bid price : 23.50 Bid-YTW : 4.06 %
BAM.PR.G	FixedFloater	2.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 25.00 Evaluated at bid price : 16.39 Bid-YTW : 5.04 %
BAM.PR.C	Floater	2.81 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 12.08 Evaluated at bid price : 12.08 Bid-YTW : 3.95 %
BAM.PR.B	Floater	3.50 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 12.42 Evaluated at bid price : 12.42 Bid-YTW : 3.84 %
BAM.PR.K	Floater	3.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 12.31 Evaluated at bid price : 12.31 Bid-YTW : 3.87 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.Q	FixedReset	59,221	RBC crossed 50,000 at 21.15. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.08 Bid-YTW : 5.39 %
BAM.PF.B	FixedReset	36,725	RBC crossed 20,000 at 20.72. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 20.70 Evaluated at bid price : 20.70 Bid-YTW : 4.62 %
SLF.PR.I	FixedReset	32,392	TD crossed 25,500 at 22.25. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.27 Bid-YTW : 5.46 %
RY.PR.H	FixedReset	28,927	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 20.21 Evaluated at bid price : 20.21 Bid-YTW : 4.24 %
CM.PR.P	FixedReset	27,250	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 19.65 Evaluated at bid price : 19.65 Bid-YTW : 4.34 %
TRP.PR.D	FixedReset	25,496	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 19.30 Evaluated at bid price : 19.30 Bid-YTW : 4.60 %
There were 28 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PR.E	Ratchet	Quote: 15.61 – 16.75 Spot Rate : 1.1400 Average : 0.7178 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 25.00 Evaluated at bid price : 15.61 Bid-YTW : 5.26 %
TRP.PR.H	FloatingReset	Quote: 11.90 – 13.00 Spot Rate : 1.1000 Average : 0.6943 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 11.90 Evaluated at bid price : 11.90 Bid-YTW : 3.56 %
TRP.PR.G	FixedReset	Quote: 21.43 – 22.25 Spot Rate : 0.8200 Average : 0.5642 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 21.43 Evaluated at bid price : 21.43 Bid-YTW : 4.61 %
FTS.PR.G	FixedReset	Quote: 19.50 – 20.09 Spot Rate : 0.5900 Average : 0.3725 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 4.28 %
SLF.PR.G	FixedReset	Quote: 15.45 – 15.95 Spot Rate : 0.5000 Average : 0.3313 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.45 Bid-YTW : 8.46 %
RY.PR.W	Perpetual-Discount	Quote: 23.30 – 23.78 Spot Rate : 0.4800 Average : 0.3209 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-10 Maturity Price : 23.03 Evaluated at bid price : 23.30 Bid-YTW : 5.26 %

Posted in Market Action | No Comments »

BRF.PR.E: Coercive Exchange Offer

Tuesday, November 10th, 2015

Brookfield Renewable Energy Partners L.P. has announced:

the commencement of an offer to exchange (the “Exchange Offer”) each issued and outstanding Class A Preference Share, Series 5 of Brookfield Renewable Power Preferred Equity Inc. (TSX:BRF.PR.E) (“BRP Equity”) with an annual dividend rate of 5.00% (collectively, the “Series 5 Preferred Shares”) for one newly issued Class A Preferred Limited Partnership Unit, Series 5 of Brookfield Renewable with an annual distribution rate of 5.59% (collectively, the “Series 5 Preferred Units”). The annual distribution rate on each Series 5 Preferred Unit will be C$1.3976, compared to the annual dividend rate of C$1.25 on each Series 5 Preferred Share.

Holders of Series 5 Preferred Shares (“Series 5 Preferred Shareholders”) will be entitled to receive one Series 5 Preferred Unit for each Series 5 Preferred Share tendered under the Exchange Offer. Each of the guarantors of the Series 5 Preferred Shares will also be a guarantor of the Series 5 Preferred Units, other than the issuer, Brookfield Renewable. The Series 5 Preferred Units have been assigned a provisional rating of “Pfd-3 (high)” by DBRS Limited (“DBRS”) and a preliminary rating of “P-3 (high)” by Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies Inc. (“S&P”), which are the same ratings currently assigned by DBRS and S&P to the Series 5 Preferred Shares.

The Exchange Offer will be open for acceptance until 5:00 p.m. (Toronto Time) on December 18, 2015, unless extended or withdrawn by Brookfield Renewable. The Exchange Offer is conditional upon, among other things, at least 50% of the Series 5 Preferred Shares having been validly deposited or tendered under the Exchange Offer and not withdrawn, which condition may be waived by Brookfield Renewable.

The Exchange Offer is being made pursuant to a supplement to Brookfield Renewable’s short form base shelf prospectus dated May 12, 2015 (the “Prospectus Supplement”) that will be filed today with securities regulatory authorities in each of the provinces and territories of Canada.

Series 5 Preferred Shareholders should consider the following factors, among others, in making a decision whether to accept the Exchange Offer:
•Increased distributions: The annual distribution rate on the Series 5 Preferred Units is 5.59% (C$1.3976), compared to the annual dividend rate of 5.00% (C$1.25) for the Series 5 Preferred Shares.

•Substantially similar other terms and conditions: The other terms and conditions of the Series 5 Preferred Units will be substantially similar to those of the Series 5 Preferred Shares, other than certain technical amendments noted in the Prospectus Supplement.

•Unanimous Board Recommendation: The board of directors of the general partner of Brookfield Renewable and the board of directors of BRP Equity, after reviewing the Fairness Opinion (as defined below) have unanimously recommended that Series 5 Preferred Shareholders accept the Exchange Offer and deposit their Series 5 Preferred Shares pursuant to the Exchange Offer.

•Fairness Opinion: The Partnership and BRP Equity engaged PricewaterhouseCoopers LLP to provide an opinion to the effect that, subject to the assumptions, limitations and qualifications contained therein, the consideration to be received under the Exchange Offer is fair, from a financial point of view, to the holders of Series 5 Preferred Shares (the “Fairness Opinion”).

Full details of the Exchange Offer are contained in the Prospectus Supplement and other related documents that will be mailed today to the registered holder of all Series 5 Preferred Shares as required under applicable Canadian securities laws. Copies of the Prospectus Supplement and other relevant documents will be available on SEDAR at www.sedar.com and on Brookfield Renewable’s website at www.brookfieldrenewable.com. Brookfield Renewable has also commenced the process of mailing to beneficial holders of Series 5 Preferred Shares. Series 5 Preferred Shareholders are urged to evaluate carefully all information in the Exchange Offer, including risk factors, and to consult their own investment, tax and legal advisors.

Computershare Investor Services Inc. is the Depositary for the Exchange Offer and D.F. King Canada, a division of CST Investor Services Inc., is the Information Agent. Any questions or requests for assistance concerning the Exchange Offer or further information about tendering to the Exchange Offer should be directed to the Depositary at 1-800-564-6253 (toll free in North America) or 1-514-982-7555, or by e-mail at corporateactions@computershare.com; or to the Information Agent at 1-800-332-4904 (toll free in North America) or 1-201-806-7301, or by e-mail at inquiries@dfking.com.

Copies of the Prospectus Supplement and any other documents relating to the Exchange Offer as referred to above may be obtained free of charge upon request to the Depositary or the Information Agent. Series 5 Preferred Shareholders whose Series 5 Preferred Shares are registered in the name of a broker, investment dealer, bank, trust company or other nominee should contact such nominee for assistance in depositing their Series 5 Preferred Shares to the Exchange Offer.

BRF.PR.E is a Straight Perpetual, 5.00%, which commenced trading 2013-1-29 after being announced 2013-1-21. It is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

I consider this offer coercive because, according to the prospectus supplement:

Following the completion of the Exchange Offer and any Subsequent Acquisition or Compulsory Acquisition Transaction relating thereto, the Partnership intends to cause BRP Equity to apply to the TSX to delist the Series 5 Preferred Shares from trading. See “The Exchange Offer – Effect of the Exchange Offer on the Market for Series 5 Preferred Shares, Listing and Public Disclosure by BRP Equity”.

The more detailed explanation is:

Effect of the Exchange Offer on the Market for Series 5 Preferred Shares, Listing and Public Disclosure by BRP Equity

If, after taking up Series 5 Preferred Shares under the Exchange Offer, the Partnership holds a sufficient number of Series 5 Preferred Shares, the Partnership intends to effect a Subsequent Acquisition Transaction or, if a sufficient number of Series 5 Preferred Shares are tendered, a Compulsory Acquisition. In such event, if permitted by applicable Law, the Partnership will apply to delist the Series 5 Preferred Shares from the TSX and there will no longer be a trading market for the Series 5 Preferred Shares.

Even if the Subsequent Acquisition Transaction or Compulsory Acquisition cannot be completed as quickly as intended, the purchase of Series 5 Preferred Shares by the Partnership pursuant to the Exchange Offer will reduce the number of Series 5 Preferred Shares that might otherwise trade publicly, as well as the number of Series 5 Preferred Shareholders and would likely adversely affect the liquidity and market value of the remaining Series 5 Preferred Shares held by the public.

A decline in liquidity is all part of the game, but it will be noted that company is not making any commitment to maintain the listing in any scenarios that are not specified in the above. Note that:

Resident Holders are cautioned that, if the Series 5 Preferred Shares are no longer listed on a “designated stock exchange” (which currently includes the TSX) and BRP Equity ceases to be a “public corporation” for purposes of the Tax Act, the Series 5 Preferred Shares will not be qualified investments for trusts governed by RRSPs, RRIFs, registered education savings plans, registered disability savings plans, deferred profit sharing plans or TFSAs. Resident Holders are urged to consult their own tax advisors with respect to the potential income tax consequences to them in this regard.

So that’s the stick. The carrot is:

• Increased distributions: The annual distribution rate on the Series 5 Preferred Units is 5.59%, compared to the annual dividend rate of 5.00% for the Series 5 Preferred Shares.

But the difficult part is the tax considerations. First off, this is not a tax-free rollover:

A Holder of Series 5 Preferred Shares who for purposes of the Tax Act (as defined herein) and at all relevant times, is or is deemed to be resident in Canada (a “Resident Holder”) who exchanges Series 5 Preferred Shares for Series 5 Preferred Units pursuant to the Exchange Offer will be considered to have disposed of such Series 5 Preferred Shares for proceeds of disposition equal to the fair market value, as at the time of acquisition, of the Series 5 Preferred Units acquired by such Resident Holder on the exchange. As a result, the Resident Holder generally will realize a capital gain (or capital loss) to the extent that such proceeds of disposition exceed (or are less than) the aggregate of the adjusted cost base to the purchaser of the Series 5 Preferred Shares so exchanged and any reasonable costs of disposition.

