June 6, 2012

OSFI has released an outline of the new paperwork rules for bank mortgages:

Re-qualification at Renewal – Current practice regarding residential mortgage renewals has served FRFIs well. OSFI agrees, for example, that having a good payment record is one of the best indicators of credit worthiness. OSFI, therefore, expects that FRFIs themselves will remain responsible for deciding what level of review to place on borrowers’ qualifications at the time of renewal. FRFI renewal practices should be articulated in internal policies governing their underwriting of residential mortgage loans. FRFIs, however, will be expected to refresh the borrowers’ credit metrics periodically (not necessarily at renewal) so that FRFIs can effectively evaluate their credit risk.

2. Home Equity Lines of Credit (HELOCs) – OSFI is maintaining its position that the HELOC component of a mortgage be restricted to a maximum loan-to-value ratio of 65 per cent. HELOCs are inherently riskier products, given their revolving nature, persistence of debt balances and their ineligibility for mortgage insurance. However, HELOCs at or below an LTV ratio of 65 per cent will not be required to be amortized, as the revolving aspect of a HELOC is a fundamental feature of the product.

The BoC has released a discussion paper by Francisco Rivadeneyra titled The U.S.-Dollar Supranational Zero-Coupon Curve:

The author describes the construction of the U.S.-dollar-denominated zero-coupon curve for the supranational asset class from 1995 to 2010. He uses yield data from a cross-section of bonds issued by AAA-rated supranational entities to fit the Svensson (1995) term-structure model. Results show the expected pattern of interest rates over the U.S. business cycle. The author computes the spreads relative to the U.S. Treasury zero-coupon yields data of Gürkaynak, Sack and Wright (2007). The average spread for this period is equal to 44 basis points; it increases during recessions and narrows during expansions. Also, the slope of the term structure of spreads shows a countercyclical pattern.

The Toronto Water Department has confirmed that it was their gross incompetence that dumped sewage into Union Station and PATH last week:

On the morning of June 1, a brief, but intense rainfall event caused a rapid surge of storm water flow within the City’s sewer collection system and wastewater treatment plants. (The downtown area experienced rainfall ranging from 27mm to 37mm.) The heavy rainfall event did not exceed the capacity of the entire sewer collection system.

As part of the contract for the TTC’s Union Station New Platform Project in the subway, the TTC’s contractor is also reconstructing a large sewer on behalf of the City for the Union Station Revitalization Project. To enable construction of the new lowered sewer, a section of the existing sewer was removed and pumps put in place in order to install maintenance holes at one of the future connection points. During the heavy rainstorm, sanitary and storm water overflowed from the open section of sewer at this location (flooding was localized to this area of the City).

The contractor and the project management team are working to put in place measures to avoid a recurrence during construction. One such measure includes the installation of two additional pumps on site as contingency. As well, the pipe that was temporarily exposed to perform this work will be capped by Friday.

In other words, they placed a bet that full capacity of the sewage line would not be needed during repair. They lost the bet and Toronto paid. Thanks a lot, guys! Fortunately for the guys who should be fired, council’s got other things on its mind:

Plastic shopping bags will be banned in Toronto as of Jan.1, 2013 after city council, in a surprise move, voted to make Toronto the first major city in Canada to forbid retailers from providing plastic single-use carryout bags.

It’s not clear if the city even has the jurisdiction to pass such a ban.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums up 2bp, FixedResets winning 13bp and DeemedRetractibles down 4bp. Volatility was minor. Volume was very low.

PerpetualDiscounts now yield 5.09%, equivalent to 6.62% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.4% (OK, just a hair under) so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 225bp, a slight (and perhaps spurious) decline from the 230bp reported May 30.

