July 13, 2017

July 13th, 2017

Yesterday’s BoC policy rate hike continues to cause turmoil for Canadian bonds:

Canadian government bonds extended their slump, pushing two-year yields to the highest since 2013, the day after the Bank of Canada raised interest rates for the first time in seven years and signaled more tightening may be ahead.

Yields rose across maturities. The Canadian dollar was little changed near a one-year high rallying 1.3 percent Wednesday.

While the decision to boost rates was expected by a majority of economists surveyed by Bloomberg, investors were surprised by the Bank of Canada’s effort to downplay weak inflation and signal that the economy’s output gap will close earlier than previously forecast.

There’s a 74 percent probability that policy makers led by Governor Stephen Poloz will increase rates again this year, according to overnight index swaps data compiled by Bloomberg, which would reverse the two cuts the central bank carried out in early 2015 to counter the effects of falling oil prices. There’s also a 26 percent chance of two additional hikes this year.

Yields fell back a bit as the day wore on – the Canada five-year closed at 1.53%.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 2.4868 % 2,395.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 2.4868 % 4,395.8
Floater 3.61 % 3.63 % 96,213 18.24 3 2.4868 % 2,533.3
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1251 % 3,064.9
SplitShare 4.70 % 4.38 % 57,688 1.43 5 -0.1251 % 3,660.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1251 % 2,855.8
Perpetual-Premium 5.37 % 4.68 % 69,953 5.94 21 -0.1391 % 2,779.2
Perpetual-Discount 5.29 % 5.26 % 91,660 15.04 15 -0.6672 % 2,920.3
FixedReset 4.33 % 4.29 % 187,159 6.42 97 -0.0026 % 2,399.4
Deemed-Retractible 5.05 % 5.38 % 116,870 6.17 30 -0.3317 % 2,863.0
FloatingReset 2.64 % 2.94 % 45,949 4.30 10 0.1448 % 2,626.9
Performance Highlights
Issue Index Change Notes
MFC.PR.H FixedReset -1.51 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.76
Bid-YTW : 4.82 %
VNR.PR.A FixedReset -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 21.57
Evaluated at bid price : 21.91
Bid-YTW : 4.88 %
HSE.PR.G FixedReset -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 23.11
Evaluated at bid price : 24.30
Bid-YTW : 5.03 %
GWO.PR.G Deemed-Retractible -1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.63
Bid-YTW : 5.51 %
CU.PR.D Perpetual-Discount -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 23.57
Evaluated at bid price : 23.84
Bid-YTW : 5.19 %
BAM.PF.D Perpetual-Discount -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 22.12
Evaluated at bid price : 22.37
Bid-YTW : 5.51 %
GWO.PR.I Deemed-Retractible -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.93
Bid-YTW : 6.66 %
HSE.PR.A FixedReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 16.48
Evaluated at bid price : 16.48
Bid-YTW : 4.62 %
MFC.PR.J FixedReset 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.85
Bid-YTW : 4.86 %
MFC.PR.K FixedReset 1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.70
Bid-YTW : 5.96 %
SLF.PR.J FloatingReset 1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.85
Bid-YTW : 7.97 %
IAG.PR.G FixedReset 1.96 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.40
Bid-YTW : 5.02 %
BAM.PR.K Floater 2.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 14.30
Evaluated at bid price : 14.30
Bid-YTW : 3.63 %
BAM.PR.C Floater 2.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 14.26
Evaluated at bid price : 14.26
Bid-YTW : 3.64 %
BAM.PR.B Floater 2.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 14.30
Evaluated at bid price : 14.30
Bid-YTW : 3.63 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.R FixedReset 150,468 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.07
Bid-YTW : 4.48 %
RY.PR.R FixedReset 117,837 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.92
Bid-YTW : 3.69 %
TD.PF.C FixedReset 109,792 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 21.41
Evaluated at bid price : 21.75
Bid-YTW : 4.25 %
CU.PR.C FixedReset 108,000 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 21.95
Evaluated at bid price : 22.45
Bid-YTW : 4.31 %
BMO.PR.C FixedReset 92,900 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.65
Bid-YTW : 4.28 %
RY.PR.Q FixedReset 64,796 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-24
Maturity Price : 25.00
Evaluated at bid price : 26.85
Bid-YTW : 3.66 %
There were 35 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
HSE.PR.G FixedReset Quote: 24.30 – 24.65
Spot Rate : 0.3500
Average : 0.2392

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 23.11
Evaluated at bid price : 24.30
Bid-YTW : 5.03 %

MFC.PR.H FixedReset Quote: 24.76 – 25.14
Spot Rate : 0.3800
Average : 0.2701

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.76
Bid-YTW : 4.82 %

PVS.PR.B SplitShare Quote: 25.22 – 25.50
Spot Rate : 0.2800
Average : 0.1707

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 25.22
Bid-YTW : 4.06 %

NA.PR.W FixedReset Quote: 21.58 – 21.91
Spot Rate : 0.3300
Average : 0.2209

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 21.29
Evaluated at bid price : 21.58
Bid-YTW : 4.30 %

VNR.PR.A FixedReset Quote: 21.91 – 22.31
Spot Rate : 0.4000
Average : 0.2971

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 21.57
Evaluated at bid price : 21.91
Bid-YTW : 4.88 %

HSE.PR.A FixedReset Quote: 16.48 – 16.75
Spot Rate : 0.2700
Average : 0.1809

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-13
Maturity Price : 16.48
Evaluated at bid price : 16.48
Bid-YTW : 4.62 %

July 12, 2017

July 12th, 2017

The big news of the day was the Canadian policy rate hike, but Yellen’s remarks were also important:

Federal Reserve Chair Janet Yellen said the U.S. economy should continue to expand over the next few years, allowing the central bank to keep raising interest rates, while also stressing a gradual approach to tightening as the Fed monitors too-low inflation.

