March 15, 2019

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 -1.0196 % 2,137.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.0196 % 3,921.8
Floater 5.48 % 5.63 % 45,998 14.50 3 -1.0196 % 2,260.2
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0397 % 3,275.1
SplitShare 4.88 % 4.69 % 69,271 3.91 8 -0.0397 % 3,911.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0397 % 3,051.7
Perpetual-Premium 5.64 % 0.04 % 58,323 0.08 9 0.1536 % 2,919.7
Perpetual-Discount 5.46 % 5.61 % 73,761 14.41 26 0.3372 % 3,051.9
FixedReset Disc 5.18 % 5.38 % 203,827 14.82 64 -0.1205 % 2,197.5
Deemed-Retractible 5.31 % 5.99 % 99,924 8.20 27 0.0177 % 3,022.0
FloatingReset 4.18 % 4.19 % 45,006 2.75 5 0.0971 % 2,408.2
FixedReset Prem 5.08 % 3.89 % 329,807 2.26 19 -0.0266 % 2,563.6
FixedReset Bank Non 1.98 % 4.12 % 159,239 2.77 3 -0.1946 % 2,629.4
FixedReset Ins Non 5.01 % 6.72 % 119,064 8.35 22 -0.3055 % 2,248.1
Performance Highlights
Issue Index Change Notes
GWO.PR.I Deemed-Retractible -3.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.07
Bid-YTW : 7.15 %
GWO.PR.P Deemed-Retractible -2.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.15
Bid-YTW : 5.83 %
IAF.PR.I FixedReset Ins Non -2.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.80
Bid-YTW : 6.81 %
SLF.PR.I FixedReset Ins Non -2.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.28
Bid-YTW : 6.70 %
PWF.PR.A Floater -1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 13.45
Evaluated at bid price : 13.45
Bid-YTW : 5.19 %
MFC.PR.K FixedReset Ins Non -1.66 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.01
Bid-YTW : 7.43 %
IFC.PR.F Deemed-Retractible -1.55 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.43
Bid-YTW : 6.11 %
TD.PF.C FixedReset Disc -1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 5.22 %
BAM.PR.B Floater -1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 12.11
Evaluated at bid price : 12.11
Bid-YTW : 5.72 %
BAM.PR.R FixedReset Disc -1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 16.21
Evaluated at bid price : 16.21
Bid-YTW : 5.95 %
BAM.PF.E FixedReset Disc -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 18.05
Evaluated at bid price : 18.05
Bid-YTW : 5.88 %
PWF.PR.T FixedReset Disc -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 5.25 %
BAM.PR.N Perpetual-Discount -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 20.36
Evaluated at bid price : 20.36
Bid-YTW : 5.86 %
NA.PR.G FixedReset Disc -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 21.36
Evaluated at bid price : 21.66
Bid-YTW : 5.33 %
TD.PF.K FixedReset Disc -1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 21.43
Evaluated at bid price : 21.70
Bid-YTW : 5.11 %
CU.PR.D Perpetual-Discount 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 22.24
Evaluated at bid price : 22.60
Bid-YTW : 5.45 %
TD.PF.I FixedReset Disc 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 22.55
Evaluated at bid price : 23.31
Bid-YTW : 5.00 %
EMA.PR.H FixedReset Disc 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 22.45
Evaluated at bid price : 23.25
Bid-YTW : 5.28 %
BAM.PR.M Perpetual-Discount 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 20.84
Evaluated at bid price : 20.84
Bid-YTW : 5.72 %
PWF.PR.S Perpetual-Discount 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 21.57
Evaluated at bid price : 21.57
Bid-YTW : 5.65 %
TRP.PR.C FixedReset Disc 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 13.43
Evaluated at bid price : 13.43
Bid-YTW : 5.86 %
IFC.PR.A FixedReset Ins Non 1.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.60
Bid-YTW : 8.11 %
IFC.PR.E Deemed-Retractible 1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.45
Bid-YTW : 5.99 %
GWO.PR.T Deemed-Retractible 1.52 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.40
Bid-YTW : 5.96 %
CU.PR.E Perpetual-Discount 1.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 22.27
Evaluated at bid price : 22.64
Bid-YTW : 5.44 %
BAM.PF.J FixedReset Disc 2.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 22.78
Evaluated at bid price : 23.80
Bid-YTW : 4.96 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.E FixedReset Disc 114,935 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 22.12
Evaluated at bid price : 22.71
Bid-YTW : 4.94 %
BAM.PF.F FixedReset Disc 83,387 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 20.36
Evaluated at bid price : 20.36
Bid-YTW : 5.58 %
MFC.PR.R FixedReset Ins Non 80,543 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.08
Bid-YTW : 4.74 %
RY.PR.Z FixedReset Disc 78,287 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 19.15
Evaluated at bid price : 19.15
Bid-YTW : 5.12 %
RY.PR.Q FixedReset Prem 77,311 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-24
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 3.46 %
BAM.PR.T FixedReset Disc 72,339 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-03-15
Maturity Price : 16.40
Evaluated at bid price : 16.40
Bid-YTW : 5.95 %
There were 48 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.H Deemed-Retractible Quote: 21.97 – 23.00
Spot Rate : 1.0300
Average : 0.6032