However, this is of relatively small concern, since the year-end 2014 bid was 21.40 compared to today’s closing bid of 21.05 (after a healthy pop in price today, +3.64%. It looks like some players like the offer!), so I suspect that most – although not all! – holders will crystallize a capital loss.

Of greater pith and moment is the nature of the dividends to be paid on the new Preferred Units:

For Canadian federal income tax purposes, holders of Series 5 Preferred Units will be allocated a portion of the taxable income of the Partnership based on their proportionate share of distributions received on their units. The allocation of taxable income to such holders may be less than the distributions received. This difference is commonly referred to as a tax deferred return of capital (i.e., returns that are initially non-taxable but which reduce the adjusted cost base of the holder’s units). See “Certain Canadian Federal Income Tax Considerations” in this Prospectus Supplement for further details. As shown in the table below, the historical 3 year average per unit Canadian dividends, ordinary income and return of capital (i.e., excess of distributions over allocated taxable income) expressed as a percentage of the annual distributions in respect of units of the Partnership for the period 2012 through 2014 were approximately 56%, 26%, and 18% respectively. Management anticipates the 5 year average per unit Canadian dividend, ordinary income and return of capital will be 50%, 25%, and 25%, respectively, for the period between 2015 and 2020; however, no assurance can be provided this will occur.

So let’s take them at their word and estimate the after tax return on BRF.PR.E compared to the new units (which pay a total of 5.59%). According to Ernst & Young, marginal tax rates for an Ontario resident with taxable income of $150,000 p.a. were 46.41% on income, 23.20% on capital gains and 29.52% on eligible dividends. Since the Return of Capital on the new units will eventually be taxed as a capital gain but only when the gain or loss is crystallized, let’s apply a 25% discount to the capital gain marginal rate to reflect the time value of the money; hence, we will assume that the Return of Capital is subject to tax at a rate of 23.20% * 75% = 17.4%:

Taxation comparison of distributions
	BRF.PR.E			New Security
Distribution Type	Pre Tax Amount	Tax	Net	Pre Tax Amount	Tax	Net
Eligible Dividend	1.25	0.369	0.881	0.69875	0.20627	0.49248
Ordinary Income	0.00	0.00	0.00	0.349375	0.162145	0.187230
Return of Capital	0.00	0.00	0.00	0.349375	0.060791	0.288584
Total	1.25	0.369	0.881	1.3975	0.4292	0.9683

So on the surface it seems like a genuine improvement – the after-tax income per share will increase from 0.881 to 0.9683, a 9.9% hike. However, note that there are no guarantees offered by the company! If it should come to pass that 100% of the distributions are ordinary income, then tax at 46.41% will come to 0.6486 and the net after-tax amount will be 0.7489, a 15.0% decline. So there’s a certain amount of tax-risk here, depending on the nature of the company’s distributions.

DBRS has assigned a provisional rating of Pfd-3(high) to the issue:

DBRS Limited (DBRS) has today assigned a provisional rating of Pfd-3 (high) with a Stable trend to Brookfield Renewable Energy Partners L.P.’s (BREP; rated BBB (high), Stable trend) proposed new issuance of Class A Preferred Limited Partnership Units, Series 5 (Preferred LP Units).

I will not make a recommendation regarding tendering holdings of BRF.PR.E at this time, and I might not make a recommendation at all. But feel free to comment!

Posted in Issue Comments, New Issues, Return of Capital | 7 Comments »

Moody’s: BNS On Review-Negative

Tuesday, November 10th, 2015

Moody’s Investors Service has announced that it:

has placed the long term ratings, Counterparty Risk Assessment and Baseline Credit Assessment of Bank of Nova Scotia (BNS, Aa2/Aa2 negative, a1) and its subsidiaries on review for downgrade, and affirmed BNS’s Prime-1 short-term deposit rating, short-term Counterparty Risk Assessment and other short term ratings.
…
Moody’s said the review was prompted by BNS having taken significant measures to increase its profitability that signal a fundamental shift away from the bank’s traditionally low risk appetite. These strategic actions are intended to enhance current profitability (BNS reports the lowest domestic net interest margin of the six largest Canadian banks), but in Moody’s view increase the prospect of future incremental credit losses when the credit cycle turns.

Over the last two years, BNS has accelerated the growth in its credit card and auto finance portfolios, in accordance with its strategic initiatives to expand these portfolios, both of which are particularly prone to rapid deterioration during an economic shock and exhibit higher defaults and loss severities than mortgage portfolios. Personal and credit cards loans grew at a CAGR of 8% over the past two years, the highest among the six large Canadian peer banks. In addition, BNS has made a series of acquisitions away from its strong domestic franchise towards higher-growth but less stable international markets.

During the review period, Moody’s will review the likelihood that BNS’s increased risk tolerance and strategic imperative to increase profitability by shifting the asset mix towards higher yielding categories of consumer credit, both domestically and in international operations, will persist. Moody’s will also undertake further analysis of the operating environments of the regions outside of Canada where BNS operates, and the bank’s strategy and performance in these regions. Moody’s will also assess the implications of the shift in risk tolerance, balanced against the strategic plan to enhance profitability and shareholder returns.

Given the direction of the review, upward pressure on the rating is unlikely. Downward pressure will depend upon our assessment of the items noted above as the focus of our review.

Doug Alexander of Bloomberg observes:

Debtholders already weighed in on the Toronto-based bank: Scotiabank’s Canadian dollar bonds are the worst performing among Canada’s six largest lenders this year.
…
Scotiabank is rated Aa2 by Moody’s, surpassed only by Toronto-Dominion Bank’s Aa1 grade. Royal Bank of Canada, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada carry Aa3 ratings. Moody’s last downgraded Scotiabank in January 2013.
…
Canadian consumers, already saddled with record household debt, have pushed the ratio of debt to disposable income to almost double that of the nation’s last severe recession in 1992, when unemployment hit 11.7 percent. Canadian card losses typically average around 3 percent of overall balances and soar to 7.5 percent in troubled times, whereas losses from mortgages are about 0.02 percent and have reached 0.1 percent in recessions, Moody’s said.
…
Scotiabank’s Canadian dollar bonds had a year-to-date total return of 1.5 percent as of Nov. 6, trailing the returns of Canada’s other so-called Big 6 lenders.

Scotia has a raft of preferred shares currently extant which could potentially be downgraded: BNS.PR.A, BNS.PR.B, BNS.PR.C, BNS.PR.D, BNS.PR.L, BNS.PR.M, BNS.PR.N, BNS.PR.O, BNS.PR.P, BNS.PR.Q, BNS.PR.R, BNS.PR.Y and BNS.PR.Z.

Posted in Issue Comments | No Comments »

November 9, 2015

Tuesday, November 10th, 2015

While the Fed moves closer to an anti-inflationary rate hike – or so it is assumed! – China continues to be worried about deflation:

China’s consumer inflation waned in October while factory-gate deflation extended a record streak of negative readings, signaling policy makers may need to hit the gas again to ease deflationary pressures.

The consumer-price index rose 1.3 percent in October from a year earlier, according to the National Bureau of Statistics, missing the 1.5 percent median estimate in a Bloomberg survey and down from 1.6 percent in September. The producer-price index fell 5.9 percent, its 44th straight monthly decline.

The lingering deflation risks, along with weakening trade, open the door for additional stimulus as inflation remains about half the government’s target pace. The People’s Bank of China — which has cut interest rates six times in the past year — is seeking to stabilize the economy without fueling a renewed surge in debt.
…
Food prices rose 1.9 percent from a year earlier, from 2.7 percent in September. Non-food prices climbed 0.9 percent. Prices of consumer goods increased 1 percent, while services increased 1.9 percent, the data showed.

The inflation reading follows a tepid trade report that suggested the world’s second-biggest economy isn’t likely to get a near-term boost from global demand. Overseas shipments dropped 6.9 percent in October in dollar terms while weaker demand for coal, iron and other commodities from declining heavy industries helped pushimports down 18.8 percent, leaving a recordtrade surplus of $61.6 billion.

China isn’t the only major economy battling lowflation. American consumers’ expectations for inflation three years ahead fell last month to the lowest level in records going back to June 2013, according to a monthly Federal Reserve Bank of New York survey released Monday.

The Bank of Japan last month blamed the slide in oil prices for its decision to postpone its time frame for reaching a 2 percent inflation target for the second time this year, while the Bank of England last week forecast that consumer-price growth will remain below 1 percent — less than half its target — until the second half of 2016. In the euro zone, inflation has averaged 1.2 percent in the four years since Mario Draghi took the helm of the European Central Bank in November 2011, according to Bloomberg calculations.

It will be recalled that China’s devaluation was characterized as ‘exporting deflation’; I guess they’d better export more!

Meanwhile, Treasuries continued to ease:

Treasuries haven’t had such an extended losing run since June 2013, as investors step up bets that the first Federal Reserve interest-rate increase in almost a decade will come this year.

U.S. sovereign debt retreated for a sixth day Monday, after Boston Fed President Eric Rosengren added his voice to the chorus of Fed officials saying liftoff could come at their Dec. 15-16 meeting. The yield on 10-year Treasury notes touched a three-month high of 2.37 percent that day. Futures put the odds for a rate rise by year-end at 68 percent, compared with a 50 percent probability at the end of last month.

Meanwhile the war on markets continues:

U.S. officials investigating the $12.8 trillion market for U.S. Treasuries are zeroing in on a practice of trading the debt before it’s issued, said a person familiar with the matter — spotlighting trades that several recent lawsuits allege are part of big banks’ efforts to rig Treasury markets.

Goldman Sachs Group Inc. tipped the government’s avenue of inquiry in a recent regulatory filing. In a standard passage about areas under regulatory scrutiny, the bank’s Nov. 2 disclosure included a handful of words that hadn’t appeared the previous quarter: “offering,” “auction” and “when-issued trading.” It was a reference, the person said, to a fresh line of exploration in the government’s broader, months-old investigation into Treasuries trading.

