Click for Big
Trump’s trade war heated up over the long weekend:
The trade war between the United States and China entered a more dangerous phase on Monday, as Beijing allowed its currency to weaken, Chinese enterprises stopped making new purchases of American farm goods and President Trump indicated he would look for ways to retaliate.
The escalation shook world markets on Monday, as nervous investors looked for safe places to park their money. Wall Street suffered its worst day of the year, with the S&P 500 closing down nearly 3 percent. Selling was especially heavy in the trade-sensitive technology, consumer discretionary and industrial sectors. Yields on United States Treasuries, which fall as prices rise, dropped as investors sought safety in government-backed bonds. Benchmark indexes in Asia and Europe also fell.
Mohamed A. El-Erian posted on Facebook:
With today’s move, the entire yield curve for government bonds in Germany closed at negative levels.
This will take the stock of negative-yielding bonds worldwide to some $15 trillion.
Given what has occurred since European markets closed, look for both to get worse tomorrow.
Click for Big
One of those events was a declaration by the US Treasury:
Late Monday, the Treasury took the unusual step of labeling China a currency manipulator — the first time it has done so since 1994. In a statement, the Treasury said that Steven Mnuchin, the Treasury secretary, “will engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions.”
The action is mostly symbolic, requiring the administration to consult with the International Monetary Fund to try to eliminate the unfair advantage the currency measures have given a country. But China is likely to view the label as a rebuke, further escalating pressures between the countries.
The move will finally fulfill Mr. Trump’s campaign pledge to designate China a currency manipulator. As a presidential candidate, Mr. Trump was sharply critical of China’s currency practices and promised to label China a manipulator if elected.
Until Monday, Mr. Trump’s Treasury had declined to apply the label to China in the five currency reports it issued since the president took office. Instead, it has said the United States has deep concerns about China’s intervention in its currency.
For all that, the effect on Canadian major markets was muted:
Canada’s main stock index fell on Tuesday, hurt by a slide in energy and financial sectors amid heightened trade tensions between the United States and China.
The Toronto Stock Exchange’s S&P/TSX Composite index was down 122.17 points, or 0.75 per cent, at 16,149.49.
TXPR closed at 605.92, down 0.62% on the day. Volume was 1.72-million, slightly above the median of the past thirty days.
CPD closed at 12.11, down 0.86% on the day. Volume of 66,608 was slightly above the median of the past thirty days.
ZPR closed at 9.71, down 1.32% on the day. Volume of 101,277 was near the median of the past 30 days.
Five-year Canada yields were down 8bp to 1.37% today.
The BoC has released a staff analytical note titled Relative Value of Government of Canada Bonds:
We identify factors that are important for explaining why similar Government of Canada (GoC) bonds can have different values. For bonds that are expensive, we find they have higher trading volume and higher rental income. These factors can make these bonds more expensive than similar bonds, by up to 5 bps. For the cheap bonds, we find that they tend to have longer tenors and times to maturity. These bonds are typically harder and costlier to trade. Market participants may therefore value them less. The importance of rental income for GoC bond values suggests that a cap on rental income could hinder the ability of these bonds to reach their market value. This could lead to misallocation of these bonds among the buyers and sellers who value them most.
Yup. That’s why you have to be very careful when backtesting long-short hedge strategies! The borrow rates on expensive bonds can kill you!
RBC Wealth Management released some survey results (emphasis from original):
High-income Canadians are optimistic they will meet their goals, yet find wealth management topics complicated
Of the 48% of respondents who are not as wealthy as they thought they would be, almost three quarters (73%) believe they will reach their financial goals before retirement. This optimism seems to be at odds with their confidence when it comes to aspects of wealth management topics, with the majority agreeing the following topics are challenging:Knowing which information to trust (78%)
Staying on top of what’s happening in the financial markets (76%)
Using tax strategies to minimize taxes (71%)
Ensuring they don’t outlive their assets during retirement (70%)
Understanding the use of insurance in a financial plan (66%)
| 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 | -2.5983 % | 1,926.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -2.5983 % | 3,535.8 |
| Floater | 6.20 % | 6.33 % | 38,989 | 13.39 | 4 | -2.5983 % | 2,037.7 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0902 % | 3,339.3 |
| SplitShare | 4.66 % | 4.71 % | 72,804 | 4.09 | 7 | -0.0902 % | 3,987.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0902 % | 3,111.5 |
