February 17, 2015

Equities popped today on the back of oil:

The Standard & Poor’s 500 Index rose 1.7 percent to 1,926.82 at 4 p.m. in New York, capping its first three-day advance this year and closing at a two-week high. The Dow climbed 257.42 points, or 1.6 percent, to 16,453.83. The Nasdaq Composite Index gained 2.2 percent. About 9.2 billion shares traded hands on U.S. exchanges, 14 percent above the three-month average.

Equity gains are coming virtually as fast as the losses that sent the S&P 500 to its worst start to any year, with almost half of 2016’s decline made up in three days. The rally today occurred as oil climbed more than 5 percent, Federal Reserve officials expressed caution on the economy and data on manufacturing was better than forecast.

On the other hand, Japan auctioned 5-year bonds with a negative yield:

Japan’s government got paid to borrow at a five-year note auction for the first time on Thursday after the central bank adopted a negative interest-rate policy on Jan. 29. The sale drew an average yield of minus 0.138 percent. Japan is following Germany, Switzerland and Denmark in being able to attract buyers even as yields fall below zero.

One of the many benefits of High Frequency Trading may be the arbitrage between the cash and futures markets:

The close relationship between market volatility and trading activity is a long-established fact in financial markets. In recent years, much of the trading in U.S. Treasury and equity markets has been associated with nearly simultaneous trading between the leading cash and futures platforms. The striking cross-activity patterns that arise in both high-frequency cross-market trading and related cross-market order book changes in U.S. Treasury markets are also witnessed in other asset classes and naturally lead to the question that we investigate in this post of how the cross-market component of overall trading activity is related to volatility.

The chart below displays a measure of cross-market activity for the ten-year Treasury note cash and futures markets (left column) and the S&P 500 cash and futures markets (right column) across different millisecond offsets. Of note is the pronounced asymmetry of the spike in the measure at +5 milliseconds for the S&P 500 compared with the ten-year U.S. Treasury. The much higher spike for the positive 5 millisecond offset is consistent with the often-cited dominant role played by the S&P futures market in price discovery. Leaving this asymmetry aside, the spikes in cross-market activity on October 15 and 16, 2014, stand out as being well-aligned with the heightened volatility and trading observed on those days. Cross-market trading and quoting activity thus appears to be related to variations in market volatility, which can create (short-lived) dislocations in relative valuations as market participants respond to news about fundamentals or market activity itself.

crossMarketActivity
Click for Big

It was a superb day for the Canadian preferred share market, with PerpetualDiscounts up 19bp, FixedResets winning 142bp and DeemedRetractibles gaining 12bp. Unsurprisingly, the Performance Highlights table is both enormous and dominated by FixedReset winners, with many issues gaining over 5%. Volume was very high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_160217
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 16.51 to be $1.16 rich, while TRP.PR.C, resetting 2021-1-30 at +154, is $0.97 cheap at its bid price of 10.36.

impVol_MFC_160217
Click for Big

This analysis includes the new issue with a deemed price of 25.00.

Most expensive is the new issue, resetting at +497bp on 2021-6-19, deemed at 25.00 to be 1.32 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 16.99 to be 1.25 cheap.

impVol_BAM_160217
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 13.00 to be $1.46 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 17.31 and appears to be $1.62 rich.

impVol_FTS_160217
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 15.00, looks $0.81 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 14.00 and is $0.58 cheap.

pairs_FR_160217
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.72%, with four outliers above 0.00%. There are two junk outliers above 0.00%.