That shows officials’ interest in one of the least transparent corners of the world’s largest debt market. When-issued securities act as placeholders for bills, notes or bonds before they’re auctioned. The instruments change hands over the counter, with lifespans of just days. There’s scant public information on trading volumes or the market’s biggest players.
…
When debt sells for less than when-issued prices indicate, traders say the auction “tailed.” Auctions tailed more than half the time in every type of security except for the 10-year note between 2010 and 2014, a Cleveland pension fund alleged in a lawsuit against the 22 primary dealers filed Aug. 26 in Manhattan federal court. The chances that a supposedly predictive market would be so consistently off, in a direction that favors the people selling the security, is lower than 1 percent, the fund alleged.

The banks selling when-issued securities are often the same ones that receive billions of dollars worth of client bids for those same auctions. That raises the concern — taken as a given in several of the recent suits — that information is being shared within and between banks.

It was a mixed, modestly negative, day for the Canadian preferred share market as buyers took a rest after Friday‘s exertions. PerpetualDiscounts gained 7bp, FixedResets were off 15bp and DeemedRetractibles were down 17bp. Beneath the veneer of calm, however, was a lot of churn, as illustrated by the Performance Highlights table. Volume was slightly below average.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.86 to be $0.66 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.75 cheap at its bid price of 14.05.

Click for Big

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 20.82 to be 0.61 rich, while MFC.PR.F resetting at +141bp on 2016-6-19, is bid at 15.12 to be 0.63 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.97 to be $1.77 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 21.00 and appears to be $0.88 rich.

Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 20.28, looks $0.88 expensive and resets 2019-3-1. FTS.PR.H, with a spread of +145bp and resetting 2020-6-1, is bid at 15.01 and is $0.65 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.52%, with no outliers. There are three junk outliers above 0.00% and one below -2.00%.

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	4.27 %	5.12 %	27,904	17.69	1	0.0000 %	1,819.2
FixedFloater	5.94 %	5.19 %	31,310	17.31	1	0.9464 %	3,286.8
Floater	3.98 %	4.01 %	62,634	17.37	3	1.1925 %	1,985.4
OpRet	4.85 %	4.78 %	34,596	0.78	1	-0.1975 %	2,712.1
SplitShare	4.75 %	5.66 %	152,742	4.38	5	0.1313 %	3,197.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1313 %	2,494.8
Perpetual-Premium	5.82 %	3.30 %	89,302	0.08	6	-0.0530 %	2,496.0
Perpetual-Discount	5.50 %	5.60 %	83,626	14.50	33	0.0657 %	2,598.6
FixedReset	4.75 %	4.45 %	217,132	15.62	76	-0.1505 %	2,152.8
Deemed-Retractible	5.17 %	5.16 %	109,812	5.42	34	-0.1746 %	2,584.9
FloatingReset	2.54 %	3.65 %	54,935	5.80	10	-0.2266 %	2,210.4

Performance Highlights
Issue	Index	Change	Notes
IFC.PR.A	FixedReset	-4.46 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.72 Bid-YTW : 8.58 %
TRP.PR.D	FixedReset	-3.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 4.59 %
TRP.PR.C	FixedReset	-3.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 14.05 Evaluated at bid price : 14.05 Bid-YTW : 4.62 %
CU.PR.C	FixedReset	-2.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.07 Evaluated at bid price : 21.07 Bid-YTW : 4.14 %
FTS.PR.J	Perpetual-Discount	-1.94 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.98 Evaluated at bid price : 22.26 Bid-YTW : 5.42 %
MFC.PR.N	FixedReset	-1.94 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.28 Bid-YTW : 5.78 %
FTS.PR.F	Perpetual-Discount	-1.93 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 22.60 Evaluated at bid price : 22.85 Bid-YTW : 5.45 %
TRP.PR.G	FixedReset	-1.76 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.42 Evaluated at bid price : 21.71 Bid-YTW : 4.60 %
TD.PF.E	FixedReset	-1.74 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 22.34 Evaluated at bid price : 23.11 Bid-YTW : 4.14 %
IFC.PR.C	FixedReset	-1.47 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.10 Bid-YTW : 6.73 %
BAM.PF.E	FixedReset	-1.41 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 4.57 %
GWO.PR.G	Deemed-Retractible	-1.38 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.53 Bid-YTW : 6.17 %
GWO.PR.Q	Deemed-Retractible	-1.35 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.42 Bid-YTW : 6.18 %
TRP.PR.F	FloatingReset	-1.24 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 15.09 Evaluated at bid price : 15.09 Bid-YTW : 3.88 %
MFC.PR.F	FixedReset	-1.24 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.12 Bid-YTW : 9.11 %
CM.PR.O	FixedReset	-1.21 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.41 Evaluated at bid price : 20.41 Bid-YTW : 4.28 %
CM.PR.P	FixedReset	-1.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 19.79 Evaluated at bid price : 19.79 Bid-YTW : 4.31 %
RY.PR.J	FixedReset	-1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.76 Evaluated at bid price : 22.15 Bid-YTW : 4.20 %
TRP.PR.A	FixedReset	-1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 16.96 Evaluated at bid price : 16.96 Bid-YTW : 4.52 %
BAM.PR.X	FixedReset	-1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 16.12 Evaluated at bid price : 16.12 Bid-YTW : 4.71 %
CU.PR.G	Perpetual-Discount	-1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.97 Evaluated at bid price : 20.97 Bid-YTW : 5.38 %
TD.PR.Y	FixedReset	-1.06 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.16 Bid-YTW : 3.78 %
MFC.PR.M	FixedReset	-1.03 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.16 Bid-YTW : 5.94 %
NA.PR.Q	FixedReset	-1.00 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.75 Bid-YTW : 3.77 %
MFC.PR.H	FixedReset	1.04 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.30 Bid-YTW : 4.73 %
FTS.PR.K	FixedReset	1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.28 Evaluated at bid price : 20.28 Bid-YTW : 4.07 %
BAM.PR.M	Perpetual-Discount	1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.12 Evaluated at bid price : 21.12 Bid-YTW : 5.71 %
FTS.PR.G	FixedReset	1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 19.65 Evaluated at bid price : 19.65 Bid-YTW : 4.24 %
BAM.PF.B	FixedReset	1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.55 Evaluated at bid price : 20.55 Bid-YTW : 4.65 %
BMO.PR.S	FixedReset	1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.56 Evaluated at bid price : 20.56 Bid-YTW : 4.25 %
BAM.PR.T	FixedReset	1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 18.21 Evaluated at bid price : 18.21 Bid-YTW : 4.81 %
BAM.PR.B	Floater	1.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 12.00 Evaluated at bid price : 12.00 Bid-YTW : 3.97 %
MFC.PR.I	FixedReset	1.35 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.26 Bid-YTW : 5.07 %
CU.PR.H	Perpetual-Discount	1.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 23.89 Evaluated at bid price : 24.25 Bid-YTW : 5.41 %
BIP.PR.A	FixedReset	1.79 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 22.15 Evaluated at bid price : 22.75 Bid-YTW : 5.06 %
BAM.PF.C	Perpetual-Discount	1.87 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.29 Evaluated at bid price : 21.29 Bid-YTW : 5.78 %
BNS.PR.A	FloatingReset	1.92 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.35 Bid-YTW : 3.57 %
BAM.PR.K	Floater	2.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 11.89 Evaluated at bid price : 11.89 Bid-YTW : 4.01 %
BAM.PF.D	Perpetual-Discount	2.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.35 Evaluated at bid price : 21.66 Bid-YTW : 5.72 %
MFC.PR.J	FixedReset	2.31 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.10 Bid-YTW : 5.47 %
HSE.PR.A	FixedReset	3.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 15.13 Evaluated at bid price : 15.13 Bid-YTW : 4.73 %
BAM.PF.F	FixedReset	4.23 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.98 Evaluated at bid price : 22.41 Bid-YTW : 4.52 %

Volume Highlights
Issue	Index	Shares Traded	Notes
HSE.PR.E	FixedReset	93,750	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 22.17 Evaluated at bid price : 22.76 Bid-YTW : 5.06 %
SLF.PR.H	FixedReset	72,486	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.01 Bid-YTW : 6.93 %
HSE.PR.A	FixedReset	47,561	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 15.13 Evaluated at bid price : 15.13 Bid-YTW : 4.73 %
SLF.PR.J	FloatingReset	37,851	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.10 Bid-YTW : 8.87 %
TRP.PR.D	FixedReset	32,921	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 4.59 %
BMO.PR.T	FixedReset	32,020	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.02 Evaluated at bid price : 20.02 Bid-YTW : 4.26 %
There were 27 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
SLF.PR.H	FixedReset	Quote: 19.01 – 19.73 Spot Rate : 0.7200 Average : 0.4529 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.01 Bid-YTW : 6.93 %
BAM.PR.X	FixedReset	Quote: 16.12 – 16.83 Spot Rate : 0.7100 Average : 0.4602 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 16.12 Evaluated at bid price : 16.12 Bid-YTW : 4.71 %
POW.PR.G	Perpetual-Discount	Quote: 24.82 – 25.48 Spot Rate : 0.6600 Average : 0.4178 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 24.36 Evaluated at bid price : 24.82 Bid-YTW : 5.68 %
CU.PR.G	Perpetual-Discount	Quote: 20.97 – 21.50 Spot Rate : 0.5300 Average : 0.3262 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.97 Evaluated at bid price : 20.97 Bid-YTW : 5.38 %
CU.PR.D	Perpetual-Discount	Quote: 22.51 – 23.02 Spot Rate : 0.5100 Average : 0.3110 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 22.18 Evaluated at bid price : 22.51 Bid-YTW : 5.44 %
RY.PR.J	FixedReset	Quote: 22.15 – 22.62 Spot Rate : 0.4700 Average : 0.2749 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.76 Evaluated at bid price : 22.15 Bid-YTW : 4.20 %

Posted in Market Action | No Comments »

GWO.PR.N To Be Extended

Sunday, November 8th, 2015

Great-West Lifeco Inc. has announced:

that it does not intend to exercise its right to redeem its outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series N (the “Series N Shares”) on December 31, 2015. As a result, subject to certain conditions, the holders of the Series N Shares have the right to convert all or any of their Series N Shares into Non-Cumulative Floating Rate First Preferred Shares, Series O (the “Series O Shares”) on a one-for-one basis on December 31, 2015. A formal notice of the right to convert Series N Shares into Series O Shares will be sent to the registered holder of the Series N Shares in accordance with the rights, privileges, restrictions and conditions attached to the Series N Shares. Holders of Series N Shares who do not exercise their right to convert their Series N Shares into Series O Shares on such date will retain their Series N Shares.

