July 17, 2020

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TXPR closed at 560.76, down 0.87% on the day. Volume today was 3.17-million, third-highest of the past thirty days, behind July 15 and July 16.

CPD closed at 11.27, down 0.62% on the day. Volume was 120,524, above the median of the past 30 trading days.

ZPR closed at 8.92, down 0.89% on the day. Volume of 606,262 was fourth-highest of the past 30 trading days.

Five-year Canada yields were up 3bp to 0.37% today.

A modest pull-back after two days of sharp increases.

I don’t have any particular insights into why the rally has paused, halted, or commenced a reverse (take your pick of the correct description). I will opine, though, that the LRCNs discussed on July 15 and July 16 are not really a big deal, although their existence is modestly favourable to the preferred share market.

If we look at the RBC Annual Report for 2007, we see (page 77 of the PDF) they had 2,344-million in preferreds outstanding and 3,494-million in Trust Capital Securities, their version of AT1 Capital at the time. Move forward to their Annual Report for 2019 we find 5,707-million in preferred shares (page 194 of the PDF) and no Trust Capital Securities at all (page 193 of the PDF).

In addition, we remember that the LRCNs can be included in Tier 1 Capital to a maximum amount of one-half the total amount of allowable AT1 capital (which includes preferred shares), so preferred shares of some kind will always be around, since even now they’re a lot cheaper from a treasury perspective than issuing common.

So I say, yes, it’s good for the preferred share market that LRCNs are allowed. Reduction of supply and all that. But all in all, we’re really just returning to the status quo ante. It remains to be seen whether spreads also return to the status quo ante.

Update: Every time I look at this, I get a bit more dubious about the beneficial effects of the nascent LRCN market on the preferred share market.

Just for fun, I decided to look up the statistics on one of the RBC TruCS – the TruCS Series 2013 was the first one I found. It was redeemed 2013-12-31 and was issued via a prospectus dated 2005-10-20. This prospectus is on SEDAR, so the Canadian Securities Administrators will not permit me to link to it directly, because investor-scum should not be looking at official regulatory documents, but you can find it via a search for “RBC Capital Trust Oct 21 2005 10:24:12 ET Final long form prospectus – English PDF 172 K”.

The indicated distribution on these things was:

Series 2015 entitles the holder to receive the
Indicated Distribution of: (i) $24.35 on the last day of June and December of each year commencing June 30, 2006 to and including December 31, 2015 provided that such date is a Regular Distribution Date, representing a
per annum yield of 4.87% of the initial issue price; and (ii) on Regular Distribution Dates following December 31, 2015, an amount equal to the result obtained by multiplying $1,000 by one half of the sum of the Bankers’ Acceptance Rate in effect during the Distribution Period immediately preceding the Relevant Distribution Date plus 150 basis points.

So we would call it 4.87% for the initial period, and BAs+150bp after the 2015 pretend-maturity. Other terms are pretty much as I remember them – all these AT1 issues were basically preferred shares wearing a false mustache so they could pass as bonds.

All very well and good, but spreads, man, spreads! What were preferreds doing around then? Well, as it happens, the HIMI PerpetualDiscount subindex on 2005-10-20 was trading to yield an average of … 4.90%. There were only seven issues included in it at the time, CM.PR.H, GWO.PR.H, MFC.PR.B, POW.PR.D, PWF.PR.K, SLF.PR.A and SLF.PR.B.

So in other words, the AT1 back then was basically trading even-yield pre-tax with PerpetualDiscounts. Just like, more or less, the USD AT1 recently issued by Scotiabank, as discussed on July 6, in that it was more or less even-yield, pre-tax, with a notional Canadian FixedReset preferred share, despite being in a different currency with a base-rate based on Treasuries, not Canadas.

So I get a bit more perplexed every day about how come the market popped.

Of course, all of this is based on a single data-point, of the RBC TruCS-2015. If anybody wants to help me out by looking up prospectuses and terms for all or some of the pre-2008 AT1 bank issues, I’ll put that together with the relevant preferred share yields and publish it all, with credit to anybody helping. We can’t wait for Bay Street analysts to do this! They’re busy – no sooner do they get to work than they have to go have lunch with a client and then it’s nap time … the days are just packed!

