TD.PF.A : Convert or Hold?

October 11th, 2019

It will be recalled that TD.PF.A will reset at 3.662% effective October 31, 2019

TD.PF.A is a FixedReset, 3.90%+224, NVCC-compliant issue that commenced trading 2014-6-4 after being announced 2014-5-26. It is tracked by HIMIPref™ and is assigned to the FixedReset – Discount subindex.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g. TD.PF.A and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_fr_191011
Click for Big

The market appears to have lost its fleeting interest in floating rate product; the implied rates until the next interconversion are well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.70% and +0.84%, respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the TD.PF.A FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for TD.PF.A) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 1.50% 1.00% 0.50%
TD.PF.A 17.00 224bp 17.08 16.58 16.08

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade below the price of their FixedReset counterparts, TD.PF.A. Therefore, I recommend that holders of TD.PF.A continue to hold the issue and not to convert. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Those who wish to convert are advised that the deadline for notifying the company of such a desire is 5:00 p.m. (Toronto time) on October 16, 2019. This is the Wednesday following Thanksgiving, i.e., the second trading day following this post. Brokers and other intermediaries generally set their internal deadlines a day or two in advance of this date, so if you wish to convert there’s no time to waste! Note that brokers will, in general, try to execute the instruction on a ‘best efforts’ basis if received between the two deadlines, provided that the procrastinating shareholder grovels entertainingly enough.

TRP.PR.E : Convert or Hold?

October 11th, 2019

It will be recalled that TRP.PR.E will reset at 3.762% effective October 30, 2019

TRP.PR.E is a FixedReset, 4.25%+235, that commenced trading 2014-1-20 after being announced 2014-1-13. Notice of extension was provided on 2019-9-18. It is tracked by HIMIPref™ and assigned to the FixedReset-Discount subindex.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g. TRP.PR.E and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_fr_191011
Click for Big

The market appears to have lost its fleeting interest in floating rate product; the implied rates until the next interconversion are well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.70% and +0.84%, respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the TRP.PR.E FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for TRP.PR.E) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 1.50% 1.00% 0.50%
TRP.PR.E 15.55 235bp 15.64 15.15 14.67

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade below the price of their FixedReset counterparts, TRP.PR.E. Therefore, I recommend that holders of TRP.PR.E continue to hold the issue and not to convert. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Those who wish to convert are advised that the deadline for notifying the company of such a desire is 5 p.m. (EDT) on October 15, 2019. This is the Tuesday following Thanksgiving, i.e., the first trading day following this post. Brokers and other intermediaries generally set their internal deadlines a day or two in advance of this date, so if you wish to convert there’s no time to waste! Note that brokers will, in general, try to execute the instruction on a ‘best efforts’ basis if received between the two deadlines, provided that the procrastinating shareholder grovels entertainingly enough.

October 11, 2019

October 11th, 2019

The hiccup in the US repo market, last discussed on September 20, is now being addressed by the Fed:

The Federal Reserve said Friday that it would buy more government-backed securities in a move meant to keep an obscure but critical corner of financial markets functioning smoothly.

The central bank said that it had decided to begin buying Treasury bills — expanding its balance sheet for the first time since 2014 — and would begin the purchases on Tuesday. The Fed will continue buying “at least into the second quarter of next year,” it said in a statement.

The Fed will also continue to intervene in the market for repurchase agreements, essentially short-term loans between banks and financial institutions. It started doing so last month for the first time since the financial crisis after rates on repos shot up briefly, spilling over to push the central bank’s benchmark interest rate higher. The Fed will conduct the operations “at least through January of next year,” according to the release, “to ensure that the supply of reserves remains ample even during periods of sharp increases in nonreserve liabilities.”

Unlike its previous bond buying campaign, which began during the Great Recession, the Fed stressed on Friday that its new effort is not meant to boost the economy.

Jobs, jobs, jobs!

Canada’s unemployment rate nudged down to a near four-decade low last month as the economy added more jobs than analysts expect – dropping an economic figure into a tight electoral race, and warnings from economists that things may not be as rosy as they seem.

Statistics Canada’s monthly labour force survey showed the country added about 54,000 net new jobs in September, driven largely by gains in full-time work, and dropping the jobless rate nationally by 0.2 points to 5.5 per cent.

The national statistics office said September’s jobs growth was largely concentrated in an expansion of public-sector staff and self-employed workers. The report also said 70,000 of the new jobs were full-time, as the number of part-time workers declined.

