May 3, 2018

May 3rd, 2018
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 0.5112 % 2,932.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.5112 % 5,380.4
Floater 3.41 % 3.65 % 96,413 18.18 4 0.5112 % 3,100.7
OpRet 0.00 % 0.00 % 0 0.00 0 0.1033 % 3,150.0
SplitShare 4.61 % 4.83 % 78,640 5.05 5 0.1033 % 3,761.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1033 % 2,935.0
Perpetual-Premium 5.63 % -7.92 % 74,197 0.09 10 -0.0118 % 2,869.2
Perpetual-Discount 5.40 % 5.44 % 66,023 14.76 24 0.0125 % 2,944.9
FixedReset 4.30 % 4.68 % 165,996 4.16 103 0.1528 % 2,529.0
Deemed-Retractible 5.14 % 5.54 % 85,387 5.61 27 0.0296 % 2,939.2
FloatingReset 3.09 % 3.38 % 31,129 3.57 8 0.2014 % 2,772.8
Performance Highlights
Issue Index Change Notes
IFC.PR.A FixedReset -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.70
Bid-YTW : 7.69 %
BAM.PF.F FixedReset 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-03
Maturity Price : 24.40
Evaluated at bid price : 24.72
Bid-YTW : 5.03 %
MFC.PR.K FixedReset 1.33 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.81
Bid-YTW : 6.02 %
CU.PR.I FixedReset 1.41 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-01
Maturity Price : 25.00
Evaluated at bid price : 26.63
Bid-YTW : 2.20 %
BAM.PF.G FixedReset 1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-03
Maturity Price : 23.33
Evaluated at bid price : 24.46
Bid-YTW : 4.99 %
BAM.PR.C Floater 1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-03
Maturity Price : 16.69
Evaluated at bid price : 16.69
Bid-YTW : 3.65 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.D FixedReset 208,000 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-03
Maturity Price : 21.95
Evaluated at bid price : 22.51
Bid-YTW : 4.96 %
IAG.PR.G FixedReset 112,596 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.80
Bid-YTW : 5.15 %
TRP.PR.C FixedReset 108,100 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-03
Maturity Price : 17.28
Evaluated at bid price : 17.28
Bid-YTW : 5.01 %
BMO.PR.B FixedReset 87,490 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.06
Bid-YTW : 3.59 %
BMO.PR.S FixedReset 74,126 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-03
Maturity Price : 22.95
Evaluated at bid price : 23.49
Bid-YTW : 4.68 %
BAM.PF.A FixedReset 53,934 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-03
Maturity Price : 24.26
Evaluated at bid price : 24.88
Bid-YTW : 5.05 %
There were 23 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.Q FloatingReset Quote: 21.23 – 25.00
Spot Rate : 3.7700
Average : 2.9979

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-03
Maturity Price : 21.23
Evaluated at bid price : 21.23
Bid-YTW : 3.31 %

TRP.PR.G FixedReset Quote: 23.70 – 24.20
Spot Rate : 0.5000
Average : 0.3411

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-03
Maturity Price : 22.89
Evaluated at bid price : 23.70
Bid-YTW : 5.18 %

PWF.PR.T FixedReset Quote: 23.81 – 24.10
Spot Rate : 0.2900
Average : 0.1861

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-03
Maturity Price : 23.16
Evaluated at bid price : 23.81
Bid-YTW : 4.68 %

BAM.PF.E FixedReset Quote: 23.52 – 23.86
Spot Rate : 0.3400
Average : 0.2398

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-03
Maturity Price : 23.17
Evaluated at bid price : 23.52
Bid-YTW : 4.96 %

GWO.PR.P Deemed-Retractible Quote: 25.19 – 25.38
Spot Rate : 0.1900
Average : 0.1391

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.19
Bid-YTW : 5.38 %

TRP.PR.C FixedReset Quote: 17.28 – 17.50
Spot Rate : 0.2200
Average : 0.1713

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-03
Maturity Price : 17.28
Evaluated at bid price : 17.28
Bid-YTW : 5.01 %

ENB.PR.F To Reset At 4.689%

May 3rd, 2018

Enbridge Inc. has announced (emphasis added):

that it does not intend to exercise its right to redeem its currently outstanding Cumulative Redeemable Preference Shares, Series F (Series F Shares) (TSX: ENB.PR.F) on June 1, 2018. As a result, subject to certain conditions, the holders of the Series F Shares have the right to convert all or part of their Series F Shares on a one-for-one basis into Cumulative Redeemable Preference Shares, Series G of Enbridge (Series G Shares) on June 1, 2018. Holders who do not exercise their right to convert their Series F Shares into Series G Shares will retain their Series F Shares.

The foregoing conversion right is subject to the conditions that: (i) if Enbridge determines that there would be less than 1,000,000 Series F Shares outstanding after June 1, 2018, then all remaining Series F Shares will automatically be converted into Series G Shares on a one-for-one basis on June 1, 2018; and (ii) alternatively, if Enbridge determines that there would be less than 1,000,000 Series G Shares outstanding after June 1, 2018, no Series F Shares will be converted into Series G Shares. There are currently 20,000,000 Series F Shares outstanding.

With respect to any Series F Shares that remain outstanding after June 1, 2018, holders thereof will be entitled to receive quarterly fixed cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The new annual dividend rate applicable to the Series F Shares for the five-year period commencing on June 1, 2018 to, but excluding, June 1, 2023 will be 4.689 percent, being equal to the five-year Government of Canada bond yield of 2.179 percent determined as of today plus 2.51 percent in accordance with the terms of the Series F Shares.

With respect to any Series G Shares that may be issued on June 1, 2018, holders thereof will be entitled to receive quarterly floating rate cumulative preferential cash dividends, as and when declared by the Board of Directors of Enbridge. The dividend rate applicable to the Series G Shares for the three-month floating rate period commencing on June 1, 2018 to, but excluding, September 1, 2018 will be 0.93764 percent, based on the annual rate on three month Government of Canada treasury bills for the most recent treasury bills auction of 1.21 percent plus 2.51 percent in accordance with the terms of the Series G Shares (the Floating Quarterly Dividend Rate). The Floating Quarterly Dividend Rate will be reset every quarter.

Beneficial holders of Series F Shares who wish to exercise their right of conversion during the conversion period, which runs from May 2, 2018 until 5:00 p.m. (EST) on May 17, 2018, should communicate as soon as possible with their broker or other intermediary for more information. It is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary time to complete the necessary steps. Any notices received after this deadline will not be valid.