“Considerable uncertainty always attends the economic outlook,” Yellen said Wednesday in remarks delivered to the U.S House Financial Services Committee. “There is, for example, uncertainty about when — and how much — inflation will respond to tightening resource utilization.”

On monetary policy, Yellen didn’t diverge far from the comments she made at a press conference after the June policy meeting. She sounded slightly more cautious on the inflation outlook, while sticking to an expectation for continued rate hikes and maintaining the initiative to begin reducing the Fed’s balance sheet “relatively soon.”

PerpetualDiscounts now yield 5.24%, equivalent to 6.81% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little under 3.85%, so the pre-tax interest-equivalent spread is now 300bp, a slight (and perhaps spurious) widening from the 295bp reported July 12.

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 1.5295 % 2,337.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.5295 % 4,289.1
Floater 3.39 % 3.41 % 93,439 18.75 3 1.5295 % 2,471.8
OpRet 0.00 % 0.00 % 0 0.00 0 0.0547 % 3,068.8
SplitShare 4.69 % 4.26 % 57,788 1.44 5 0.0547 % 3,664.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0547 % 2,859.4
Perpetual-Premium 5.36 % 4.69 % 70,614 5.90 21 0.0489 % 2,783.0
Perpetual-Discount 5.26 % 5.24 % 89,733 15.10 15 -0.0086 % 2,939.9
FixedReset 4.33 % 4.29 % 182,766 6.42 97 0.2283 % 2,399.5
Deemed-Retractible 5.04 % 5.30 % 115,578 6.17 30 0.0895 % 2,872.5
FloatingReset 2.64 % 3.02 % 47,826 4.30 10 0.4728 % 2,623.1
Performance Highlights
Issue Index Change Notes
MFC.PR.H FixedReset 1.05 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.14
Bid-YTW : 4.55 %
BAM.PR.B Floater 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 13.90
Evaluated at bid price : 13.90
Bid-YTW : 3.42 %
IFC.PR.A FixedReset 1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.67
Bid-YTW : 7.00 %
TRP.PR.F FloatingReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 20.09
Evaluated at bid price : 20.09
Bid-YTW : 3.30 %
TRP.PR.E FixedReset 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 22.59
Evaluated at bid price : 23.09
Bid-YTW : 4.15 %
BAM.PR.K Floater 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 13.99
Evaluated at bid price : 13.99
Bid-YTW : 3.40 %
BAM.PR.C Floater 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 13.93
Evaluated at bid price : 13.93
Bid-YTW : 3.41 %
TRP.PR.C FixedReset 1.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 17.06
Evaluated at bid price : 17.06
Bid-YTW : 4.21 %
HSE.PR.A FixedReset 2.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 16.65
Evaluated at bid price : 16.65
Bid-YTW : 4.58 %
PWF.PR.P FixedReset 2.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 17.10
Evaluated at bid price : 17.10
Bid-YTW : 4.28 %
TRP.PR.H FloatingReset 3.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 15.37
Evaluated at bid price : 15.37
Bid-YTW : 3.27 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.R FixedReset 348,960 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.14
Bid-YTW : 4.42 %
BMO.PR.D FixedReset 288,726 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-08-25
Maturity Price : 25.00
Evaluated at bid price : 25.02
Bid-YTW : 4.44 %
RY.PR.I FixedReset 157,300 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.74
Bid-YTW : 3.81 %
TRP.PR.A FixedReset 103,575 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 20.11
Evaluated at bid price : 20.11
Bid-YTW : 4.21 %
BAM.PR.K Floater 98,400 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 13.99
Evaluated at bid price : 13.99
Bid-YTW : 3.40 %
CU.PR.C FixedReset 91,600 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 21.99
Evaluated at bid price : 22.52
Bid-YTW : 4.30 %
There were 33 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.G FixedReset Quote: 24.29 – 24.75
Spot Rate : 0.4600
Average : 0.3090

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-12
Maturity Price : 23.05
Evaluated at bid price : 24.29
Bid-YTW : 4.40 %

MFC.PR.M FixedReset Quote: 22.02 – 22.39
Spot Rate : 0.3700
Average : 0.2602

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.02
Bid-YTW : 5.89 %

MFC.PR.F FixedReset Quote: 17.00 – 17.30
Spot Rate : 0.3000
Average : 0.2208

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.00
Bid-YTW : 8.31 %

IFC.PR.C FixedReset Quote: 22.56 – 22.80
Spot Rate : 0.2400
Average : 0.1624

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.56
Bid-YTW : 5.28 %

IAG.PR.G FixedReset Quote: 22.95 – 23.23
Spot Rate : 0.2800
Average : 0.2026

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.95
Bid-YTW : 5.33 %

EIT.PR.A SplitShare Quote: 25.69 – 26.20
Spot Rate : 0.5100
Average : 0.4345

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2024-03-14
Maturity Price : 25.00
Evaluated at bid price : 25.69
Bid-YTW : 4.41 %

BBD.PR.B / BBD.PR.D : Convert or Hold?

July 12th, 2017

On June 16, Bombardier announced (emphasis added):

In connection with the conversion privilege for holders of its Series 2 and Series 3 Preferred Shares, Bombardier Inc. (TSX: BBD.B) (TSX: BBD.A) (TSX: BBD.PR.B) (TSX:BBD.PR.D) today announced the basis for resetting the dividend rate on its Series 3 Preferred Shares in accordance with the terms applicable to those shares.

Holders of Bombardier Inc. Series 2 Preferred Shares have the right to convert all or part of their shares, effective on August 1, 2017, on a one for one basis into Series 3 Preferred Shares. Holders of Bombardier Inc. Series 3 Preferred Shares have the right to convert all or part of their shares, effective on August 1, 2017, on a one for one basis into Series 2 Preferred Shares. Holders who do not convert their shares will retain their Series 2 Preferred Shares or Series 3 Preferred Shares, as the case may be, unless automatically converted in accordance with the terms of the Series 2 or Series 3 Preferred Shares, as described below.