| Perpetual-Premium | 5.61 % | -18.00 % | 55,549 | 0.09 | 7 | -0.0784 % | 2,989.7 |
| Perpetual-Discount | 5.44 % | 5.60 % | 58,516 | 14.47 | 25 | -0.1383 % | 3,131.4 |
| FixedReset Disc | 5.48 % | 5.34 % | 161,187 | 14.85 | 69 | -0.9677 % | 2,100.8 |
| Deemed-Retractible | 5.23 % | 5.93 % | 63,065 | 7.92 | 27 | -0.2569 % | 3,116.2 |
| FloatingReset | 4.07 % | 4.46 % | 34,840 | 2.39 | 4 | -0.4099 % | 2,338.4 |
| FixedReset Prem | 5.15 % | 3.90 % | 157,441 | 1.86 | 17 | -0.0986 % | 2,595.1 |
| FixedReset Bank Non | 1.98 % | 3.98 % | 84,426 | 2.41 | 3 | 0.0000 % | 2,656.6 |
| FixedReset Ins Non | 5.32 % | 7.58 % | 84,714 | 8.01 | 22 | -1.1778 % | 2,142.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRP.PR.G | FixedReset Disc | -4.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.25 Evaluated at bid price : 17.25 Bid-YTW : 6.34 % |
| CU.PR.C | FixedReset Disc | -4.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 5.55 % |
| BAM.PR.K | Floater | -4.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 10.93 Evaluated at bid price : 10.93 Bid-YTW : 6.41 % |
| BAM.PR.C | Floater | -3.77 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 10.99 Evaluated at bid price : 10.99 Bid-YTW : 6.38 % |
| IFC.PR.G | FixedReset Ins Non | -3.71 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.45 Bid-YTW : 7.57 % |
| CM.PR.Q | FixedReset Disc | -2.90 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 18.40 Evaluated at bid price : 18.40 Bid-YTW : 5.65 % |
| IFC.PR.C | FixedReset Ins Non | -2.70 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.00 Bid-YTW : 7.92 % |
| NA.PR.E | FixedReset Disc | -2.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 19.07 Evaluated at bid price : 19.07 Bid-YTW : 5.39 % |
| TRP.PR.A | FixedReset Disc | -2.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 13.22 Evaluated at bid price : 13.22 Bid-YTW : 6.31 % |
| BAM.PR.B | Floater | -2.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 11.08 Evaluated at bid price : 11.08 Bid-YTW : 6.33 % |
| TRP.PR.C | FixedReset Disc | -2.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 11.50 Evaluated at bid price : 11.50 Bid-YTW : 6.26 % |
| MFC.PR.J | FixedReset Ins Non | -2.22 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.91 Bid-YTW : 7.88 % |
| BMO.PR.W | FixedReset Disc | -2.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.19 Evaluated at bid price : 17.19 Bid-YTW : 5.24 % |
| HSE.PR.G | FixedReset Disc | -2.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 18.65 Evaluated at bid price : 18.65 Bid-YTW : 6.64 % |
| BAM.PF.E | FixedReset Disc | -2.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 16.02 Evaluated at bid price : 16.02 Bid-YTW : 6.25 % |
| RY.PR.M | FixedReset Disc | -2.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 18.66 Evaluated at bid price : 18.66 Bid-YTW : 5.33 % |
| IFC.PR.A | FixedReset Ins Non | -1.99 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.80 Bid-YTW : 9.56 % |
| BMO.PR.E | FixedReset Disc | -1.98 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 20.75 Evaluated at bid price : 20.75 Bid-YTW : 5.12 % |
| TD.PF.I | FixedReset Disc | -1.96 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 21.70 Evaluated at bid price : 21.96 Bid-YTW : 5.03 % |
| NA.PR.W | FixedReset Disc | -1.96 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 16.48 Evaluated at bid price : 16.48 Bid-YTW : 5.53 % |
| CM.PR.S | FixedReset Disc | -1.96 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 18.48 Evaluated at bid price : 18.48 Bid-YTW : 5.41 % |
| IAF.PR.G | FixedReset Ins Non | -1.95 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.15 Bid-YTW : 6.77 % |
| RY.PR.J | FixedReset Disc | -1.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 19.22 Evaluated at bid price : 19.22 Bid-YTW : 5.34 % |
| EMA.PR.F | FixedReset Disc | -1.83 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.13 Evaluated at bid price : 17.13 Bid-YTW : 5.87 % |
| IAF.PR.I | FixedReset Ins Non | -1.82 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.52 Bid-YTW : 6.96 % |
| MFC.PR.K | FixedReset Ins Non | -1.81 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.88 Bid-YTW : 8.21 % |
| CM.PR.O | FixedReset Disc | -1.76 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.31 Evaluated at bid price : 17.31 Bid-YTW : 5.37 % |
| TRP.PR.B | FixedReset Disc | -1.68 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 11.11 Evaluated at bid price : 11.11 Bid-YTW : 5.99 % |
| TD.PF.D | FixedReset Disc | -1.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 19.82 Evaluated at bid price : 19.82 Bid-YTW : 5.25 % |
| TRP.PR.D | FixedReset Disc | -1.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 15.75 Evaluated at bid price : 15.75 Bid-YTW : 6.07 % |
| TRP.PR.F | FloatingReset | -1.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 13.38 Evaluated at bid price : 13.38 Bid-YTW : 6.77 % |
| MFC.PR.G | FixedReset Ins Non | -1.61 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.92 Bid-YTW : 7.70 % |
| HSE.PR.C | FixedReset Disc | -1.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.64 Evaluated at bid price : 17.64 Bid-YTW : 6.48 % |