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 1.0223 % 1,851.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.0223 % 3,397.5
Floater 6.51 % 6.68 % 48,283 12.96 4 1.0223 % 1,958.0
OpRet 0.00 % 0.00 % 0 0.00 0 0.1574 % 3,396.7
SplitShare 4.64 % 4.52 % 54,786 3.96 7 0.1574 % 4,056.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1574 % 3,164.9
Perpetual-Premium 5.49 % -22.27 % 57,952 0.09 8 0.0832 % 3,026.6
Perpetual-Discount 5.40 % 5.45 % 69,721 14.71 25 0.1451 % 3,204.3
FixedReset Disc 5.68 % 5.74 % 170,272 14.36 66 0.5714 % 2,069.1
Deemed-Retractible 5.22 % 5.78 % 66,331 7.86 27 -0.1401 % 3,157.6
FloatingReset 6.39 % 6.90 % 81,750 12.68 2 2.2817 % 2,376.7
FixedReset Prem 5.15 % 4.05 % 163,110 1.70 20 0.1258 % 2,598.0
FixedReset Bank Non 1.97 % 4.21 % 76,682 2.23 3 0.0693 % 2,680.3
FixedReset Ins Non 5.49 % 8.14 % 103,202 7.79 21 0.9525 % 2,104.0
Performance Highlights
Issue Index Change Notes
NA.PR.E FixedReset Disc -2.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 18.02
Evaluated at bid price : 18.02
Bid-YTW : 5.85 %
BMO.PR.E FixedReset Disc -1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 5.63 %
RY.PR.S FixedReset Disc -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 19.92
Evaluated at bid price : 19.92
Bid-YTW : 5.27 %
GWO.PR.T Deemed-Retractible -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.85
Bid-YTW : 5.81 %
CM.PR.P FixedReset Disc 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 15.91
Evaluated at bid price : 15.91
Bid-YTW : 5.94 %
TD.PF.J FixedReset Disc 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 5.56 %
TRP.PR.D FixedReset Disc 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 15.85
Evaluated at bid price : 15.85
Bid-YTW : 6.19 %
BAM.PF.F FixedReset Disc 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 17.45
Evaluated at bid price : 17.45
Bid-YTW : 6.19 %
TD.PF.C FixedReset Disc 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 16.61
Evaluated at bid price : 16.61
Bid-YTW : 5.71 %
CM.PR.Q FixedReset Disc 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 18.12
Evaluated at bid price : 18.12
Bid-YTW : 5.93 %
TD.PF.B FixedReset Disc 1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 17.10
Evaluated at bid price : 17.10
Bid-YTW : 5.52 %
TD.PF.A FixedReset Disc 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 17.00
Evaluated at bid price : 17.00
Bid-YTW : 5.56 %
PWF.PR.A Floater 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 11.41
Evaluated at bid price : 11.41
Bid-YTW : 6.16 %
NA.PR.S FixedReset Disc 1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 17.33
Evaluated at bid price : 17.33
Bid-YTW : 5.71 %
BAM.PR.T FixedReset Disc 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 14.85
Evaluated at bid price : 14.85
Bid-YTW : 6.42 %
MFC.PR.G FixedReset Ins Non 1.48 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.50
Bid-YTW : 8.14 %
BMO.PR.T FixedReset Disc 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 17.05
Evaluated at bid price : 17.05
Bid-YTW : 5.55 %
TRP.PR.C FixedReset Disc 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 11.58
Evaluated at bid price : 11.58
Bid-YTW : 6.52 %
BMO.PR.Y FixedReset Disc 1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 18.83
Evaluated at bid price : 18.83
Bid-YTW : 5.69 %
TRP.PR.F FloatingReset 1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 13.11
Evaluated at bid price : 13.11
Bid-YTW : 6.90 %
BMO.PR.W FixedReset Disc 1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 16.59
Evaluated at bid price : 16.59
Bid-YTW : 5.74 %
TRP.PR.A FixedReset Disc 1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 13.02
Evaluated at bid price : 13.02
Bid-YTW : 6.69 %
BAM.PR.B Floater 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 10.45
Evaluated at bid price : 10.45
Bid-YTW : 6.68 %
MFC.PR.N FixedReset Ins Non 1.81 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.76
Bid-YTW : 9.65 %
CU.PR.C FixedReset Disc 1.86 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 17.01
Evaluated at bid price : 17.01
Bid-YTW : 5.73 %
HSE.PR.A FixedReset Disc 1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 10.80
Evaluated at bid price : 10.80
Bid-YTW : 7.40 %
MFC.PR.F FixedReset Ins Non 1.95 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.56
Bid-YTW : 11.03 %
MFC.PR.M FixedReset Ins Non 2.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.10
Bid-YTW : 9.45 %
BAM.PF.G FixedReset Disc 2.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 17.35
Evaluated at bid price : 17.35
Bid-YTW : 6.37 %
SLF.PR.H FixedReset Ins Non 2.32 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.91
Bid-YTW : 9.04 %
BAM.PR.X FixedReset Disc 2.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 12.93
Evaluated at bid price : 12.93
Bid-YTW : 6.30 %
BAM.PR.R FixedReset Disc 2.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 14.78
Evaluated at bid price : 14.78
Bid-YTW : 6.40 %
GWO.PR.N FixedReset Ins Non 2.57 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.96
Bid-YTW : 9.60 %
IFC.PR.C FixedReset Ins Non 2.68 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.60
Bid-YTW : 8.39 %
HSE.PR.G FixedReset Disc 2.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 17.11
Evaluated at bid price : 17.11
Bid-YTW : 7.44 %
PWF.PR.P FixedReset Disc 2.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 12.61
Evaluated at bid price : 12.61
Bid-YTW : 6.11 %
SLF.PR.J FloatingReset 3.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.89
Bid-YTW : 11.13 %
SLF.PR.G FixedReset Ins Non 3.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.91
Bid-YTW : 10.84 %
TRP.PR.B FixedReset Disc 3.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 10.79
Evaluated at bid price : 10.79
Bid-YTW : 6.52 %
IFC.PR.A FixedReset Ins Non 3.91 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.07
Bid-YTW : 10.38 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.J FixedReset Disc 146,863 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 5.56 %
CM.PR.S FixedReset Disc 103,217 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 17.61
Evaluated at bid price : 17.61
Bid-YTW : 5.83 %
RY.PR.Z FixedReset Disc 69,098 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 17.18
Evaluated at bid price : 17.18
Bid-YTW : 5.51 %
SLF.PR.G FixedReset Ins Non 51,600 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.91
Bid-YTW : 10.84 %
CM.PR.T FixedReset Disc 51,550 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 22.62
Evaluated at bid price : 23.60
Bid-YTW : 5.19 %
BMO.PR.Y FixedReset Disc 46,120 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 18.83
Evaluated at bid price : 18.83
Bid-YTW : 5.69 %
There were 56 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
NA.PR.E FixedReset Disc Quote: 18.02 – 18.56
Spot Rate : 0.5400
Average : 0.3469

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 18.02
Evaluated at bid price : 18.02
Bid-YTW : 5.85 %

SLF.PR.H FixedReset Ins Non Quote: 15.91 – 16.40
Spot Rate : 0.4900
Average : 0.3548

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.91
Bid-YTW : 9.04 %

HSE.PR.E FixedReset Disc Quote: 17.07 – 17.43
Spot Rate : 0.3600
Average : 0.2299

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 17.07
Evaluated at bid price : 17.07
Bid-YTW : 7.52 %

MFC.PR.J FixedReset Ins Non Quote: 18.44 – 18.84
Spot Rate : 0.4000
Average : 0.2778

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.44
Bid-YTW : 8.31 %

CM.PR.Q FixedReset Disc Quote: 18.12 – 18.45
Spot Rate : 0.3300
Average : 0.2081

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-11
Maturity Price : 18.12
Evaluated at bid price : 18.12
Bid-YTW : 5.93 %

GWO.PR.T Deemed-Retractible Quote: 23.85 – 24.15
Spot Rate : 0.3000
Average : 0.1929

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.85
Bid-YTW : 5.81 %

October 10, 2019

October 10th, 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 -1.1980 % 1,832.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.1980 % 3,363.1
Floater 6.57 % 6.79 % 47,573 12.82 4 -1.1980 % 1,938.2
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0225 % 3,391.4
SplitShare 4.65 % 4.64 % 56,722 3.96 7 -0.0225 % 4,050.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0225 % 3,160.0
Perpetual-Premium 5.50 % -21.59 % 60,242 0.09 8 0.0735 % 3,024.1
Perpetual-Discount 5.41 % 5.44 % 71,975 14.71 25 0.0795 % 3,199.7
FixedReset Disc 5.71 % 5.45 % 168,265 14.70 66 0.2580 % 2,057.3
Deemed-Retractible 5.21 % 5.77 % 61,419 7.87 27 0.0567 % 3,162.1
FloatingReset 6.50 % 6.97 % 80,878 12.60 2 0.1576 % 2,323.7
FixedReset Prem 5.15 % 3.96 % 169,823 1.71 20 0.0039 % 2,594.8
FixedReset Bank Non 1.97 % 4.09 % 79,251 2.24 3 0.0000 % 2,678.5
FixedReset Ins Non 5.54 % 7.96 % 103,256 7.87 21 0.2121 % 2,084.1
Performance Highlights
Issue Index Change Notes
HSE.PR.G FixedReset Disc -2.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 16.66
Evaluated at bid price : 16.66
Bid-YTW : 7.27 %
PWF.PR.A Floater -1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 11.26
Evaluated at bid price : 11.26
Bid-YTW : 6.24 %
BAM.PR.B Floater -1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 10.27
Evaluated at bid price : 10.27
Bid-YTW : 6.80 %
PWF.PR.T FixedReset Disc -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 17.10
Evaluated at bid price : 17.10
Bid-YTW : 5.56 %
TD.PF.D FixedReset Disc 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 18.70
Evaluated at bid price : 18.70
Bid-YTW : 5.43 %
RY.PR.M FixedReset Disc 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 18.30
Evaluated at bid price : 18.30
Bid-YTW : 5.38 %
BAM.PR.R FixedReset Disc 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 14.41
Evaluated at bid price : 14.41
Bid-YTW : 6.17 %
IFC.PR.C FixedReset Ins Non 1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.14
Bid-YTW : 8.48 %
NA.PR.S FixedReset Disc 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 17.10
Evaluated at bid price : 17.10
Bid-YTW : 5.51 %
BIP.PR.E FixedReset Disc 1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 21.97
Evaluated at bid price : 22.35
Bid-YTW : 5.62 %
GWO.PR.N FixedReset Ins Non 1.57 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.61
Bid-YTW : 9.61 %
BAM.PF.E FixedReset Disc 1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 15.70
Evaluated at bid price : 15.70
Bid-YTW : 6.19 %
TRP.PR.C FixedReset Disc 1.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 11.41
Evaluated at bid price : 11.41
Bid-YTW : 6.11 %
BAM.PR.T FixedReset Disc 1.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 14.65
Evaluated at bid price : 14.65
Bid-YTW : 6.15 %
HSE.PR.C FixedReset Disc 1.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 15.90
Evaluated at bid price : 15.90
Bid-YTW : 7.01 %
Volume Highlights
Issue Index Shares
Traded
Notes
W.PR.M FixedReset Prem 111,178 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-15
Maturity Price : 25.00
Evaluated at bid price : 25.55
Bid-YTW : 4.04 %
PWF.PR.P FixedReset Disc 83,100 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 12.26
Evaluated at bid price : 12.26
Bid-YTW : 5.81 %
TRP.PR.E FixedReset Disc 60,785 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 15.60
Evaluated at bid price : 15.60
Bid-YTW : 5.84 %
BIP.PR.D FixedReset Disc 50,162 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 22.42
Evaluated at bid price : 22.86
Bid-YTW : 5.55 %
TD.PF.K FixedReset Disc 49,075 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 5.31 %
PWF.PR.A Floater 37,500 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 11.26
Evaluated at bid price : 11.26
Bid-YTW : 6.24 %
There were 27 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BNS.PR.Y FixedReset Bank Non Quote: 24.53 – 24.83
Spot Rate : 0.3000
Average : 0.1964