In the case of the Series 2 Preferred Shares, starting as of August 1, 2017, holders will continue to receive a monthly floating adjustable cash dividend, as and when declared by the Board of Directors of Bombardier Inc., based on a dividend rate equal to a percentage of the prime rate, subject to certain adjustments in accordance with the terms of such shares.

In the case of the Series 3 Preferred Shares, starting as of August 1, 2017, holders will receive a quarterly fixed cash dividend for the following five years, as and when declared by the Board of Directors of Bombardier Inc., based on a fixed rate equal to 265% of the yield on five-year non-callable Government of Canada bonds determined as at July 11, 2017, in accordance with the terms of such shares. The annual dividend rate applicable to the Series 3 Preferred Shares will be published on July 12, 2017 in select newspapers.

Any registered shareholder who wishes to convert his or her Series 2 and/ or Series 3 Preferred Shares must complete and sign the conversion panel contained on the back of the Series 2 or Series 3 Preferred Share certificate as the case may be, and deliver it, at the latest by 5:00 p.m. (Montréal time) on July 18, 2017, to Computershare Investor Services Inc.

Shareholders who are beneficial owners and who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and follow their instructions. In that case, it is important that they follow such instructions and act in the timeframe advised so as to provide enough time to their broker or other nominee to meet the July 18, 2017 deadline.

If, after July 18, 2017, Bombardier Inc. determines that there would be less than one million Series 2 Preferred Shares outstanding after the conversion date (being August 1, 2017), then all remaining Series 2 Preferred Shares will automatically be converted into Series 3 Preferred Shares on a one-for-one basis. However, if, after July 18, 2017, Bombardier Inc. determines that there would be less than one million Series 3 Preferred Shares outstanding after the conversion date (being August 1, 2017), then all remaining Series 3 Preferred Shares will automatically be converted into Series 2 Preferred Shares on a one-for-one basis. In either case, Bombardier Inc. shall give a written notice to that effect to holders of such remaining shares no later than July 25, 2017.

Subject to the conditions mentioned in the previous paragraph, on August 1, 2017, and every five years thereafter, holders of Series 2 Preferred Shares and holders of Series 3 Preferred Shares will have again the right to convert their shares into shares of the other series.

The Series 2 and Series 3 Preferred Shares are listed on the Toronto Stock Exchange under the ticker symbol BBD.PR.B and BBD.PR.D, respectively.

In my terminology, BBD.PR.B is a Ratchet Rate preferred, currently paying 100% of Prime, reset quarterly. BBD.PR.D is a FixedFloater currently paying $0.7835 p.a., or 3.134% of its $25 par value. The latter rate resets every Exchange Date; the next exchange date is imminent – 2017-8-1. Both issues have been relegated to the Scraps subindex since inception on credit concerns.

The company has further announced (emphasis added):

that as of August 1, 2017, its Series 3 Preferred Shares will pay, on a quarterly basis, as and when declared by the Board of Directors of Bombardier Inc., cash dividends for the following five years that will be based on a fixed rate equal to the product of (a) the average of the yield to maturity, designated on July 11, 2017 by National Bank Financial Inc. and Scotia Capital Inc., that would be carried by a Government of Canada bond with a five-year maturity, namely 1.503%, multiplied by (b) 265%, which multiplier was previously announced on June 16, 2017.

Accordingly, the annual dividend rate applicable to the Series 3 Preferred Shares for the period of five years beginning on August 1, 2017 will be 3.983%.

As a reminder, any registered shareholder who wishes to convert his or her Series 2 and/ or Series 3 Preferred Shares must complete and sign the conversion panel contained on the back of the Series 2 or Series 3 Preferred Share certificate as the case may be, and deliver it, at the latest by 5:00 p.m. (Montréal time) on July 18, 2017, to Computershare Investor Services Inc. Likewise, shareholders who are beneficial owners and who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and follow their instructions. In that case, it is important that they follow such instructions and act in the timeframe advised so as to provide enough time to their broker or other nominee to meet the July 18, 2017 deadline.

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., BBD.PR.D and BBD.PR.B). 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 FixedFloater / RatchetRate Strong Pair graphically by plotting the implied average Prime rate against the next Exchange Date (which is the date to which the average will be calculated).

pairs_ff_170712
Click for Big

Recent tumult in the market resulting from the Bank of Canada’s hawkish signals (commencing on June 12, reinforced June 13 and piled on with a shovel on June 28) and the execution of a 25bp policy hike today has resulted in fine performance of RatchetRate preferreds, to the point where the average break-even Prime rate is now roughly 4.00% for issues with Exchange Dates in 2020 and afterwards.

Predictions are difficult, particularly when they are about the future! It will be remembered that Prime is currently at 2.95%; therefore, if we assume that future hikes are evenly sized and spaced, an average of 4.00% implies an end-value in five years of about 5.00%. I’m inclined to believe that it will turn out to be less than that, but if you disagree I won’t put up much of an argument!

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 BBD.PR.D FixedFloater, we may construct the following table showing consistent prices for its soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of BBD.PR.B (received in exchange for BBD.PR.D) Trading Price In Current Conditions
  Assumed RatchetRate
Price if Implied Prime
is equal to
FixedFloater Bid Price Fixed Rate +3.50% 4.00% 4.50%
BBD.PR.D 9.88 3.983% 9.47 9.89 10.31

Based on current market conditions, I suggest that the BBD.PR.B will likely commence trading at close to the price of BBD.PR.D, its FixedFloater counterpart. Therefore, I make no recommendation regarding conversion into either one or the other. Those with strong convictions regarding future movements in Prime will, of course, have an equally strong preference for one of the two issues; other investors may wish to select which of the pair they wish to hold for the next five years based on their personal circumstances (e.g., if you’re hedging a prime-linked mortgage with this issue [not a wise move], you will want to hold BBD.PR.B).