ENB.PR.F is a FixedReset, 4.00%+251, that commenced trading 2012-1-18 after being announced 2012-1-9. It is tracked by HIMIPref™ but relegated to the Scraps subindex on credit concerns.

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., ENB.PR.F 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_180502
Click for Big

The market appears to be relatively uninterested in floating rate product; the implied rates until the next interconversion are approximately equal to the current 3-month bill rate and the averages for investment-grade and junk issues reflect this, at +1.21% and +1.08%, 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 ENB.PR.F 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 ENB.PR.F) Trading Price In Current Conditions
  Assumed FloatingReset
Price if Implied Bill
is equal to
FixedReset Bid Price Spread 1.50% 1.00% 0.50%
ENB.PR.F 19.55 251bp 18.89 18.40 17.91

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, it seems likely that I will recommend that holders of ENB.PR.F continue to hold the issue and not to convert, but I will wait until it’s closer to the May 17 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 the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – 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.

MAPF Portfolio Composition: April, 2018

May 2nd, 2018

Turnover eased slightly to about 8% in April.

There is extreme segmentation in the marketplace, with OSFI’s NVCC rule changes in February 2011 having had the effect of splitting the formerly relatively homogeneous Straight Perpetual class of preferreds into three parts:

  • Unaffected Straight Perpetuals
  • DeemedRetractibles explicitly subject to the rules (banks)
  • DeemedRetractibles considered by me, but not (yet!) by the market, to be likely to be explicitly subject to the rules in the future (insurers and insurance holding companies)

This segmentation, and the extreme valuation differences between the segments, has cut down markedly on the opportunities for trading.

To make this more clear, it used to be that there were 70-odd Straight Perpetuals and I was more or less indifferent as to which ones I owned (subject, of course, to issuer concentration concerns and other risk management factors). Thus, if any one of these 70 were to go down in price by – say – $0.25, I would quite often have something in inventory that I’d be willing to swap for it. The segmentation means that I am no longer indifferent; in addition to checking the valuation of a potential buy to other Straights, I also have to check its peer group. This cuts down on the potential for trading.

And, of course, the same segmentation has the same effect on trading opportunities between FixedReset issues.

There is no real hope that this situation will be corrected in the near-term. OSFI has indicated that the long-promised “Draft Definition of Capital” for insurers will not be issued “for public consultation in late 2012 or early 2013”, as they fear that it might encourage speculation in the marketplace. It is not clear why OSFI is so afraid of informed speculation, since the constant speculation in the marketplace is currently less informed than it would be with a little bit of regulatory clarity. While the framework has been updated, the modifications focus on the amount of capital required, not the required characteristics of that capital. However, OSFI has recently indicated that it would support a mechanism similar to the NVCC rule for banks, so we may see some developments as the IAIS deliberations regarding insurance capital continue.

As a result of this delay, I have extended the Deemed Maturity date for insurers and insurance holding companies by three years (to 2025-1-31), in the expectation that when OSFI finally does provide clarity, they will allow the same degree of lead-in time for these companies as they did for banks. This had a major effect on the durations of preferred shares subject to the change but, fortunately, not much on their calculated yields as most of these issues were either trading near par when the change was made or were trading at sufficient premium that a par call was expected on economic grounds. However, with the declines in the market over the past nine months, the expected capital gain on redemption of the insurance-issued DeemedRetractibles has become an important component of the calculated yield.

Due to the footdragging by OSFI, I will be extending the DeemedMaturity date for insurance issues by another few years in the near future.

Sectoral distribution of the MAPF portfolio on April 30 was as follows:

MAPF Sectoral Analysis 2018-04-30
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 10.0% 4.76% 5.16
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 11.7% 5.60% 14.49
Fixed-Reset 60.6% 6.52% 9.35
Deemed-Retractible 8.8% 7.51% 5.64
FloatingReset 0% N/A N/A
Scraps (Various) 9.1% 6.93% 13.12
Cash -0.2% 0.00% 0.00
Total 100% 6.37% 9.57
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
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. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or 2025-1-3 (insurers and insurance holding companies), in addition to the call schedule explicitly defined. See OSFI Does Not Grandfather Extant Tier 1 Capital, CM.PR.D, CM.PR.E, CM.PR.G: NVCC Status Confirmed and the January, February, March and June, 2011, editions of PrefLetter for the rationale behind this analysis.

Note that the estimate for the time this will become effective for insurers and insurance holding companies was extended by three years in April 2013, due to the delays in OSFI’s providing clarity on the issue.

Calculations of resettable instruments are performed assuming a constant GOC-5 rate of 2.11% and a constant 3-Month Bill rate of 1.20%

The “total” reflects the un-leveraged total portfolio (i.e., cash is included in the portfolio calculations and is deemed to have a duration and yield of 0.00.). MAPF will often have relatively large cash balances, both credit and debit, to facilitate trading. Figures presented in the table have been rounded to the indicated precision.

Credit distribution is:

MAPF Credit Analysis 2018-04-30
DBRS Rating Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 35.8%
Pfd-2 32.3%
Pfd-2(low) 23.0%
Pfd-3(high) 3.1%
Pfd-3 2.7%
Pfd-3(low) 2.7%
Pfd-4(high) 0%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0.6%
Pfd-5 0.0%
Cash -0.2%
Totals will not add precisely due to rounding.
The fund holds a position in AZP.PR.C, which is rated P-5(high) by S&P and is unrated by DBRS; it is included in the Pfd-5(high) total.
A position held in INE.PR.A is not rated by DBRS, but has been included as “Pfd-3” in the above table on the basis of its S&P rating of P-3.

Liquidity Distribution is:

MAPF Liquidity Analysis 2018-04-30
Average Daily Trading Weighting
<$50,000 17.5%
$50,000 – $100,000 63.3%
$100,000 – $200,000 16.9%
$200,000 – $300,000 1.2%
>$300,000 1.3%
Cash -0.2%
Totals will not add precisely due to rounding.

MAPF is, of course, Malachite Aggressive Preferred Fund, a “unit trust” managed by Hymas Investment Management Inc. Further information and links to performance, audited financials and subscription information are available the fund’s web page. The fund may be purchased either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited. A “unit trust” is like a regular mutual fund, but is sold by offering memorandum rather than prospectus. This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission). Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.