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.97
Bid-YTW : 6.42 %

MFC.PR.Q FixedReset Ins Non Quote: 20.70 – 21.50
Spot Rate : 0.8000
Average : 0.4614

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.70
Bid-YTW : 6.72 %

GWO.PR.I Deemed-Retractible Quote: 20.07 – 20.75
Spot Rate : 0.6800
Average : 0.4101

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.07
Bid-YTW : 7.15 %

GWO.PR.P Deemed-Retractible Quote: 24.15 – 24.70
Spot Rate : 0.5500
Average : 0.3521

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.15
Bid-YTW : 5.83 %

IAF.PR.I FixedReset Ins Non Quote: 20.80 – 21.45
Spot Rate : 0.6500
Average : 0.4604

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.80
Bid-YTW : 6.81 %

EML.PR.A FixedReset Ins Non Quote: 25.50 – 25.92
Spot Rate : 0.4200
Average : 0.2451

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-17
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 4.50 %

10 Responses to “March 15, 2019”

  1. jimmy says:

    Hi,

    I have some questions about duration please. I see you have Median Mod Dur YTW listed above. For Fixed reset Disc ( please let me know what disc means) it is 14. 82 years. Is that right?

    Still learning about PS but that seems right as they have no real maturity and are redeemable at the issuer’s discretion.

    I have the ETF HPR and am trying to figure out the reasons for the drop in PS in 2018. BOC 5yr yields fell from 2.4% to ~ 1.8% (a 25% drop) so I could see the price falling accordingly. Was that the main part of the reason or was it more other reasons ( liquidity, overreaction etc)

    Please advise. Thanks in advance . Jimmy

  2. jiHymas says:

    Fixed reset Disc ( please let me know what disc means)

    That is my index of reasonably liquid investment grade FixedResets trading at a discount (as of the prior month-end). There’s a certain amount of switching back and forth between this index and FixedReset Prem[ium] on the basis of price and between the index and their “Scraps” counterparts on the basis of credit rating or daily volume (low volume issues are relegated to Scraps, on the grounds that their prices and quotations aren’t as reliable as more heavily traded issues).

    Still learning about PS but that seems right as they have no real maturity and are redeemable at the issuer’s discretion.

    My measure of Modified Duration for perpetual preferred shares is a bit of a cheat because I cut off the calculation at the thirty-year point and assign an end-price to the instrument; hence, the calculation gives answers that are maybe a little low.

    14. 82 years. Is that right? … Still learning about PS but that seems right as they have no real maturity

    Yes. You should be aware that the modified duration of a perpetual annuity is the inverse of its yield, that is, the modified duration of a perpetual annuity priced to yield 5% is 20. The modified duration of a perpetual annuity priced to yield 10% is 10.

    are redeemable at the issuer’s discretion.

    Yes, that’s a crucial point. As far as my calculations are concerned, pay specific attention to the modified “YTW” in “Median Mod Dur YTW”. I first determine the YTW scenario (outstanding forever, which I then transform into thirty years, or called, or put, or whatever) and then calculate the Modified Duration of that scenario.

    For instance, you can see that the Median Mod Dur YTW of the FixedReset Prem[ium] index is 2.26, because the median issue in this index is assumed to be called at the next opportunity.

    trying to figure out the reasons for the drop in PS in 2018.

    You too, huh?

    BOC 5yr yields fell from 2.4% to ~ 1.8% (a 25% drop) so I could see the price falling accordingly.

    This is where I take of my Helpful Hat and don my Inquisitor’s Hat.

    This is a topic that has been debated on PrefBlog and so I’d like to ask you a question about your reason for suggesting that, possibly with some follow-up questions.

    Why does this cause and effect relationship make sense to you? What is the mechanism for the relationship and what is the rationale for the investors who give effect to that mechanism?

  3. baffled says:

    hello james , if i can join in the “so I could see the price falling accordingly.” discussion , my take is the boc lowers rates people take that as a bullish sign for the stock market and sell the pref to buy the market so pref share prices drop . not saying i agree with that action .i think its nuts

  4. Nestor says:

    one can only be so lucky to get these kids of sell offs in the preferred share market. they don’t come by very often.

  5. jimmy says:

    Hi James,

    Great. Thanks for the helpful answers. It is good to have a figure to use for duration.

    Why does this cause and effect relationship make sense to you?

    My thinking was using the duration to estimate a price change ( like w a bond but the inverse) w a decrease in interest rates . So w duration of 14.82, a 1% interest rate drop could be a 14.82% drop in price. But it doesn’t make sense as interest rates did not fall.

    What is the mechanism for the relationship and what is the rationale for the investors who give effect to that mechanism?