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.53
Bid-YTW : 3.03 %

HSE.PR.G FixedReset Disc Quote: 16.66 – 17.00
Spot Rate : 0.3400
Average : 0.2410

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 16.66
Evaluated at bid price : 16.66
Bid-YTW : 7.27 %

TRP.PR.E FixedReset Disc Quote: 15.60 – 15.94
Spot Rate : 0.3400
Average : 0.2427

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 15.60
Evaluated at bid price : 15.60
Bid-YTW : 5.84 %

BNS.PR.I FixedReset Disc Quote: 20.17 – 20.45
Spot Rate : 0.2800
Average : 0.1919

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 20.17
Evaluated at bid price : 20.17
Bid-YTW : 4.94 %

TRP.PR.G FixedReset Disc Quote: 17.10 – 17.39
Spot Rate : 0.2900
Average : 0.2146

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 17.10
Evaluated at bid price : 17.10
Bid-YTW : 6.25 %

PWF.PR.L Perpetual-Discount Quote: 23.31 – 23.74
Spot Rate : 0.4300
Average : 0.3546

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-10
Maturity Price : 23.04
Evaluated at bid price : 23.31
Bid-YTW : 5.47 %

October 9, 2019

October 9th, 2019

PerpetualDiscounts now yield 5.38%, equivalent to 6.99% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.18%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed slightly (and perhaps spuriously) to 380bp from the 385bp reported October 2.

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 0.8529 % 1,855.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.8529 % 3,403.9
Floater 6.50 % 6.69 % 44,102 12.95 4 0.8529 % 1,961.7
OpRet 0.00 % 0.00 % 0 0.00 0 0.1069 % 3,392.1
SplitShare 4.64 % 4.56 % 57,212 3.96 7 0.1069 % 4,050.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1069 % 3,160.7
Perpetual-Premium 5.50 % -21.76 % 60,592 0.09 8 0.3996 % 3,021.8
Perpetual-Discount 5.42 % 5.38 % 72,422 14.70 25 0.3697 % 3,197.2
FixedReset Disc 5.72 % 5.49 % 162,629 14.65 66 0.1363 % 2,052.0
Deemed-Retractible 5.21 % 5.77 % 67,391 7.86 27 0.0867 % 3,160.3
FloatingReset 6.51 % 6.99 % 81,458 12.57 2 0.3162 % 2,320.0
FixedReset Prem 5.15 % 4.11 % 161,816 1.71 20 0.0210 % 2,594.7
FixedReset Bank Non 1.97 % 4.09 % 82,512 2.24 3 -0.0277 % 2,678.5
FixedReset Ins Non 5.55 % 8.01 % 101,644 7.86 21 0.2312 % 2,079.7
Performance Highlights
Issue Index Change Notes
IAF.PR.B Deemed-Retractible -1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.83
Bid-YTW : 6.35 %
BAM.PF.F FixedReset Disc -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 17.22
Evaluated at bid price : 17.22
Bid-YTW : 6.02 %
TRP.PR.B FixedReset Disc 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 10.35
Evaluated at bid price : 10.35
Bid-YTW : 6.21 %
EMA.PR.C FixedReset Disc 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 17.69
Evaluated at bid price : 17.69
Bid-YTW : 5.93 %
MFC.PR.G FixedReset Ins Non 1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.23
Bid-YTW : 8.10 %
BAM.PR.B Floater 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 10.43
Evaluated at bid price : 10.43
Bid-YTW : 6.69 %
IFC.PR.C FixedReset Ins Non 1.25 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.95
Bid-YTW : 8.62 %
MFC.PR.K FixedReset Ins Non 1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.60
Bid-YTW : 8.33 %
TD.PF.A FixedReset Disc 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 16.74
Evaluated at bid price : 16.74
Bid-YTW : 5.27 %
IFC.PR.G FixedReset Ins Non 1.29 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.89
Bid-YTW : 7.86 %
IAF.PR.I FixedReset Ins Non 1.32 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.20
Bid-YTW : 7.73 %
BAM.PR.C Floater 1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 10.35
Evaluated at bid price : 10.35
Bid-YTW : 6.75 %
PWF.PR.R Perpetual-Premium 1.48 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-04-30
Maturity Price : 25.25
Evaluated at bid price : 25.20
Bid-YTW : 5.20 %
CM.PR.Q FixedReset Disc 1.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 17.92
Evaluated at bid price : 17.92
Bid-YTW : 5.66 %
Volume Highlights
Issue Index Shares
Traded
Notes
SLF.PR.B Deemed-Retractible 344,000 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.31
Bid-YTW : 6.29 %
BMO.PR.T FixedReset Disc 106,700 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 16.80
Evaluated at bid price : 16.80
Bid-YTW : 5.36 %
MFC.PR.G FixedReset Ins Non 55,600 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.23
Bid-YTW : 8.10 %
BIP.PR.D FixedReset Disc 50,500 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 22.38
Evaluated at bid price : 22.80
Bid-YTW : 5.56 %
RY.PR.M FixedReset Disc 47,109 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 18.11
Evaluated at bid price : 18.11
Bid-YTW : 5.44 %
RY.PR.Q FixedReset Prem 47,000 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.82
Bid-YTW : 3.85 %
There were 37 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
POW.PR.B Perpetual-Discount Quote: 24.01 – 24.38
Spot Rate : 0.3700
Average : 0.2286

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 23.70
Evaluated at bid price : 24.01
Bid-YTW : 5.59 %

PWF.PR.L Perpetual-Discount Quote: 23.15 – 23.53
Spot Rate : 0.3800
Average : 0.2719