A similar portfolio composition analysis has been performed on the Claymore Preferred Share ETF (symbol CPD) (and other funds) as of July 31, 2017, and published in the August, 2017, PrefLetter. It is fair to say:

  • MAPF credit quality is much better
  • MAPF liquidity is lower
  • MAPF Yield is higher
  • Weightings
    • MAPF is roughly equally exposed to Straight Perpetuals
      • Much less exposed to PerpetualPremiums
    • Neither portfolio is exposed to Operating Retractibles (there aren’t too many of those any more!)
    • MAPF is more exposed to SplitShares
    • MAPF is less exposed to FixFloat / Floater / Ratchet
    • MAPF is a little higher weighted in FixedResets, but has a greater emphasis on lower-spread issues

May 2, 2018

May 2nd, 2018

The news of the day is the FOMC release:

Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Recent data suggest that growth of household spending moderated from its strong fourth-quarter pace, while business fixed investment continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

The release was considered dovish:

U.S. stocks fell to their lowest in a week and the dollar jumped as investors assessed the Federal Reserve’s signal that it’s in no rush to raise rates even as inflation rises to its target.

The S&P 500 ended near session lows after briefly pushing higher following the central bank’s decision to hold rates steady. Equities tumbled in the final hour of trading as concern mounted that the Fed may let inflation run hot as it gradually tightens. Treasury yields resumed a march to 3 percent and the dollar strengthened versus major peers, adding to equity headwinds.

Central bank officials may have signaled their willingness to allow inflation to exceed their 2 percent goal somewhat by adding a reference to the “symmetric” nature of their target.

“This week’s government data showed inflation moving closer to its 2 percent target. This adjustment is simply an acknowledgment by the Fed that its inflation forecast is, in fact, playing out as predicted,” Robin Anderson, a senior economist at Principal Global Investors, said in an email. “Since inflation was running below 2 percent, this language indicates that the Fed might be willing to let it run a little above 2 percent for a little while.”

The BoC published a Staff Analytical Note by Corey Garriott and Jesse Johal titled Customer Liquidity Provision in Canadian Bond Markets:

This note assesses the provision of bond market liquidity by institutional customers (i.e., pension funds, hedge funds, mutual funds and insurance companies) in Canada. Customer liquidity provision occurs when a dealer, after filling an order from a customer, quickly makes an offsetting trade with an institutional investor.

Customer liquidity on a large scale could have positive and negative effects on bond markets. It can diversify the supply of liquidity beyond a small group of dealers and brokers, thus making bond markets more competitive and robust. However, customer liquidity may be more sensitive to a deterioration in market conditions and thus a less reliable source of liquidity. For example, sudden redemptions at a mutual fund can force the fund to switch from supplying liquidity to demanding it (Arora 2018). In contrast, dealers have a broad set of funding sources and may be more able to provide liquidity for their clients through a range of market conditions.

I don’t quite understand the reasoning behind the assertion “sudden redemptions at a mutual fund can force the fund to switch from supplying liquidity to demanding it”. According to their definition in paragraph 1, liquidity provision is bidirectional, so to a first approximation the opportunities for provision will not be affected – they might even be increased if everybody else is buying! However, it’s reasonable to assume that if one fund is suffering sudden redemptions and selling its holdings then similar conditions and similar effects prevail elsewhere.

Customer-supplied liquidity is uncommon in Canada, averaging between 4 and 9 per cent, depending on the type of bond, and is significantly less common than in the United States (Choi and Huh 2017). Customer liquidity provision is more frequent for less liquid securities such as corporate debt and the debt of provinces with low quantities of debt outstanding (i.e., provinces other than Ontario and Quebec). This is consistent with dealers seeking client liquidity to reduce inventory risk.

boc_chart1_180502
Click for Big

Chart 2 shows the average spreads for trades where liquidity was provided by customers and by dealers. Trades drawing on customer liquidity have higher average spreads than trades that draw solely on dealer liquidity. This contrasts with the US results seen in Choi and Huh (2017), in which trades using customer liquidity have lower average spreads. Our result is surprising because, as Choi and Huh point out, the effective spread for trades with some customer-liquidity supply should be biased downward by the prices of the offsetting trades. Yet, despite the potential bias, we still measure a larger spread for these trades.

Our explanation for this difference is that, in Canada, institutional investors are a discretionary source of liquidity for dealers, who use their customers selectively because customers demand a price concession to supply liquidity. If our explanation is correct, we should observe that the use of customer liquidity eats into dealer revenues and that dealers use customers mainly on days when liquidity is scarce or when volume is high (i.e., days when they are more likely to run into risk constraints).

boc_chart2_180502
Click for Big

It’s not clear to me whether the trades populating “Dealer Supplied” and “Client supplied” are directly comparable. It might be, for instance, that customer-supplied liquidity is tapped only when a highly motivated client desperately needs to execute a trade in something obscure … and only then do the dealers take out their rolodex, because they don’t want a position in that obscure stuff either!

We find the share of customer liquidity is small in Canada. However, data are only available from June 2016 on. Survey evidence suggests that the share of customer liquidity may be rising. Responses to the Survey on Market Liquidity, Transparency, and Market Access (Canadian Fixed-Income Forum 2016) indicate that a sizable minority of customers are supplying liquidity to markets: 30 per cent of buy-side respondents said they have increased their short-term trading to take advantage of short-term price dislocations. An equal number said they use their portfolio to provide liquidity.

In addition, forthcoming regulations may lead to a greater share of client liquidity in Canada. The implementation of the Net Stable Funding Ratio and the Fundamental Review of the Trading Book will likely increase the cost to bank-owned dealers of carrying large inventories of bonds. After other capital and liquidity standards were implemented (e.g., Liquidity Coverage Ratio, Leverage Ratio), banks generally reduced their capital commitment to market-making in the United States (Adrian, Boyarchenko and Shachar 2017; Bessembinder et al. 2017; Schultz 2017; Bao, O’Hara and Zhou 2016), while the volume share of non-bank dealers grew in the same period (Bao, O’Hara and Zhou 2016). Finally, further proliferation of electronic bond trading platforms, together with a broader array of trading protocols, could make it possible for customers to supply liquidity at lower costs.

At times I wish I was back in the bond business. I would dearly love to see whether an asset manager could outperform by aggressively competing with the dealers.

This year’s Projection assumption guidelines have been published:

Among the changes to this year’s projections, projected fixed-income returns have been reduced “to account for the appreciation in historical bond prices that cannot be explained by changes in interest rates,” FPSC and IQPF say in a news release.

The projected guidelines for Canadian equities are 6.4%, below the 6.7% returns projected for other developed market equities and the 7.4% for emerging market equities. The return projection for fixed-income is 3.9%, with short-term returns projected at 2.9%.

