For all the tapering talk, Canadian policy rates aren’t changing any time soon:
he Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
The global economy continues to expand broadly as expected, but its dynamic has moderated. In the United States, the process of normalization of long-term interest rates has begun in the context of stronger private domestic demand. Recent data, however, point to slightly less momentum overall than anticipated. In Europe, there are early signs of a recovery, and Japan’s situation remains promising. In a number of emerging market economies, financial volatility has increased, adding uncertainty to growth prospects, although China continues to grow at a solid pace. Commodity prices have been relatively stable, with geopolitical stresses putting some upward pressure on global oil prices.Uncertain global economic conditions appear to be delaying the anticipated rotation of demand in Canada towards exports and investment. While the housing sector has been slightly stronger than anticipated, household credit growth has continued to slow and mortgage interest rates are higher, pointing to a continued constructive evolution of household imbalances. Looking through the choppiness of the recent data, the level of Canada’s GDP is largely consistent with the Bank’s July forecast. The output gap is expected to begin to narrow in 2014.
Inflation in Canada remains subdued. With inflation expectations well-anchored, both core and total CPI inflation are expected to return slowly to 2 per cent as the output gap closes.
Against this backdrop, the Bank has decided to maintain the target for the overnight rate at 1 per cent. As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in place will remain appropriate. Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 per cent inflation target.
There’s a new report on Canada’s competitiveness that’s a bit of a joke:
Switzerland and Singapore top the list of most competitive countries in the world in a global ranking that puts Canada in a distant 14th position.
Finland, Germany and the United States round out the top five of this year’s most competitive nations on the World Economic Forum’s annual list, released Wednesday in Geneva. Canada’s ranking was the same as last year. Back in 2009, Canada sat in ninth position.
…
Canada fares well in education, efficient financial and labour markets, and its strong institutions. But several factors keep it out of the top 10, among them innovation and business sophistication, where Canada has tumbled to 25th in the rankings.
…
The most challenging areas for doing business in Canada both relate to innovation: Access to financing and insufficient capacity to innovate. This country could boost its competitiveness by focusing on innovation – encouraging more spending on research and development, supporting governments’ use of Canadian advanced technology, and boosting collaboration between universities and industry on R&D, the Conference Board said.
Oh yeah, government programmes are going to boost innovation, right. Just like this innovative scheme:
Another witness at the Charbonneau inquiry, engineer Patrice Mathieu, testified on Wednesday that a bid-rigging system also existed in the Quebec City region after 2004. He added that the federal government’s multibillion-dollar infrastructure program was “manna” in the second half of the 2000s, when major firms were colluding to split public projects among themselves.
If the government wants to encourage innovation, it will reduce its programmes, not increase them. Stop mollycoddling the banks, the chicken and egg farmers, the potash cartel, the telecom cartel … open up the country to competition and give people the choice of competing through innovation or starving to death.
Tapering chatter has been fueled by the Beige Book:
Americans spending more on cars and housing helped the economy maintain a “modest to moderate” pace of expansion from early July through late August, even as borrowing costs increased, the Federal Reserve said today.
Consumers spent more on travel and tourism while manufacturing expanded “modestly,” the Fed said today in its Beige Book business survey, which is based on anecdotal reports from its 12 regional banks. Hiring “held steady or increased modestly.”
The Federal Open Market Committee is debating whether growth is sufficient to fuel steady improvement in the job market and warrant tapering the Fed’s $85 billion in monthly bond buying. Speculation the FOMC will dial down purchases at its Sept. 17-18 meeting has roiled financial markets, pushing up U.S. bond yields and contributing to the worst rout in the currencies of developing nations in five years.
…
U.S. stocks and Treasury yields maintained gains after release of the report. The Standard & Poor’s 500 Index (SPX) advanced 0.8 percent to 1,652.99 at 2:18 p.m. in New York trading. The yield on the benchmark 10-year Treasury increased 0.03 percentage point to 2.89 percent.