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 22.88
Evaluated at bid price : 23.15
Bid-YTW : 5.51 %

BAM.PF.G FixedReset Disc Quote: 16.93 – 17.27
Spot Rate : 0.3400
Average : 0.2368

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 16.93
Evaluated at bid price : 16.93
Bid-YTW : 6.16 %

BIP.PR.E FixedReset Disc Quote: 22.01 – 22.50
Spot Rate : 0.4900
Average : 0.3881

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 21.72
Evaluated at bid price : 22.01
Bid-YTW : 5.71 %

CM.PR.P FixedReset Disc Quote: 15.70 – 16.00
Spot Rate : 0.3000
Average : 0.2071

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 15.70
Evaluated at bid price : 15.70
Bid-YTW : 5.63 %

BIP.PR.A FixedReset Disc Quote: 17.85 – 18.25
Spot Rate : 0.4000
Average : 0.3076

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-09
Maturity Price : 17.85
Evaluated at bid price : 17.85
Bid-YTW : 6.83 %

October 8, 2019

October 9th, 2019

Here’s a sign of the times:

The latest property owner to attempt an initial public offering is aiming to pay an annual yield around 2 per cent, an uncommonly low rate that illustrates the heavy demand for Canadian apartment buildings.

Late last week, Toronto-based Continuum Residential Real Estate Investment Trust filed the paperwork for its IPO. According to two people familiar with the offering, the issuer is looking to raise $300-million and would pay investors 2 per cent annually if its units are priced at the mid-point of their marketing range.

Amid such heavy demand, Minto Apartment REIT was able to go public in 2018 at a 2.8-per-cent yield and, 16 months later, Continuum is targeting an even lower level.

Continuum’s bet reflects the conditions of the current market. Canadian Apartment Properties REIT, the country’s largest publicly traded rental-unit owner, now trades at a 2.4-per-cent yield, and Minto’s units have performed so well since the REIT’s IPO that they now yield 1.9 per cent.

Sorry this is so late! A number of non-market things came up unexpectedly last night!

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 -0.5419 % 1,839.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.5419 % 3,375.1
Floater 6.55 % 6.75 % 42,987 12.88 4 -0.5419 % 1,945.1
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0787 % 3,388.5
SplitShare 4.65 % 4.64 % 57,242 3.97 7 -0.0787 % 4,046.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0787 % 3,157.3
Perpetual-Premium 5.47 % -16.47 % 59,034 0.09 8 0.0683 % 3,009.8
Perpetual-Discount 5.42 % 5.49 % 68,169 14.55 25 0.1246 % 3,185.4
FixedReset Disc 5.72 % 5.48 % 164,532 14.61 66 -0.3118 % 2,049.2
Deemed-Retractible 5.22 % 5.78 % 62,195 7.87 27 -0.0016 % 3,157.5
FloatingReset 6.53 % 7.02 % 82,774 12.53 2 0.1980 % 2,312.7
FixedReset Prem 5.15 % 4.10 % 164,375 1.71 20 0.0373 % 2,594.1
FixedReset Bank Non 1.97 % 4.05 % 85,907 2.24 3 0.1804 % 2,679.2
FixedReset Ins Non 5.57 % 8.02 % 98,868 7.88 21 -0.2598 % 2,074.9
Performance Highlights
Issue Index Change Notes
TRP.PR.B FixedReset Disc -2.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 10.24
Evaluated at bid price : 10.24
Bid-YTW : 6.27 %
EMA.PR.C FixedReset Disc -2.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 5.99 %
EMA.PR.F FixedReset Disc -1.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 16.15
Evaluated at bid price : 16.15
Bid-YTW : 6.17 %
HSE.PR.C FixedReset Disc -1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 15.60
Evaluated at bid price : 15.60
Bid-YTW : 7.15 %
BAM.PF.A FixedReset Disc -1.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 18.58
Evaluated at bid price : 18.58
Bid-YTW : 5.96 %
BAM.PF.E FixedReset Disc -1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 15.42
Evaluated at bid price : 15.42
Bid-YTW : 6.30 %
TRP.PR.A FixedReset Disc -1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 12.72
Evaluated at bid price : 12.72
Bid-YTW : 6.35 %
BAM.PR.X FixedReset Disc -1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 12.43
Evaluated at bid price : 12.43
Bid-YTW : 6.13 %
BAM.PR.R FixedReset Disc -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 14.26
Evaluated at bid price : 14.26
Bid-YTW : 6.23 %
BIP.PR.A FixedReset Disc -1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 17.94
Evaluated at bid price : 17.94
Bid-YTW : 6.80 %
IAF.PR.G FixedReset Ins Non -1.19 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.25
Bid-YTW : 7.95 %
GWO.PR.N FixedReset Ins Non -1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.52
Bid-YTW : 9.68 %
IAF.PR.B Deemed-Retractible -1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.11
Bid-YTW : 6.18 %
SLF.PR.J FloatingReset 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.50
Bid-YTW : 11.49 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.M FixedReset Disc 74,985 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 23.09
Evaluated at bid price : 24.75
Bid-YTW : 5.01 %
EMA.PR.C FixedReset Disc 58,300 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 5.99 %
BAM.PF.D Perpetual-Discount 53,000 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 21.20
Evaluated at bid price : 21.20
Bid-YTW : 5.83 %
PWF.PR.L Perpetual-Discount 52,700 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 23.21
Evaluated at bid price : 23.51
Bid-YTW : 5.51 %
CM.PR.S FixedReset Disc 47,750 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 17.65
Evaluated at bid price : 17.65
Bid-YTW : 5.52 %
BMO.PR.Y FixedReset Disc 40,800 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 18.38
Evaluated at bid price : 18.38
Bid-YTW : 5.49 %
There were 34 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.R FixedReset Ins Non Quote: 24.23 – 24.70
Spot Rate : 0.4700
Average : 0.3097

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.23
Bid-YTW : 5.50 %

IFC.PR.C FixedReset Ins Non Quote: 16.74 – 17.19
Spot Rate : 0.4500
Average : 0.3134

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.74
Bid-YTW : 8.78 %

TD.PF.A FixedReset Disc Quote: 16.77 – 17.07
Spot Rate : 0.3000
Average : 0.2010

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 16.77
Evaluated at bid price : 16.77
Bid-YTW : 5.35 %

NA.PR.G FixedReset Disc Quote: 19.73 – 19.98
Spot Rate : 0.2500
Average : 0.1576

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 19.73
Evaluated at bid price : 19.73
Bid-YTW : 5.39 %

PVS.PR.E SplitShare Quote: 25.51 – 25.78
Spot Rate : 0.2700
Average : 0.1816

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.51
Bid-YTW : 4.97 %

NA.PR.C FixedReset Disc Quote: 21.14 – 21.35
Spot Rate : 0.2100
Average : 0.1302

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-08
Maturity Price : 21.14
Evaluated at bid price : 21.14
Bid-YTW : 5.51 %

BMO.PR.W To Be Extended

October 8th, 2019

Bank of Montreal has announced (on September 27):

that it does not intend to exercise its right to redeem the currently outstanding Non-Cumulative 5-Year Rate Reset Class B Preferred Shares, Series 31 of the Bank (the “Preferred Shares Series 31”) on November 25, 2019. As a result, subject to certain conditions, the holders of Preferred Shares Series 31 have the right, at their option, to convert all or part of their Preferred Shares Series 31 on a one-for-one basis into Non-Cumulative Floating Rate Class B Preferred Shares, Series 32 of the Bank (the “Preferred Shares Series 32”) on November 25, 2019. Holders who do not exercise their right to convert their Preferred Shares Series 31 into Preferred Shares Series 32 on such date will retain their Preferred Shares Series 31, unless automatically converted in accordance with the conditions below.