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

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.0987 % 2,320.0
FixedFloater 4.45 % 3.83 % 27,240 17.64 1 0.7075 % 3,543.0
Floater 3.11 % 3.14 % 73,444 19.31 3 -0.0987 % 2,505.0
OpRet 4.81 % 2.59 % 37,201 1.03 5 0.0232 % 2,497.7
SplitShare 5.32 % -0.43 % 49,328 0.52 4 0.5095 % 2,691.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0232 % 2,283.9
Perpetual-Premium 5.45 % 3.40 % 79,771 0.64 26 0.0158 % 2,225.9
Perpetual-Discount 5.06 % 5.09 % 131,821 15.23 7 0.1010 % 2,434.8
FixedReset 5.05 % 3.18 % 195,080 7.80 71 0.1325 % 2,385.7
Deemed-Retractible 5.04 % 3.89 % 148,533 3.16 45 -0.0381 % 2,291.2
Performance Highlights
Issue Index Change Notes
IAG.PR.A Deemed-Retractible -9.09 % Not a real decline. The issue traded 1900 shares in a range of 23.58-71 before the bid disappeared. It will be recalled that the Exchange refuses to sell Closing Quotes, so the actual close might have looked a little better. These numbers reflect the Last Quotes.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.51
Bid-YTW : 6.57 %
MFC.PR.I FixedReset 1.52 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 4.41 %
MFC.PR.B Deemed-Retractible 1.58 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.45
Bid-YTW : 6.07 %
FBS.PR.C SplitShare 2.29 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-12-15
Maturity Price : 10.00
Evaluated at bid price : 10.26
Bid-YTW : -0.43 %
Volume Highlights
Issue Index Shares
Traded
Notes
VNR.PR.A FixedReset 383,687 New issue settled today.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-06
Maturity Price : 23.19
Evaluated at bid price : 25.15
Bid-YTW : 3.88 %
HSE.PR.A FixedReset 207,488 Desjardins bought blocks of 23,100 and 14,000 from Nesbitt and blocks of 10,000 and 25,000 from anonymous, all at 25.40. Nesbitt crossed blocks of 50,000 and 56,200 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-06
Maturity Price : 23.40
Evaluated at bid price : 25.41
Bid-YTW : 2.91 %
BNS.PR.Q FixedReset 81,716 Desjardins crossed 49,000 at 25.50; RBC crossed 10,000 at 25.61.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 2.93 %
IAG.PR.G FixedReset 61,267 Recent new issue.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 4.02 %
SLF.PR.C Deemed-Retractible 54,401 Nesbitt crossed 40,000 at 21.52.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.50
Bid-YTW : 6.41 %
BMO.PR.H Deemed-Retractible 43,586 Nesbitt crossed 40,000 at 25.52.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.55
Bid-YTW : 2.44 %
There were 15 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IAG.PR.A Deemed-Retractible Quote: 21.51 – 23.65
Spot Rate : 2.1400
Average : 1.1751

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.51
Bid-YTW : 6.57 %

BAM.PR.K Floater Quote: 16.90 – 18.14
Spot Rate : 1.2400
Average : 0.7184

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2042-06-06
Maturity Price : 16.90
Evaluated at bid price : 16.90
Bid-YTW : 3.14 %

MFC.PR.E FixedReset Quote: 25.89 – 26.20
Spot Rate : 0.3100
Average : 0.2289

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.89
Bid-YTW : 3.90 %

GWO.PR.I Deemed-Retractible Quote: 22.60 – 22.85
Spot Rate : 0.2500
Average : 0.1893

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.60
Bid-YTW : 5.80 %

CM.PR.D Perpetual-Premium Quote: 25.89 – 26.08
Spot Rate : 0.1900
Average : 0.1370

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-07-06
Maturity Price : 25.00
Evaluated at bid price : 25.89
Bid-YTW : -27.70 %

BNS.PR.N Deemed-Retractible Quote: 26.50 – 26.69
Spot Rate : 0.1900
Average : 0.1374

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-01-29
Maturity Price : 26.00
Evaluated at bid price : 26.50
Bid-YTW : 2.87 %

2 Responses to “June 6, 2012”

  1. […] a recovery from the ridiculous behaviour yesterday, but not without odd goings-on today. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : […]

  2. […] PerpetualDiscounts now yield 5.04%, equivalent to 6.55% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.4%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 215 bp, a significant decline from the 225bp reported June 6. […]

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