Unusually, the report itself mentions our favourite asset class:

The projected fixed-income rate of return can also be applied to preferred share holdings. Please note that this is not an opinion regarding the volatility of preferred shares vs. fixed-income securities and that preferred shares can have different characteristics that can impact their pricing.

Their ballyhooed fixed income return adjustment is explained as:

“Fixed-income investments have experienced significant appreciation in value over the last 50 years. Given the current low rate interest environment, similar appreciation in value is not expected. The 50-year history of fixed-income investments can be adjusted to remove the price appreciation that cannot be reproduced in the future given the current low interest rate environment. Using 10-year bonds as a proxy for the price change of fixed-income investments, one can estimate the price appreciation that fixed-income investments have experienced over the past 50 years.

Interest rates available on 10-year bonds in 2018 are 3.45% lower than those that were available on a 10-year bond in 1968 (2.15% versus 5.60%). Going forward, because the potential magnitude of interest rate decreases on 10-year bonds are less than the decrease that was experienced on similar bonds between 1968 and 2018, the same annual price appreciation (0.289%) that those bonds have experienced over the past 50 years cannot be reproduced over the next 50 years. Similar results are expected for fixed-income investments. As such, the historical average return portion of the calculation used to develop the guideline for fixed-income investments can be reduced by 0.289% per year.”

Well, it’s about time they did something about that!

PerpetualDiscounts now yield 5.43%, equivalent to 7.06% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.00%, so the pre-tax interest equivalent spread (in this context, the “Seniority Spread”) is now about 305bp, unchanged from the 305bp reported April 25.

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 -0.1135 % 2,917.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.1135 % 5,353.0
Floater 3.43 % 3.66 % 91,416 18.13 4 -0.1135 % 3,085.0
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0953 % 3,146.7
SplitShare 4.62 % 4.82 % 79,291 5.05 5 -0.0953 % 3,757.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0953 % 2,932.0
Perpetual-Premium 5.63 % -8.10 % 74,746 0.09 10 -0.0236 % 2,869.5
Perpetual-Discount 5.40 % 5.43 % 66,456 14.75 24 0.2045 % 2,944.5
FixedReset 4.30 % 4.67 % 166,681 4.41 103 0.1416 % 2,525.2
Deemed-Retractible 5.14 % 5.57 % 85,794 5.61 27 0.0500 % 2,938.3
FloatingReset 3.09 % 3.45 % 31,331 3.57 8 0.0922 % 2,767.2
Performance Highlights
Issue Index Change Notes
MFC.PR.K FixedReset -1.62 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.51
Bid-YTW : 6.26 %
BAM.PR.C Floater -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-02
Maturity Price : 16.40
Evaluated at bid price : 16.40
Bid-YTW : 3.71 %
PWF.PR.A Floater 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-02
Maturity Price : 20.92
Evaluated at bid price : 20.92
Bid-YTW : 2.88 %
MFC.PR.N FixedReset 1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.31
Bid-YTW : 5.56 %
IAG.PR.A Deemed-Retractible 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.05
Bid-YTW : 6.93 %
BAM.PF.E FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-02
Maturity Price : 23.15
Evaluated at bid price : 23.50
Bid-YTW : 4.96 %
CU.PR.C FixedReset 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-02
Maturity Price : 21.91
Evaluated at bid price : 22.32
Bid-YTW : 4.82 %
MFC.PR.M FixedReset 2.71 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.47
Bid-YTW : 5.54 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.F FloatingReset 299,338 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-02
Maturity Price : 19.57
Evaluated at bid price : 19.57
Bid-YTW : 4.02 %
CM.PR.S FixedReset 203,975 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-02
Maturity Price : 22.94
Evaluated at bid price : 24.35
Bid-YTW : 4.61 %
RY.PR.R FixedReset 153,700 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.35
Bid-YTW : 3.67 %
SLF.PR.G FixedReset 139,080 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.05
Bid-YTW : 7.75 %
TRP.PR.K FixedReset 132,167 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-31
Maturity Price : 25.00
Evaluated at bid price : 25.94
Bid-YTW : 4.14 %
BNS.PR.D FloatingReset 128,000 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.92
Bid-YTW : 3.45 %
CM.PR.Q FixedReset 102,150 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-07-31
Maturity Price : 25.00
Evaluated at bid price : 24.47
Bid-YTW : 4.63 %
There were 18 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.Q FloatingReset Quote: 21.12 – 25.00
Spot Rate : 3.8800
Average : 2.1514

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-02
Maturity Price : 21.12
Evaluated at bid price : 21.12
Bid-YTW : 3.33 %

MFC.PR.K FixedReset Quote: 22.51 – 23.17
Spot Rate : 0.6600
Average : 0.4656

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.51
Bid-YTW : 6.26 %

SLF.PR.H FixedReset Quote: 21.00 – 21.50
Spot Rate : 0.5000
Average : 0.3084

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.00
Bid-YTW : 6.56 %

GWO.PR.I Deemed-Retractible Quote: 21.31 – 21.74
Spot Rate : 0.4300
Average : 0.2676

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.31
Bid-YTW : 7.43 %

BAM.PF.F FixedReset Quote: 24.40 – 24.80
Spot Rate : 0.4000
Average : 0.2492

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-02
Maturity Price : 24.02
Evaluated at bid price : 24.40
Bid-YTW : 5.09 %

PWF.PR.P FixedReset Quote: 19.43 – 19.78
Spot Rate : 0.3500
Average : 0.2111

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-02
Maturity Price : 19.43
Evaluated at bid price : 19.43
Bid-YTW : 4.52 %

TRP Downgraded to P-2(low) by S&P

May 2nd, 2018

Standard & Poor’s has announced:

  • •We believe that TransCanada Corp. (TCC) will not achieve adjusted funds from operations (AFFO)-to-debt of 18%, a requirement we set for the ‘A-‘ rating.
  • •In addition, the company has an increasing U.S. asset portfolio that will account for 35%-40% of EBITDA by 2020, and that TCC’s credit measures are
    weaker than many lower-rated diversified U.S. peers.
  • •As a result, we are lowering our ratings on TCC and its subsidiary TransCanada PipeLines Ltd., including our long-term corporate credit rating on each to ‘BBB+’ from ‘A-‘.
  • •The stable outlook reflects our view that, over the next two years, AFFO-to-debt will be in the 15%-17% range, and debt-to-EBITDA will be approximately 4.5x.

S&P Global Ratings today lowered its ratings on TransCanada Corp. (TCC) and its subsidiary TransCanada PipeLines
Ltd., including its long-term corporate credit rating on both to ‘BBB+’ from ‘A-‘. The outlook is stable.

