There is perplexity about the recent fall of junk:
There’s no obvious explanation for the 1.5 percent decline in U.S. high-yield securities in the past month, or the $9.9 billion of cash pulled from mutual funds that buy the debt. The most likely reason is that investors are increasingly uncomfortable hanging onto bonds that are expensive by historical measures.
Chalk this one up to a collective bout of angst that looks quite different from the 3.2 percent drop in speculative-grade bonds in May and June of last year. That rout was triggered by the prospect of less Federal Reserve stimulus and, while a withdrawal of easy-money policies still weighs on investors’ minds, that’s not the full story now.
…
Some evidence that high-yield bonds aren’t falling because of rising-rate concerns can be found in investment-grade debt. Investors plowed $10.4 billion into funds focused on those securities, which are more sensitive to moves in benchmark yields, according to an Aug. 4 Wells Fargo & Co. (WFC) report.
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Yields on junk bonds are still close to the lowest ever, and some investors are getting out while they can relatively easily — before everyone exiting at once tests a market where Wall Street is using less capital to facilitate trading.The 6.2 percent yield on junk bonds is 2.7 percentage points below their decade-long average, yet 3.2 percentage points more than investment-grade securities, about the most since October, according to Bank of America Merrill Lynch index data.
I suggest that limits on dealer capital are key; and we’d better get used to increased volatility on everything until a new class of hedge fund – one that acts as a bond dealer – pops up.
Geez, banks are irritating. I toddled off to the bank today, complete with voided cheque to do a wire transfer. Disaster. They don’t just need the information on the cheque, they need all kinds of other things as well. So … there’s enough information on a cheque to take money out of an account. But there is insufficient information to put money in. I don’t know whether it’s bank policy or regulations – and there’s no point in trying to find out, because nobody who knows will talk to me and nobody who talks to me will have a clue, so they’ll just make something up, I’ve been down that road before – but it makes no sense to me. Judging by what they charge for a wire transfer, maybe it’s just that they don’t want to do the business; I learnt about twenty years ago that their internal bookkeeping and exception reporting in real time for wire transfers was virtually non-existent; I learnt about ten years ago that the same applies on an end-of-day basis.
It was a lacklustre day for the Canadian preferred share market, with PerpetualDiscounts and DeemedRetractibles both gaining 1bp and FixedResets off 3bp. Volatility was minimal. Volume was extremely low.
PerpetualDiscounts now yield 5.20%, equivalent to 6.76% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little under 4.2%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 255bp, a slight (and perhaps spurious) widening from the 250bp reported July 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 | 0.3755 % | 2,635.6 |
| FixedFloater | 4.17 % | 3.40 % | 26,895 | 18.61 | 1 | 0.0000 % | 4,163.9 |
| Floater | 2.91 % | 3.04 % | 45,219 | 19.61 | 4 | 0.3755 % | 2,725.4 |
| OpRet | 4.02 % | -1.01 % | 76,731 | 0.08 | 1 | 0.1178 % | 2,719.0 |
| SplitShare | 4.25 % | 3.83 % | 59,261 | 3.98 | 6 | 0.2002 % | 3,123.5 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1178 % | 2,486.2 |
| Perpetual-Premium | 5.49 % | -3.38 % | 85,570 | 0.08 | 19 | -0.0248 % | 2,435.5 |
| Perpetual-Discount | 5.23 % | 5.20 % | 117,080 | 15.14 | 17 | 0.0075 % | 2,585.6 |
| FixedReset | 4.29 % | 3.57 % | 195,843 | 8.56 | 75 | -0.0280 % | 2,558.0 |
| Deemed-Retractible | 5.00 % | 0.81 % | 114,527 | 0.24 | 42 | 0.0105 % | 2,548.9 |
| FloatingReset | 2.68 % | 2.24 % | 80,094 | 3.84 | 6 | 0.1845 % | 2,517.3 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.C | Deemed-Retractible | 1.16 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.66 Bid-YTW : 5.81 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TD.PF.B | FixedReset | 139,436 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-08-06 Maturity Price : 23.18 Evaluated at bid price : 25.05 Bid-YTW : 3.63 % |
| BMO.PR.W | FixedReset | 118,340 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-08-06 Maturity Price : 23.13 Evaluated at bid price : 24.95 Bid-YTW : 3.61 % |
| CGI.PR.D | SplitShare | 78,700 | Scotia crossed blocks of 44,400 and 15,000, both at 25.10. YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2023-06-14 Maturity Price : 25.00 Evaluated at bid price : 25.09 Bid-YTW : 3.79 % |
| ENB.PF.C | FixedReset | 55,688 | Nesbitt crossed 40,000 at 25.12. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-08-06 Maturity Price : 23.16 Evaluated at bid price : 25.10 Bid-YTW : 4.12 % |
| SLF.PR.A | Deemed-Retractible | 52,796 | Scotia crossed 42,800 at 23.78. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.58 Bid-YTW : 5.56 % |
| ENB.PR.F | FixedReset | 52,654 | Nesbitt crossed 38,700 at 24.70. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-08-06 Maturity Price : 23.20 Evaluated at bid price : 24.80 Bid-YTW : 3.96 % |
| There were 11 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| PVS.PR.C | SplitShare | Quote: 26.01 – 26.50 Spot Rate : 0.4900 Average : 0.3802 YTW SCENARIO |
| TD.PR.Y | FixedReset | Quote: 25.41 – 25.72 Spot Rate : 0.3100 Average : 0.2205 YTW SCENARIO |
| SLF.PR.G | FixedReset | Quote: 22.26 – 22.49 Spot Rate : 0.2300 Average : 0.1597 YTW SCENARIO |
| IAG.PR.A | Deemed-Retractible | Quote: 23.23 – 23.67 Spot Rate : 0.4400 Average : 0.3747 YTW SCENARIO |
| FTS.PR.K | FixedReset | Quote: 24.95 – 25.14 Spot Rate : 0.1900 Average : 0.1253 YTW SCENARIO |
| PWF.PR.H | Perpetual-Premium | Quote: 25.42 – 25.60 Spot Rate : 0.1800 Average : 0.1214 YTW SCENARIO |