I will note that the credit quality of these issues is lousy: S&P downgraded them to P-5(low) in 2016 and DBRS downgraded to Pfd-4(low) and discontinued coverage in 2013. With these issues, you’re making such a large bet on the future credit quality of the company that details regarding the next five years of dividends are a mere bagatelle.

BoC Hikes Overnight Rate 25bp; Prime Follows

July 12th, 2017

The Bank of Canada has announced:

The Bank of Canada is raising its target for the overnight rate to 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent. Recent data have bolstered the Bank’s confidence in its outlook for above-potential growth and the absorption of excess capacity in the economy. The Bank acknowledges recent softness in inflation but judges this to be temporary. Recognizing the lag between monetary policy actions and future inflation, Governing Council considers it appropriate to raise its overnight rate target at this time.

The Bank estimates real GDP growth will moderate further over the projection horizon, from 2.8 per cent in 2017 to 2.0 per cent in 2018 and 1.6 per cent in 2019. The output gap is now projected to close around the end of 2017, earlier than the Bank anticipated in its April Monetary Policy Report (MPR).

CPI inflation has eased in recent months and the Bank’s three measures of core inflation all remain below 2 per cent. The factors behind soft inflation appear to be mostly temporary, including heightened food price competition, electricity rebates in Ontario, and changes in automobile pricing. As the effects of these relative price movements fade and excess capacity is absorbed, the Bank expects inflation to return to close to 2 per cent by the middle of 2018. The Bank will continue to analyze short-term inflation fluctuations to determine the extent to which it remains appropriate to look through them.

Governing Council judges that the current outlook warrants today’s withdrawal of some of the monetary policy stimulus in the economy. Future adjustments to the target for the overnight rate will be guided by incoming data as they inform the Bank’s inflation outlook, keeping in mind continued uncertainty and financial system vulnerabilities.

As usual there are no details of how the voting went or any capsule description of the rationale for such dissent, as is routinely provided by professionally managed central banks such as the US Federal Reserve. It’s a pity that members of the grandiosely named Governing Council are so insecure!

As noted by Tim Shufelt and James Bradshaw in the Globe, the corresponding cut in 2015 resulted in a Prime decrease of only 15bp; this was reported on PrefBlog. Sadly, we do not know what has been done with the banks’ top secret internal primes or the spreads to Prime that the average customer might see on his renewal notice.

Details are:

July 11, 2017

July 11th, 2017

Solactive, purveyor of the index upon which ZPR is based, is opening a Toronto office:

Award-winning Solactive is delighted to announce three new key appointments to its management team and the establishment of the first overseas office in Toronto, in addition to the main location in Frankfurt. The new hires include Bernd Henseler as Head of Americas, Stephen Chew as Head of Platform Management and Timo Pfeiffer as Head of Research & Business Development.

These additions come at a time of significant growth for the German index engineer. The past year has indeed been marked by the win of multiple awards and the launch of indices in various categories bringing the number of ETFs linked to its indices up to 250. Now Solactive is ready for the next big step as part of its plans of international expansion, starting with a first branch office in Canada.

Bernd Henseler has joined Solactive in May 2017 as the Head of Americas with the mandate of overseeing the establishment of the first overseas office in Toronto. This strategic move will allow the company to be closer to its North American customers and easily respond to the growing demand in the region. In this new role, Bernd brings with him many years of experience in the indexing industry as a former Vice President Global Head Channel Management Structured Products at S&P Dow Jones Indices.

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 -0.8426 % 2,302.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.8426 % 4,224.5
Floater 3.44 % 3.45 % 86,297 18.65 3 -0.8426 % 2,434.6
OpRet 0.00 % 0.00 % 0 0.00 0 0.0391 % 3,067.1
SplitShare 4.69 % 4.27 % 58,566 1.44 5 0.0391 % 3,662.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0391 % 2,857.8
Perpetual-Premium 5.36 % 4.73 % 71,275 2.55 21 -0.0845 % 2,781.7
Perpetual-Discount 5.25 % 5.25 % 92,856 15.09 15 -0.3753 % 2,940.2
FixedReset 4.34 % 4.30 % 184,532 6.42 97 0.2524 % 2,394.0
Deemed-Retractible 5.04 % 5.33 % 117,550 6.17 30 -0.2323 % 2,869.9
FloatingReset 2.66 % 3.04 % 48,583 4.30 10 0.3055 % 2,610.7
Performance Highlights
Issue Index Change Notes
BAM.PR.C Floater -1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-11
Maturity Price : 13.69
Evaluated at bid price : 13.69
Bid-YTW : 3.47 %
BAM.PR.X FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-11
Maturity Price : 17.44
Evaluated at bid price : 17.44
Bid-YTW : 4.51 %
HSE.PR.G FixedReset 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-11
Maturity Price : 23.17
Evaluated at bid price : 24.44
Bid-YTW : 4.99 %
TRP.PR.E FixedReset 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-11
Maturity Price : 22.41
Evaluated at bid price : 22.82
Bid-YTW : 4.21 %
TRP.PR.F FloatingReset 1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-11
Maturity Price : 19.86
Evaluated at bid price : 19.86
Bid-YTW : 3.34 %
TRP.PR.H FloatingReset 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-11
Maturity Price : 14.80
Evaluated at bid price : 14.80
Bid-YTW : 3.40 %
SLF.PR.H FixedReset 1.66 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.86
Bid-YTW : 5.95 %
TRP.PR.B FixedReset 1.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-11
Maturity Price : 15.59
Evaluated at bid price : 15.59
Bid-YTW : 4.28 %
TRP.PR.C FixedReset 2.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-11
Maturity Price : 16.74
Evaluated at bid price : 16.74
Bid-YTW : 4.29 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.R FixedReset 187,338 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.09
Bid-YTW : 4.46 %
BAM.PF.G FixedReset 125,770 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-11
Maturity Price : 23.03
Evaluated at bid price : 24.11
Bid-YTW : 4.45 %
NA.PR.C FixedReset 99,357 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-11-15
Maturity Price : 25.00
Evaluated at bid price : 25.07
Bid-YTW : 4.49 %
RY.PR.C Deemed-Retractible 89,900 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-08-10
Maturity Price : 25.00
Evaluated at bid price : 25.28
Bid-YTW : -1.65 %
RY.PR.B Deemed-Retractible 77,065 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-08-10
Maturity Price : 25.00
Evaluated at bid price : 25.33
Bid-YTW : -3.77 %
TRP.PR.D FixedReset 65,090 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-11
Maturity Price : 22.19
Evaluated at bid price : 22.51
Bid-YTW : 4.27 %
There were 32 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
EIT.PR.A SplitShare Quote: 25.69 – 26.20
Spot Rate : 0.5100
Average : 0.3518