    Was rethinking this. Here it was the BOC 5yr yield that fell, not the interest rate. But as the PS yields are reset based on the 5 yr BOC yield, investors could think their dividends would be cut on reset. Maybe they felt the new yields would fall on reset and sold.

    But I’m not sure that will be the case. I understand the issuer could just keep the div the same in $ terms or even raise them so all this selling is irrational or for other reasons.

    So should we worry about the 5 yr BOC yield that much vs actual interest rates? My feeling is HPR and PS are a good buy now. Nerve racking to see the price declines though lol. Please advise.

    Thanks again in advance.

  6. jiHymas says:

    I understand the issuer could just keep the div the same in $ terms or even raise them so all this selling is irrational or for other reasons.

    Anything’s possible, but it’s highly unlikely. These are perpetual instruments; the holders never, ever have the potential for forcing the company to give them their money back. So the issuers have no incentive to pay more than the calculated rates to keep the holders sweet.

    Here it was the BOC 5yr yield that fell, not the interest rate. But as the PS yields are reset based on the 5 yr BOC yield, investors could think their dividends would be cut on reset. Maybe they felt the new yields would fall on reset and sold.

    Fair enough, but what do the sellers do with their sale proceeds? What do they buy to keep their capital working? If they sell A to buy B, what is B and why do they think that B is a better investment than A?

    baffled has suggested a possible B and a rationale to go along with it, but what’s your take?

  7. jimmy says:

    Yes. I read that that the div was likely to be raised on the next reset not lowered but that must have been only if the BOC 5 yr went up. I see that the reset formula stays the same.

    baffled has suggested a possible B and a rationale to go along with it, but what’s your take?

    I see your pt about investment alternatives. There isn’t much else really that yields 4+% in fixed income. The selling could be what baffeled suggests too. I read realizing YE capital loss taking as well. Or maybe a fear (unfounded) of what happened in 2015 when there was a rate cut.

    Still very illogical though. Prices fell nearly to 2015 levels when BOC yields were below 1%. Now BOC yields are ~ 100 basis pts higher.

    Now a key question. Please advise when you think these will rebound? maybe when there is another rate hike? Could be > 1 yr away. Thanks again in advance.

  8. jiHymas says:

    As far as the relationship between Canada yields and the FixedReset market is concerned, I think the mechanism is something like this:

    GOC yields fall, leading to an expectation of lower yields for virtually all bonds and bond analogues (such as GICs) in the future. Some extant holders of FixedResets sell as a result of this outlook, because they want higher than the currently expected returns. They intend to put their money into equities or they intend to spend the proceeds since deferring consumption isn’t as attractive as it used to be.

    So far this is normal. Encouraging lower-risk investors to spend their savings or to increase their risk is the whole point of loosening monetary policy. Gotta crank up that economy!

    However, the preferred share market is not a minimal risk market. There’s more credit risk than in bonds and their analogues and there’s more term-risk as well. Liquidity risk and tax policy risk also exist. This is why yields are relatively high!

    Therefore, this lower return outlook for the Canada market should encourage holders of these issues and their analogues to seek out higher-risk, higher-return investments (or spend their savings) such as the preferred share market. This influx of GIC Refugees could well be enough to more than counteract the outflow discussed earlier.

    But it ain’t. I suspect that there are at least three opposing forces at work: frictions, exaggerated risk assessment and speculation.

    Frictions include things like position limits. Many preferred share investors are already at their maximal level and a decline in price does not lead to them investing more, because to do so would violate their explicit or implicit investment policy. Other investors may have a position limit of zero, because they know nothing of the preferred share market and stick to a mixture of GICs and equity mutual funds.

    Exaggerated risk assessment. Many people are terrified of perpetual instruments. There are all kinds of people who think that a Straight Preferred has infinitely more interest rate risk than a long-term corporate bond, when in fact this is not the case.

    Speculation … I think that a lot of people are betting on a positive correlation between GOC yields and FixedReset prices and are trading accordingly. So that’s a third group of participants I’ll have to parameterize if I ever make a formal model of this idea!

    Now a key question. Please advise when you think these will rebound? maybe when there is another rate hike? Could be > 1 yr away.

    Your guess is as good as mine! I think normalization of preferred share market will follow normalization of interest rates in general. Long-term Canadas were at 2.02% today, for a real return of basically zero before taxes and losing inflation-adjusted money after taxes. Ain’t nobody gonna tell me that’s normal.

  9. jiHymas says:

    Interestingly, long term Canada RRBs are still trading to yield a little over 0.50% real.

  10. jimmy says:

    Great. Thanks again for your replies and I appreciate learning more about PS.

    I did a regression of GOY 5 yr yield vs HPR and there is a weak correlation ( R squared is .29. So 30% of the price move is explained by the yield

    The rest is due to the factors you list. The RBC forecast is for the 5 yr to rise to 2.3% in Q1 2020 so hopefully that will be the case and we see some price recovery.

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