At the same time, we lowered our global and Canadian national scale preferred share ratings to ‘BBB-‘ and ‘P-2(Low)’ from ‘BBB’ and ‘P-2’ respectively. We also lowered our ratings on the senior unsecured debt to ‘BBB+’ from ‘A-‘ and
the junior subordinated debt to ‘BBB-‘ from ‘BBB’.

Finally, we affirmed our short term and commercial paper rating at ‘A-2’.

Affected issues are TRP.PR.A, TRP.PR.B, TRP.PR.C, TRP.PR.D, TRP.PR.E, TRP.PR.F, TRP.PR.G, TRP.PR.H, TRP.PR.I, TRP.PR.J and TRP.PR.K.

May 1, 2018

May 1st, 2018

Bank of Canada Governor Stephen Poloz gave a speech today titled Canada’s Economy and Household Debt: How Big Is the Problem?:

But the Bank is also focused on the vulnerability of our economy to rising interest rates, given high household debt. There is little doubt that the economy is more sensitive to higher interest rates today than it was in the past, and that global and domestic interest rates are on the rise.

So, today I want to talk about household debt in Canada—the dynamics that led to its buildup, how big a problem it is for Canadians now, and how we can manage the risks in the years ahead.

In other words, the average Canadian owes about $1.70 for every dollar of income he or she earns per year, after taxes.

That ratio is a Canadian record, and up from about 100 per cent 20 years ago. Although this ratio is on the high side, other economies such as Sweden, Norway and Australia have even more household debt relative to disposable income.

If fiscal policy takes the lead in stimulating the economy, this can result in a buildup of government debt. If monetary policy takes the lead, this brings about a buildup in household debt. In both cases, stimulus leads to a buildup of debt over time, whether public or private. And excessive debt levels create a vulnerability, making the economy less resilient to future shocks.

Canadians, regardless of their age group, are increasingly relying on mortgages. Among people under 35 years old, the percentage of homeowners with a mortgage has edged higher from about 85 per cent in 1999 to 90 per cent in 2016. For people in the 55 to 64 age bracket, the increase was more dramatic—from 34 per cent to 46 per cent. This casts a new light on that 170 per cent debt-to-income ratio I cited before.

about 8 per cent of indebted households owe 350 per cent or more of their gross income, representing a bit more than 20 per cent of total household debt. These are the people who would be most affected by an increase in interest rates. We are closely watching the vulnerability represented by this group and the debt they carry, and how it poses a risk to both the financial system and the economy.

In our Monetary Policy Report (MPR) last month, we published our latest estimate of Canada’s neutral rate, saying it falls in a range between 2.50 and 3.50 per cent, assuming that all shocks affecting the economy have dissipated. At 1.25 per cent, our current policy rate is still well below our estimate of the neutral rate.

At the Bank of Canada, we have been watching these debt levels closely because of the growing risks they pose to financial stability and the economy. We know that a portion of Canadian households are carrying large debts, and the concern will become larger for them as interest rates rise. Of course, higher interest rates would likely reflect an economy that is on even more solid ground and less prone to a major economic setback. Furthermore, our financial system is resilient, and the new mortgage rules mean that it is becoming progressively more so. Even so, our economy is at risk should there be an unexpected increase in bond yields or a global slowdown, because both effects would be magnified by their interaction with high household debt.

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 -0.4800 % 2,920.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.4800 % 5,359.1
Floater 3.43 % 3.66 % 88,300 18.16 4 -0.4800 % 3,088.5
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0555 % 3,149.7
SplitShare 4.61 % 4.83 % 77,029 5.06 5 -0.0555 % 3,761.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0555 % 2,934.8
Perpetual-Premium 5.62 % -9.65 % 76,162 0.09 10 0.0828 % 2,870.2
Perpetual-Discount 5.41 % 5.45 % 67,074 14.74 24 -0.0556 % 2,938.5
FixedReset 4.31 % 4.71 % 169,211 5.70 103 0.4217 % 2,521.6
Deemed-Retractible 5.15 % 5.63 % 86,590 5.62 27 -0.0686 % 2,936.8
FloatingReset 3.10 % 3.42 % 32,631 3.58 8 0.0749 % 2,764.7
Performance Highlights
Issue Index Change Notes
MFC.PR.M FixedReset -1.42 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.85
Bid-YTW : 6.01 %
BAM.PF.G FixedReset 1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 23.16
Evaluated at bid price : 24.09
Bid-YTW : 5.08 %
BAM.PF.B FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 22.95
Evaluated at bid price : 23.53
Bid-YTW : 5.03 %
BAM.PR.R FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 20.28
Evaluated at bid price : 20.28
Bid-YTW : 5.18 %
BMO.PR.Y FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 23.27
Evaluated at bid price : 24.40
Bid-YTW : 4.75 %
GWO.PR.N FixedReset 1.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.83
Bid-YTW : 7.70 %
BAM.PF.E FixedReset 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 22.88
Evaluated at bid price : 23.23
Bid-YTW : 5.02 %
BAM.PR.T FixedReset 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 20.62
Evaluated at bid price : 20.62
Bid-YTW : 5.16 %
BAM.PR.Z FixedReset 1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 23.02
Evaluated at bid price : 24.55
Bid-YTW : 5.03 %
BAM.PF.F FixedReset 1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 24.16
Evaluated at bid price : 24.52
Bid-YTW : 5.07 %
BAM.PR.X FixedReset 1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 18.15
Evaluated at bid price : 18.15
Bid-YTW : 5.06 %
BAM.PF.A FixedReset 1.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 23.66
Evaluated at bid price : 24.43
Bid-YTW : 5.13 %
Volume Highlights
Issue Index Shares
Traded
Notes
NA.PR.A FixedReset 313,090 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-15
Maturity Price : 25.00
Evaluated at bid price : 26.06
Bid-YTW : 3.97 %
RY.PR.R FixedReset 252,100 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-08-24
Maturity Price : 25.00
Evaluated at bid price : 26.37
Bid-YTW : 3.64 %
RY.PR.J FixedReset 242,876 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 23.21
Evaluated at bid price : 24.14
Bid-YTW : 4.83 %
BAM.PF.I FixedReset 169,738 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 26.00
Bid-YTW : 3.82 %
CM.PR.R FixedReset 158,262 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.24
Bid-YTW : 4.18 %
CM.PR.S FixedReset 135,187 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 22.96
Evaluated at bid price : 24.40
Bid-YTW : 4.59 %
BAM.PR.R FixedReset 119,500 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 20.28
Evaluated at bid price : 20.28
Bid-YTW : 5.18 %
TRP.PR.K FixedReset 103,305 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-31
Maturity Price : 25.00
Evaluated at bid price : 25.88
Bid-YTW : 4.20 %
There were 29 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.M FixedReset Quote: 22.85 – 24.25
Spot Rate : 1.4000
Average : 0.8072