The foregoing conversions are subject to the conditions that: (i) if, after November 12, 2019, the Bank determines that there would be less than 1,000,000 Preferred Shares Series 31 outstanding on November 25, 2019, then all remaining Preferred Shares Series 31 will automatically be converted into an equal number of Preferred Shares Series 32 on November 25, 2019; and (ii) alternatively, if the Bank determines that there would be less than 1,000,000 Preferred Shares Series 32 outstanding on November 25, 2019, no Preferred Shares Series 31 will be converted into Preferred Shares Series 32. In either case, the Bank will give written notice to that effect to any registered holders of Preferred Shares Series 31 affected by the preceding minimums on or before November 15, 2019.

The dividend rate applicable to the Preferred Shares Series 31 for the 5-year period commencing on November 25, 2019, and ending on November 24, 2024, and the dividend rate applicable to the Preferred Shares Series 32 for the 3-month period commencing on November 25, 2019, and ending on February 24, 2020, will be determined and announced by way of a news release on October 28, 2019. This date is the first business day following the dividend rate calculation date of October 26, 2019, established in the Preferred Shares Series 31 prospectus, which falls on a Saturday. The Bank will also give written notice of these dividend rates to the registered holders of Preferred Shares Series 31.

Beneficial owners of Preferred Shares Series 31 who, on or after October 28, 2019, wish to exercise their right of conversion should instruct their broker or other nominee to exercise such right before 5:00 p.m. (EDT) on November 12, 2019.

Conversion inquiries should be directed to BMO’s Registrar and Transfer Agent, Computershare Trust Company of Canada, at 1-800-340-5021.

BMO.PR.W is a FixedReset, 3.80%+222, that commenced trading 2014-7-30 after being announced 2014-7-22. It is tracked by HIMIPref™ and has been assigned to the FixedReset – Discount subindex.

I will have more to say once the reset rate is announced October 28.

TD.PF.A To Reset At 3.662%

October 8th, 2019

The Toronto-Dominion Bank has announced (on October 1):

the applicable dividend rates for its Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 1 (Non-Viability Contingent Capital (NVCC)) (the “Series 1 Shares”) and Non-Cumulative Floating Rate Preferred Shares, Series 2 (NVCC) (the “Series 2 Shares”).

With respect to any Series 1 Shares that remain outstanding after October 31, 2019, holders of the Series 1 Shares will be entitled to receive quarterly fixed non-cumulative preferential cash dividends, as and when declared by the Board of Directors of TD, subject to the provisions of the Bank Act (Canada). The dividend rate for the 5-year period from and including October 31, 2019 to but excluding October 31, 2024 will be 3.662%, being equal to the 5-Year Government of Canada bond yield determined as at October 1, 2019 plus 2.24%, as determined in accordance with the terms of the Series 1 Shares.

With respect to any Series 2 Shares that may be issued on October 31, 2019, holders of the Series 2 Shares will be entitled to receive quarterly floating rate non-cumulative preferential cash dividends, calculated on the basis of the actual number of days elapsed in such quarterly period divided by 365, as and when declared by the Board of Directors of TD, subject to the provisions of the Bank Act (Canada). The dividend rate for the floating rate period from and including October 31, 2019 to but excluding January 31, 2020, will be 3.864%, being equal to the 90-day Government of Canada Treasury Bill yield determined as of October 1, 2019 plus 2.24%, as determined in accordance with the terms of the Series 2 Shares.

Beneficial owners of Series 1 Shares who wish to exercise their conversion right should communicate as soon as possible with their broker or other nominee to obtain instructions for exercising such right on or prior to the deadline for exercise, which is 5:00 p.m. (Toronto time) on October 16, 2019.

Inquiries should be directed to TD’s Registrar and Transfer Agent, AST Trust Company (Canada), at 1-800-387-0825 (or in Toronto 416-682-3860).

They previously announced (on September 24):

that it does not intend to exercise its right to redeem all or any part of the currently outstanding 20 million Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 1 (Non-Viability Contingent Capital (NVCC)) (the “Series 1 Shares”) of TD on October 31, 2019. As a result and subject to certain conditions set out in the prospectus supplement dated May 28, 2014 relating to the issuance of the Series 1 Shares, the holders of the Series 1 Shares have the right to convert all or part of their Series 1 Shares, on a one-for-one basis, into Non-Cumulative Floating Rate Preferred Shares, Series 2 (NVCC) (the “Series 2 Shares”) of TD on October 31, 2019. Holders who do not exercise their right to convert their Series 1 Shares into Series 2 Shares on such date will continue to hold their Series 1 Shares.

The foregoing conversion right is subject to the conditions that: (i) if TD determines that there would be less than 1,000,000 Series 2 Shares outstanding after taking into account all shares tendered for conversion on October 31, 2019, then holders of Series 1 Shares will not be entitled to convert their shares into Series 2 Shares, and (ii) alternatively, if TD determines that there would remain outstanding less than 1,000,000 Series 1 Shares after taking into account all shares tendered for conversion on October 31, 2019, then all remaining Series 1 Shares will automatically be converted into Series 2 Shares on a one-for-one basis on October 31, 2019. In either case, TD will give written notice to that effect to holders of Series 1 Shares no later than October 24, 2019.

The dividend rate applicable to the Series 1 Shares for the 5-year period from and including October 31, 2019 to but excluding October 31, 2024, and the dividend rate applicable to the Series 2 Shares for the 3-month period from and including October 31, 2019 to but excluding January 31, 2020, will be determined and announced by way of a press release on October 1, 2019.

Beneficial owners of Series 1 Shares who wish to exercise their conversion right should communicate as soon as possible with their broker or other nominee to obtain instructions for exercising such right during the conversion period, which runs from October 1, 2019 until 5:00 p.m. (Toronto time) on October 16, 2019.

Inquiries should be directed to TD’s Registrar and Transfer Agent, AST Trust Company (Canada), at 1-800-387-0825 (or in Toronto 416-682-3860).

TD.PF.A is a FixedReset, 3.90%+224, NVCC-compliant issue that commenced trading 2014-6-4 after being announced 2014-5-26. It is tracked by HIMIPref™ and is assigned to the FixedReset – Discount subindex.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., TD.PF.A and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated). Inspection of the graph and the overall average break-even rates for extant pairs will provide a guide for estimating the break-even rate for the pair now under consideration assuming, of course, that enough conversions occur so that the pair is in fact created.

pairs_fr_191007
Click for Big

The market has lost enthusiasm for floating rate product; the implied rates until the next interconversion are generally well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.84% and +1.00%, respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the TD.PF.A FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for TD.PF.A) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 1.50% 1.00% 0.50%
TD.PF.A 16.91 224bp 16.99 16.49 15.99

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade below the price of their FixedReset counterparts, TD.PF.A. Therefore, it seems likely that I will recommend that holders of TD.PF.A continue to hold the issue and not to convert, but I will wait until it’s closer to the October 16 notification deadline before making a final pronouncement. I will note that once the FloatingResets commence trading (if, in fact, they do) it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

October 7, 2019

October 7th, 2019

Look what’s back!