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2024-03-14
Maturity Price : 25.00
Evaluated at bid price : 25.69
Bid-YTW : 4.40 %

BAM.PF.H FixedReset Quote: 26.05 – 26.39
Spot Rate : 0.3400
Average : 0.2151

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 3.77 %

GWO.PR.N FixedReset Quote: 17.15 – 17.48
Spot Rate : 0.3300
Average : 0.2111

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.15
Bid-YTW : 8.12 %

GWO.PR.I Deemed-Retractible Quote: 22.00 – 22.34
Spot Rate : 0.3400
Average : 0.2265

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 6.60 %

BAM.PR.C Floater Quote: 13.69 – 13.97
Spot Rate : 0.2800
Average : 0.1855

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-11
Maturity Price : 13.69
Evaluated at bid price : 13.69
Bid-YTW : 3.47 %

PWF.PR.P FixedReset Quote: 16.71 – 17.05
Spot Rate : 0.3400
Average : 0.2538

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-11
Maturity Price : 16.71
Evaluated at bid price : 16.71
Bid-YTW : 4.38 %

July 10, 2017

July 10th, 2017
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 0.7519 % 2,321.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.7519 % 4,260.4
Floater 3.41 % 3.43 % 86,443 18.71 3 0.7519 % 2,455.3
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1250 % 3,065.9
SplitShare 4.69 % 4.29 % 59,453 1.44 5 -0.1250 % 3,661.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1250 % 2,856.7
Perpetual-Premium 5.36 % 4.50 % 72,374 0.09 21 -0.0713 % 2,784.0
Perpetual-Discount 5.24 % 5.19 % 86,010 15.13 15 -0.3312 % 2,951.3
FixedReset 4.35 % 4.32 % 189,090 6.42 97 0.0018 % 2,388.0
Deemed-Retractible 5.03 % 5.27 % 117,759 6.18 30 -0.2591 % 2,876.6
FloatingReset 2.66 % 3.07 % 48,856 4.31 10 0.2056 % 2,602.8
Performance Highlights
Issue Index Change Notes
CCS.PR.C Deemed-Retractible -2.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.50
Bid-YTW : 6.06 %
MFC.PR.H FixedReset -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.77
Bid-YTW : 4.80 %
TRP.PR.C FixedReset 1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-10
Maturity Price : 16.40
Evaluated at bid price : 16.40
Bid-YTW : 4.38 %
TD.PF.D FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-10
Maturity Price : 22.87
Evaluated at bid price : 23.80
Bid-YTW : 4.30 %
BAM.PF.I FixedReset 1.17 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 26.05
Bid-YTW : 3.87 %
TD.PF.H FixedReset 1.17 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.78 %
SLF.PR.J FloatingReset 1.49 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.35
Bid-YTW : 8.42 %
TRP.PR.A FixedReset 1.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-10
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 4.28 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.C Deemed-Retractible 172,162 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-08-09
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : -0.85 %
TRP.PR.C FixedReset 71,678 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-10
Maturity Price : 16.40
Evaluated at bid price : 16.40
Bid-YTW : 4.38 %
TRP.PR.B FixedReset 70,200 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-10
Maturity Price : 15.30
Evaluated at bid price : 15.30
Bid-YTW : 4.36 %
TRP.PR.A FixedReset 65,411 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-10
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 4.28 %
BAM.PR.C Floater 53,781 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-10
Maturity Price : 13.90
Evaluated at bid price : 13.90
Bid-YTW : 3.42 %
BNS.PR.H FixedReset 52,100 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-01-26
Maturity Price : 25.00
Evaluated at bid price : 26.11
Bid-YTW : 3.75 %
There were 19 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
NA.PR.W FixedReset Quote: 21.40 – 21.95
Spot Rate : 0.5500
Average : 0.3321

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-10
Maturity Price : 21.40
Evaluated at bid price : 21.40
Bid-YTW : 4.36 %

PWF.PR.E Perpetual-Premium Quote: 25.19 – 25.71
Spot Rate : 0.5200
Average : 0.3094

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-08-09
Maturity Price : 25.00
Evaluated at bid price : 25.19
Bid-YTW : -7.43 %

CCS.PR.C Deemed-Retractible Quote: 23.50 – 24.10
Spot Rate : 0.6000
Average : 0.4031

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.50
Bid-YTW : 6.06 %

TRP.PR.H FloatingReset Quote: 14.56 – 15.20
Spot Rate : 0.6400
Average : 0.4864

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-10
Maturity Price : 14.56
Evaluated at bid price : 14.56
Bid-YTW : 3.45 %

TRP.PR.D FixedReset Quote: 22.36 – 22.62
Spot Rate : 0.2600
Average : 0.1695

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-10
Maturity Price : 21.84
Evaluated at bid price : 22.36
Bid-YTW : 4.28 %

NA.PR.A FixedReset Quote: 26.30 – 26.57
Spot Rate : 0.2700
Average : 0.1801

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-15
Maturity Price : 25.00
Evaluated at bid price : 26.30
Bid-YTW : 3.90 %

July 7, 2017

July 7th, 2017

Jobs, jobs, jobs!