The foregoing conversion right is subject to the conditions that: (i) if Lifeco determines that if, following such conversions, there would be less than one million Series O Shares outstanding on December 31, 2015, no Series N Shares may be converted into Series O Shares, and (ii) alternatively, if Lifeco determines that if, following such conversions, there would be less than one million Series N Shares outstanding on December 31, 2015, then all remaining Series N Shares will automatically be converted into Series O Shares on a one-for-one basis on December 31, 2015. In either case, Lifeco will give written notice to that effect to any registered holder affected by the preceding conditions on or before Thursday, December 24, 2015.

The dividend rate applicable to the Series N Shares for the five-year period commencing on December 31, 2015 and ending on December 30, 2020, and the dividend rate applicable to the Series O Shares for the three-month period commencing on December 31, 2015 and ending on March 30, 2016, will be determined on Tuesday, December 1, 2015 and written notice thereof will be given to the registered holder of the Series N Shares on that day.

Beneficial owners of Series N Shares who wish to have their Series N Shares converted into Series O Shares should communicate as soon as possible with their broker or other nominee to ensure their instructions are followed so that the registered holder of the Series N Shares can meet the deadline to exercise such conversion right, which is 5:00 p.m. (ET) on Wednesday, December 16, 2015.

Lifeco may redeem the Series N Shares, in whole or in part, on December 31, 2020 and on December 31 every five years thereafter for $25.00 per share plus declared and unpaid dividends and may redeem the Series O Shares, in whole or in part, after December 31, 2015 for $25.50 per share plus declared and unpaid dividends, unless such Series O Shares are redeemed on December 31, 2020 or on December 31 every five years thereafter, in which case the redemption price will be $25.00 per share plus declared and unpaid dividends.

No surprises here, since GWO.PR.N is a FixedReset, 3.65%+130, which commenced trading 2010-11-23 after being announced 2010-11-15. The issue was met with disfavour and there was an inventory clearance sale closing 2010-12-3.

Note that since the issue is issued by an insurance holding company and is not convertible into common at the option of the issuer, I consider it to have a “Deemed Maturity” 2025-1-31 (this date may change in the future). This is due to my belief that OSFI will eventually extend the Non-Viability Contingent Capital (NVCC) rules to insurers and insurance holding companies. There is a brief explanation of this on the PrefLetter website (under the heading “DeemedRetractibles”) and with more detailed argument and progress reports on international negotiations in every edition of PrefLetter.

I will note that the market does not share my views regarding future application of the NVCC rules insurers and insurance issues trade very similarly to perpetuals.

Posted in Issue Comments | No Comments »

November 6, 2015

Saturday, November 7th, 2015

Jobs, jobs, jobs!

Forget about ambiguity. The October jobs report left little doubt the U.S. labor market is back with a vengeance after a two-month lull.

The 271,000 gain in payrolls was the biggest this year and exceeded all estimates in a Bloomberg survey of economists, a Labor Department report showed Friday. The jobless rate fell to a seven-year low of 5 percent and average hourly earnings over the past 12 months climbed by the most since 2009.
…
Investors have raised to about 70 percent the probability of a rate increase by policy makers’ December meeting, according to pricing in the federal funds futures market. That compares to 56 percent on Thursday, and assumes the effective funds rate averages 0.375 percent after liftoff.

The report also showed diminishing labor-market slack. The number of Americans working part-time because of a weak economy fell to 5.7 million in October, the lowest since June 2008.

There were even some private sector jobs in Canada!

Canada added 44,000 jobs in October, a gain that blew past expectations but was likely due to temporary hiring for the federal election.

The bulk of the new jobs were in the public administration sector and coincided with the last two weeks before the election in mid-October that saw the Liberals sweep to power.
…
The country lost 9,000 construction jobs and the resources sector continued to shrink, shedding another 8,000 jobs last month, according to the government’s latest labour report.

Alberta shouldered a big chunk of the losses, shedding 11,000 jobs in October.
…
Meanwhile, Ontario and British Columbia each added more than 20,000 jobs.

… so treasuries took a hit:

Yields on 10-year U.S. Treasuries surged 10 basis points to 2.33 percent, following a four-day increase as bets on a Fed move next month crept up. The rate on the more policy-sensitive 2-year note jumped six basis points to 0.89 percent.

The yield on the Bloomberg U.S. Treasury Bond Index climbed to 1.64 percent Thursday, the highest level since July 13. The gauge headed for a third weekly loss, with the decline totaling 1.2 percent.

There’s an interesting New York Fed piece on the Differences in Rent Inflation by Cost of Housing:

In this post, which is based upon our updated staff report on “The Measurement of Rent Inflation,” we present evidence that price changes for rent, which comprises a large share of consumer spending, can vary considerably across households. In particular, we show that rent inflation is consistently higher for lower-cost housing units than it is for higher-cost units. Note that since owners’ equivalent rent inflation is estimated from observed changes in rent of rental units, this finding applies to homeowners as well. While we cannot be certain about why this is the case, it appears to be at least partly related to how additional units are supplied to the housing market: in higher-price segments additional units primarily come from new construction, while most of the increase in lower-price segments comes from units that previously were occupied by higher-income households.
…
Putting these various threads together, it appears that the inverse relationship between prior rent levels and rent inflation may be related to a greater concentration of new residential construction in the higher rent level segments of the housing market, dampening the price response to a tightening in that market. As one moves down the rent level distribution, increases in the supply of housing increasingly come from previously higher-rent units, which may still have rents above the average of the incumbent units, pushing up rents more in such segments.

One interesting question is how various public policies designed to influence the level of housing costs affect the growth of that cost over time. We hope to explore this issue in future work.

Canadian preferred share investors are making new plans for the Christmas holidays!

Click for Big

The TXPL total return index has now recovered to its late July levels, meaning that the horror of August, September and early October has been reversed. There were a few days in August in which the TXPR total return index was higher than it is today, but the broad market is also quite close to extinguishing the past three months odd. Mind you, the five year Canada is back to where it was in early June (also early May and early January, for that matter) so the preferred share market is either lagging behind its driver, or the relationship has changed, or something else.

It was a superb day for the Canadian preferred share market, with PerpetualDiscounts up 39bp, FixedResets winning an awesome 227bp and DeemedRetractibles gaining 17bp. The Performance Highlights table is, of course, ridiculously long and contains no losers at all. Volume was very extremely awfully high.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 20.01 to be $0.45 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.51 cheap at its bid price of 14.50.

Click for Big

Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 21.70 to be 0.84 rich, while MFC.PR.J resetting at +261bp on 2018-3-19, is bid at 21.60 to be 0.68 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 17.08 to be $1.57 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 21.30 and appears to be $1.30 rich.

Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 20.07, looks $0.81 expensive and resets 2019-3-1. FTS.PR.H, with a spread of +145bp and resetting 2020-6-1, is bid at 15.02 and is $0.52 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.56%, with one outlier above 0.00%. There are two junk outliers above 0.00% and two below -2.00%.

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	4.27 %	5.12 %	28,929	17.69	1	0.0000 %	1,819.2
FixedFloater	5.99 %	5.24 %	31,249	17.25	1	1.8638 %	3,256.0
Floater	4.02 %	4.07 %	63,387	17.25	3	1.7919 %	1,962.0
OpRet	4.84 %	4.48 %	34,074	0.79	1	-0.0790 %	2,717.5
SplitShare	4.76 %	5.76 %	153,350	4.39	5	-0.0246 %	3,193.3
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0246 %	2,491.5
Perpetual-Premium	5.82 %	-0.71 %	87,549	0.08	6	-0.1587 %	2,497.3
Perpetual-Discount	5.51 %	5.62 %	83,407	14.47	33	0.3933 %	2,596.9
FixedReset	4.74 %	4.29 %	217,266	15.92	76	2.2657 %	2,156.0
Deemed-Retractible	5.16 %	5.21 %	110,943	5.42	34	0.1724 %	2,589.4
FloatingReset	2.53 %	3.78 %	56,779	5.81	10	1.3471 %	2,215.5

