June 26, 2008

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.

6 Responses to “June 26, 2008”

  1. prefhound says:

    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!

  2. jiHymas says:

    Jump in with both feet, prefhound! Preferably before the close on Monday! The current irrationality is killing my performance.

  3. […] the comments to June 26, Assiduous Reader prefhound professed himself insufficiently impressed by the +31bp spread between […]

  4. […] of market price relative to potential call price, that is) – I gave the example of the CM issues on June 26 and two RY issues more […]

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