May 29, 2015

There was some unpleasant Canadian economic news:

Canada’s economy shrank between January and March, the first contraction in four years and the largest since the 2009 recession as collapsing energy prices prompted a plunge in business investment.

Gross domestic product fell at a 0.6 percent annualized pace in the first quarter, Statistics Canada said Friday in Ottawa. The drop exceeded all 22 economist forecasts in a Bloomberg News survey, in which the median call was for an expansion of 0.3 percent. The agency revised its fourth-quarter growth estimate to 2.2 percent, from 2.4 percent previously.

Canada’s dollar weakened 0.7 percent to C$1.2521 per U.S. dollar at 9:20 a.m. Toronto time. Government bond yields fell, with debt due in two years down 4 basis points to 0.58 percent.

In the U.S., gross domestic product shrank at a 0.7 percent annualized rate, revised from a previously reported 0.2 percent gain, according to Commerce Department figures issued Friday in Washington.

Business gross fixed capital formation — or business investment — fell at a 9.7 percent annualized pace in the first quarter, the most since the first three months of 2009. Support activities for mining and oil and gas extraction fell by 30 percent.

Consumer spending growth slowed to an annualized 0.4 percent rate, the slowest since the start of 2009, from 2.1 percent in the fourth quarter. Transportation fell for the first time in 10 quarters, as vehicle purchases declined.

Exports fell 1.1 percent, the second straight quarterly decline. Imports dropped 1.5 percent.

Crude oil is Canada’s top export, and lower prices triggered a deterioration in housing markets in Alberta, site of major oil sands deposits.

On a monthly basis, Canada’s gross domestic product fell 0.2 percent in March, the third straight decline. The contraction was led by a 2.6 percent fall in mining, quarrying, and oil and gas extraction. Economists forecast a monthly GDP expansion of 0.2 percent.

Returning to yesterday‘s scandalmongering, there are rumours that Hastert was blackmailed due to a little old-fashioned pederasty in the ’80’s (some might say, “old school”). But what really gets my goat is the smarmy propaganda from the IRS:

The USA PATRIOT Act of 2001 increased the scope of these laws to help trace funds used for terrorism.

Ha! There’s even more bullshit from the FBI, although they now admit the Patriot Act hasn’t accomplished much vis a vis terror. However, that hasn’t stopped the sleazebags in Canada from cranking up the old fearometer, although it doesn’t work as well as it used to.

The month closed with another poor day for the Canadian preferred share market, with PerpetualDiscounts down 12bp, FixedResets losing 27bp and DeemedRetractibles off 9bp. A lengthy Performance Highlights table is notable for the number of FixedReset losers. Volume was slightly below average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150529
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.70 to be $1.05 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.70 cheap at its bid price of 24.82.

impVol_MFC_150529
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.M, resetting at +236 on 2019-12-19, bid at 24.26 to be $0.49 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.05 to be $0.66 cheap.

impVol_BAM_150529
Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.90 to be $0.48 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.90 and appears to be $0.51 rich.

impVol_FTS_150529
Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.38, looks $0.65 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.80 and is $0.38 rich.

pairs_FR_150529
Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.45%, and the TRP.PR.A / TRP.PR.F pair is no longer an abnormal outlier. On the junk side, four pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -1.09%; AIM.PR.A / AIM.PR.B at -0.71%; BRF.PR.A / BRF.PR.B at -0.60%; and FFH.PR.C / FFH.PR.D at +1.12%.