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.85
Bid-YTW : 6.01 %

IAG.PR.I FixedReset Quote: 25.26 – 25.95
Spot Rate : 0.6900
Average : 0.4137

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2023-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : 4.78 %

TD.PF.E FixedReset Quote: 24.48 – 24.85
Spot Rate : 0.3700
Average : 0.2348

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-10-31
Maturity Price : 25.00
Evaluated at bid price : 24.48
Bid-YTW : 4.61 %

TRP.PR.H FloatingReset Quote: 16.52 – 16.97
Spot Rate : 0.4500
Average : 0.3258

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 16.52
Evaluated at bid price : 16.52
Bid-YTW : 3.78 %

TRP.PR.B FixedReset Quote: 16.46 – 16.85
Spot Rate : 0.3900
Average : 0.2671

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-05-01
Maturity Price : 16.46
Evaluated at bid price : 16.46
Bid-YTW : 4.98 %

MFC.PR.R FixedReset Quote: 26.19 – 26.50
Spot Rate : 0.3100
Average : 0.2037

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.19
Bid-YTW : 3.70 %

April 30, 2018

April 30th, 2018

Here’s a sign of the times:

Many Wall Street traders are concerned about being replaced by machines in the future, but at one Goldman Sachs Group Inc. unit it’s already happened.

“Equity trading: 15-20 years ago we had 500 people making markets in stocks. Today we have three,” Goldman Sachs President David Solomon said Monday at the Milken Institute Global Conference in Beverly Hills, California.

Solomon said the introduction of more technology into the trading business has made it more efficient for clients, while also introducing new risks. For Goldman Sachs, it has changed the mix of its workforce, as the bank has 9,000 engineers on staff and more employees are focused on regulation.

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 0.3257 % 2,934.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.3257 % 5,384.9
Floater 3.41 % 3.64 % 88,944 18.18 4 0.3257 % 3,103.4
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1189 % 3,151.5
SplitShare 4.61 % 4.76 % 77,388 5.06 5 -0.1189 % 3,763.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1189 % 2,936.4
Perpetual-Premium 5.57 % -1.38 % 77,366 0.09 11 -0.0288 % 2,867.8
Perpetual-Discount 5.41 % 5.43 % 68,080 14.76 24 0.0847 % 2,940.1
FixedReset 4.33 % 4.75 % 165,449 5.72 103 -0.0128 % 2,511.0
Deemed-Retractible 5.15 % 5.67 % 85,764 5.62 28 -0.0903 % 2,938.9
FloatingReset 3.06 % 3.33 % 29,066 3.55 10 0.1126 % 2,762.6
Performance Highlights
Issue Index Change Notes
IAG.PR.A Deemed-Retractible -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.77
Bid-YTW : 7.15 %
GWO.PR.N FixedReset -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.60
Bid-YTW : 7.90 %
TRP.PR.B FixedReset 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-30
Maturity Price : 16.58
Evaluated at bid price : 16.58
Bid-YTW : 4.94 %
Volume Highlights
Issue Index Shares
Traded
Notes
VNR.PR.A FixedReset 76,300 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-30
Maturity Price : 23.01
Evaluated at bid price : 24.46
Bid-YTW : 4.91 %
TRP.PR.A FixedReset 51,800 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-30
Maturity Price : 19.55
Evaluated at bid price : 19.55
Bid-YTW : 5.12 %
BNS.PR.Z FixedReset 38,024 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.31
Bid-YTW : 4.40 %
NA.PR.E FixedReset 35,500 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-30
Maturity Price : 22.98
Evaluated at bid price : 24.50
Bid-YTW : 4.68 %
CM.PR.R FixedReset 26,624 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.12
Bid-YTW : 4.30 %
GWO.PR.M Deemed-Retractible 25,800 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-05-30
Maturity Price : 25.25
Evaluated at bid price : 26.05
Bid-YTW : -25.02 %
There were 17 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.L FixedReset Quote: 22.81 – 23.95
Spot Rate : 1.1400
Average : 0.6643

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.81
Bid-YTW : 5.91 %

MFC.PR.K FixedReset Quote: 22.75 – 23.30
Spot Rate : 0.5500
Average : 0.3978

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.75
Bid-YTW : 6.06 %

PVS.PR.B SplitShare Quote: 25.18 – 25.62
Spot Rate : 0.4400
Average : 0.2955

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 25.18
Bid-YTW : 4.24 %

CCS.PR.C Deemed-Retractible Quote: 23.02 – 23.64
Spot Rate : 0.6200
Average : 0.4973

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.02
Bid-YTW : 6.58 %

MFC.PR.C Deemed-Retractible Quote: 21.00 – 21.26
Spot Rate : 0.2600
Average : 0.1609

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.00
Bid-YTW : 7.72 %

HSE.PR.C FixedReset Quote: 24.40 – 24.64
Spot Rate : 0.2400
Average : 0.1542

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-30
Maturity Price : 24.07
Evaluated at bid price : 24.40
Bid-YTW : 5.34 %

LB Outlook Negative, says S&P

April 30th, 2018

Standard & Poor’s has announced:

  • •On Dec. 5, 2017, Montreal-based Laurentian Bank of Canada disclosed mortgage documentation and client representation issues in connection with mortgages sold to a third-party purchaser, which resulted in some repurchase actions and raised concerns around the rigor of the company’s underwriting procedures and risk control functions.
  • •Since then, the bank has undertaken a sample review of its mortgage portfolio. While the review is still ongoing, company disclosures available so far suggest to us that widespread underwriting lapses or mortgage document falsification issues are unlikely to emerge.
  • •We understand that the documentation issues largely pertain to documentation deficiencies as opposed to intentional client fraud and misrepresentations. We expect the bank’s recent remedial initiatives to enhance its quality control functions and underwriting procedures, and note the company has not recorded any deterioration in loan performance.
  • •We are therefore removing the long- and short-term ratings from CreditWatch negative and affirming them at ‘BBB/A-2’.
  • •The negative outlook primarily reflects LBC’s relatively concentrated position in Canadian residential mortgages and our concern over a potential reduction in the company’s projected risk-adjusted capital ratio.


