The big news of the day was the FOMC press release:
Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year. Job gains have been solid in recent months and the unemployment rate has declined. Household spending has been rising moderately but business fixed investment has remained soft. Inflation has increased since earlier this year but is still below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation have moved up considerably but still are low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
…
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1/2 to 3/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation.
…
The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.
Of interest was the Fed’s long-term projection:
The unemployment rate was 6.7 percent when Yellen took office in February 2014, and it is now at 4.6 percent. The road to a tightening labor market has been a long, spirit-crushing slog for millions of Americans and Yellen has been particularly attentive to broader labor indicators during her tenure. She noted that black unemployment rates were “about back to 2007 levels as well.”
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Sometimes I wish I lived in Aukland:
Domino’s demonstrated its ability to deliver food via a drone Thursday in New Zealand and plans to test actual deliveries to customers next month.
“It doesn’t add up to deliver a two kilogram package in a two-ton vehicle,” said Scott Bush, a general manager for Domino’s Pizza Enterprises, which is independent of the U.S. chain and operates in seven countries. “In Auckland, we have such massive traffic congestion it just makes sense to take to the airways.”
A Domino’s customer who requests a drone delivery will receive a notification when their delivery is approaching. After going outside and hitting a button on their smartphone, the drone will lower the food via a tether. Once the package is released, the drone pulls the tether back up and flies back to the Domino’s store.
Amazon.com Inc.’s drone delivery program has liftoff—from a rural corner of England.
Amazon last week made its first customer delivery by drone, carrying a package containing popcorn and a Fire TV video-streaming device several miles to a two-story farmhouse near Cambridge, U.K., in 13 minutes. A video the company released Wednesday shows a track the drone used to launch, a platform from which employees monitored takeoff, and a landing pad on the customer’s lawn.
PerpetualDiscounts now yield 5.52%, equivalent to 7.18% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.2%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 300bp, a narrowing from the 310bp reported December 7.
| 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 | 0.5013 % | 1,765.3 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.5013 % | 3,224.8 |
| Floater | 4.28 % | 4.38 % | 54,865 | 16.68 | 4 | 0.5013 % | 1,858.5 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0595 % | 2,930.5 |
| SplitShare | 4.82 % | 4.59 % | 82,841 | 4.30 | 6 | 0.0595 % | 3,499.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0595 % | 2,730.6 |
| Perpetual-Premium | 5.47 % | 5.40 % | 87,933 | 14.43 | 23 | -0.0263 % | 2,645.4 |
| Perpetual-Discount | 5.51 % | 5.52 % | 99,403 | 14.57 | 15 | -0.5111 % | 2,729.6 |
| FixedReset | 4.87 % | 4.68 % | 228,359 | 6.79 | 96 | 0.0560 % | 2,102.5 |
| Deemed-Retractible | 5.21 % | 4.67 % | 143,956 | 4.55 | 32 | -0.2605 % | 2,735.1 |
| FloatingReset | 2.84 % | 3.87 % | 46,927 | 4.81 | 12 | -0.4929 % | 2,298.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRP.PR.H | FloatingReset | -1.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 11.28 Evaluated at bid price : 11.28 Bid-YTW : 3.87 % |
| TRP.PR.F | FloatingReset | -1.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 14.55 Evaluated at bid price : 14.55 Bid-YTW : 4.10 % |
| CU.PR.C | FixedReset | -1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 19.10 Evaluated at bid price : 19.10 Bid-YTW : 4.62 % |
| SLF.PR.K | FloatingReset | -1.22 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.20 Bid-YTW : 8.77 % |
| TD.PR.S | FixedReset | -1.21 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.77 Bid-YTW : 4.09 % |
| SLF.PR.B | Deemed-Retractible | -1.20 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.17 Bid-YTW : 6.63 % |
| BNS.PR.Q | FixedReset | -1.20 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.88 Bid-YTW : 4.19 % |
| SLF.PR.D | Deemed-Retractible | -1.20 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.67 Bid-YTW : 7.32 % |
| SLF.PR.C | Deemed-Retractible | -1.19 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.70 Bid-YTW : 7.30 % |
| FTS.PR.M | FixedReset | -1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 19.05 Evaluated at bid price : 19.05 Bid-YTW : 4.84 % |
| FTS.PR.F | Perpetual-Discount | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 22.11 Evaluated at bid price : 22.39 Bid-YTW : 5.51 % |
| CU.PR.E | Perpetual-Discount | -1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 22.36 Evaluated at bid price : 22.67 Bid-YTW : 5.44 % |
| W.PR.J | Perpetual-Premium | -1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 24.66 Evaluated at bid price : 24.92 Bid-YTW : 5.71 % |
| IAG.PR.A | Deemed-Retractible | -1.02 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.28 Bid-YTW : 7.04 % |
| MFC.PR.B | Deemed-Retractible | -1.00 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.74 Bid-YTW : 6.79 % |
| BAM.PR.R | FixedReset | 1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 16.62 Evaluated at bid price : 16.62 Bid-YTW : 4.98 % |
| BMO.PR.W | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 18.92 Evaluated at bid price : 18.92 Bid-YTW : 4.51 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| NA.PR.S | FixedReset | 197,757 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 19.10 Evaluated at bid price : 19.10 Bid-YTW : 4.72 % |
| MFC.PR.R | FixedReset | 163,636 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.89 Bid-YTW : 5.01 % |
| TRP.PR.K | FixedReset | 156,203 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 23.13 Evaluated at bid price : 24.98 Bid-YTW : 4.87 % |
| BAM.PF.I | FixedReset | 151,586 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 23.17 Evaluated at bid price : 25.08 Bid-YTW : 4.82 % |
| BIP.PR.A | FixedReset | 85,120 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 21.16 Evaluated at bid price : 21.16 Bid-YTW : 5.48 % |
| RY.PR.Z | FixedReset | 67,685 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-12-14 Maturity Price : 19.10 Evaluated at bid price : 19.10 Bid-YTW : 4.48 % |
| There were 83 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| FTS.PR.M | FixedReset | Quote: 19.05 – 19.34 Spot Rate : 0.2900 Average : 0.1915 YTW SCENARIO |
| CU.PR.E | Perpetual-Discount | Quote: 22.67 – 22.99 Spot Rate : 0.3200 Average : 0.2221 YTW SCENARIO |
| CU.PR.C | FixedReset | Quote: 19.10 – 19.47 Spot Rate : 0.3700 Average : 0.2731 YTW SCENARIO |
| SLF.PR.K | FloatingReset | Quote: 16.20 – 16.64 Spot Rate : 0.4400 Average : 0.3473 YTW SCENARIO |
| CU.PR.D | Perpetual-Discount | Quote: 22.66 – 22.95 Spot Rate : 0.2900 Average : 0.2042 YTW SCENARIO |
| CU.PR.G | Perpetual-Discount | Quote: 20.63 – 20.90 Spot Rate : 0.2700 Average : 0.1915 YTW SCENARIO |
Also worth noting is the fact that 5 year US treasuries are now yielding above 2 %. This mean that if the trend continues we may have rate reset issues resetting at a higher rate than when they were issued. I think that Enb.pr.u is due in six months and would yield above 5% at par. Obviously it could get recalled but I wonder if that would constitute a threshold moment that could give a boost to the entire rate reset market as it could change the retail expectations of what happens at reset. If the Canadian 5 year bonds were to move to the same level, should we expect rate reset to move closer to par in the coming months especially the ones that we will reset in 12 to 24 from now?