Assiduous Reader KB was kind enough to send me a link with pricing information on the TD Market Growth GICs, unlike the rest of you bums who couldn’t be bothered:
5 year Minimum Return is 5.10%(4)
Maximum Return† is 20%(2)[Footnotes] (2) Maximum Return is equivalent to the total return over the term of the investment (i.e. not an annualized rate).
(4) Actual return is 1.00% per annum, compounded annually, payable at maturity (equivalent to 5.10% total return)
There’s supposed to be another footnote (marked with a dagger) with respect to the definition of Maximum Return, but this has been omitted with TD’s usual efficiency.
OK, anyway, who are the option specialists here? Who wants to take a stab at valuing the put and call required to make this thing work? Basically, you’re selling a straddle, right? Within the bounds of the possible return, it looks like they pay 100% of the applicable index, although TD does not specify whether they mean total return index or price index … which kinda makes a difference, eh?
An otherwise boring account of Gensler’s battle for turf at the CFTC had an interesting aside:
Even that success may have unintended consequences. Some finance scholars, Wall Street banks and Gensler himself have warned that concentrating trades at a few big clearinghouses that settle trillions of dollars in deals creates a new risk –a potential too-big-to-fail powder keg when the next crisis hits.
Yep. That’s in addition to the moral hazard of unlimited guarantees being given for the Bank of Downtown Plottsville’s derivatives trading.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 13bp, FixedResets gaining 8bp and DeemedRetractibles up 27bp. BAM issues were prominent on both sides of the relatively lengthy (considering the overall move) Performance Highlights table, but mainly the downside. Volume was well above average.
PerpetualDiscounts now yield 5.78%, equivalent to 7.51% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.8%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 270bp, a slight (and perhaps spurious) decline from the 275bp reported August 28.
| 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 | -0.8169 % | 2,581.5 |
| FixedFloater | 4.33 % | 3.64 % | 35,517 | 18.06 | 1 | 0.0456 % | 3,831.5 |
| Floater | 2.60 % | 2.91 % | 69,720 | 19.89 | 5 | -0.8169 % | 2,787.3 |
| OpRet | 4.64 % | 2.96 % | 66,749 | 0.78 | 3 | 0.1162 % | 2,618.6 |
| SplitShare | 4.75 % | 4.89 % | 54,363 | 4.11 | 6 | -0.4722 % | 2,946.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1162 % | 2,394.4 |
| Perpetual-Premium | 5.91 % | 5.84 % | 100,084 | 4.52 | 2 | 0.1193 % | 2,246.3 |
| Perpetual-Discount | 5.66 % | 5.78 % | 128,454 | 14.18 | 36 | -0.1336 % | 2,293.0 |
| FixedReset | 4.92 % | 3.83 % | 242,307 | 3.86 | 85 | 0.0787 % | 2,454.9 |
| Deemed-Retractible | 5.18 % | 4.92 % | 196,580 | 6.95 | 43 | 0.2701 % | 2,350.3 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| PWF.PR.A | Floater | -3.95 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-04 Maturity Price : 23.30 Evaluated at bid price : 23.58 Bid-YTW : 2.21 % |
| CGI.PR.D | SplitShare | -2.63 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2023-06-14 Maturity Price : 25.00 Evaluated at bid price : 24.10 Bid-YTW : 4.21 % |
| CIU.PR.C | FixedReset | -1.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-04 Maturity Price : 22.48 Evaluated at bid price : 23.01 Bid-YTW : 3.68 % |
| TRP.PR.B | FixedReset | -1.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-04 Maturity Price : 21.43 Evaluated at bid price : 21.43 Bid-YTW : 3.89 % |
| PWF.PR.R | Perpetual-Discount | -1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-04 Maturity Price : 23.81 Evaluated at bid price : 24.18 Bid-YTW : 5.74 % |
| BAM.PR.N | Perpetual-Discount | -1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-04 Maturity Price : 19.95 Evaluated at bid price : 19.95 Bid-YTW : 6.07 % |