pairs_FF_160217
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 5.71 % 6.94 % 15,457 15.53 1 1.2810 % 1,366.4
FixedFloater 7.88 % 6.89 % 24,873 15.30 1 1.7722 % 2,523.8
Floater 5.20 % 5.41 % 81,003 14.76 4 3.2983 % 1,473.9
OpRet 0.00 % 0.00 % 0 0.00 0 0.3516 % 2,746.5
SplitShare 4.81 % 5.75 % 74,386 2.67 6 0.3516 % 3,213.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3516 % 2,507.6
Perpetual-Premium 5.85 % 5.82 % 83,019 13.87 6 0.1000 % 2,522.5
Perpetual-Discount 5.80 % 5.84 % 99,678 14.13 33 0.1897 % 2,493.1
FixedReset 5.74 % 5.11 % 211,852 14.43 84 1.4227 % 1,768.5
Deemed-Retractible 5.34 % 5.81 % 123,857 6.89 34 0.1153 % 2,529.7
FloatingReset 3.11 % 5.02 % 49,790 5.51 16 0.4631 % 1,967.6
Performance Highlights
Issue Index Change Notes
BNS.PR.B FloatingReset -1.50 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.08
Bid-YTW : 5.19 %
GWO.PR.O FloatingReset -1.33 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 11.15
Bid-YTW : 12.10 %
BNS.PR.C FloatingReset -1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.50
Bid-YTW : 5.02 %
TD.PR.Y FixedReset -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.32
Bid-YTW : 4.22 %
TRP.PR.F FloatingReset 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 11.04
Evaluated at bid price : 11.04
Bid-YTW : 5.42 %
TD.PF.B FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 4.58 %
PWF.PR.K Perpetual-Discount 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 21.47
Evaluated at bid price : 21.73
Bid-YTW : 5.74 %
FTS.PR.G FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 14.00
Evaluated at bid price : 14.00
Bid-YTW : 5.17 %
MFC.PR.G FixedReset 1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.99
Bid-YTW : 9.04 %
RY.PR.J FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 17.40
Evaluated at bid price : 17.40
Bid-YTW : 4.90 %
CM.PR.Q FixedReset 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 17.91
Evaluated at bid price : 17.91
Bid-YTW : 4.84 %
SLF.PR.I FixedReset 1.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.50
Bid-YTW : 9.20 %
TD.PF.E FixedReset 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 18.30
Evaluated at bid price : 18.30
Bid-YTW : 4.85 %
BAM.PR.E Ratchet 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 25.00
Evaluated at bid price : 11.86
Bid-YTW : 6.94 %
BNS.PR.Y FixedReset 1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.75
Bid-YTW : 7.00 %
BMO.PR.M FixedReset 1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.31
Bid-YTW : 4.03 %
RY.PR.W Perpetual-Discount 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 22.88
Evaluated at bid price : 23.15
Bid-YTW : 5.30 %
POW.PR.D Perpetual-Discount 1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 21.33
Evaluated at bid price : 21.60
Bid-YTW : 5.85 %
RY.PR.M FixedReset 1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 17.07
Evaluated at bid price : 17.07
Bid-YTW : 4.87 %
W.PR.K FixedReset 1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 22.83
Evaluated at bid price : 24.10
Bid-YTW : 5.48 %
TRP.PR.A FixedReset 1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 13.53
Evaluated at bid price : 13.53
Bid-YTW : 5.02 %
CM.PR.P FixedReset 1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 4.79 %
BNS.PR.D FloatingReset 1.74 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.58
Bid-YTW : 7.73 %
PVS.PR.D SplitShare 1.75 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2021-10-08
Maturity Price : 25.00
Evaluated at bid price : 23.30
Bid-YTW : 6.17 %
BAM.PR.G FixedFloater 1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 25.00
Evaluated at bid price : 12.06
Bid-YTW : 6.89 %
TD.PF.F Perpetual-Discount 1.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 22.12
Evaluated at bid price : 22.46
Bid-YTW : 5.49 %
BMO.PR.T FixedReset 1.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 16.52
Evaluated at bid price : 16.52
Bid-YTW : 4.61 %
HSE.PR.A FixedReset 2.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 8.35
Evaluated at bid price : 8.35
Bid-YTW : 7.09 %
NA.PR.Q FixedReset 2.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.63
Bid-YTW : 5.16 %
FTS.PR.I FloatingReset 2.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 9.42
Evaluated at bid price : 9.42
Bid-YTW : 5.02 %
FTS.PR.M FixedReset 2.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 5.16 %
PWF.PR.T FixedReset 2.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 19.53
Evaluated at bid price : 19.53
Bid-YTW : 4.06 %
BAM.PR.T FixedReset 2.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 13.37
Evaluated at bid price : 13.37
Bid-YTW : 5.72 %
SLF.PR.J FloatingReset 2.78 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 11.45
Bid-YTW : 11.92 %
MFC.PR.L FixedReset 2.80 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.78
Bid-YTW : 9.66 %
FTS.PR.K FixedReset 2.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 15.00
Evaluated at bid price : 15.00