| TRP.PR.E | FixedReset Disc | -1.48 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 15.32 Evaluated at bid price : 15.32 Bid-YTW : 6.12 % |
| BAM.PF.F | FixedReset Disc | -1.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.60 Evaluated at bid price : 17.60 Bid-YTW : 6.10 % |
| BMO.PR.T | FixedReset Disc | -1.42 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.32 Evaluated at bid price : 17.32 Bid-YTW : 5.23 % |
| CM.PR.P | FixedReset Disc | -1.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 16.81 Evaluated at bid price : 16.81 Bid-YTW : 5.42 % |
| NA.PR.S | FixedReset Disc | -1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.60 Evaluated at bid price : 17.60 Bid-YTW : 5.48 % |
| BMO.PR.S | FixedReset Disc | -1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.75 Evaluated at bid price : 17.75 Bid-YTW : 5.28 % |
| MFC.PR.L | FixedReset Ins Non | -1.39 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.06 Bid-YTW : 8.39 % |
| MFC.PR.B | Deemed-Retractible | -1.32 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.61 Bid-YTW : 6.58 % |
| BMO.PR.Y | FixedReset Disc | -1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 19.63 Evaluated at bid price : 19.63 Bid-YTW : 5.19 % |
| BAM.PF.A | FixedReset Disc | -1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 18.91 Evaluated at bid price : 18.91 Bid-YTW : 6.00 % |
| IFC.PR.E | Deemed-Retractible | -1.24 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.80 Bid-YTW : 5.93 % |
| NA.PR.C | FixedReset Disc | -1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 21.40 Evaluated at bid price : 21.73 Bid-YTW : 5.45 % |
| GWO.PR.R | Deemed-Retractible | -1.21 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.09 Bid-YTW : 6.45 % |
| BAM.PR.N | Perpetual-Discount | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 20.51 Evaluated at bid price : 20.51 Bid-YTW : 5.87 % |
| GWO.PR.I | Deemed-Retractible | -1.18 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.89 Bid-YTW : 6.82 % |
| BNS.PR.E | FixedReset Prem | -1.15 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-25 Maturity Price : 25.00 Evaluated at bid price : 25.70 Bid-YTW : 3.90 % |
| MFC.PR.Q | FixedReset Ins Non | -1.13 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.30 Bid-YTW : 7.58 % |
| TD.PF.A | FixedReset Disc | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.55 Evaluated at bid price : 17.55 Bid-YTW : 5.18 % |
| PWF.PR.S | Perpetual-Discount | -1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 21.41 Evaluated at bid price : 21.41 Bid-YTW : 5.65 % |
| BAM.PF.B | FixedReset Disc | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.02 Evaluated at bid price : 17.02 Bid-YTW : 6.16 % |
| GWO.PR.G | Deemed-Retractible | -1.04 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2030-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.80 Bid-YTW : 5.93 % |
| BMO.PR.C | FixedReset Disc | -1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 22.47 Evaluated at bid price : 23.01 Bid-YTW : 5.05 % |
| TD.PF.C | FixedReset Disc | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.60 Evaluated at bid price : 17.60 Bid-YTW : 5.18 % |
| HSE.PR.E | FixedReset Disc | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 18.61 Evaluated at bid price : 18.61 Bid-YTW : 6.71 % |
| BAM.PR.X | FixedReset Disc | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 12.75 Evaluated at bid price : 12.75 Bid-YTW : 6.15 % |
| BAM.PF.G | FixedReset Disc | 1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 17.40 Evaluated at bid price : 17.40 Bid-YTW : 6.16 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CU.PR.D | Perpetual-Discount | 203,700 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 22.51 Evaluated at bid price : 22.80 Bid-YTW : 5.46 % |
| CM.PR.R | FixedReset Disc | 33,708 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 21.77 Evaluated at bid price : 22.02 Bid-YTW : 5.35 % |
| TD.PF.M | FixedReset Disc | 31,200 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 23.15 Evaluated at bid price : 24.96 Bid-YTW : 4.96 % |
| BAM.PF.J | FixedReset Disc | 29,232 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 22.80 Evaluated at bid price : 23.75 Bid-YTW : 5.00 % |
| TRP.PR.F | FloatingReset | 24,700 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2049-08-06 Maturity Price : 13.38 Evaluated at bid price : 13.38 Bid-YTW : 6.77 % |
| BAM.PF.I | FixedReset Disc | 24,550 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-03-31 Maturity Price : 25.00 Evaluated at bid price : 25.25 Bid-YTW : 4.62 % |
| There were 25 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| HSE.PR.C | FixedReset Disc | Quote: 17.64 – 18.59 Spot Rate : 0.9500 Average : 0.6257 YTW SCENARIO |
| BNS.PR.F | FloatingReset | Quote: 24.16 – 24.67 Spot Rate : 0.5100 Average : 0.3126 YTW SCENARIO |
| CM.PR.Q | FixedReset Disc | Quote: 18.40 – 18.94 Spot Rate : 0.5400 Average : 0.3586 YTW SCENARIO |
| BAM.PR.N | Perpetual-Discount | Quote: 20.51 – 20.95 Spot Rate : 0.4400 Average : 0.2850 YTW SCENARIO |
| IFC.PR.G | FixedReset Ins Non | Quote: 19.45 – 19.95 Spot Rate : 0.5000 Average : 0.3470 YTW SCENARIO |
| GWO.PR.R | Deemed-Retractible | Quote: 22.09 – 22.70 Spot Rate : 0.6100 Average : 0.4582 YTW SCENARIO |
“Five-year Canada yields were down 8bp to 1.37% today.”