Low borrowing costs and strong investor demand have led to a rush of activity in the “maple” bond market, as global public-sector entities tap the Canadian debt market for cash.

Public-sector borrowers have issued $5.2-billion worth of maple bonds in the past three months.

There have been nine Canadian-dollar bond offerings by SSAs [sovereigns, supranationals and agencies] totalling $7.2-billion since the start of 2019. That’s more than was issued in the past three years combined. Public-sector borrowers issued $5.5-billion worth of maple bonds in all of 2018, none in 2017 and $1-billion in 2016, according to data from RBC.

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 0.9515 % 1,849.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.9515 % 3,393.5
Floater 6.52 % 6.71 % 43,184 12.93 4 0.9515 % 1,955.7
OpRet 0.00 % 0.00 % 0 0.00 0 0.1070 % 3,391.2
SplitShare 4.65 % 4.55 % 58,159 3.97 7 0.1070 % 4,049.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1070 % 3,159.8
Perpetual-Premium 5.48 % -12.23 % 59,607 0.09 8 0.0684 % 3,007.8
Perpetual-Discount 5.42 % 5.50 % 63,086 14.51 25 0.1630 % 3,181.4
FixedReset Disc 5.70 % 5.48 % 163,626 14.66 66 0.2768 % 2,055.6
Deemed-Retractible 5.22 % 5.74 % 62,900 7.87 27 0.2909 % 3,157.6
FloatingReset 6.54 % 6.98 % 86,156 12.59 2 0.3976 % 2,308.2
FixedReset Prem 5.15 % 4.19 % 160,830 1.71 20 0.0570 % 2,593.2
FixedReset Bank Non 1.97 % 4.08 % 85,780 2.25 3 0.0972 % 2,674.4
FixedReset Ins Non 5.55 % 8.07 % 98,696 7.88 21 0.5383 % 2,080.3
Performance Highlights
Issue Index Change Notes
BAM.PF.B FixedReset Disc -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 17.02
Evaluated at bid price : 17.02
Bid-YTW : 6.01 %
HSE.PR.C FixedReset Disc 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 15.87
Evaluated at bid price : 15.87
Bid-YTW : 7.02 %
TD.PF.D FixedReset Disc 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 5.48 %
MFC.PR.N FixedReset Ins Non 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.61
Bid-YTW : 9.43 %
TRP.PR.D FixedReset Disc 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 15.45
Evaluated at bid price : 15.45
Bid-YTW : 6.04 %
GWO.PR.S Deemed-Retractible 1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.49
Bid-YTW : 5.56 %
BAM.PR.C Floater 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 10.30
Evaluated at bid price : 10.30
Bid-YTW : 6.78 %
BIP.PR.A FixedReset Disc 1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 18.16
Evaluated at bid price : 18.16
Bid-YTW : 6.71 %
BAM.PF.A FixedReset Disc 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 18.90
Evaluated at bid price : 18.90
Bid-YTW : 5.86 %
TRP.PR.A FixedReset Disc 1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 12.91
Evaluated at bid price : 12.91
Bid-YTW : 6.26 %
BAM.PR.B Floater 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 10.34
Evaluated at bid price : 10.34
Bid-YTW : 6.75 %
SLF.PR.H FixedReset Ins Non 1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.56
Bid-YTW : 9.06 %
BAM.PR.Z FixedReset Disc 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 18.37
Evaluated at bid price : 18.37
Bid-YTW : 5.95 %
BAM.PR.R FixedReset Disc 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 14.44
Evaluated at bid price : 14.44
Bid-YTW : 6.15 %
MFC.PR.J FixedReset Ins Non 1.43 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.50
Bid-YTW : 8.07 %
IAF.PR.B Deemed-Retractible 1.55 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.34
Bid-YTW : 6.05 %
BAM.PR.K Floater 1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 10.40
Evaluated at bid price : 10.40
Bid-YTW : 6.71 %
PWF.PR.P FixedReset Disc 1.64 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 12.36
Evaluated at bid price : 12.36
Bid-YTW : 5.84 %
MFC.PR.Q FixedReset Ins Non 2.39 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.45
Bid-YTW : 8.07 %
MFC.PR.F FixedReset Ins Non 2.56 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.44
Bid-YTW : 10.83 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.R FixedReset Disc 95,239 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 5.44 %
TD.PF.M FixedReset Disc 79,800 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 23.09
Evaluated at bid price : 24.75
Bid-YTW : 5.00 %
TD.PF.L FixedReset Disc 79,400 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 22.94
Evaluated at bid price : 24.31
Bid-YTW : 4.85 %
PWF.PR.P FixedReset Disc 45,000 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 12.36
Evaluated at bid price : 12.36
Bid-YTW : 5.84 %
TRP.PR.J FixedReset Prem 40,105 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 25.92
Bid-YTW : 3.55 %
TD.PF.H FixedReset Prem 37,068 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 4.61 %
There were 27 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BMO.PR.W FixedReset Disc Quote: 16.25 – 16.85
Spot Rate : 0.6000
Average : 0.4087

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 16.25
Evaluated at bid price : 16.25
Bid-YTW : 5.46 %

BAM.PF.B FixedReset Disc Quote: 17.02 – 17.48
Spot Rate : 0.4600
Average : 0.2721

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 17.02
Evaluated at bid price : 17.02
Bid-YTW : 6.01 %

EMA.PR.F FixedReset Disc Quote: 16.45 – 16.99
Spot Rate : 0.5400
Average : 0.4213

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 16.45
Evaluated at bid price : 16.45
Bid-YTW : 6.05 %

MFC.PR.B Deemed-Retractible Quote: 21.55 – 21.93
Spot Rate : 0.3800
Average : 0.2860

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2030-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.55
Bid-YTW : 6.58 %

HSE.PR.A FixedReset Disc Quote: 10.51 – 10.94
Spot Rate : 0.4300
Average : 0.3450

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 10.51
Evaluated at bid price : 10.51
Bid-YTW : 7.07 %

BMO.PR.E FixedReset Disc Quote: 20.15 – 20.50
Spot Rate : 0.3500
Average : 0.2716

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2049-10-07
Maturity Price : 20.15
Evaluated at bid price : 20.15
Bid-YTW : 5.25 %

MAPF Performance: September, 2019

October 6th, 2019

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close September 30, 2019, was $7.7948 after a distribution of $0.102629.

Returns to September 30, 2019
Period MAPF BMO-CM “50” Preferred Share Index TXPR*
Total Return
CPD – according to Blackrock
One Month +3.19% +3.56% +3.34% N/A
Three Months -2.38% +0.40% +0.55% N/A
One Year -20.55% -13.21% -10.36% -10.95%
Two Years (annualized) -6.41% -3.88% -2.94% N/A
Three Years (annualized) +3.19% +3.34% +3.14% +2.64%
Four Years (annualized) +4.60% +4.74% +4.46% N/A
Five Years (annualized) -1.18% -0.54% -0.88% -1.31%
Six Years (annualized) +0.54% +0.23% +0.16% N/A
Seven Years (annualized) +0.30% +0.27% 0.00% N/A
Eight Years (annualized) +1.76% +1.02% +0.79% N/A
Nine Years (annualized) +1.88% +1.77% +1.27% N/A
Ten Years (annualized) +3.17% +2.55% +2.02% +1.49%
Eleven Years (annualized) +7.48% +3.23% +2.64%  
Twelve Years (annualized) +6.50% +2.37% +1.71%  
Thirteen Years (annualized) +6.08% +2.02%    
Fourteen Years (annualized) +6.07% +2.16%    
Fifteen Years (annualized) +6.14% +2.37%    
Sixteen Years (annualized) +6.70% +2.53%    
Seventeen Years (annualized) +8.04% +2.80%    
Eighteen Years (annualized) +7.28% +2.83%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The full name of the BMO-CM “50” index is the BMO Capital Markets “50” Preferred Share Index. It is calculated without accounting for fees.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
Figures for National Bank Preferred Equity Income Fund (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are +3.26%, +0.59% and -8.90%, respectively, according to Globe & Mail / Fundata after all fees & expenses. Three year performance is +2.98%; five year is -0.01; ten year is +2.63%

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are +3.82%, -0.06% & -14.40%, respectively. Three year performance is +2.33%, five-year is -0.54%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are +3.89%, -0.12% and -14.28% for one-, three- and twelve months, respectively. Three year performance is +2.58%; five-year is -0.59%.