U.S. hiring picked up in June while wage gains disappointed yet again, a mix that may continue to be a puzzle for the economy and policy makers, Labor Department figures showed Friday.

Highlights of Employment (June)

•Payrolls rose 222k (est. 178k); April-May revisions added 47k jobs
•Unemployment rate, derived from a separate survey of households, rose to 4.4% (est. 4.3%) from 16-year low of 4.3%
•Average hourly earnings rose by 0.2% m/m (est. 0.3% rise); up 2.5% y/y (est. 2.6%)

… but there are worries about wages:

While payrolls grew by more than analysts forecast and the unemployment rate barely ticked up from a 16-year low, worker pay rose a less-than-expected 2.5 percent in June from a year earlier. Separate figures on labor flows showed a record number of people found employment after joining the workforce, helping push up the participation rate.

The entry of so many people is a sign that the labor market is still absorbing slack, supporting the views of both President Donald Trump — who has talked about the need to get millions of Americans into jobs — and Federal Reserve Chair Janet Yellen, who has mentioned the pool of those who could still find work.

That could help explain part of the puzzle of why hiring has shown sustained strength at the same time that worker pay has been relatively weak. One hope is that a tight labor market will eventually result in an acceleration in wages, but with more people getting into the labor force, that threshold may still be some ways away.

and here in the frozen North:

Canada added more than four times the number of jobs economists had expected in June, capping the best quarter since 2010 and solidifying the view the Bank of Canada will raise interest rates at its meeting next week.

The 45,300 gain was the seventh in a row, taking the jobless rate to 6.5 percent from 6.6 percent, Statistics Canada reported Friday from Ottawa. Economists surveyed by Bloomberg projected a 10,000 job increase, with the highest prediction at 21,400, and no change in the unemployment rate.

Faster employment growth adds to evidence of a broadening economic recovery. Bank of Canada Governor Stephen Poloz has touted the improvement in recent weeks and signaled it may be time to raise interest rates from extraordinarily low levels.

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 -0.3866 % 2,304.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.3866 % 4,228.6
Floater 3.44 % 3.45 % 80,187 18.66 3 -0.3866 % 2,437.0
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0312 % 3,069.7
SplitShare 4.69 % 4.25 % 60,414 1.45 5 -0.0312 % 3,665.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0312 % 2,860.3
Perpetual-Premium 5.35 % 4.30 % 72,745 0.09 21 -0.0056 % 2,786.0
Perpetual-Discount 5.22 % 5.19 % 85,814 15.19 15 -0.4519 % 2,961.1
FixedReset 4.35 % 4.30 % 190,591 6.43 97 0.1592 % 2,387.9
Deemed-Retractible 5.02 % 5.24 % 116,888 6.19 30 -0.1779 % 2,884.1
FloatingReset 2.65 % 3.03 % 49,272 4.32 10 0.1969 % 2,597.4
Performance Highlights
Issue Index Change Notes
IAG.PR.A Deemed-Retractible -1.44 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.52
Bid-YTW : 6.32 %
BAM.PF.C Perpetual-Discount -1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-07
Maturity Price : 21.99
Evaluated at bid price : 22.32
Bid-YTW : 5.46 %
TD.PF.H FixedReset -1.31 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 4.08 %
BAM.PR.N Perpetual-Discount -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-07
Maturity Price : 21.63
Evaluated at bid price : 21.88
Bid-YTW : 5.46 %
MFC.PR.H FixedReset 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.03
Bid-YTW : 4.61 %
IFC.PR.C FixedReset 1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.50
Bid-YTW : 5.31 %
SLF.PR.G FixedReset 1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.31
Bid-YTW : 8.16 %
TRP.PR.B FixedReset 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-07
Maturity Price : 15.20
Evaluated at bid price : 15.20
Bid-YTW : 4.36 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.C Deemed-Retractible 149,990 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-08-06
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : -1.30 %
BAM.PR.R FixedReset 101,670 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-07
Maturity Price : 19.95
Evaluated at bid price : 19.95
Bid-YTW : 4.53 %
BAM.PF.C Perpetual-Discount 94,320 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-07
Maturity Price : 21.99
Evaluated at bid price : 22.32
Bid-YTW : 5.46 %
W.PR.M FixedReset 83,700 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-15
Maturity Price : 25.00
Evaluated at bid price : 26.06
Bid-YTW : 4.11 %
TRP.PR.A FixedReset 74,600 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-07
Maturity Price : 19.45
Evaluated at bid price : 19.45
Bid-YTW : 4.33 %
NA.PR.W FixedReset 71,900 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-07
Maturity Price : 21.45
Evaluated at bid price : 21.45
Bid-YTW : 4.33 %
There were 35 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.A FixedReset Quote: 19.45 – 19.87
Spot Rate : 0.4200
Average : 0.2551

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-07
Maturity Price : 19.45
Evaluated at bid price : 19.45
Bid-YTW : 4.33 %

TD.PF.H FixedReset Quote: 25.70 – 26.09
Spot Rate : 0.3900
Average : 0.2293

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 4.08 %

MFC.PR.L FixedReset Quote: 21.11 – 21.52
Spot Rate : 0.4100
Average : 0.2705

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.11
Bid-YTW : 6.37 %

MFC.PR.I FixedReset Quote: 23.99 – 24.22
Spot Rate : 0.2300
Average : 0.1343

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.99
Bid-YTW : 5.01 %

PWF.PR.T FixedReset Quote: 22.90 – 23.22
Spot Rate : 0.3200
Average : 0.2351

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-07
Maturity Price : 22.51
Evaluated at bid price : 22.90
Bid-YTW : 4.17 %

TRP.PR.E FixedReset Quote: 22.55 – 22.75
Spot Rate : 0.2000
Average : 0.1292

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-07
Maturity Price : 22.22
Evaluated at bid price : 22.55
Bid-YTW : 4.24 %

New Issue: TD FixedReset, 4.50%+301, NVCC

July 6th, 2017

The Toronto-Dominion Bank has announced (on July 5):

a domestic public offering of Non-Cumulative 5-Year Rate Reset Preferred Shares (non-viability contingent capital (NVCC)), Series 16 (the “Series 16 Shares”).