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 0.1665 % 1,562.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.1665 % 2,867.5
Floater 5.34 % 5.37 % 72,020 14.88 3 0.1665 % 1,652.6
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0228 % 3,469.3
SplitShare 4.84 % 4.81 % 54,094 3.77 7 -0.0228 % 4,143.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0228 % 3,232.6
Perpetual-Premium 5.20 % 5.21 % 71,844 4.04 1 -1.5972 % 3,032.2
Perpetual-Discount 5.55 % 5.59 % 83,789 14.39 35 -0.2660 % 3,290.4
FixedReset Disc 5.68 % 4.49 % 150,628 15.88 75 -0.3567 % 1,990.1
Deemed-Retractible 5.29 % 5.53 % 80,078 14.41 27 -0.2756 % 3,239.2
FloatingReset 2.37 % 2.71 % 31,354 1.52 4 0.5095 % 1,772.3
FixedReset Prem 5.40 % 3.97 % 357,993 0.99 3 -0.2222 % 2,607.4
FixedReset Bank Non 1.95 % 2.37 % 122,227 1.51 2 -0.0606 % 2,827.8
FixedReset Ins Non 5.88 % 4.59 % 103,562 15.83 22 -0.7946 % 2,025.9
Performance Highlights
Issue Index Change Notes
MFC.PR.Q FixedReset Ins Non -12.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 15.86
Evaluated at bid price : 15.86
Bid-YTW : 5.10 %
MFC.PR.I FixedReset Ins Non -9.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 17.05
Evaluated at bid price : 17.05
Bid-YTW : 4.97 %
BAM.PF.F FixedReset Disc -6.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 15.02
Evaluated at bid price : 15.02
Bid-YTW : 5.74 %
TRP.PR.E FixedReset Disc -5.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 12.95
Evaluated at bid price : 12.95
Bid-YTW : 5.75 %
BAM.PF.B FixedReset Disc -4.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 14.70
Evaluated at bid price : 14.70
Bid-YTW : 5.71 %
MFC.PR.F FixedReset Ins Non -3.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 9.95
Evaluated at bid price : 9.95
Bid-YTW : 4.52 %
MFC.PR.R FixedReset Ins Non -3.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 22.53
Evaluated at bid price : 22.90
Bid-YTW : 4.65 %
BMO.PR.F FixedReset Disc -3.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 22.63
Evaluated at bid price : 23.50
Bid-YTW : 4.38 %
MFC.PR.H FixedReset Ins Non -3.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 19.12
Evaluated at bid price : 19.12
Bid-YTW : 4.70 %
BAM.PF.E FixedReset Disc -2.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 14.47
Evaluated at bid price : 14.47
Bid-YTW : 5.39 %
CU.PR.I FixedReset Disc -2.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 23.51
Evaluated at bid price : 24.34
Bid-YTW : 4.63 %
PWF.PR.T FixedReset Disc -2.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 15.76
Evaluated at bid price : 15.76
Bid-YTW : 4.78 %
SLF.PR.H FixedReset Ins Non -2.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 14.16
Evaluated at bid price : 14.16
Bid-YTW : 4.52 %
NA.PR.G FixedReset Disc -2.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 18.83
Evaluated at bid price : 18.83
Bid-YTW : 4.57 %
MFC.PR.L FixedReset Ins Non -2.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 15.11
Evaluated at bid price : 15.11
Bid-YTW : 4.65 %
NA.PR.S FixedReset Disc -1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 16.51
Evaluated at bid price : 16.51
Bid-YTW : 4.55 %
RY.PR.H FixedReset Disc -1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 16.90
Evaluated at bid price : 16.90
Bid-YTW : 4.26 %
RY.PR.P Perpetual-Premium -1.60 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2025-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : 5.21 %
RY.PR.M FixedReset Disc -1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 17.96
Evaluated at bid price : 17.96
Bid-YTW : 4.21 %
MFC.PR.G FixedReset Ins Non -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 18.05
Evaluated at bid price : 18.05
Bid-YTW : 4.62 %
BAM.PF.G FixedReset Disc -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 14.95
Evaluated at bid price : 14.95
Bid-YTW : 5.42 %
IFC.PR.C FixedReset Ins Non -1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 16.05
Evaluated at bid price : 16.05
Bid-YTW : 4.76 %
BNS.PR.I FixedReset Disc -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 18.76
Evaluated at bid price : 18.76
Bid-YTW : 4.22 %
TD.PF.B FixedReset Disc -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 16.55
Evaluated at bid price : 16.55
Bid-YTW : 4.30 %
GWO.PR.N FixedReset Ins Non -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 9.56
Evaluated at bid price : 9.56
Bid-YTW : 4.39 %
W.PR.M FixedReset Disc -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 24.21
Evaluated at bid price : 24.59
Bid-YTW : 5.30 %
IAF.PR.I FixedReset Ins Non -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 19.16
Evaluated at bid price : 19.16
Bid-YTW : 4.43 %
CU.PR.D Perpetual-Discount -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 22.79
Evaluated at bid price : 23.13
Bid-YTW : 5.36 %
CU.PR.G Perpetual-Discount -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 21.65
Evaluated at bid price : 21.65
Bid-YTW : 5.27 %
BAM.PF.I FixedReset Disc -1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 23.38
Evaluated at bid price : 23.76
Bid-YTW : 5.07 %
TD.PF.I FixedReset Disc -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 20.84
Evaluated at bid price : 20.84
Bid-YTW : 4.20 %
TRP.PR.J FixedReset Disc -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 24.06
Evaluated at bid price : 25.18
Bid-YTW : 5.49 %
IFC.PR.E Deemed-Retractible -1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 23.29
Evaluated at bid price : 23.67
Bid-YTW : 5.53 %
BAM.PR.T FixedReset Disc -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 13.08
Evaluated at bid price : 13.08
Bid-YTW : 5.31 %
BMO.PR.W FixedReset Disc -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 16.75
Evaluated at bid price : 16.75
Bid-YTW : 4.34 %
IFC.PR.F Deemed-Retractible -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 23.54
Evaluated at bid price : 23.94
Bid-YTW : 5.57 %
CU.PR.F Perpetual-Discount -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 21.64
Evaluated at bid price : 21.64
Bid-YTW : 5.28 %
MFC.PR.N FixedReset Ins Non -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 16.17
Evaluated at bid price : 16.17
Bid-YTW : 4.54 %
BAM.PR.X FixedReset Disc -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 10.65
Evaluated at bid price : 10.65
Bid-YTW : 5.25 %
TD.PF.F Perpetual-Discount -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 24.02
Evaluated at bid price : 24.30
Bid-YTW : 5.04 %
SLF.PR.J FloatingReset 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 9.60
Evaluated at bid price : 9.60
Bid-YTW : 4.17 %
TRP.PR.A FixedReset Disc 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 12.35
Evaluated at bid price : 12.35
Bid-YTW : 5.29 %
IAF.PR.B Deemed-Retractible 1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 21.64
Evaluated at bid price : 21.89
Bid-YTW : 5.29 %
BMO.PR.A FloatingReset 1.45 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.55
Bid-YTW : 2.50 %
TRP.PR.B FixedReset Disc 1.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 8.48
Evaluated at bid price : 8.48
Bid-YTW : 4.90 %
BMO.PR.Z Perpetual-Discount 1.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 24.91
Evaluated at bid price : 25.20
Bid-YTW : 5.02 %
CM.PR.T FixedReset Disc 2.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 22.21
Evaluated at bid price : 22.75
Bid-YTW : 4.33 %
BMO.PR.D FixedReset Disc 2.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 21.42
Evaluated at bid price : 21.75
Bid-YTW : 4.19 %
NA.PR.C FixedReset Disc 2.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 21.35
Evaluated at bid price : 21.66
Bid-YTW : 4.43 %
BAM.PR.R FixedReset Disc 2.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 11.61
Evaluated at bid price : 11.61
Bid-YTW : 5.81 %
MFC.PR.K FixedReset Ins Non 12.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 15.90
Evaluated at bid price : 15.90
Bid-YTW : 4.59 %
IAF.PR.G FixedReset Ins Non 12.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 17.78
Evaluated at bid price : 17.78
Bid-YTW : 4.62 %
SLF.PR.G FixedReset Ins Non 13.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 10.60
Evaluated at bid price : 10.60
Bid-YTW : 4.22 %
PWF.PR.P FixedReset Disc 18.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 10.56
Evaluated at bid price : 10.56
Bid-YTW : 4.65 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.R FixedReset Disc 333,351 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 21.48
Evaluated at bid price : 21.48
Bid-YTW : 4.45 %
BMO.PR.Z Perpetual-Discount 141,608 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 24.91
Evaluated at bid price : 25.20
Bid-YTW : 5.02 %
TRP.PR.A FixedReset Disc 120,589 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 12.35
Evaluated at bid price : 12.35
Bid-YTW : 5.29 %
RY.PR.M FixedReset Disc 72,068 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 17.96
Evaluated at bid price : 17.96
Bid-YTW : 4.21 %
TD.PF.I FixedReset Disc 59,193 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 20.84
Evaluated at bid price : 20.84
Bid-YTW : 4.20 %
CU.PR.C FixedReset Disc 52,958 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 15.93
Evaluated at bid price : 15.93
Bid-YTW : 4.48 %
There were 53 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.X FixedReset Disc Quote: 10.65 – 17.27
Spot Rate : 6.6200
Average : 3.5784