Acccording to the fund’s fact sheet as of June 30, 2016, the fund’s inception date was October 30, 2015. I do not know how they justify this nonsensical statement, but will assume that prior performance is being suppressed in some perfectly legal manner that somebody at National considers ethical.

The last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) is -13.46% for the past twelve months. Two year performance is -4.75%, three year is +3.28%, five year is -2.98%.
Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are +3.20%, -1.19% and -14.50% for one-, three- and twelve-months, respectively. Three year performance is -0.70%; five-year is -0.37%
Figures for BMO Preferred Share Fund (advisor series) according to BMO are +3.52%, -0.74% and -15.51% for the past one-, three- and twelve-months, respectively. Three year performance is -0.84%; five-year is -3.04%.
Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are -11.92% for the past twelve months. The three-year figure is +3.67%; five years is -0.42%
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are no longer available since the fund has merged with First Asset Preferred Share ETF (FPR).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are +4.08%%, -0.98% and -15.35% for the past one, three and twelve months, respectively. Three year performance is +0.62%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are +3.17%, -0.17% and -13.67% for the past one, three and twelve months, respectively. Three year performance is +1.22%.

MAPF returns assume reinvestment of dividends, and are shown after expenses but before fees. Past performance is not a guarantee of future performance. You can lose money investing in Malachite Aggressive Preferred Fund or any other fund. For more information, see the fund’s main page. The fund is available either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited.

The preferred share market has suffered a sharp reverse in the past five months, leaving a lot of room for outsized gains. The Seniority Spread (the interest-equivalent yield on reasonably liquid, investment-grade PerpetualDiscounts less the yield on long term corporate bonds) is extremely elevated (chart end-date 2019-9-13)

pl_190913_body_chart_1
Click for Big

Note that the Seniority Spread was 385bp on October 2, a sharp narrowing from the post-Credit-Crunch record 420bp reported at the end of August. As a good practical example of the spreads between markets, consider that on March 20 the redemption of IGM.PR.B was announced; the redemption of this 5.90% Straight Perpetual was explicitly financed by the issue of 4.206% debentures, implying a Seniority Spread for this issuer of about 350bp at that time. It will also be noted that CIU issued a long-term bond in early September yielding 2.963%, about 411bp cheaper than the interest-equivalent figure of 7.07% for CIU.PR.A, which was then yielding about 5.44% as a dividend.

As has been noted, the increase in the Seniority Spread over the past year has been due not to an increase in yield (drop in prices) of Straight Preferreds over the year, but because the yield of the preferreds has remained relatively constant while the yield of long-term corporate bonds has dropped dramatically.

… and the relationship between five-year Canada yields and yields on investment-grade FixedResets is also well within what I consider ‘decoupled panic’ territory (chart end-date 2019-8-9):

pl_190913_body_chart_5
Click for Big

In addition, I feel that the yield on five-year Canadas is unsustainably low (it should be the inflation rate plus an increment of … 1%? 1.5%? 2.0%?),and a return to sustainable levels is likely over the medium term.

It seems clear that many market players are, wittingly or not, using FixedResets to speculate on future moves in the Canada 5-Year yield. This is excellent news for those who take market action based on fundamentals and the long term characteristics of the market because nobody can consistently time the markets. The speculators will, over the long run, lose money, handing it over to more sober investors.

It should be noted that I have been unable to explain the very strong performance of Floor issues over the past year relative to their non-Floor counterparts. See the discussions on PrefBlog at LINK, LINK and LINK.

I believe the bear-market outperformance by the Floor issues is a behavioural phenomenon with very little basis in fundamentals. When interest rates in general move, FixedReset prices should not change much (to a first approximation), since in Fixed Income investing it is spreads that are important, not absolute yields. There should be some effect on Floor issues, which should move up slightly in price as yields go down since the ‘option’ to receive the floor rate will become more valuable. Adjustments due to this effect should be fairly small, however – and over the past year issues with a floor, that started the period being expensive, have simply gotten even more expensive, relative to their non-floored counterparts.

And the tricky thing about behavioural models of investing is that they can lose their explanatory power very quickly when an investment fashion shifts, whereas fundamentals will always be effective. Just to give an example from the preferred share market – until the end of 2014, FixedResets were priced relative to each other according to their initial dividend; when the reset of TRP.PR.A shocked a lot of investors, relative pricing became much more dependent upon the Issue Reset Spread, a much more logical and fundamental property.

FixedReset (Discount) performance on the month was +3.99% vs. PerpetualDiscounts of +2.69% in September; the two classes finally decoupled in mid-November, 2018, after months of moving in lockstep, but it still appears to me that yields available on FixedResets are keeping the yields of PerpetualDiscounts up, even though a consistent valuation based on an expectation of declining interest rates would greatly increase the attractiveness of PerpetualDiscounts:

himi_indexperf_190930
Click for Big

Floaters managed a modest bounce, returning +5.01% for September but the figure for the past twelve months remains horrific at -39.52%. Look at the long-term performance:

himi_floaterperf_190930
Click for Big

Some Assiduous Readers will be interested to observe that the ‘Quantitative Easing’ decline was not initially as bad as the ‘Credit Crunch’ decline, which took the sector down to the point where the 15-year cumulative total return was negative. I wrote about that at the time. but it became worse in August! On August 30, 2019 the HIMI Floater Index (total return) value was calculated as 1906.6; the index first surpassed this value on 2003-8-13. Thus, cumulative total return (that is, including dividends) was negative over a period of slightly-over sixteen years.

It seems clear that Floaters are used, wittingly or otherwise, as a vehicle for speculation on the policy rate and Canada Prime, while FixedResets are being used as a vehicle for speculation on the five-year Canada rate. In support of this idea, I present an Implied Volatility analysis of the TRP series of FixedResets as of September 30, which is comprised of six issues without a Minimum Rate Guarantee and two issues which do have this feature:

impvol_190930_trp
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The two issues with floors, TRP.PR.J (+469, minimum 5.50%) and TRP.PR.K (+385, minimum 4.90%) are $2.18 and $4.21 rich, respectively. These are marked increases from last month, despite the fact that their floor will not become effective unless five-year Canadas dip below 0.81% and 1.05%, respectively. For all the gloom, we’re still above those levels!