Those numbers are from August 1st! Market closed at 1.22% yesterday, down 14 cents, at 1.22. As I type this they are down another 9 cents to 1.13%.
https://www.investing.com/rates-bonds/canada-5-year-bond-yield-historical-data
What happens to the rate paid on reset preferred shares if GOC yields are negative at the date of the reset? Is there a lower bound of zero % on the GOC yield in the calculation, or does a negative GOC yield get deducted from the reset spread?
Just wondering if the dismal performance of rate resets is discounting the possibility that GOC yields just keep declining and potentially go negative like yields in some other developed countries?
Complex derivatives masquerading as a fixed income product, even a GIC alternative. Such is the trickery of Bay Street. Can’t say it was because of malice, but given that all the cards are always with the issuer, there was no need to do any stress testing on the deflation side.
All the issuers are happy.
For those that are not bound by regulatory constraints will gladly borrow at 3 to 3.5% and strenthen their balance sheets by buying back these preferred equity obligations at massive discounts of upto 60%. All these for blue chip A(-) and higher credit companies. Brookfield is also doing it and others will also do that.
Poor retail guys are well…
It’s almost like the End of Newtonian physics and the beginning of the era of Speical Theory of Relativity. Time is no longer a constant or in this case, interest rates can and do fall below zero.
As far as the calculation goes, they will claim a simple arithmetic operation is what they need to perform- GOC 5 year plus the spread, whatever it might yield. James has a beautiful link to this somewhere and may repost here.
Despite today’s carnage, the destruction was much more methodical. I was looking for some bargains on the perpetuals, but couldn’t find much. Seems the ‘risk’ of perpetuals is now manageable!
Those numbers are from August 1st!
Hell! You are quite right and at present both the TMX Money page and its source, the CanDeal summary page continue to report August 1 figures … which may mean that they’re trying to restrict access to the data so that they can sell more subscriptions. It is a pity that the Bank of Canada reports only on a next-day basis.
I have sent an eMail to Candeal:
Assiduous Reader KC writes in and says:
For now, I’ll be using the link supplied by Assiduous Reader gsp, above: https://www.investing.com/rates-bonds/canada-5-year-bond-yield-historical-data.
What happens to the rate paid on reset preferred shares if GOC yields are negative at the date of the reset?
I presume that the rate paid will be equal to the negative rate plus the spread, as long as the total is greater than zero.
If the total is less than zero (very unlikely) then I believe the rate will be set to zero, as has happened in Europe. But nobody knows for sure.
Just wondering if the dismal performance of rate resets is discounting the possibility that GOC yields just keep declining and potentially go negative like yields in some other developed countries?
I’m not sure if it’s that sophisticated. I suspect that the reasoning is:
i) Yields have gone down.
ii) Therefore they will continue to go down
iii) Therefore FixedReset prices will go down
iv) Therefore, sell.
As far as the calculation goes, they will claim a simple arithmetic operation is what they need to perform- GOC 5 year plus the spread, whatever it might yield. James has a beautiful link to this somewhere and may repost here.
Do you mean the link to the RealKredit policy linked in an earlier discussion?
Do you mean the link to the RealKredit policy linked in an earlier discussion?
Yes.
I have sent an eMail to Candeal:
I have received a reply:
Perhaps in my younger days I would have sent an eMail objecting to “Jim”, pointing out that prices were still displayed even though far out of date and inquiring if there had been any press release or other notification …. but I don’t think I’ll bother.
I have also received a reply from the TMX: