Tireless researchers in PrefBlog’s Department of Things That Don’t Really Make a Whole Lot of Sense have been looking at the various Commerce issues lately…
| CM Perpetuals | |||
| Issue | Dividend | Quote | Pre-Tax Bid-YTW |
| CM.PR.J | 1.125 | 17.63-83 | 6.39% |
| CM.PR.I | 1.175 | 18.70-79 | 6.29% |
| CM.PR.H | 1.200 | 19.07-19 | 6.30% |
| CM.PR.G | 1.350 | 21.51-73 | 6.28% |
| CM.PR.P | 1.375 | 22.22-43 | 6.17% |
| CM.PR.E | 1.400 | 23.01-48 | 6.08% |
| CM.PR.D | 1.4375 | 23.40-62 | 6.14% |
So not only do we have the slope of the yields being in the wrong direction (see my articles on Convexity and Perpetual Hockey Sticks) but … doesn’t the spread seem a little … er … extreme to anybody? It’s almost as much as the spread on Westons that attracted comment last year!
The best performance of the day came from HPF.PR.B, which closed at 10.50-74, 12×23 … up 4.79% bid/bid. All 8,800 shares traded were bought by Nesbitt … could this be related to the Annual Retraction?
| Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30 | |||||||
| Index | Mean Current Yield (at bid) | Mean YTW | Mean Average Trading Value | Mean Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | 4.24% | 3.86% | 47,881 | 0.08 | 1 | +0.3842% | 1,118.4 |
| Fixed-Floater | 4.81% | 4.54% | 62,504 | 16.21 | 7 | +0.0801% | 1,046.0 |
| Floater | 4.09% | 4.09% | 71,448 | 17.23 | 2 | +0.2008% | 936.4 |
| Op. Retract | 4.89% | 2.93% | 216,362 | 2.84 | 16 | -0.0278% | 1,051.8 |
| Split-Share | 5.34% | 5.79% | 66,490 | 4.14 | 15 | -0.0705% | 1,045.6 |
| Interest Bearing | 6.14% | 4.15% | 46,926 | 2.01 | 3 | +0.2346% | 1,121.2 |
| Perpetual-Premium | 5.93% | 4.61% | 332,503 | 10.32 | 13 | -0.2470% | 1,013.7 |
| Perpetual-Discount | 5.98% | 6.03% | 221,554 | 13.86 | 59 | -0.3069% | 881.6 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| CM.PR.G | PerpetualDiscount | -3.5426% | Now with a pre-tax bid-YTW of 6.28% based on a bid of 21.51 and a limitMaturity. |
| SLF.PR.C | PerpetualDiscount | -2.0408% | Now with a pre-tax bid-YTW of 5.98% based on a bid of 18.72 and a limitMaturity. |
| GWO.PR.H | PerpetualDiscount | -2.1951% | Now with a pre-tax bid-YTW of 6.09% based on a bid of 20.05 and a limitMaturity. |
| CM.PR.J | PerpetualDiscount | -2.0556% | Now with a pre-tax bid-YTW of 6.39% based on a bid of 17.63 and a limitMaturity. |
| BAM.PR.O | OpRet | -2.0408% | Now with a pre-tax bid-YTW of 5.98% based on a bid of 24.00 and a softMaturity 2013-6-30 at 25.00. |
| PWF.PR.E | PerpetualDiscount | -1.9483% | Now with a pre-tax bid-YTW of 6.01% based on a bid of 23.15 and a limitMaturity. |
| MFC.PR.C | PerpetualDiscount | -1.8200% | Now with a pre-tax bid-YTW of 5.84% based on a bid of 19.42 and a limitMaturity. |
| POW.PR.C | PerpetualDiscount | -1.8037% | Now with a pre-tax bid-YTW of 6.21% based on a bid of 23.41 and a limitMaturity. |
| MFC.PR.B | PerpetualDiscount | -1.6216% | Now with a pre-tax bid-YTW of 5.86% based on a bid of 20.02 and a limitMaturity. |
| CM.PR.I | PerpetualDiscount | -1.5271% | Now with a pre-tax bid-YTW of 6.29% based on a bid of 18.70 and a limitMaturity. |
| RY.PR.B | PerpetualDiscount | -1.1386% | Now with a pre-tax bid-YTW of 5.97% based on a bid of 19.97 and a limitMaturity. |
| BNA.PR.C | SplitShare | -1.1134% | Asset coverage of just under 3.6:1 as of May 30 according to the company. Now with a pre-tax bid-YTW of 7.45% based on a bid of 19.54 and a hardMaturity 2019-1-10 at 25.00. |
| RY.PR.E | PerpetualDiscount | -1.0909% | Now with a pre-tax bid-YTW of 5.99% based on a bid of 19.04 and a limitMaturity. |