| BAM.PF.C | Perpetual-Discount | -1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-04 Maturity Price : 20.26 Evaluated at bid price : 20.26 Bid-YTW : 6.11 % |
| BAM.PR.M | Perpetual-Discount | -1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-04 Maturity Price : 19.99 Evaluated at bid price : 19.99 Bid-YTW : 6.06 % |
| CU.PR.C | FixedReset | 1.13 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.16 Bid-YTW : 3.85 % |
| BAM.PR.Z | FixedReset | 1.18 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.80 Bid-YTW : 4.23 % |
| BAM.PR.T | FixedReset | 1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-04 Maturity Price : 23.07 Evaluated at bid price : 24.40 Bid-YTW : 4.43 % |
| BMO.PR.K | Deemed-Retractible | 1.27 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-11-25 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 4.65 % |
| BNS.PR.N | Deemed-Retractible | 1.55 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-01-27 Maturity Price : 25.00 Evaluated at bid price : 25.60 Bid-YTW : 4.66 % |
| MFC.PR.K | FixedReset | 1.79 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.40 Bid-YTW : 4.28 % |
| BAM.PF.B | FixedReset | 1.88 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-04 Maturity Price : 22.93 Evaluated at bid price : 24.45 Bid-YTW : 4.57 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.T | FixedReset | 127,002 | RBC crossed 100,000 at 25.75. Nesbitt bought 20,000 from Desjardins at 25.71. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-25 Maturity Price : 25.00 Evaluated at bid price : 25.71 Bid-YTW : 2.64 % |
| POW.PR.A | Perpetual-Discount | 106,670 | Nesbitt crossed 100,000 at 24.21. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-04 Maturity Price : 23.95 Evaluated at bid price : 24.20 Bid-YTW : 5.87 % |
| POW.PR.C | Perpetual-Discount | 102,817 | Nesbitt crossed 100,000 at 24.91. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-04 Maturity Price : 24.64 Evaluated at bid price : 24.90 Bid-YTW : 5.91 % |
| ENB.PR.Y | FixedReset | 102,340 | Nesbitt crossed 40,000 at 23.88. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-04 Maturity Price : 22.65 Evaluated at bid price : 23.82 Bid-YTW : 4.42 % |
| BMO.PR.K | Deemed-Retractible | 80,976 | Nesbitt crossed 30,000 at 25.60; RBC crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-11-25 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 4.65 % |
| BMO.PR.R | FixedReset | 70,900 | Recently exchanged issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.01 Bid-YTW : 2.57 % |
| There were 45 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TCA.PR.X | Perpetual-Discount | Quote: 49.01 – 49.99 Spot Rate : 0.9800 Average : 0.7360 YTW SCENARIO |
| BAM.PR.G | FixedFloater | Quote: 21.92 – 22.65 Spot Rate : 0.7300 Average : 0.6059 YTW SCENARIO |
| CGI.PR.D | SplitShare | Quote: 24.10 – 24.44 Spot Rate : 0.3400 Average : 0.2294 YTW SCENARIO |
| IAG.PR.E | Deemed-Retractible | Quote: 25.23 – 25.57 Spot Rate : 0.3400 Average : 0.2334 YTW SCENARIO |
| MFC.PR.J | FixedReset | Quote: 25.05 – 25.34 Spot Rate : 0.2900 Average : 0.2032 YTW SCENARIO |
| GWO.PR.N | FixedReset | Quote: 22.39 – 22.89 Spot Rate : 0.5000 Average : 0.4180 YTW SCENARIO |
“Stop mollycoddling the banks, the chicken and egg farmers, the potash cartel, the telecom cartel … ”
we were just talking about this with a friend over the weekend. he’s been working in the food industry for the last decade now. if you ever bring the subject of MILK up, you see his face turn red and he turns angry like the Hulk. Canadians are being raped when it comes to the price of milk and milk products. simply criminal. same with cheese, butter etc etc. stay away from any product that states “modified milk ingredients” on the label. … try and find products that don’t say that.
[…] (in this context, the Seniority Spread) is now about 250bp, a sharp decline from the 270bp reported September 4, as PerpetualDiscounts are, overall, unchanged while long corporates got thumped for […]