Performance Highlights
Issue	Index	Change	Notes
TD.PR.Z	FloatingReset	1.02 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.88 Bid-YTW : 3.54 %
HSE.PR.G	FixedReset	1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 22.30 Evaluated at bid price : 23.00 Bid-YTW : 4.87 %
MFC.PR.B	Deemed-Retractible	1.06 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.90 Bid-YTW : 6.59 %
BMO.PR.Q	FixedReset	1.20 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.00 Bid-YTW : 5.31 %
BAM.PR.M	Perpetual-Discount	1.21 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.90 Evaluated at bid price : 20.90 Bid-YTW : 5.76 %
ELF.PR.G	Perpetual-Discount	1.24 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.20 Evaluated at bid price : 21.20 Bid-YTW : 5.66 %
CM.PR.Q	FixedReset	1.24 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 22.16 Evaluated at bid price : 22.77 Bid-YTW : 4.00 %
MFC.PR.H	FixedReset	1.26 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.05 Bid-YTW : 4.74 %
GWO.PR.G	Deemed-Retractible	1.27 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.86 Bid-YTW : 5.96 %
PWF.PR.T	FixedReset	1.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.73 Evaluated at bid price : 22.00 Bid-YTW : 3.88 %
BAM.PR.K	Floater	1.30 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 11.65 Evaluated at bid price : 11.65 Bid-YTW : 4.09 %
TRP.PR.E	FixedReset	1.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.01 Evaluated at bid price : 20.01 Bid-YTW : 4.34 %
BNS.PR.Y	FixedReset	1.46 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.78 Bid-YTW : 5.04 %
CU.PR.H	Perpetual-Discount	1.49 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 23.53 Evaluated at bid price : 23.85 Bid-YTW : 5.50 %
TD.PR.Y	FixedReset	1.50 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.42 Bid-YTW : 3.51 %
BMO.PR.R	FloatingReset	1.52 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.35 Bid-YTW : 3.15 %
BAM.PR.X	FixedReset	1.56 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 16.30 Evaluated at bid price : 16.30 Bid-YTW : 4.45 %
MFC.PR.F	FixedReset	1.66 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.31 Bid-YTW : 8.75 %
GWO.PR.Q	Deemed-Retractible	1.67 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.74 Bid-YTW : 5.98 %
TD.PR.T	FloatingReset	1.68 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.03 Bid-YTW : 3.34 %
FTS.PR.J	Perpetual-Discount	1.79 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 22.30 Evaluated at bid price : 22.70 Bid-YTW : 5.30 %
CU.PR.C	FixedReset	1.85 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.52 Evaluated at bid price : 21.52 Bid-YTW : 3.90 %
BAM.PR.G	FixedFloater	1.86 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 25.00 Evaluated at bid price : 15.85 Bid-YTW : 5.24 %
BAM.PF.F	FixedReset	1.90 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.50 Evaluated at bid price : 21.50 Bid-YTW : 4.61 %
MFC.PR.M	FixedReset	1.91 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.38 Bid-YTW : 5.71 %
BAM.PR.C	Floater	1.91 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 11.72 Evaluated at bid price : 11.72 Bid-YTW : 4.07 %
BAM.PR.T	FixedReset	1.98 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 18.00 Evaluated at bid price : 18.00 Bid-YTW : 4.68 %
VNR.PR.A	FixedReset	2.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.38 Evaluated at bid price : 21.38 Bid-YTW : 4.45 %
BMO.PR.W	FixedReset	2.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 19.75 Evaluated at bid price : 19.75 Bid-YTW : 4.13 %
FTS.PR.M	FixedReset	2.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.30 Evaluated at bid price : 21.58 Bid-YTW : 4.14 %
TRP.PR.D	FixedReset	2.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 4.29 %
BMO.PR.M	FixedReset	2.05 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.85 Bid-YTW : 3.02 %
BNS.PR.Z	FixedReset	2.09 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.05 Bid-YTW : 5.40 %
GWO.PR.N	FixedReset	2.13 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.40 Bid-YTW : 9.26 %
BAM.PR.B	Floater	2.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 11.85 Evaluated at bid price : 11.85 Bid-YTW : 4.02 %
BAM.PR.N	Perpetual-Discount	2.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 5.74 %
RY.PR.Z	FixedReset	2.40 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.46 Evaluated at bid price : 20.46 Bid-YTW : 4.00 %
TD.PF.B	FixedReset	2.45 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.51 Evaluated at bid price : 20.51 Bid-YTW : 4.03 %
RY.PR.H	FixedReset	2.46 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.40 Evaluated at bid price : 20.40 Bid-YTW : 4.05 %
BIP.PR.A	FixedReset	2.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.89 Evaluated at bid price : 22.35 Bid-YTW : 5.03 %
BMO.PR.Y	FixedReset	2.54 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 22.27 Evaluated at bid price : 22.97 Bid-YTW : 3.93 %
FTS.PR.F	Perpetual-Discount	2.64 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 23.03 Evaluated at bid price : 23.30 Bid-YTW : 5.34 %
FTS.PR.K	FixedReset	2.66 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.07 Evaluated at bid price : 20.07 Bid-YTW : 3.96 %
BAM.PF.B	FixedReset	2.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.33 Evaluated at bid price : 20.33 Bid-YTW : 4.56 %
TD.PF.E	FixedReset	2.71 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 22.55 Evaluated at bid price : 23.52 Bid-YTW : 3.94 %
BMO.PR.T	FixedReset	2.78 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 19.95 Evaluated at bid price : 19.95 Bid-YTW : 4.13 %
MFC.PR.J	FixedReset	2.81 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.60 Bid-YTW : 5.66 %
BAM.PF.E	FixedReset	2.95 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.30 Evaluated at bid price : 21.30 Bid-YTW : 4.37 %
TRP.PR.A	FixedReset	3.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 17.15 Evaluated at bid price : 17.15 Bid-YTW : 4.31 %
MFC.PR.K	FixedReset	3.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.55 Bid-YTW : 5.99 %
SLF.PR.G	FixedReset	3.04 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.94 Bid-YTW : 7.96 %
NA.PR.W	FixedReset	3.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.26 Evaluated at bid price : 20.26 Bid-YTW : 4.10 %
TD.PF.A	FixedReset	3.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.53 Evaluated at bid price : 20.53 Bid-YTW : 4.03 %
IFC.PR.A	FixedReset	3.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.50 Bid-YTW : 7.82 %
CM.PR.P	FixedReset	3.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.02 Evaluated at bid price : 20.02 Bid-YTW : 4.12 %
IAG.PR.G	FixedReset	3.17 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.80 Bid-YTW : 5.15 %
HSE.PR.A	FixedReset	3.24 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 14.67 Evaluated at bid price : 14.67 Bid-YTW : 4.64 %
NA.PR.S	FixedReset	3.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.75 Evaluated at bid price : 20.75 Bid-YTW : 4.17 %
PWF.PR.P	FixedReset	3.45 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 15.00 Evaluated at bid price : 15.00 Bid-YTW : 4.19 %
TD.PF.C	FixedReset	3.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 4.06 %
CM.PR.O	FixedReset	3.56 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.66 Evaluated at bid price : 20.66 Bid-YTW : 4.09 %
RY.PR.J	FixedReset	3.56 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.93 Evaluated at bid price : 22.40 Bid-YTW : 4.02 %
FTS.PR.H	FixedReset	3.59 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 15.02 Evaluated at bid price : 15.02 Bid-YTW : 4.03 %
MFC.PR.L	FixedReset	3.60 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.71 Bid-YTW : 5.97 %
BAM.PF.G	FixedReset	3.71 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.89 Evaluated at bid price : 22.35 Bid-YTW : 4.41 %
BAM.PF.A	FixedReset	3.85 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.49 Evaluated at bid price : 21.85 Bid-YTW : 4.50 %
RY.PR.M	FixedReset	3.90 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.54 Evaluated at bid price : 21.86 Bid-YTW : 4.03 %
FTS.PR.G	FixedReset	4.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 19.44 Evaluated at bid price : 19.44 Bid-YTW : 4.13 %
MFC.PR.N	FixedReset	4.28 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.70 Bid-YTW : 5.44 %
TRP.PR.C	FixedReset	4.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 14.50 Evaluated at bid price : 14.50 Bid-YTW : 4.23 %
IFC.PR.C	FixedReset	4.35 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.40 Bid-YTW : 6.38 %
MFC.PR.G	FixedReset	4.53 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.30 Bid-YTW : 4.90 %
MFC.PR.I	FixedReset	4.70 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.95 Bid-YTW : 5.13 %
SLF.PR.I	FixedReset	4.70 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.04 Bid-YTW : 5.46 %
SLF.PR.H	FixedReset	4.75 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.95 Bid-YTW : 6.81 %
SLF.PR.J	FloatingReset	4.87 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.21 Bid-YTW : 8.74 %
TRP.PR.B	FixedReset	4.87 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 13.56 Evaluated at bid price : 13.56 Bid-YTW : 4.05 %
TRP.PR.F	FloatingReset	5.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 15.28 Evaluated at bid price : 15.28 Bid-YTW : 3.81 %
BAM.PR.Z	FixedReset	6.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 22.06 Evaluated at bid price : 22.30 Bid-YTW : 4.50 %

Volume Highlights
Issue	Index	Shares Traded	Notes
GWO.PR.N	FixedReset	103,089	Desjardins crossed 19,900 at 14.45. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.40 Bid-YTW : 9.26 %
BMO.PR.Y	FixedReset	54,655	TD bought 23,200 from RBC at 23.00 and sold 10,000 to Scotia at 23.24. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 22.27 Evaluated at bid price : 22.97 Bid-YTW : 3.93 %
BNS.PR.Z	FixedReset	53,664	Nesbitt crossed 41,600 at 21.05. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.05 Bid-YTW : 5.40 %
RY.PR.H	FixedReset	40,462	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.40 Evaluated at bid price : 20.40 Bid-YTW : 4.05 %
MFC.PR.I	FixedReset	35,661	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.95 Bid-YTW : 5.13 %
CM.PR.O	FixedReset	33,577	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.66 Evaluated at bid price : 20.66 Bid-YTW : 4.09 %
There were 70 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PF.F	FixedReset	Quote: 21.50 – 23.15 Spot Rate : 1.6500 Average : 0.9374 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.50 Evaluated at bid price : 21.50 Bid-YTW : 4.61 %
VNR.PR.A	FixedReset	Quote: 21.38 – 22.50 Spot Rate : 1.1200 Average : 0.7547 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 21.38 Evaluated at bid price : 21.38 Bid-YTW : 4.45 %
MFC.PR.F	FixedReset	Quote: 15.31 – 16.00 Spot Rate : 0.6900 Average : 0.4621 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.31 Bid-YTW : 8.75 %
BAM.PR.T	FixedReset	Quote: 18.00 – 18.68 Spot Rate : 0.6800 Average : 0.4932 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 18.00 Evaluated at bid price : 18.00 Bid-YTW : 4.68 %
CM.PR.Q	FixedReset	Quote: 22.77 – 23.25 Spot Rate : 0.4800 Average : 0.3074 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 22.16 Evaluated at bid price : 22.77 Bid-YTW : 4.00 %
BAM.PF.B	FixedReset	Quote: 20.33 – 20.80 Spot Rate : 0.4700 Average : 0.3116 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-06 Maturity Price : 20.33 Evaluated at bid price : 20.33 Bid-YTW : 4.56 %

Posted in Market Action | No Comments »

November 5, 2015

Thursday, November 5th, 2015

Treasuries and swap spreads declined today:

The 10-year swap spread ended little changed after falling to negative 17.6 basis points Thursday, the lowest in Bloomberg data beginning in 1988. A basis point is 0.01 percentage point. The gap turned negative for the first time in three years in September. The spread reached record negative levels in other maturities as well, including the five- and seven-year.

Slumping Treasuries contributed to the narrowing of the spread. Yields on 10-year U.S. notes reached 2.26 percent Thursday, the highest since mid-September, as bets mounted that the Federal Reserve will raise interest rates as soon as next month. Investment-grade corporate issuance may tally about $30 billion this week, putting further pressure on Treasuries. On top of all that, regulations enacted after the financial crisis have curtailed the amount of risk banks can take, leading them to scale back trading and lending.

“This is more of a Treasury-led move as all the on-balance sheet products are becoming more costly to dealers,” said Priya Misra, head of global interest-rate strategy in New York at TD Securities, one of the 22 primary dealers that trade with the Fed. “Treasuries are an on-balance sheet product so they are getting more costly relative to swaps.”