| TD.PR.Q | PerpetualDiscount | -1.0843% | Now with a pre-tax bid-YTW of 5.78% based on a bid of 24.63 and a limitMaturity. |
| W.PR.J | PerpetualDiscount | +1.0545% | Now with a pre-tax bid-YTW of 6.19% based on a bid of 22.65 and a limitMaturity. |
| STW.PR.A | InterestBearing | +1.0945% | Asset coverage of 1.8+:1 as of June 19, according to Middlefield. Now with a pre-tax bid-YTW of 5.30% based on a bid of 10.01 and a call 2009-1-31 at 10.00. |
| CM.PR.E | PerpetualDiscount | +1.3656% | Now with a pre-tax bid-YTW of 6.08% based on a bid of 23.01 and a limitMaturity. |
| SBC.PR.A | SplitShare | +1.3958% | Asset coverage of just under 2.1:1 as of June 19, according to Brompton Group. Now with a pre-tax bid-YTW of 4.88% based on a bid of 10.13 and a hardMaturity 2012-11-30 at 10.00. |
| SLF.PR.C | PerpetualDiscount | +1.4957% | Now with a pre-tax bid-YTW of 5.89% based on a bid of 19.00 and a limitMaturity. |
| BAM.PR.J | OpRet | +1.5287% | Now with a pre-tax bid-YTW of 6.03% based on a bid of 23.91 and a softMaturity 2018-3-30 at 25.00. |
| BNS.PR.K | PerpetualDiscount | +1.7975% | Now with a pre-tax bid-YTW of 5.66% based on a bid of 21.22 and a limitMaturity. |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| TD.PR.O | PerpetualDiscount | 68,350 | Anonymous bought 36,000 from Nesbitt at 21.15. Now with a pre-tax bid-YTW of 5.83% based on a bid of 21.17 and a limitMaturity. |
| SLF.PR.E | PerpetualDiscount | 47,919 | RBC crossed 34,100 at 19.60. Now with a pre-tax bid-YTW of 5.84% based on a bid of 19.40 and a limitMaturity. |
| NA.PR.L | PerpetualDiscount | 45,970 | RBC crossed 37,800 at 20.10. Now with a pre-tax bid-YTW of 6.16% based on a bid of 20.00 and a limitMaturity. |
| HSB.PR.D | PerpetualDiscount | 44,575 | RBC crossed 35,100 at 20.95. Now with a pre-tax bid-YTW of 6.06% based on a bid of 20.75 and a limitMaturity. |
| ACO.PR.A | OpRet | 42,220 | CIBC crossed 41,900 at 26.55. Now with a pre-tax bid-YTW of 2.12% based on a bid of 26.55 and a call 2008-12-31 at 26.00. |
There were twenty-one other index-included $25-pv-equivalent issues trading over 10,000 shares today.
I love a good arbitrage opportunity, and looked at the CIBC prefs noted by James.
By plotting closing yields = Y vs dividend = X, I observed that CIBC prefs generally had a positive slope of about 0.50% (per $1 of dividend) for Jan-May 2008, but in June this has swooped down to -0.75%. There is a strong negative correlation of -0.85 between the mid-point yield ($1.30 dividend) and this slope, which means that rising CIBC yields have been accompanied by a tipping of the yield vs dividend relationship — which is to James’ point about the June 25 data slope of yields being in the “wrong” direction.
An arbitrageur would hope for yields vs $ dividend slope to revert to “normal” sometime, regardless of the overall level of CIBC pref yields. I calculate from mid-day bid-ask spreads today, that buying CM.PR.J and shorting CM.PR.E should lend itself to a $1.30 gross return (perhaps only $0.98 after bid/ask and commissions). The net return is only 5.5% of capital employed, so I am not rushing to do this — particularly given the negative correlation coefficient noted above. However, a 5.5% return with no net exposure (actually a slight negative net $ exposure) to CIBC credit risk has its attractions.
Anyway, this is an opportunity worth monitoring, for sure.
Thanks James and Blog On!
Jump in with both feet, prefhound! Preferably before the close on Monday! The current irrationality is killing my performance.
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