Our negative outlook, however, incorporates our view that the company continues to be exposed to risks associated with its more concentrated exposure to Canadian residential mortgages relative to peers’, with meaningful exposure to the non-prime segment (approximately 8% of total mortgage loans) at a time when we have concerns around consumer indebtedness (see: “Canada Economic Risk Higher On Elevated House Prices And Household Debt And Mortgage Fraud; No Ratings Affected,” published Feb. 23, 2018, on RatingsDirect). LBC’s total loans, net of allowances, stood at C$36.7 billion as at Jan. 31, 2018, of which C$18.6 billion (or approximately 50.7%) are Canadian residential mortgages (commercial loans make up about 33.5% of the loan book). This concentration in residential mortgages contributes to a meaningfully larger proportion of operating revenues being derived from net interest income (approximately 66.9% in first-quarter 2018) relative to the average of the larger Canadian banks (approximately 51.9% for the same period). LBC’s residential mortgage loans through independent brokers and advisors grew by 19% year-over-year as of first-quarter 2018. We will continue to monitor LBC’s asset quality metrics in a moderating housing market. As well, we note that LBC’s funding and liquidity ratios remain among the weakest of its peer banks, with a customer loans to deposits ratio, stable funding ratio, and broad liquid assets to short-term wholesale funding ratio of 156.4%, 91.82%, and 0.8x, respectively, compared with a peer average of 113.4%, 109.94%, and 1.38x, respectively). However, given the bank’s growth strategy and funding plans, we expect these metrics to improve over time.

In addition, we believe that LBC could experience some changes to its capital planning process as it adopts the advanced internal rating-based (AIRB) approach to credit risk measurement (projected for fiscal 2020), from the current standardized approach. The bank indicated that the implementation of the AIRB approach remains a key initiative of its transformation plan in order to optimize regulatory capital, and because its regulatory ratios are expected to increase (the exact extent is still not known), we believe that capital optimization strategies may negatively affect the risk-adjusted capital (RAC) ratio.

The outlook is negative, largely reflecting our view of LBC’s risks associated with a relatively concentrated position in Canadian residential mortgages consistent with our concerns around elevated house prices, household debt, and mortgage fraud. The negative outlook also reflects a potential reduction in LBC’s projected RAC ratio as a result of its expected transition to the AIRB approach to credit risk measurement, from the current standardized approach, which would likely reduce its regulatory capital requirements.

Affected issues are LB.PR.H and LB.PR.J

April 27, 2018

April 27th, 2018

The Toronto Schlock Exchange provided some entertainment today:

UPDATE 4 – TMX has decided to shut down all markets for the remainder of the day. Trading will not resume today, including market on close. We apologize for the inconvenience. Further updates will be provided.

UPDATE 3 – Please be aware that all TMX markets continue to experience issues. We apologize for the inconvenience. Further updates will be provided.

UPDATE 2 – Please be aware that TMX continues to experience issues on all markets. We apologize for the inconvenience. Further updates will be provided.

I can’t find the original notice or “Update 1” on their site, but they did have notices on Twitter:

UPDATE – All TMX markets, including Montreal Exchange, are experiencing issues with trading, all users are equally impacted and are unable to connect to our Exchanges. We apologize for the inconvenience and continue to investigate. Further updates will be provided.
1 reply 22 retweets 5 likes

Please be aware that TMX equity markets are experiencing issues with trading, all users are equally impacted and are unable to connect to our Exchanges. We apologize for the inconvenience and continue to investigate. Further updates will be provided.

There’s no real explanation been put forward as to why this happened. Maybe somebody unexpectedly traded a marijuana stock. Perhaps they forgot to pay the electric bill. Or maybe – given the season – somebody did spring cleaning:

keep
Click for Big

One way or another, I am advised that the Historical Prices service – where I get the closing quotes – will not be ready for several hours. So I’ll update this post with the statistics tomorrow.

Update, 2018-4-28: The Exchange has released some details. It appears their redundancy wasn’t quite as redundant as one might hope! But don’t worry, Exchange fans! I’m sure they’re still the regulators’ darlings!

TMX Group today provided further details regarding the market interruption that affected trading on Toronto Stock Exchange (TSX), TSX Venture Exchange (TSXV), TSX Alpha Exchange (TSX Alpha) and Montreal Exchange (MX), on Friday, April 27.

The outage, which began at 1:37:25 pm EDT Friday on MX and 1:39:13 pm EDT on TSX, TSXV, and TSX Alpha, was caused by a hardware failure in a central storage appliance of the trading system. This hardware failure impacted both the primary and the redundant components preventing storage failover procedures from engaging. TMX confirms that this incident was not the result of a cybersecurity attack.

TMX began remediation measures Friday afternoon, which included replacing the defective storage module, verifying the integrity of data of all impacted databases and conducting a successful start-up validation of the entire trading enterprise. Given the time of the incident, we could not engage disaster recovery systems in time to ensure an orderly market re-open and closing session.

TMX confirms that all systems are ready for the start of business on Monday, April 30, 2018.

“We apologize to all of our valued clients across Canada’s capital markets and around the world, and to all of TMX Group’s stakeholders for Friday’s interruption in trading,” said Lou Eccleston, Chief Executive Officer of TMX Group. “Our team took immediate action to diagnose the problem and communicate with all of our participants while determining the cause and impacts. Due to the timing and the nature of the issue, we made the difficult but necessary decision to shut down trading for the rest of the day. TMX is committed to applying the lessons learned from this incident to help us prevent such issues from recurring in the future.”

Update, 2018-4-28:

