February 13, 2014

Changes in Fed policy can disproportionate effects:

Federal Reserve Bank of St. Louis President James Bullard said Fed officials will probably be careful about altering the pace of their reductions to bond buying because of a potentially significant impact on markets.

“If we move off our baseline, it’s going to have pretty big repercussions,” Bullard said today in an interview at Bloomberg’s headquarters in New York. “We’d be cautious in using that — it’s going to have to be a situation where you’re pretty sure things are moving off track.”

Bullard said the market’s reaction last June to a potential tapering, and the impact of the Fed’s surprise decision in September to maintain the pace of its asset purchases, illustrated that fluctuations in the amount of quantitative easing have “powerful” consequences.

In June, global equity markets lost $3 trillion in the five days after former Fed Chairman Ben S. Bernanke said he might reduce his $85 billion in monthly asset purchases that year and end them by mid-2014. In September, the Fed refrained from tapering, reversing a rise in bond yields and pushing back expectations for a tightening of monetary policy.

“In both of these cases, it showed it really matters a lot,” Bullard said. “Flow-based purchases have been really a powerful tool.”

Market movement was modest for Canadian preferred shares today, with PerpetualDiscounts off 2bp, FixedResets gaining 2bp and DeemedRetractibles up 3bp. The Performance Highlights table is notable for two winning Floating Rate issues. Volume was average.

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 1.1963 % 2,419.9
FixedFloater 4.75 % 4.33 % 29,742 17.75 1 -0.1498 % 3,572.8
Floater 2.99 % 3.07 % 54,008 19.52 4 1.1963 % 2,612.8
OpRet 4.61 % -0.61 % 70,954 0.13 3 -0.0384 % 2,686.8
SplitShare 4.88 % 5.09 % 63,135 4.34 5 -0.1448 % 3,007.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0384 % 2,456.8
Perpetual-Premium 5.67 % 1.23 % 94,948 0.08 12 0.0000 % 2,333.9
Perpetual-Discount 5.56 % 5.58 % 150,800 14.50 26 -0.0543 % 2,385.5
FixedReset 4.91 % 3.72 % 212,924 6.24 82 0.0248 % 2,486.8
Deemed-Retractible 5.12 % 4.12 % 163,399 1.93 42 0.0332 % 2,422.6
FloatingReset 2.65 % 2.59 % 164,270 4.60 6 -0.0469 % 2,441.2
Performance Highlights
Issue Index Change Notes
GWO.PR.N FixedReset -1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.55
Bid-YTW : 4.74 %
BAM.PR.X FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-02-13
Maturity Price : 20.67
Evaluated at bid price : 20.67
Bid-YTW : 4.43 %
TD.PR.Y FixedReset 1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.03
Bid-YTW : 3.47 %
BAM.PR.C Floater 1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-02-13
Maturity Price : 17.09
Evaluated at bid price : 17.09
Bid-YTW : 3.10 %
BAM.PR.B Floater 2.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-02-13
Maturity Price : 17.25
Evaluated at bid price : 17.25
Bid-YTW : 3.07 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.R FloatingReset 291,900 Issue Reset Spread of 165bp makes the dividend prospects to Deemed Maturity so dreary that a fast call has basically the same yield as the Deemed Maturity scenario. TD crossed 289,300 at 24.65.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-08-25
Maturity Price : 25.00
Evaluated at bid price : 24.79
Bid-YTW : 2.59 %
SLF.PR.G FixedReset 183,230 Nesbitt crossed 155,200 at 22.15.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.15
Bid-YTW : 4.60 %
BNS.PR.Z FixedReset 165,887 RBC crossed two blocks of 75,000 each, both at 23.74.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.72
Bid-YTW : 3.93 %
GWO.PR.I Deemed-Retractible 125,900 Nesbitt crossed 100,000 at 21.45.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.31
Bid-YTW : 6.51 %
BAM.PR.G FixedFloater 74,765 Nesbitt crossed 71,300 at 20.06.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-02-13
Maturity Price : 25.00
Evaluated at bid price : 20.00
Bid-YTW : 4.33 %
NA.PR.S FixedReset 65,416 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-02-13
Maturity Price : 23.15
Evaluated at bid price : 25.02
Bid-YTW : 3.91 %
There were 33 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
ELF.PR.G Perpetual-Discount Quote: 20.91 – 21.31
Spot Rate : 0.4000
Average : 0.3093

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-02-13
Maturity Price : 20.91
Evaluated at bid price : 20.91
Bid-YTW : 5.75 %

FTS.PR.H FixedReset Quote: 20.90 – 21.19
Spot Rate : 0.2900
Average : 0.2056

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-02-13
Maturity Price : 20.90
Evaluated at bid price : 20.90
Bid-YTW : 3.74 %

ENB.PR.F FixedReset Quote: 24.21 – 24.40
Spot Rate : 0.1900
Average : 0.1080

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-02-13
Maturity Price : 22.92
Evaluated at bid price : 24.21
Bid-YTW : 4.14 %

BAM.PR.X FixedReset Quote: 20.67 – 20.95
Spot Rate : 0.2800
Average : 0.1993

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-02-13
Maturity Price : 20.67
Evaluated at bid price : 20.67
Bid-YTW : 4.43 %

CGI.PR.D SplitShare Quote: 24.41 – 24.73
Spot Rate : 0.3200
Average : 0.2415

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 24.41
Bid-YTW : 4.16 %

ENB.PR.D FixedReset Quote: 23.82 – 24.07
Spot Rate : 0.2500
Average : 0.1786

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-02-13
Maturity Price : 22.77
Evaluated at bid price : 23.82
Bid-YTW : 4.11 %

2 Responses to “February 13, 2014”

  1. misha says:

    Wait, what? 11 year (Deemed retractible) maturity yielding 6.5?

    Isn’t that a bit off the regression line?

    GWO.PR.I

    YTW SCENARIO
    Maturity Type : Hard Maturity
    Maturity Date : 2025-01-31
    Maturity Price : 25.00
    Evaluated at bid price : 21.31
    Bid-YTW : 6.51 %

  2. jiHymas says:

    I have just approved your comment – sorry it took so long! I’ve only just got caught up on deleting spam comments in the moderation queue and approving the non-spam.

    On the bright side, now that you have an approved comment, your next one won’t have to moderated and should appear on the blog as soon as you press enter.

    With respect to your comment – not as much as you might think! Here are some charts:

    ImpVol_GWO_140213

    YTW_GWO_140213

    ImpVol_GWO_140303

    YTW_GWO_140303

    Performance in the eighteen days your comment has been neglected has been:

    GWO DeemedRetractible
    Performance
    2014-2-13 to 2014-3-3
    Ticker Dividend Total
    Return
    GWO.PR.F 1.475 +0.73%
    GWO.PR.G 1.30 +2.75%
    GWO.PR.H 1.2125 +2.43%
    GWO.PR.I 1.125 +3.63%
    GWO.PR.L 1.4125 +0.61%
    GWO.PR.M 1.45 +0.56%
    GWO.PR.P 1.35 +1.70%
    GWO.PR.Q 1.2875 +2.62%
    GWO.PR.R 1.20 +1.89%

    The effect of the steepening of the dividend / Current Yield curve indicated by the increase in implied volatility is plainly apparent.

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