November 1, 2017

The FOMC statement was a non-event:

Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

… but Powell is being trumpeted as the new chairman:

President Donald Trump plans to nominate Federal Reserve Governor Jerome Powell to the top job at the U.S. central bank according to three people familiar with the decision.

Trump, who has said he’ll announce his pick Thursday, would be choosing a former private equity executive who favors continuing gradual interest-rate increases and sympathizes with White House calls to ease financial regulations. Powell declined to comment when approached by a reporter outside his Washington-area home. The Wall Street Journal earlier reported Trump has selected Powell.

Market reaction to that report was muted. The dollar briefly pared its gains, but still ended the day close to the level it was before the news and Treasuries maintained their advance. S&P 500 futures were little changed in Asian trading Thursday.

Speaking of Trump’s political appointees, I was appalled to read today’s statement from the Office of the Comptroller of the Currency:

Acting Comptroller of the Currency Keith A. Noreika issued the following statement following the President’s signature of the resolution overturning the Consumer Financial Protection Bureau’s rule on arbitration agreements:
Today, President Trump protected consumers and small and midsize banks by repealing a rule that would have cost millions, paved a path to expensive frivolous lawsuits, and lined the pockets of trial lawyers.

The action is a victory for consumers and small and midsize banks across the country because it stops a rule that likely would have significantly increased the cost of credit for hardworking Americans and taken away a valuable tool for resolving differences among banks and their customers. The action today preserves a choice for consumers who can choose among financial providers that offer services with arbitration clauses and those that do not.

The rule would have harmed consumers even as it provided no benefit in deterring bank misbehavior or preventing customer abuse. It is a new day in Washington when policymakers are actually concerned about the consequences that regulations have on working Americans. I applaud Congress and the President for vacating the rule.

So, the blatantly political thrust of the statement is disturbing … but hey, Noreika is a political appointee and there will always be some bias, some more overt than others.

But the lickspittle tone of the release is appalling. My Christ, doesn’t Noreika have any pride at all? I would certainly not issue something so grossly brown-nosing … but perhaps that’s just one of many reasons I haven’t been appointed to government office!

Here’s what the New York Times had to say when he was appointed:

A lawyer who spent much of his career protecting banks is now in charge of regulating them.

And last week’s appointment of the lawyer, Keith A. Noreika, to run the Office of the Comptroller of the Currency is unusual because it does not require him to sign the ethics pledge that President Trump is forcing on other appointees.

A spokesman for the Treasury Department, which houses the agency, said Mr. Noreika would face “the same strong ethics laws that apply to all officials serving in the O.C.C.,” including divesting certain assets that pose a conflict and recusal from “any specific matters involving his clients from over the past year.”

And yet, the White House used an administrative quirk to appoint Mr. Noreika to the job on an acting basis as a “special government employee,” who is expected to work at the agency for no more than 130 days, rather than through a Senate confirmation, an unusual move for the agency.

As a result, Mr. Noreika does not need to sign the president’s ethics pledge, allowing him to face fewer restrictions on lobbying and lawyering when he returns to the private sector.

Citing potential conflicts of interest, seven of the 11 Democrats on the Senate Banking Committee submitted a letter on Thursday to Treasury Secretary Steven Mnuchin, raising concerns about Mr. Noreika’s client list and pressing for clarity on his recusal plans. The letter, also questioning whether Mr. Mnuchin’s appointment of Mr. Noreika was “circumventing” the confirmation process and avoiding certain ethics requirements, called the episode an “apparent political power grab.”

Maybe he just doesn’t care.

PerpetualDiscounts now yield 5.26%, equivalent to 6.84% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.85%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 300bp, a significant widening from the 290bp reported October 25.

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 0.1336 % 2,419.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.1336 % 4,439.0
Floater 3.74 % 3.95 % 99,068 17.51 3 0.1336 % 2,558.2
OpRet 0.00 % 0.00 % 0 0.00 0 0.0461 % 3,079.9
SplitShare 4.74 % 4.77 % 61,960 4.33 6 0.0461 % 3,678.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0461 % 2,869.7
Perpetual-Premium 5.36 % -2.87 % 51,506 0.09 20 -0.0413 % 2,830.8
Perpetual-Discount 5.23 % 5.26 % 74,326 15.06 15 -0.0028 % 2,994.3
FixedReset 4.24 % 4.15 % 145,733 4.51 99 0.0608 % 2,483.6
Deemed-Retractible 5.04 % 5.39 % 99,479 5.96 30 -0.0343 % 2,924.5
FloatingReset 2.74 % 2.81 % 48,842 4.02 8 -0.0544 % 2,676.0
Performance Highlights
Issue Index Change Notes
IFC.PR.A FixedReset -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.13
Bid-YTW : 6.94 %
TRP.PR.C FixedReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-01
Maturity Price : 17.00
Evaluated at bid price : 17.00
Bid-YTW : 4.46 %
BAM.PR.M Perpetual-Discount 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-01
Maturity Price : 21.75
Evaluated at bid price : 22.00
Bid-YTW : 5.45 %
MFC.PR.M FixedReset 1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.62
Bid-YTW : 4.98 %
TRP.PR.G FixedReset 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-01
Maturity Price : 23.01
Evaluated at bid price : 24.10
Bid-YTW : 4.62 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.H FixedReset 139,816 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 3.57 %
RY.PR.C Deemed-Retractible 68,800 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-01
Maturity Price : 25.00
Evaluated at bid price : 25.34
Bid-YTW : -14.80 %
MFC.PR.R FixedReset 43,833 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.12
Bid-YTW : 3.89 %
CM.PR.R FixedReset 23,407 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 4.05 %
NA.PR.S FixedReset 20,083 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-01
Maturity Price : 23.39
Evaluated at bid price : 23.81
Bid-YTW : 4.22 %
TRP.PR.J FixedReset 19,487 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.73
Bid-YTW : 3.72 %
There were 9 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PR.T FloatingReset Quote: 24.66 – 25.78
Spot Rate : 1.1200
Average : 0.6197

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.66
Bid-YTW : 2.70 %

BIP.PR.C FixedReset Quote: 25.70 – 25.99
Spot Rate : 0.2900
Average : 0.1822

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 4.72 %

CU.PR.E Perpetual-Discount Quote: 24.52 – 24.87
Spot Rate : 0.3500
Average : 0.2462

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-01
Maturity Price : 24.04
Evaluated at bid price : 24.52
Bid-YTW : 5.05 %

SLF.PR.A Deemed-Retractible Quote: 23.19 – 23.53
Spot Rate : 0.3400
Average : 0.2557

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.19
Bid-YTW : 6.11 %

MFC.PR.L FixedReset Quote: 22.60 – 22.87
Spot Rate : 0.2700
Average : 0.1865

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.60
Bid-YTW : 5.55 %

CCS.PR.C Deemed-Retractible Quote: 23.75 – 24.10
Spot Rate : 0.3500
Average : 0.2665

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.75
Bid-YTW : 5.97 %

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