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For those unfamiliar with swap spreads:

In finance, swap spread is a popular way to indicate the credit spreads in a market. It is defined as the spread paid by the fixed-rate payer of an interest rate swap over the rate of the on the run treasury with the same maturity as the swap. For example, if the fixed-rate of a 5-year fixed-for-float LIBOR swap is 7.26% and the 5-year Treasury is yielding at 6.43%, the swap spread is 7.26% – 6.43% = 83 bps.

The endlessly entertaining Sprott / Silver Bullion battle is entering yet another new chapter (emphasis from original):

Silver Bullion Trust (“SBT”) (TSX:SBT.UN) (C$) (TSX:SBT.U) (US$) confirmed today that the unsolicited offer by Sprott Asset Management LP and Sprott Physical Silver Trust (“Sprott PSLV”; and collectively, “Sprott”) for all of the outstanding Units of SBT has once again failed to achieve sufficient acceptance to satisfy the required minimum tender condition. As of October 30, 2015, only 39.64% of SBT Units were tendered, falling far short of the 66 2/3% minimum tender condition. As a result, Sprott has yet again, for the 6th time, extended the expiry date of the offer, which is now set to expire on November 20, 2015.
…

•The Trustees will continue to act in the best interests of ALL Unitholders and cannot endorse a deficient offer that does not benefit ALL Unitholders. Principally because we don’t agree with them, Sprott has waged a smear campaign claiming poor governance and entrenchment of the Trustees. Their numerous unfounded allegations are intended to distract Unitholders from the deficiencies of their inadequate offer: no material premium, higher management fees, lower bullion security and safeguards, significantly reduced governance rights and higher potential tax liability for certain U.S. Unitholders.
•Sprott’s claims that SBT Units have “traded for most of their existence at double-digit discounts” [footnote] are completely false. In fact, SBT Units have, on average, traded in-line to net asset value (“NAV”) since SBT was established in 2009

…
Footnote reads: Rick Rule stated on October 1, 2015 during the Sprott webcast relating to the Sprott offer: “It must be stressed that neither [GoldTrust] nor [Silver Bullion Trust] have ever or very seldom traded close to or above par, they have in fact traded at a persistent discount and they’ve traded at a persistent discount for over a decade.”

There was an interesting paper today from the Boston Fed by Joe Peek & Eric Rosengren, titled Credit Supply Disruptions: From Credit Crunches to Financial Crisis:

It is useful to reflect on how the financial environment changed in the interim between the bank credit crunch episode in the early 1990s and the recent financial crisis. What did we learn from the earlier crisis and how did the credit crunch literature help guide policy in the more recent crisis? Among the important changes were the consolidation of the banking sector and the dramatic growth in nonbank financial intermediaries, which are much more susceptible than banks to liquidity risks due to a lack of deposit insurance. This paper highlights the fact that while broker-dealers, money market mutual funds, and issuers of asset-backed securities were not particularly important in the early 1990s when the bank credit crunch occurred, they had grown dramatically over the subsequent two decades to become both a major source of financing and a key element in exacerbating the problems experienced during the recent financial crisis.

The key findings are:

•The earlier literature on credit crunches contributed importantly to economists’ understanding of how financial shocks can impact the real economy. The real estate shock that caused capital-constrained banks to reduce credit availability to households and firms provided an important lesson learned from the 1990 recession and the academic work that followed. That literature provided a helpful guide as to how to respond to adverse credit shocks.
•However, many of the financial innovations that occurred after the 1990 recession moved much of the issuance of credit to non-depository financial intermediaries. These intermediaries included money market mutual funds, broker-dealers, and issuers of asset-backed securities.
•While the main problem facing banks was how to satisfy capital constraints when experiencing large declines in capital, these nonbank intermediaries were much more susceptible than banks to liquidity shocks, runs on liabilities, and fire sales of assets. Although the earlier literature provided important context, the nature of the problems was quite different for non-depository entities. Because these potential problems of nonbank intermediaries had not arisen in the earlier credit crunch, they were largely ignored in the subsequent credit crunch literature.

It seems to me that the moral of the story so far is that during boom times, money is going to flow from willing lenders to willing borrowers, come what may. If it can’t do it through regulated channels, it will do so via unregulated channels. So the authorities, in their wisdom, are attempting to micro-manage the economy, through, for instance, changes in the qualifying rules for mortgages in Canada (which has led directly to mortgage fraud, as discussed on October 30) and changes in tax-deductability of mortgage interest in the UK, as discussed on October 19 and October 1. Which, no doubt, creates a lot of very nicely paid work for the bureaucrats and lets everybody know that Your Government Is Doing Something, but when it comes to human nature vs. political platitudes, you know how I’m placing my bets. If it’s not houses, it will be something else. Bre-X, Nortel, internet stocks … there will be a special prize for those who can guess what the Next Big Thing is going to be!

But fear not! The SEC is working diligently to ensure that people who make instant investment decisions based on randomly selected Twitter posts will be protected:

According to the SEC’s complaint filed in federal court in the Northern District of California, James Alan Craig of Dunragit, Scotland, tweeted multiple false statements about the two companies on Twitter accounts that he deceptively created to look like the real Twitter accounts of well-known securities research firms.

The U.S. Attorney’s Office for the Northern District of California today filed criminal charges against Craig.

The SEC’s complaint alleges that Craig’s first false tweets caused one company’s share price to fall 28 percent before Nasdaq temporarily halted trading. The next day, Craig’s false tweets about a different company caused a 16 percent decline in that company’s share price. On each occasion, Craig bought and sold shares of the target companies in a largely unsuccessful effort to profit from the sharp price swings.
…
The SEC’s complaint charges that Craig committed securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a permanent injunction against future violations, disgorgement, and a monetary penalty from Craig.

The SEC has issued an Investor Alert titled Social Media and Investing – Stock Rumors prepared by the Office of Investor Education and Advocacy. The alert aims to warn investors about fraudsters who may attempt to manipulate share prices by using social media to spread false or misleading information about stocks, and provides tips for checking for red flags of investment fraud.

Some may be interested in another Boston Fed paper by Daniel Cooper & Maria José Luengo-Prado titled Household Formation Over Time: Evidence from Two Cohorts of Young Adults:

Residential investment accounts for an important component of U.S. gross domestic product, and traditionally plays a strong role in business cycle expansions. U.S. residential investment has improved slowly during the recovery from the Great Recession, despite a relatively strong national rebound in house prices and record low interest rates. An important determinant of residential investment is the household formation rate, which is largely driven by young adults moving out of their parents’ homes after completing high school or college. New household formation can be offset when existing households combine, typically through marriage or by moving in with parents or other relatives for economic reasons. This paper uses National Longitudinal Survey of Youth (NLSY) data from the 1979 and the 1997 cohorts to examine how various demographic, economic, and geographic factors influence the rate of household formation among young adults, both within cohorts and over time across cohorts.

… with the key findings:

•Comparing parental co-residence rates for young adults between the ages of 23 and 31 years shows that the share of individuals living with parents declines with age, but that the share of those living with parents is higher at nearly every age for the 1997 cohort compared to the 1979 cohort.
•There is important variation in household formation by race both within a given cohort and over time. The share of black youth living with parents is substantially lower at young ages in both cohorts, but after the late teenage years, blacks and Hispanics are more likely to be living with parents than non-black/non-Hispanic youths. In the 1997 cohort, non-black/non-Hispanic and Hispanic youths, regardless of age, are more likely to be living with parents relative to their 1979 counterparts, while the rate of living with parents for blacks is unchanged.
•Overall, housing costs have a meaningful effect on the decision of young adults to live with parents. The share of the 1979 cohort living with parents rose with the cost of housing. Among the 1997 cohort, 23 year-olds living in regions with high housing costs were about 15 percent more likely to be residing with parents than same-age members of the 1979 cohort who were living in areas with low housing costs.

But Holy Smokarisms! Today FixedResets were …

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… ON WHEELS!

It was a very strong, very uneven day for the Canadian preferred share market, with PerpetualDiscounts flat, FixedResets up 164bp and DeemedRetractibles gaining 25bp. The only losers on the ridiculously long Performance Highlights tables are BAM PerpetualDiscounts, which got whacked. Volume was very heavy.

Basically, FixedResets were strong all day:

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I don’t think we can ascribe the move to ETF action – only one block of ZPR changed hands today, Scotia buying 16,000 from Nesbitt at 10.79. CPD was similarly boring, with CIBC buying 10,000 from RBC at 13.20 and TD crossing 13,600 at 13.36.

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.75 to be $0.61 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.60 cheap at its bid price of 13.90.

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Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 20.81 to be 0.61 rich, while MFC.PR.I resetting at +286bp on 2017-9-19, is bid at 21.92 to be 0.58 cheap.

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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 17.00 to be $1.13 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 20.69 and appears to be $1.22 rich.

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FTS.PR.K, with a spread of +205bp, and bid at 19.55, looks $0.89 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.69 and is $0.47 cheap.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.53%, with no outliers. There are four junk outliers above 0.00% and two below -2.00%.