pairs_FF_150529
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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 0.2097 % 2,261.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.2097 % 3,953.4
Floater 3.21 % 3.37 % 54,815 18.76 4 0.2097 % 2,403.6
OpRet 4.44 % -12.58 % 31,193 0.09 2 0.0593 % 2,781.8
SplitShare 4.58 % 4.46 % 69,276 3.33 3 -0.0801 % 3,257.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0593 % 2,543.7
Perpetual-Premium 5.46 % 4.71 % 61,897 0.58 18 0.0524 % 2,519.6
Perpetual-Discount 5.09 % 5.07 % 116,873 15.37 15 -0.1207 % 2,765.1
FixedReset 4.46 % 3.80 % 266,309 16.46 86 -0.2661 % 2,391.3
Deemed-Retractible 4.98 % 3.47 % 108,299 0.58 34 -0.0860 % 2,636.0
FloatingReset 2.55 % 2.93 % 59,748 6.14 7 -0.0304 % 2,338.3
Performance Highlights
Issue Index Change Notes
GWO.PR.N FixedReset -2.99 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.04
Bid-YTW : 7.03 %
TRP.PR.C FixedReset -2.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 16.75
Evaluated at bid price : 16.75
Bid-YTW : 3.98 %
SLF.PR.H FixedReset -2.34 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.73
Bid-YTW : 5.02 %
MFC.PR.B Deemed-Retractible -2.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.22
Bid-YTW : 5.61 %
BAM.PF.C Perpetual-Discount -1.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 21.96
Evaluated at bid price : 22.28
Bid-YTW : 5.52 %
MFC.PR.K FixedReset -1.69 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.20
Bid-YTW : 4.38 %
BMO.PR.T FixedReset -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.78
Evaluated at bid price : 23.89
Bid-YTW : 3.50 %
RY.PR.Z FixedReset -1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.90
Evaluated at bid price : 24.10
Bid-YTW : 3.45 %
TRP.PR.D FixedReset -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.29
Evaluated at bid price : 22.90
Bid-YTW : 3.85 %
SLF.PR.G FixedReset -1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.99
Bid-YTW : 7.09 %
IFC.PR.C FixedReset -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.26
Bid-YTW : 4.26 %
TRP.PR.B FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 15.24
Evaluated at bid price : 15.24
Bid-YTW : 3.83 %
ENB.PR.H FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 17.95
Evaluated at bid price : 17.95
Bid-YTW : 4.64 %
TD.PF.B FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.72
Evaluated at bid price : 23.74
Bid-YTW : 3.55 %
MFC.PR.C Deemed-Retractible -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.83
Bid-YTW : 5.67 %
CM.PR.O FixedReset -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.75
Evaluated at bid price : 23.81
Bid-YTW : 3.61 %
NA.PR.W FixedReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.86
Evaluated at bid price : 24.15
Bid-YTW : 3.47 %
BMO.PR.W FixedReset -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.58
Evaluated at bid price : 23.51
Bid-YTW : 3.54 %
BIP.PR.A FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 23.05
Evaluated at bid price : 24.71
Bid-YTW : 4.62 %
TRP.PR.F FloatingReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 3.32 %
ENB.PR.F FixedReset 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 19.33
Evaluated at bid price : 19.33
Bid-YTW : 4.72 %
BAM.PR.B Floater 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 14.93
Evaluated at bid price : 14.93
Bid-YTW : 3.37 %
CIU.PR.C FixedReset 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 16.56
Evaluated at bid price : 16.56
Bid-YTW : 3.75 %
Volume Highlights
Issue Index Shares
Traded
Notes
HSE.PR.C FixedReset 105,036 TD crossed 88,500 at 24.99.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 23.16
Evaluated at bid price : 24.92
Bid-YTW : 4.21 %
HSE.PR.A FixedReset 96,175 TD crossed 88,500 at 17.15.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 16.95
Evaluated at bid price : 16.95
Bid-YTW : 4.28 %
BNS.PR.Z FixedReset 54,670 RBC bought 15,000 from Nesbitt at 23.69, then crossed 14,700 at 23.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.52
Bid-YTW : 3.60 %
CU.PR.E Perpetual-Discount 50,350 Desjardins crossed 48,200 at 24.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 24.32
Evaluated at bid price : 24.78
Bid-YTW : 4.94 %
RY.PR.D Deemed-Retractible 38,847 Nesbitt crossed 28,000 at 25.32.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-28
Maturity Price : 25.25
Evaluated at bid price : 25.32
Bid-YTW : 1.82 %
BMO.PR.M FixedReset 37,165 Scotia crossed 35,700 at 25.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 2.99 %
There were 28 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.N FixedReset Quote: 23.91 – 24.65
Spot Rate : 0.7400
Average : 0.5463

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.91
Bid-YTW : 4.13 %

POW.PR.G Perpetual-Premium Quote: 26.10 – 26.59
Spot Rate : 0.4900
Average : 0.3372

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-15
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 4.89 %

BAM.PF.C Perpetual-Discount Quote: 22.28 – 22.74
Spot Rate : 0.4600
Average : 0.3288

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 21.96
Evaluated at bid price : 22.28
Bid-YTW : 5.52 %

BMO.PR.T FixedReset Quote: 23.89 – 24.20
Spot Rate : 0.3100
Average : 0.1935

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.78
Evaluated at bid price : 23.89
Bid-YTW : 3.50 %

HSB.PR.C Deemed-Retractible Quote: 25.40 – 25.80
Spot Rate : 0.4000
Average : 0.2839

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-28
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : -4.41 %

IFC.PR.C FixedReset Quote: 24.26 – 24.64
Spot Rate : 0.3800
Average : 0.2672

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.26
Bid-YTW : 4.26 %

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