TD has entered into an agreement with a group of underwriters led by TD Securities Inc. to issue, on a bought deal basis, 12 million Series 16 Shares at a price of $25.00 per share to raise gross proceeds of $300 million. TD has also granted the underwriters an option to purchase, on the same terms, up to an additional 2 million Series 16 Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing.

The Series 16 Shares will yield 4.50% annually, with dividends payable quarterly, as and when declared by the Board of Directors of TD, for the initial period ending October 31, 2022. Thereafter, the dividend rate will reset every five years at a level of 3.01% over the then five-year Government of Canada bond yield.

Subject to regulatory approval, on October 31, 2022 and on October 31 every 5 years thereafter, TD may redeem the Series 16 Shares, in whole or in part, at $25.00 per share. Subject to TD’s right of redemption and certain other conditions, holders of the Series 16 Shares will have the right to convert their shares into Non-Cumulative Floating Rate Preferred Shares (NVCC), Series 17 (the “Series 17 Shares”), on October 31, 2022, and on October 31 every five years thereafter. Holders of the Series 17 Shares will be entitled to receive quarterly floating rate dividends, as and when declared by the Board of Directors of TD, equal to the three-month Government of Canada Treasury Bill yield plus 3.01%.

The expected closing date is July 14, 2017. TD will make an application to list the Series 16 Shares as of the closing date on the Toronto Stock Exchange. The net proceeds of the offering will be used for general corporate purposes.

They later announced:

that, in connection with its previously announced domestic public offering of 12 million 4.50% Non-Cumulative 5-Year Rate Reset Preferred Shares (non-viability contingent capital (NVCC)), Series 16 (the “Series 16 Shares”), the underwriters have exercised their option (the “Underwriters’ Option”) to purchase an additional 2 million Series 16 Shares at a price of $25.00 per share. TD will receive additional gross proceeds of $50 million from the exercise of the Underwriters’ Option, increasing the total size of the offering to $350 million. Closing of the Underwriters’ Option is expected to occur concurrently with the closing of the public offering on July 14, 2017.

This issue has much the same problem as most other new issues: it’s expensive – at least, according to Implied Volatility for FixedResets analysis:

impvol_td_170705
Click for Big

The theoretical price of the new issue according to this analysis is 24.30.

July 6, 2017

July 6th, 2017

The BoC has a lot of people convinced there will be a hike next week:

In Canada, there is now an 89 per cent probability of a rate hike next week, marking a radical shift from negligible chances of a rate hike just a month ago.

I’ll go along with that … certainly there has been no back-pedalling by the bank as the market has become progressively more sure that This Is It. But the fat lady hasn’t sung yet … if they stand pat, there will be carnage!

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 3.0627 % 2,313.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 3.0627 % 4,245.0
Floater 3.42 % 3.45 % 76,901 18.67 3 3.0627 % 2,446.4
OpRet 0.00 % 0.00 % 0 0.00 0 0.0313 % 3,070.7
SplitShare 4.69 % 4.25 % 61,274 1.45 5 0.0313 % 3,667.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0313 % 2,861.2
Perpetual-Premium 5.35 % 3.15 % 71,162 0.09 21 -0.0005 % 2,786.2
Perpetual-Discount 5.19 % 5.17 % 87,176 15.23 15 -0.5615 % 2,974.5
FixedReset 4.36 % 4.30 % 189,127 6.43 97 -0.0957 % 2,384.1
Deemed-Retractible 5.01 % 5.22 % 115,547 6.19 30 -0.1039 % 2,889.2
FloatingReset 2.65 % 3.06 % 50,882 4.32 10 0.0999 % 2,592.3
Performance Highlights
Issue Index Change Notes
HSE.PR.G FixedReset -2.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 22.96
Evaluated at bid price : 23.97
Bid-YTW : 5.09 %
BAM.PF.D Perpetual-Discount -2.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 22.61
Evaluated at bid price : 22.95
Bid-YTW : 5.36 %
BAM.PR.M Perpetual-Discount -1.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 21.84
Evaluated at bid price : 22.08
Bid-YTW : 5.40 %
BAM.PR.N Perpetual-Discount -1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 21.87
Evaluated at bid price : 22.11
Bid-YTW : 5.40 %
BAM.PF.C Perpetual-Discount -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 22.31
Evaluated at bid price : 22.62
Bid-YTW : 5.38 %
NA.PR.W FixedReset -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 21.30
Evaluated at bid price : 21.30
Bid-YTW : 4.36 %
BAM.PF.I FixedReset -1.15 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 4.14 %
MFC.PR.L FixedReset -1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.11
Bid-YTW : 6.36 %
TRP.PR.H FloatingReset 1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 3.42 %
BAM.PR.T FixedReset 1.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 20.37
Evaluated at bid price : 20.37
Bid-YTW : 4.54 %
BAM.PR.B Floater 2.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 13.77
Evaluated at bid price : 13.77
Bid-YTW : 3.45 %
BAM.PR.C Floater 3.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 13.77
Evaluated at bid price : 13.77
Bid-YTW : 3.45 %
BAM.PR.K Floater 3.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 13.85
Evaluated at bid price : 13.85
Bid-YTW : 3.43 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.E FixedReset 729,530 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 22.87
Evaluated at bid price : 23.88
Bid-YTW : 4.34 %
CM.PR.R FixedReset 266,887 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.11
Bid-YTW : 4.43 %
TD.PF.B FixedReset 167,773 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 21.39
Evaluated at bid price : 21.71
Bid-YTW : 4.26 %
TD.PF.H FixedReset 111,993 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.04
Bid-YTW : 3.73 %
RY.PR.H FixedReset 111,280 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 21.59
Evaluated at bid price : 22.00
Bid-YTW : 4.25 %
BAM.PR.Z FixedReset 105,860 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 23.31
Evaluated at bid price : 24.08
Bid-YTW : 4.56 %
TRP.PR.E FixedReset 103,600 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 22.13
Evaluated at bid price : 22.42
Bid-YTW : 4.27 %
There were 17 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PR.T FloatingReset Quote: 24.40 – 25.33
Spot Rate : 0.9300
Average : 0.5203