Lest this be considered a fluke, I also show results for the BAM series of FixedResets, which includes three issues with dividend floors: BAM.PF.H (+417, Minimum 5.00%); BAM.PF.I (+386, Minimum 4.80%); and BAM.PF.J (+310, Minimum 4.75%); these issues are all rich compared to their non-floor siblings, being $2.36, $3.52 and $4.76 expensive, respectively.

impvol_190930_bam
Click for Big

Relative performance during the month was not correlated with Issue Reset Spreads for either “Pfd-2 Group” or “Pfd-3 Group” issues:

fr_1moperf_190930
Click for Big

… and results over the quarter were similar (Pfd-3 Group correlation was 28%):

fr_3moperf_190930
Click for Big

As for the future, of course, it’s one thing to say that ‘spreads are unsustainable and so are government yields’ and it’s quite another to forecast just how and when a more economically sustainable environment will take effect. It could be years. There could be a reversal, particularly if Trump’s international trade policies cause a severe recession or even a depression. And, of course, I could be just plain wrong about the sustainability of the current environment.

On the other hand, I will pass on my observation that international interest in the Canadian preferred share market is increasing, as other Floating Rate indices globally are doing much better. Consider, for example the Solactive Australian Bank Senior Floating Rate Bond Index, which “provides exposure to the largest and most liquid floating rate debt securities issued by selected Australian banks. The index is comprised of investment grade floating rate debt securities denominated in AUD and calculated as a Total Return Index” (LINK although the index constituents currently all have a remaining term of less than five years), and the S&P U.S. Floating Rate Preferred Stock Index.

Yields on preferred shares of all stripes are extremely high compared to those available from other investments of similar quality. As I told John Heinzl in an eMail interview in late November, 2018, the best advice I can offer investors remains Shut up and clip your coupons!

I think that a broad, sustainable rally in FixedResets will require higher five-year Canada yields (or a widespread expectation of them) … and although I’m sure this will happen eventually, it would be foolish to speculate on just when it will happen!

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW
Leverage
Divisor
Securities
Average
YTW
Capital
Gains
Multiplier
Sustainable
Income
per
current
Unit
June, 2007 9.3114 5.16% 1.03 5.01% 1.3240 0.3524
September 9.1489 5.35% 0.98 5.46% 1.3240 0.3773
December, 2007 9.0070 5.53% 0.942 5.87% 1.3240 0.3993
March, 2008 8.8512 6.17% 1.047 5.89% 1.3240 0.3938
June 8.3419 6.034% 0.952 6.338% 1.3240 $0.3993
September 8.1886 7.108% 0.969 7.335% 1.3240 $0.4537
December, 2008 8.0464 9.24% 1.008 9.166% 1.3240 $0.5571
March 2009 $8.8317 8.60% 0.995 8.802% 1.3240 $0.5872
June 10.9846 7.05% 0.999 7.057% 1.3240 $0.5855
September 12.3462 6.03% 0.998 6.042% 1.3240 $0.5634
December 2009 10.5662 5.74% 0.981 5.851% 1.1141 $0.5549
March 2010 10.2497 6.03% 0.992 6.079% 1.1141 $0.5593
June 10.5770 5.96% 0.996 5.984% 1.1141 $0.5681
September 11.3901 5.43% 0.980 5.540% 1.1141 $0.5664
December 2010 10.7659 5.37% 0.993 5.408% 1.0298 $0.5654
March, 2011 11.0560 6.00% 0.994 5.964% 1.0298 $0.6403
June 11.1194 5.87% 1.018 5.976% 1.0298 $0.6453
September 10.2709 6.10%
Note
1.001 6.106% 1.0298 $0.6090
December, 2011 10.0793 5.63%
Note
1.031 5.805% 1.0000 $0.5851
March, 2012 10.3944 5.13%
Note
0.996 5.109% 1.0000 $0.5310
June 10.2151 5.32%
Note
1.012 5.384% 1.0000 $0.5500
September 10.6703 4.61%
Note
0.997 4.624% 1.0000 $0.4934
December, 2012 10.8307 4.24% 0.989 4.287% 1.0000 $0.4643
March, 2013 10.9033 3.87% 0.996 3.886% 1.0000 $0.4237
June 10.3261 4.81% 0.998 4.80% 1.0000 $0.4957
September 10.0296 5.62% 0.996 5.643% 1.0000 $0.5660
December, 2013 9.8717 6.02% 1.008 5.972% 1.0000 $0.5895
March, 2014 10.2233 5.55% 0.998 5.561% 1.0000 $0.5685
June 10.5877 5.09% 0.998 5.100% 1.0000 $0.5395
September 10.4601 5.28% 0.997 5.296% 1.0000 $0.5540
December, 2014 10.5701 4.83% 1.009 4.787% 1.0000 $0.5060
March, 2015 9.9573 4.99% 1.001 4.985% 1.0000 $0.4964
June, 2015 9.4181 5.55% 1.002 5.539% 1.0000 $0.5217
September 7.8140 6.98% 0.999 6.987% 1.0000 $0.5460
December, 2015 8.1379 6.85% 0.997 6.871% 1.0000 $0.5592
March, 2016 7.4416 7.79% 0.998 7.805% 1.0000 $0.5808
June 7.6704 7.67% 1.011 7.587% 1.0000 $0.5819
September 8.0590 7.35% 0.993 7.402% 1.0000 $0.5965
December, 2016 8.5844 7.24% 0.990 7.313% 1.0000 $0.6278
March, 2017 9.3984 6.26% 0.994 6.298% 1.0000 $0.5919
June 9.5313 6.41% 0.998 6.423% 1.0000 $0.6122
September 9.7129 6.56% 0.998 6.573% 1.0000 $0.6384
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September, 2019 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains.
Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00%
The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99
Securities YTW divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings.
The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested.
Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator (definition refined in May, 2011). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

The same reasoning is also applied to FixedResets from these issuers, other than explicitly defined NVCC from banks.

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018
Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. From February to September 2012, yields on these issues have been set to zero. All YLO issues held were sold in October 2012.

These calculations were performed assuming constant contemporary GOC-5 and 3-Month Bill rates, as follows:

Canada Yields Assumed in Calculations
Month-end GOC-5 3-Month Bill
September, 2015 0.78% 0.40%
December, 2015 0.71% 0.46%
March, 2016 0.70% 0.44%
June 0.57% 0.47%
September 0.58% 0.53%
December, 2016 1.16% 0.47%
March, 2017 1.08% 0.55%
June 1.35% 0.69%
September 1.79% 0.97%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September, 2019 1.41% 1.66%

Significant positions were held in NVCC non-compliant regulated FixedReset issues on September 30, 2019; all of these currently have their yields calculated with the presumption that they will be called by the issuers at par prior to 2022-1-31 (banks) or 2030-1-31 (insurers and insurance holding companies) or on a different date (SplitShares, when present in the portfolio) This presents another complication in the calculation of sustainable yield, which also assumes that redemption proceeds will be reinvested at the same rate. It will also be noted that my analysis of likely insurance industry regulation as updated is not given much weight by the market.

I will also note that the sustainable yield calculated above is not directly comparable with any yield calculation currently reported by any other preferred share fund as far as I am aware. The Sustainable Yield depends on:
i) Calculating Yield-to-Worst for each instrument and using this yield for reporting purposes;
ii) Using the contemporary value of Five-Year Canadas to estimate dividends after reset for FixedResets. The assumption regarding the five-year Canada rate has become more important as the proportion of low-spread FixedResets in the portfolio has increased.
iii) Making the assumption that deeply discounted NVCC non-compliant issues from both banks and insurers, both Straight and FixedResets will be redeemed at par on their DeemedMaturity date as discussed above.