August 14, 2020

Inflation expectations are normalizing:

The U.S. bond market’s gauge of investor inflation expectations this week rose to six-month highs, bolstered in part by data showing higher producer and consumer prices in July.

The yield spread, or inflation breakeven rate, between five-year Treasury Inflation Protected Securities (TIPS) and regular five-year Treasuries hit 1.565% on Thursday, the highest since February.

U.S. 10-year and 30-year breakevens touched 1.6618% and 1.7105% on Wednesday and Thursday, respectively. Both levels were six-month peaks.

Breakeven rates pared some of that move Friday as they came off their highs.

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 0.0405 % 1,602.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0405 % 2,940.2
Floater 5.21 % 5.28 % 63,075 14.98 3 0.0405 % 1,694.5
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0988 % 3,500.1
SplitShare 4.67 % 4.48 % 42,124 3.25 8 -0.0988 % 4,179.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0988 % 3,261.3
Perpetual-Premium 5.55 % 4.70 % 84,317 4.03 4 0.0992 % 3,098.5
Perpetual-Discount 5.45 % 5.64 % 77,754 14.38 31 -0.0508 % 3,351.4
FixedReset Disc 5.66 % 4.45 % 122,886 15.96 67 -0.1238 % 2,026.4
Deemed-Retractible 5.23 % 5.32 % 90,184 14.58 27 -0.0108 % 3,285.0
FloatingReset 2.90 % 2.01 % 42,122 1.44 3 -0.0450 % 1,775.7
FixedReset Prem 5.27 % 4.18 % 229,891 0.92 11 0.1597 % 2,612.5
FixedReset Bank Non 1.95 % 2.46 % 107,266 1.44 2 -0.3618 % 2,839.4
FixedReset Ins Non 5.85 % 4.63 % 95,872 15.79 22 -0.3161 % 2,052.4
Performance Highlights
Issue Index Change Notes
RY.PR.M FixedReset Disc -35.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 11.98
Evaluated at bid price : 11.98
Bid-YTW : 6.38 %
MFC.PR.J FixedReset Ins Non -4.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 16.87
Evaluated at bid price : 16.87
Bid-YTW : 4.83 %
IFC.PR.C FixedReset Ins Non -4.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 15.50
Evaluated at bid price : 15.50
Bid-YTW : 5.06 %
IFC.PR.G FixedReset Ins Non -1.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 17.62
Evaluated at bid price : 17.62
Bid-YTW : 4.72 %
TD.PF.D FixedReset Disc -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 18.70
Evaluated at bid price : 18.70
Bid-YTW : 4.32 %
MFC.PR.G FixedReset Ins Non -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 17.90
Evaluated at bid price : 17.90
Bid-YTW : 4.69 %
MFC.PR.B Deemed-Retractible -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 21.33
Evaluated at bid price : 21.60
Bid-YTW : 5.37 %
TRP.PR.C FixedReset Disc -1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 8.74
Evaluated at bid price : 8.74
Bid-YTW : 5.68 %
BAM.PF.F FixedReset Disc -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 15.60
Evaluated at bid price : 15.60
Bid-YTW : 5.64 %
IFC.PR.A FixedReset Ins Non -1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 11.86
Evaluated at bid price : 11.86
Bid-YTW : 4.98 %
TRP.PR.A FixedReset Disc -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 12.26
Evaluated at bid price : 12.26
Bid-YTW : 5.48 %
NA.PR.G FixedReset Disc 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 19.75
Evaluated at bid price : 19.75
Bid-YTW : 4.45 %
RY.PR.H FixedReset Disc 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 4.13 %
TRP.PR.G FixedReset Disc 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 15.35
Evaluated at bid price : 15.35
Bid-YTW : 5.53 %
TRP.PR.B FixedReset Disc 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 8.45
Evaluated at bid price : 8.45
Bid-YTW : 5.10 %
MFC.PR.R FixedReset Ins Non 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 23.24
Evaluated at bid price : 23.65
Bid-YTW : 4.51 %
RY.PR.S FixedReset Disc 1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 4.00 %
MFC.PR.H FixedReset Ins Non 2.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 4.63 %
TD.PF.L FixedReset Disc 19.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 22.67
Evaluated at bid price : 23.55
Bid-YTW : 4.19 %
Volume Highlights
Issue Index Shares
Traded
Notes
NA.PR.C FixedReset Disc 104,840 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 22.20
Evaluated at bid price : 22.50
Bid-YTW : 4.36 %
CM.PR.S FixedReset Disc 73,105 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 18.60
Evaluated at bid price : 18.60
Bid-YTW : 4.19 %
CM.PR.R FixedReset Disc 51,900 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 21.49
Evaluated at bid price : 21.85
Bid-YTW : 4.44 %
RY.PR.S FixedReset Disc 34,941 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 4.00 %
BAM.PF.D Perpetual-Discount 26,700 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 22.10
Evaluated at bid price : 22.35
Bid-YTW : 5.55 %
TD.PF.A FixedReset Disc 25,050 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 17.20
Evaluated at bid price : 17.20
Bid-YTW : 4.21 %
There were 18 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
RY.PR.M FixedReset Disc Quote: 11.98 – 18.91
Spot Rate : 6.9300
Average : 3.7469

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 11.98
Evaluated at bid price : 11.98
Bid-YTW : 6.38 %

MFC.PR.J FixedReset Ins Non Quote: 16.87 – 18.05
Spot Rate : 1.1800
Average : 0.7627

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 16.87
Evaluated at bid price : 16.87
Bid-YTW : 4.83 %

TD.PF.E FixedReset Disc Quote: 18.72 – 20.37
Spot Rate : 1.6500
Average : 1.2969

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 18.72
Evaluated at bid price : 18.72
Bid-YTW : 4.43 %

CCS.PR.C Deemed-Retractible Quote: 22.80 – 23.50
Spot Rate : 0.7000
Average : 0.4656

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 22.55
Evaluated at bid price : 22.80
Bid-YTW : 5.55 %

MFC.PR.G FixedReset Ins Non Quote: 17.90 – 18.59
Spot Rate : 0.6900
Average : 0.5075

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 17.90
Evaluated at bid price : 17.90
Bid-YTW : 4.69 %

IFC.PR.C FixedReset Ins Non Quote: 15.50 – 16.25
Spot Rate : 0.7500
Average : 0.5912

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-08-14
Maturity Price : 15.50
Evaluated at bid price : 15.50
Bid-YTW : 5.06 %

3 Responses to “August 14, 2020”

  1. Frank says:

    Hi, I was wondering what would happen to fix restet prefered shares if Canadian 5y GOC rate go negative? Would the reset rate stop at 0% or would it go negative? On a very low reset rate, i.e mfc.pr.3, could we end up “owning” the issuer if rates go low enought?

  2. jiHymas says:

    This gets discussed every now and then …

    I can’t give you a clear answer. I suspect that in the event that GOC-5 does go negative there would be much discussion, arm-twisting and possibly litigation before the question was resolved.

    However, I do believe that the most likely scenario is that in the event of a negative GOC-5, the dividend would continue to reset to the sum of the GOC-5 rate and the spread, with a floor of 0%: e.g., for an issue resetting at GOC-5 +150bp, the rate would reset at 1.00% if GOC-5 was -0.50%; and the reset rate would be 0.00% if GOC-5 was -2.00%.

    This would follow the European precedent, discussed here.

  3. Frank says:

    Thanks for the quick answer James.

Leave a Reply

You must be logged in to post a comment.