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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	4.27 %	5.12 %	30,113	17.69	1	2.8939 %	1,819.2
FixedFloater	6.11 %	5.35 %	31,607	17.12	1	0.0643 %	3,196.4
Floater	4.10 %	4.15 %	63,890	17.09	3	1.6451 %	1,927.5
OpRet	4.84 %	4.36 %	33,436	0.79	1	-0.1183 %	2,719.7
SplitShare	4.76 %	5.69 %	155,319	4.39	5	0.0963 %	3,194.0
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0963 %	2,492.1
Perpetual-Premium	5.81 %	2.01 %	88,100	0.08	6	0.2253 %	2,501.2
Perpetual-Discount	5.53 %	5.63 %	82,422	14.45	33	-0.0040 %	2,586.7
FixedReset	4.85 %	4.34 %	214,334	15.70	76	1.6439 %	2,108.2
Deemed-Retractible	5.17 %	5.21 %	111,540	5.43	34	0.2519 %	2,585.0
FloatingReset	2.56 %	3.75 %	57,419	5.81	10	0.0562 %	2,186.0

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.N	Perpetual-Discount	-2.61 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 20.51 Evaluated at bid price : 20.51 Bid-YTW : 5.87 %
BAM.PR.M	Perpetual-Discount	-1.99 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 20.65 Evaluated at bid price : 20.65 Bid-YTW : 5.83 %
BAM.PF.C	Perpetual-Discount	-1.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 20.90 Evaluated at bid price : 20.90 Bid-YTW : 5.88 %
BAM.PF.D	Perpetual-Discount	-1.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.23 Evaluated at bid price : 21.23 Bid-YTW : 5.85 %
GWO.PR.I	Deemed-Retractible	1.03 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.56 Bid-YTW : 6.62 %
BAM.PF.H	FixedReset	1.05 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2020-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.97 Bid-YTW : 4.28 %
BIP.PR.A	FixedReset	1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.51 Evaluated at bid price : 21.80 Bid-YTW : 5.17 %
GWO.PR.N	FixedReset	1.08 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.10 Bid-YTW : 9.53 %
FTS.PR.J	Perpetual-Discount	1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 22.01 Evaluated at bid price : 22.30 Bid-YTW : 5.41 %
SLF.PR.I	FixedReset	1.20 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.05 Bid-YTW : 6.08 %
BAM.PF.A	FixedReset	1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.04 Evaluated at bid price : 21.04 Bid-YTW : 4.70 %
NA.PR.S	FixedReset	1.21 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 20.06 Evaluated at bid price : 20.06 Bid-YTW : 4.31 %
TRP.PR.E	FixedReset	1.23 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.75 Evaluated at bid price : 19.75 Bid-YTW : 4.40 %
RY.PR.M	FixedReset	1.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.04 Evaluated at bid price : 21.04 Bid-YTW : 4.22 %
PWF.PR.S	Perpetual-Discount	1.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.99 Evaluated at bid price : 22.30 Bid-YTW : 5.40 %
SLF.PR.G	FixedReset	1.38 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.47 Bid-YTW : 8.35 %
TRP.PR.D	FixedReset	1.55 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.60 Evaluated at bid price : 19.60 Bid-YTW : 4.38 %
BAM.PR.K	Floater	1.59 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 11.50 Evaluated at bid price : 11.50 Bid-YTW : 4.15 %
BAM.PR.C	Floater	1.59 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 11.50 Evaluated at bid price : 11.50 Bid-YTW : 4.15 %
NA.PR.W	FixedReset	1.60 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.66 Evaluated at bid price : 19.66 Bid-YTW : 4.23 %
IAG.PR.G	FixedReset	1.61 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.10 Bid-YTW : 5.56 %
MFC.PR.N	FixedReset	1.61 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.81 Bid-YTW : 6.00 %
BAM.PF.G	FixedReset	1.65 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.55 Evaluated at bid price : 21.55 Bid-YTW : 4.61 %
BAM.PF.B	FixedReset	1.75 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.80 Evaluated at bid price : 19.80 Bid-YTW : 4.68 %
BAM.PR.B	Floater	1.75 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 11.60 Evaluated at bid price : 11.60 Bid-YTW : 4.11 %
TD.PF.C	FixedReset	1.76 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.61 Evaluated at bid price : 19.61 Bid-YTW : 4.21 %
CM.PR.O	FixedReset	1.79 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.95 Evaluated at bid price : 19.95 Bid-YTW : 4.23 %
SLF.PR.J	FloatingReset	1.80 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 13.55 Bid-YTW : 9.35 %
TRP.PR.B	FixedReset	1.81 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 12.93 Evaluated at bid price : 12.93 Bid-YTW : 4.25 %
MFC.PR.C	Deemed-Retractible	1.82 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.30 Bid-YTW : 6.81 %
SLF.PR.H	FixedReset	1.92 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.09 Bid-YTW : 7.43 %
MFC.PR.G	FixedReset	1.92 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.29 Bid-YTW : 5.49 %
HSE.PR.A	FixedReset	1.94 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 14.21 Evaluated at bid price : 14.21 Bid-YTW : 4.79 %
RY.PR.Z	FixedReset	1.94 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.98 Evaluated at bid price : 19.98 Bid-YTW : 4.10 %
TD.PF.A	FixedReset	2.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.91 Evaluated at bid price : 19.91 Bid-YTW : 4.16 %
RY.PR.J	FixedReset	2.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.34 Evaluated at bid price : 21.63 Bid-YTW : 4.18 %
MFC.PR.M	FixedReset	2.09 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.98 Bid-YTW : 5.96 %
CM.PR.P	FixedReset	2.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.41 Evaluated at bid price : 19.41 Bid-YTW : 4.25 %
HSE.PR.C	FixedReset	2.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.68 Evaluated at bid price : 22.00 Bid-YTW : 4.74 %
MFC.PR.L	FixedReset	2.30 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.99 Bid-YTW : 6.44 %
MFC.PR.F	FixedReset	2.38 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.06 Bid-YTW : 8.97 %
MFC.PR.I	FixedReset	2.38 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.92 Bid-YTW : 5.75 %
FTS.PR.H	FixedReset	2.47 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 14.50 Evaluated at bid price : 14.50 Bid-YTW : 4.18 %
PWF.PR.T	FixedReset	2.50 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.39 Evaluated at bid price : 21.72 Bid-YTW : 3.93 %
BMO.PR.Y	FixedReset	2.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.92 Evaluated at bid price : 22.40 Bid-YTW : 4.05 %
BAM.PR.R	FixedReset	2.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 4.87 %
TRP.PR.C	FixedReset	2.58 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 13.90 Evaluated at bid price : 13.90 Bid-YTW : 4.42 %
RY.PR.H	FixedReset	2.63 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.91 Evaluated at bid price : 19.91 Bid-YTW : 4.16 %
TD.PF.B	FixedReset	2.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 20.02 Evaluated at bid price : 20.02 Bid-YTW : 4.13 %
TD.PF.D	FixedReset	2.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.98 Evaluated at bid price : 22.48 Bid-YTW : 4.06 %
BAM.PR.E	Ratchet	2.89 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 25.00 Evaluated at bid price : 16.00 Bid-YTW : 5.12 %
BAM.PR.X	FixedReset	2.95 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 16.05 Evaluated at bid price : 16.05 Bid-YTW : 4.52 %
FTS.PR.G	FixedReset	2.98 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 18.69 Evaluated at bid price : 18.69 Bid-YTW : 4.30 %
MFC.PR.H	FixedReset	2.99 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.75 Bid-YTW : 4.90 %
VNR.PR.A	FixedReset	3.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 20.96 Evaluated at bid price : 20.96 Bid-YTW : 4.54 %
PWF.PR.P	FixedReset	3.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 14.50 Evaluated at bid price : 14.50 Bid-YTW : 4.34 %
BMO.PR.T	FixedReset	3.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.41 Evaluated at bid price : 19.41 Bid-YTW : 4.24 %
TRP.PR.A	FixedReset	3.35 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 16.65 Evaluated at bid price : 16.65 Bid-YTW : 4.44 %
TD.PF.E	FixedReset	3.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 22.22 Evaluated at bid price : 22.90 Bid-YTW : 4.07 %
IFC.PR.C	FixedReset	3.44 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.55 Bid-YTW : 6.95 %
BMO.PR.W	FixedReset	3.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.36 Evaluated at bid price : 19.36 Bid-YTW : 4.22 %
CM.PR.Q	FixedReset	3.64 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.98 Evaluated at bid price : 22.49 Bid-YTW : 4.06 %
MFC.PR.K	FixedReset	3.91 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.95 Bid-YTW : 6.39 %
FTS.PR.K	FixedReset	4.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.55 Evaluated at bid price : 19.55 Bid-YTW : 4.07 %
BMO.PR.S	FixedReset	4.61 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 20.20 Evaluated at bid price : 20.20 Bid-YTW : 4.18 %
IFC.PR.A	FixedReset	5.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.97 Bid-YTW : 8.24 %

Volume Highlights
Issue	Index	Shares Traded	Notes
NA.PR.S	FixedReset	151,227	STD crossed blocks of 50,000 shares, 35,000 and 34,600, all at 20.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 20.06 Evaluated at bid price : 20.06 Bid-YTW : 4.31 %
PVS.PR.E	SplitShare	73,928	Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-10-31 Maturity Price : 25.00 Evaluated at bid price : 24.36 Bid-YTW : 6.00 %
BAM.PR.R	FixedReset	61,370	National bought 33,000 from Desjardins at 16.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 4.87 %
RY.PR.Z	FixedReset	52,126	Scotia crossed 25,000 at 19.63. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.98 Evaluated at bid price : 19.98 Bid-YTW : 4.10 %
TD.PF.A	FixedReset	51,942	RBC crossed 35,900 at 19.73. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.91 Evaluated at bid price : 19.91 Bid-YTW : 4.16 %
BMO.PR.T	FixedReset	45,210	TD crossed 25,000 at 18.92. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.41 Evaluated at bid price : 19.41 Bid-YTW : 4.24 %
There were 57 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.G	FixedReset	Quote: 22.29 – 23.20 Spot Rate : 0.9100 Average : 0.5805 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.29 Bid-YTW : 5.49 %
MFC.PR.I	FixedReset	Quote: 21.92 – 22.50 Spot Rate : 0.5800 Average : 0.3431 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.92 Bid-YTW : 5.75 %
MFC.PR.J	FixedReset	Quote: 21.01 – 21.64 Spot Rate : 0.6300 Average : 0.4271 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.01 Bid-YTW : 6.03 %
TD.PF.C	FixedReset	Quote: 19.61 – 20.10 Spot Rate : 0.4900 Average : 0.3113 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 19.61 Evaluated at bid price : 19.61 Bid-YTW : 4.21 %
BAM.PR.Z	FixedReset	Quote: 21.00 – 21.50 Spot Rate : 0.5000 Average : 0.3317 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 4.80 %
PWF.PR.P	FixedReset	Quote: 14.50 – 14.96 Spot Rate : 0.4600 Average : 0.2918 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-05 Maturity Price : 14.50 Evaluated at bid price : 14.50 Bid-YTW : 4.34 %

Posted in Market Action | 12 Comments »

November 4, 2015

Wednesday, November 4th, 2015

The Fed is making sure that nobody takes them for granted:

Federal Reserve Chair Janet Yellen and New York Fed President William Dudley both said the central bank could boost interest rates as soon as next month.

“At this point, I see the U.S. economy as performing well,” Yellen said on Wednesday in testimony before the House Financial Services Committee in Washington. If economic data continue to point to growth and firmer prices, a December rate hike would be a “live possibility,” she said. Speaking in New York hours later, Dudley said he agreed with the chair, but “let’s see what the data shows.”