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 1.2185 % 2,925.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.2185 % 5,367.4
Floater 3.42 % 3.67 % 89,971 18.14 4 1.2185 % 3,093.3
OpRet 0.00 % 0.00 % 0 0.00 0 0.2065 % 3,155.2
SplitShare 4.61 % 4.68 % 75,317 5.07 5 0.2065 % 3,768.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2065 % 2,939.9
Perpetual-Premium 5.57 % -2.43 % 78,127 0.09 11 0.1404 % 2,868.6
Perpetual-Discount 5.41 % 5.43 % 68,263 14.77 24 0.0879 % 2,937.7
FixedReset 4.32 % 4.79 % 162,930 5.71 104 0.1862 % 2,511.3
Deemed-Retractible 5.15 % 5.62 % 86,558 5.63 28 0.1749 % 2,941.5
FloatingReset 3.07 % 3.25 % 33,635 3.56 11 0.2261 % 2,759.5
Performance Highlights
Issue Index Change Notes
BAM.PR.B Floater 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 16.59
Evaluated at bid price : 16.59
Bid-YTW : 3.67 %
TD.PF.F Perpetual-Discount 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 23.97
Evaluated at bid price : 24.39
Bid-YTW : 5.03 %
BAM.PR.K Floater 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 16.57
Evaluated at bid price : 16.57
Bid-YTW : 3.67 %
PWF.PR.Q FloatingReset 1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 21.15
Evaluated at bid price : 21.15
Bid-YTW : 3.29 %
PWF.PR.A Floater 1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 20.90
Evaluated at bid price : 20.90
Bid-YTW : 2.88 %
BAM.PR.X FixedReset 3.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 17.99
Evaluated at bid price : 17.99
Bid-YTW : 5.17 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.G FixedReset 83,000 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.30
Bid-YTW : 3.66 %
BAM.PR.X FixedReset 82,210 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 17.99
Evaluated at bid price : 17.99
Bid-YTW : 5.17 %
TD.PF.J FixedReset 71,084 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2023-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.27
Bid-YTW : 4.60 %
TRP.PR.J FixedReset 69,500 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.37
Bid-YTW : 3.92 %
BNS.PR.G FixedReset 61,315 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-07-25
Maturity Price : 25.00
Evaluated at bid price : 26.31
Bid-YTW : 3.79 %
BAM.PR.Z FixedReset 60,600 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 22.93
Evaluated at bid price : 24.30
Bid-YTW : 5.13 %
There were 14 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BMO.PR.T FixedReset Quote: 22.79 – 23.07
Spot Rate : 0.2800
Average : 0.1718

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 22.37
Evaluated at bid price : 22.79
Bid-YTW : 4.85 %

BAM.PR.C Floater Quote: 16.55 – 16.85
Spot Rate : 0.3000
Average : 0.1938

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 16.55
Evaluated at bid price : 16.55
Bid-YTW : 3.67 %

BNS.PR.A FloatingReset Quote: 24.99 – 25.25
Spot Rate : 0.2600
Average : 0.1674

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.99
Bid-YTW : 3.25 %

BAM.PR.K Floater Quote: 16.57 – 16.81
Spot Rate : 0.2400
Average : 0.1645

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 16.57
Evaluated at bid price : 16.57
Bid-YTW : 3.67 %

TRP.PR.H FloatingReset Quote: 16.45 – 16.75
Spot Rate : 0.3000
Average : 0.2333

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 16.45
Evaluated at bid price : 16.45
Bid-YTW : 3.78 %

BMO.PR.Z Perpetual-Discount Quote: 24.79 – 24.95
Spot Rate : 0.1600
Average : 0.1237

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-27
Maturity Price : 24.33
Evaluated at bid price : 24.79
Bid-YTW : 5.10 %

April 26, 2018

April 26th, 2018
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 -1.5662 % 2,889.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.5662 % 5,302.8
Floater 3.46 % 3.70 % 90,737 18.06 4 -1.5662 % 3,056.0
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0952 % 3,148.7
SplitShare 4.62 % 4.73 % 78,435 5.08 5 -0.0952 % 3,760.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0952 % 2,933.9
Perpetual-Premium 5.58 % -0.62 % 79,192 0.09 11 -0.0144 % 2,864.6
Perpetual-Discount 5.42 % 5.43 % 68,724 14.76 24 -0.1076 % 2,935.1
FixedReset 4.33 % 4.82 % 162,141 5.72 104 0.1837 % 2,506.7
Deemed-Retractible 5.16 % 5.69 % 87,486 5.63 28 0.0437 % 2,936.4
FloatingReset 3.08 % 3.25 % 32,319 3.56 11 -0.0444 % 2,753.3
Performance Highlights
Issue Index Change Notes
BAM.PR.K Floater -2.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-26
Maturity Price : 16.34
Evaluated at bid price : 16.34
Bid-YTW : 3.72 %
BAM.PR.X FixedReset -2.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-26
Maturity Price : 17.37
Evaluated at bid price : 17.37
Bid-YTW : 5.34 %
BAM.PR.C Floater -1.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-26
Maturity Price : 16.42
Evaluated at bid price : 16.42
Bid-YTW : 3.70 %
BAM.PR.B Floater -1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-26
Maturity Price : 16.42
Evaluated at bid price : 16.42
Bid-YTW : 3.70 %
W.PR.M FixedReset -1.37 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-15
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 5.03 %
PWF.PR.Q FloatingReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-26
Maturity Price : 20.83
Evaluated at bid price : 20.83
Bid-YTW : 3.34 %
IFC.PR.A FixedReset 1.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.79
Bid-YTW : 7.61 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.K FixedReset 182,788 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-31
Maturity Price : 25.00
Evaluated at bid price : 25.99
Bid-YTW : 4.07 %
TRP.PR.J FixedReset 128,579 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.40
Bid-YTW : 3.88 %
TRP.PR.F FloatingReset 96,871 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-26
Maturity Price : 19.52
Evaluated at bid price : 19.52
Bid-YTW : 4.01 %
CM.PR.R FixedReset 77,909 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 4.41 %
MFC.PR.R FixedReset 65,119 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 3.78 %
HSE.PR.G FixedReset 60,700 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.01
Bid-YTW : 4.76 %
There were 15 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.X FixedReset Quote: 17.37 – 17.95
Spot Rate : 0.5800
Average : 0.3582

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-26
Maturity Price : 17.37
Evaluated at bid price : 17.37
Bid-YTW : 5.34 %

MFC.PR.L FixedReset Quote: 22.74 – 23.07
Spot Rate : 0.3300
Average : 0.2117

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.74
Bid-YTW : 6.00 %

IAG.PR.A Deemed-Retractible Quote: 21.83 – 22.24
Spot Rate : 0.4100
Average : 0.2955

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.83
Bid-YTW : 7.09 %

TD.PF.D FixedReset Quote: 24.11 – 24.40
Spot Rate : 0.2900
Average : 0.1803

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-26
Maturity Price : 23.15
Evaluated at bid price : 24.11
Bid-YTW : 4.92 %

BAM.PF.E FixedReset Quote: 22.89 – 23.20
Spot Rate : 0.3100
Average : 0.2055

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-04-26
Maturity Price : 22.56
Evaluated at bid price : 22.89
Bid-YTW : 5.15 %

CCS.PR.C Deemed-Retractible Quote: 23.00 – 23.62
Spot Rate : 0.6200
Average : 0.5195

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.00
Bid-YTW : 6.59 %