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 10.65
Evaluated at bid price : 10.65
Bid-YTW : 5.25 %

MFC.PR.Q FixedReset Ins Non Quote: 15.86 – 18.00
Spot Rate : 2.1400
Average : 1.3939

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 15.86
Evaluated at bid price : 15.86
Bid-YTW : 5.10 %

BAM.PF.F FixedReset Disc Quote: 15.02 – 16.68
Spot Rate : 1.6600
Average : 1.0176

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 15.02
Evaluated at bid price : 15.02
Bid-YTW : 5.74 %

BAM.PF.I FixedReset Disc Quote: 23.76 – 24.74
Spot Rate : 0.9800
Average : 0.5349

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 23.38
Evaluated at bid price : 23.76
Bid-YTW : 5.07 %

MFC.PR.I FixedReset Ins Non Quote: 17.05 – 18.60
Spot Rate : 1.5500
Average : 1.1897

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 17.05
Evaluated at bid price : 17.05
Bid-YTW : 4.97 %

BMO.PR.F FixedReset Disc Quote: 23.50 – 24.30
Spot Rate : 0.8000
Average : 0.4625

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-07-17
Maturity Price : 22.63
Evaluated at bid price : 23.50
Bid-YTW : 4.38 %

One Response to “July 17, 2020”

  1. prefguy says:

    The LRCN market might be a big deal. Spreads in the pref market are higher than usual and the LRCN will be attractive to foreign institutional holders due to the withholding tax differences from prefs. It will be fun to see how this plays out.

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