The Federal Open Market Committee said in its October statement that it will consider raising interest rates at its “next meeting,” citing “solid” rates of household spending and business investment. Yellen’s and Dudley’s comments reinforced the idea that next month is in the crosshairs for an increase, and placed the focus on upcoming employment and other economic data.

The market noticed:

Bonds are falling around the world as traders increased odds to more than 50 percent that the Federal Reserve will raise interest rates this year.

Benchmark 10-year Treasury yields climbed to a seven-week high of 2.24 percent on Wednesday after Fed Chair Janet Yellen said policy makers may move as soon as their December meeting. German yields reached a two-week high. Australian 10-year yields rose for a sixth day Thursday.

It was a strong day for the Canadian preferred share market, with PerpetualDiscounts up 52bp, FixedResets winning 77bp and DeemedRetractibles gaining 15bp. There are a lot of winners on the Performance Highlights table! Volume was well above average.

PerpetualDiscounts now yield 5.62%, equivalent to 7.31% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little under 4.4%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 290bp, a very significant narrowing from the 310bp reported October 28.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 19.51 to be $0.65 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.69 cheap at its bid price of 13.55.

Click for Big

Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 20.48 to be 0.75 rich, while MFC.PR.I resetting at +286bp on 2017-9-19, is bid at 21.41 to be 0.63 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.58 to be $1.26 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 20.65 and appears to be $1.48 rich.

Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 18.75, looks $0.50 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.15 and is $0.58 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.53%, with two outliers above 0.00% and none below -2.00%. There are three junk outliers above 0.00% and one below -2.00%.

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	4.40 %	5.28 %	31,280	17.50	1	0.3226 %	1,768.0
FixedFloater	6.11 %	5.35 %	31,293	17.11	1	5.0676 %	3,194.3
Floater	4.16 %	4.21 %	62,859	16.96	3	0.8593 %	1,896.3
OpRet	4.83 %	4.20 %	33,402	0.80	1	0.1184 %	2,722.9
SplitShare	4.76 %	5.81 %	155,377	4.39	5	-0.1144 %	3,191.0
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1144 %	2,489.7
Perpetual-Premium	5.82 %	1.33 %	81,667	0.08	6	0.1859 %	2,495.6
Perpetual-Discount	5.53 %	5.62 %	81,348	14.44	33	0.5173 %	2,586.8
FixedReset	4.93 %	4.44 %	211,682	15.52	76	0.7749 %	2,074.1
Deemed-Retractible	5.18 %	5.20 %	111,220	5.43	34	0.1496 %	2,578.5
FloatingReset	2.56 %	3.76 %	56,694	5.81	10	0.3895 %	2,184.8

Performance Highlights
Issue	Index	Change	Notes
CU.PR.H	Perpetual-Discount	-1.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 23.20 Evaluated at bid price : 23.50 Bid-YTW : 5.58 %
VNR.PR.A	FixedReset	-1.21 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 20.35 Evaluated at bid price : 20.35 Bid-YTW : 4.68 %
TRP.PR.B	FixedReset	-1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 12.70 Evaluated at bid price : 12.70 Bid-YTW : 4.33 %
W.PR.H	Perpetual-Discount	1.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 23.99 Evaluated at bid price : 24.24 Bid-YTW : 5.72 %
IFC.PR.A	FixedReset	1.00 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.16 Bid-YTW : 8.91 %
BAM.PR.M	Perpetual-Discount	1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 21.07 Evaluated at bid price : 21.07 Bid-YTW : 5.71 %
BMO.PR.S	FixedReset	1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 19.31 Evaluated at bid price : 19.31 Bid-YTW : 4.37 %
SLF.PR.H	FixedReset	1.14 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.75 Bid-YTW : 7.68 %
TD.PR.Z	FloatingReset	1.15 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.81 Bid-YTW : 3.59 %
BAM.PR.B	Floater	1.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 11.40 Evaluated at bid price : 11.40 Bid-YTW : 4.18 %
CU.PR.D	Perpetual-Discount	1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 22.24 Evaluated at bid price : 22.59 Bid-YTW : 5.41 %
BAM.PF.D	Perpetual-Discount	1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 21.28 Evaluated at bid price : 21.56 Bid-YTW : 5.74 %
RY.PR.J	FixedReset	1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 21.20 Evaluated at bid price : 21.20 Bid-YTW : 4.29 %
CU.PR.G	Perpetual-Discount	1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 5.37 %
BMO.PR.Z	Perpetual-Discount	1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 23.76 Evaluated at bid price : 24.10 Bid-YTW : 5.18 %
BMO.PR.Q	FixedReset	1.31 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.82 Bid-YTW : 5.46 %
BAM.PF.B	FixedReset	1.35 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 19.46 Evaluated at bid price : 19.46 Bid-YTW : 4.77 %
MFC.PR.B	Deemed-Retractible	1.36 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.55 Bid-YTW : 6.81 %
NA.PR.S	FixedReset	1.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 19.82 Evaluated at bid price : 19.82 Bid-YTW : 4.36 %
TRP.PR.H	FloatingReset	1.47 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 11.77 Evaluated at bid price : 11.77 Bid-YTW : 3.58 %
TRP.PR.D	FixedReset	1.58 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 19.30 Evaluated at bid price : 19.30 Bid-YTW : 4.44 %
TRP.PR.F	FloatingReset	1.62 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 14.42 Evaluated at bid price : 14.42 Bid-YTW : 4.04 %
IAG.PR.G	FixedReset	1.64 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.75 Bid-YTW : 5.78 %
BAM.PR.R	FixedReset	1.72 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 16.58 Evaluated at bid price : 16.58 Bid-YTW : 5.00 %
FTS.PR.M	FixedReset	1.77 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 21.22 Evaluated at bid price : 21.22 Bid-YTW : 4.23 %
CM.PR.Q	FixedReset	1.78 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 21.43 Evaluated at bid price : 21.70 Bid-YTW : 4.23 %
GWO.PR.N	FixedReset	1.82 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 13.95 Bid-YTW : 9.67 %
TRP.PR.E	FixedReset	1.83 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 19.51 Evaluated at bid price : 19.51 Bid-YTW : 4.46 %
MFC.PR.M	FixedReset	2.09 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.55 Bid-YTW : 6.24 %
TD.PF.D	FixedReset	2.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 21.54 Evaluated at bid price : 21.85 Bid-YTW : 4.20 %
W.PR.J	Perpetual-Discount	2.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 24.19 Evaluated at bid price : 24.45 Bid-YTW : 5.77 %
MFC.PR.G	FixedReset	2.20 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.87 Bid-YTW : 5.75 %
NA.PR.W	FixedReset	2.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 4.30 %
TRP.PR.A	FixedReset	2.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 16.11 Evaluated at bid price : 16.11 Bid-YTW : 4.59 %
PWF.PR.P	FixedReset	2.33 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 14.07 Evaluated at bid price : 14.07 Bid-YTW : 4.47 %
MFC.PR.F	FixedReset	2.51 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.71 Bid-YTW : 9.28 %
MFC.PR.J	FixedReset	2.61 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.81 Bid-YTW : 6.16 %
TRP.PR.C	FixedReset	2.65 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 13.55 Evaluated at bid price : 13.55 Bid-YTW : 4.53 %
HSE.PR.A	FixedReset	3.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 13.94 Evaluated at bid price : 13.94 Bid-YTW : 4.88 %
MFC.PR.H	FixedReset	3.32 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.06 Bid-YTW : 5.30 %
BAM.PR.X	FixedReset	3.59 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 15.59 Evaluated at bid price : 15.59 Bid-YTW : 4.66 %
BAM.PR.G	FixedFloater	5.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 25.00 Evaluated at bid price : 15.55 Bid-YTW : 5.35 %

Volume Highlights
Issue	Index	Shares Traded	Notes
MFC.PR.M	FixedReset	96,860	Scotia crossed 28,000 at 20.40; RBC crossed 39,700 at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.55 Bid-YTW : 6.24 %
BAM.PR.B	Floater	56,793	TD crossed 32,300 at 11.40. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 11.40 Evaluated at bid price : 11.40 Bid-YTW : 4.18 %
CM.PR.Q	FixedReset	51,617	Scotia crossed 42,500 at 21.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 21.43 Evaluated at bid price : 21.70 Bid-YTW : 4.23 %
PVS.PR.E	SplitShare	48,600	Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-10-31 Maturity Price : 25.00 Evaluated at bid price : 24.37 Bid-YTW : 5.99 %
BMO.PR.S	FixedReset	47,305	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 19.31 Evaluated at bid price : 19.31 Bid-YTW : 4.37 %
TRP.PR.E	FixedReset	46,885	Scotia crossed 30,000 at 19.31. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 19.51 Evaluated at bid price : 19.51 Bid-YTW : 4.46 %
There were 46 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
TRP.PR.B	FixedReset	Quote: 12.70 – 13.50 Spot Rate : 0.8000 Average : 0.5240 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 12.70 Evaluated at bid price : 12.70 Bid-YTW : 4.33 %
VNR.PR.A	FixedReset	Quote: 20.35 – 21.05 Spot Rate : 0.7000 Average : 0.4684 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 20.35 Evaluated at bid price : 20.35 Bid-YTW : 4.68 %
TD.PF.A	FixedReset	Quote: 19.52 – 19.99 Spot Rate : 0.4700 Average : 0.3230 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 19.52 Evaluated at bid price : 19.52 Bid-YTW : 4.24 %
NA.PR.Q	FixedReset	Quote: 24.76 – 25.09 Spot Rate : 0.3300 Average : 0.2074 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.76 Bid-YTW : 3.66 %
RY.PR.N	Perpetual-Discount	Quote: 23.50 – 23.78 Spot Rate : 0.2800 Average : 0.1971 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-04 Maturity Price : 23.09 Evaluated at bid price : 23.50 Bid-YTW : 5.20 %
TD.PR.Y	FixedReset	Quote: 24.01 – 24.50 Spot Rate : 0.4900 Average : 0.4123 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.01 Bid-YTW : 3.81 %

Posted in Market Action | No Comments »

PrefBlog

Archive for November, 2015

New Issue: ALA FixedReset, 5.25%+419M525

November 11, 2015

November 10, 2015

BRF.PR.E: Coercive Exchange Offer

Moody’s: BNS On Review-Negative

November 9, 2015

GWO.PR.N To Be Extended

November 6, 2015

November 5, 2015

November 4, 2015

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