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.40
Bid-YTW : 2.71 %

TD.PF.F Perpetual-Premium Quote: 25.06 – 25.39
Spot Rate : 0.3300
Average : 0.2161

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2024-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.06
Bid-YTW : 4.83 %

BAM.PF.I FixedReset Quote: 25.75 – 26.06
Spot Rate : 0.3100
Average : 0.1975

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 4.14 %

BAM.PF.F FixedReset Quote: 23.95 – 24.25
Spot Rate : 0.3000
Average : 0.1879

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 23.08
Evaluated at bid price : 23.95
Bid-YTW : 4.48 %

HSE.PR.G FixedReset Quote: 23.97 – 24.47
Spot Rate : 0.5000
Average : 0.3911

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-06
Maturity Price : 22.96
Evaluated at bid price : 23.97
Bid-YTW : 5.09 %

EIT.PR.A SplitShare Quote: 25.90 – 26.20
Spot Rate : 0.3000
Average : 0.1916

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2024-03-14
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 4.25 %

July 5, 2017

July 5th, 2017

PerpetualDiscounts now yield 5.16%, equivalent to 6.71% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.75%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 295bp, unchanged from the June 28 report.

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 3.1330 % 2,244.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 3.1330 % 4,118.9
Floater 3.53 % 3.55 % 76,565 18.45 3 3.1330 % 2,373.7
OpRet 0.00 % 0.00 % 0 0.00 0 0.0234 % 3,069.7
SplitShare 4.69 % 4.25 % 56,731 1.46 5 0.0234 % 3,665.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0234 % 2,860.3
Perpetual-Premium 5.32 % 3.48 % 71,239 0.09 21 -0.2068 % 2,786.2
Perpetual-Discount 5.15 % 5.16 % 87,953 15.07 15 -0.1407 % 2,991.3
FixedReset 4.34 % 4.30 % 188,260 6.44 97 0.2874 % 2,386.4
Deemed-Retractible 5.00 % 5.13 % 119,465 6.19 30 -0.0437 % 2,892.2
FloatingReset 2.65 % 3.07 % 49,789 4.30 10 0.0046 % 2,589.7
Performance Highlights
Issue Index Change Notes
IAG.PR.A Deemed-Retractible -1.39 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.66
Bid-YTW : 6.21 %
TD.PF.C FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 21.45
Evaluated at bid price : 21.80
Bid-YTW : 4.28 %
MFC.PR.F FixedReset 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.82
Bid-YTW : 8.44 %
MFC.PR.L FixedReset 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.35
Bid-YTW : 6.18 %
SLF.PR.H FixedReset 1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.47
Bid-YTW : 6.22 %
PWF.PR.P FixedReset 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 4.41 %
VNR.PR.A FixedReset 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 21.79
Evaluated at bid price : 22.23
Bid-YTW : 4.85 %
HSE.PR.C FixedReset 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 22.85
Evaluated at bid price : 23.60
Bid-YTW : 4.81 %
HSE.PR.G FixedReset 1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 23.19
Evaluated at bid price : 24.50
Bid-YTW : 4.96 %
MFC.PR.M FixedReset 1.46 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.18
Bid-YTW : 5.75 %
BAM.PR.R FixedReset 1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 20.06
Evaluated at bid price : 20.06
Bid-YTW : 4.50 %
BAM.PR.K Floater 2.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 13.39
Evaluated at bid price : 13.39
Bid-YTW : 3.55 %
BAM.PR.B Floater 3.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 13.41
Evaluated at bid price : 13.41
Bid-YTW : 3.54 %
BAM.PR.C Floater 3.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 13.36
Evaluated at bid price : 13.36
Bid-YTW : 3.55 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.R FixedReset 400,779 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.07
Bid-YTW : 4.46 %
BMO.PR.D FixedReset 332,505 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-08-25
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 4.46 %
BAM.PR.C Floater 111,800 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 13.36
Evaluated at bid price : 13.36
Bid-YTW : 3.55 %
RY.PR.M FixedReset 81,800 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 22.55
Evaluated at bid price : 23.27
Bid-YTW : 4.27 %
NA.PR.C FixedReset 68,250 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-11-15
Maturity Price : 25.00
Evaluated at bid price : 24.99
Bid-YTW : 4.54 %
TD.PF.H FixedReset 66,237 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 26.37
Bid-YTW : 3.70 %
There were 28 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.J FixedReset Quote: 26.90 – 27.40
Spot Rate : 0.5000
Average : 0.2988

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.90
Bid-YTW : 3.56 %

BAM.PR.T FixedReset Quote: 20.00 – 20.35
Spot Rate : 0.3500
Average : 0.2467

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.63 %

NA.PR.W FixedReset Quote: 21.80 – 22.00
Spot Rate : 0.2000
Average : 0.1303

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 21.45
Evaluated at bid price : 21.80
Bid-YTW : 4.30 %

MFC.PR.H FixedReset Quote: 24.78 – 25.00
Spot Rate : 0.2200
Average : 0.1573

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.78
Bid-YTW : 4.77 %

PWF.PR.P FixedReset Quote: 16.70 – 17.02
Spot Rate : 0.3200
Average : 0.2577

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 4.41 %

TRP.PR.H FloatingReset Quote: 14.34 – 14.85
Spot Rate : 0.5100
Average : 0.4505

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-07-05
Maturity Price : 14.34
Evaluated at bid price : 14.34
Bid-YTW : 3.47 %