Bid-YTW : 4.79 %
BAM.PF.G FixedReset 2.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 5.37 %
BAM.PF.F FixedReset 3.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 17.51
Evaluated at bid price : 17.51
Bid-YTW : 5.33 %
HSE.PR.E FixedReset 3.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 15.10
Evaluated at bid price : 15.10
Bid-YTW : 7.18 %
BAM.PR.R FixedReset 3.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 13.00
Evaluated at bid price : 13.00
Bid-YTW : 5.74 %
BAM.PF.B FixedReset 3.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 16.06
Evaluated at bid price : 16.06
Bid-YTW : 5.38 %
BAM.PR.Z FixedReset 3.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 16.99
Evaluated at bid price : 16.99
Bid-YTW : 5.52 %
CM.PR.O FixedReset 4.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 16.65
Evaluated at bid price : 16.65
Bid-YTW : 4.71 %
TRP.PR.G FixedReset 4.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 5.28 %
MFC.PR.N FixedReset 4.19 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.90
Bid-YTW : 8.82 %
BAM.PR.K Floater 4.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 8.86
Evaluated at bid price : 8.86
Bid-YTW : 5.41 %
MFC.PR.M FixedReset 4.45 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.13
Bid-YTW : 8.70 %
BAM.PR.C Floater 4.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 8.67
Evaluated at bid price : 8.67
Bid-YTW : 5.53 %
HSE.PR.G FixedReset 4.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 15.26
Evaluated at bid price : 15.26
Bid-YTW : 7.10 %
BAM.PF.A FixedReset 4.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 5.35 %
SLF.PR.H FixedReset 4.96 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.60
Bid-YTW : 10.14 %
GWO.PR.N FixedReset 5.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.75
Bid-YTW : 10.83 %
MFC.PR.K FixedReset 5.44 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.50
Bid-YTW : 9.77 %
MFC.PR.F FixedReset 5.48 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.31
Bid-YTW : 11.39 %
BAM.PR.B Floater 5.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 8.80
Evaluated at bid price : 8.80
Bid-YTW : 5.44 %
SLF.PR.G FixedReset 6.37 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.52
Bid-YTW : 10.17 %
BAM.PR.X FixedReset 7.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 12.31
Evaluated at bid price : 12.31
Bid-YTW : 5.30 %
BAM.PF.E FixedReset 7.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 17.31
Evaluated at bid price : 17.31
Bid-YTW : 5.03 %
PWF.PR.Q FloatingReset 8.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 10.85
Evaluated at bid price : 10.85
Bid-YTW : 4.74 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.M FixedReset 155,067 TD crossed 21,000 at 15.90, followed by blocks of 100,000 and 19,000, both at 16.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 5.16 %
FTS.PR.H FixedReset 151,934 Scotia crossed blocks of 52,800 and 95,400, both at 11.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 11.16
Evaluated at bid price : 11.16
Bid-YTW : 4.83 %
BAM.PR.K Floater 114,575 TD crossed 100,000 at 8.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 8.86
Evaluated at bid price : 8.86
Bid-YTW : 5.41 %
TD.PF.G FixedReset 95,049 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 23.25
Evaluated at bid price : 25.31
Bid-YTW : 5.21 %
BMO.PR.Y FixedReset 90,020 Scotia crossed blocks of 50,000 and 25,000, both at 18.25.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 18.23
Evaluated at bid price : 18.23
Bid-YTW : 4.71 %
RY.PR.Q FixedReset 83,277 RBC crossed 10,000 at 25.40.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 23.28
Evaluated at bid price : 25.44
Bid-YTW : 5.11 %
There were 56 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
FTS.PR.H FixedReset Quote: 11.16 – 12.35
Spot Rate : 1.1900
Average : 0.7183

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 11.16
Evaluated at bid price : 11.16
Bid-YTW : 4.83 %

MFC.PR.H FixedReset Quote: 18.12 – 19.12
Spot Rate : 1.0000
Average : 0.6328

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.12
Bid-YTW : 8.44 %

CIU.PR.C FixedReset Quote: 9.82 – 10.57
Spot Rate : 0.7500
Average : 0.4374

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 9.82
Evaluated at bid price : 9.82
Bid-YTW : 5.00 %

FTS.PR.G FixedReset Quote: 14.00 – 15.00
Spot Rate : 1.0000
Average : 0.6993

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 14.00
Evaluated at bid price : 14.00
Bid-YTW : 5.17 %

TRP.PR.I FloatingReset Quote: 10.75 – 12.00
Spot Rate : 1.2500
Average : 1.0157

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 10.75
Evaluated at bid price : 10.75
Bid-YTW : 4.64 %

TRP.PR.A FixedReset Quote: 13.53 – 14.19
Spot Rate : 0.6600
Average : 0.4437

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-02-17
Maturity Price : 13.53
Evaluated at bid price : 13.53
Bid-YTW : 5.02 %

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