February 7, 2018

Continued uncertainty in the Treasury market continues to feed into equities:

U.S. stocks remained on unsteady footing as the bout of volatility that’s gripped global financial markets persisted amid signs that the rise in Treasury yields has yet to run its course.

Pressure Wednesday came from a weak 10-year note auction, sending the rate toward the four-year high that days ago sparked the biggest equity selloff in seven years. Stocks swung between gains and losses throughout the session before ending lower after heavy selling in the final 15 minutes of trading. Volume on U.S. exchanges topped 9 billion shares for a fourth straight day after surpassing that total just once in the past seven months.

The S&P 500 erased a gain that reached 1.2 percent at its highest and closed lower by 0.5 percent in the biggest reversal since 2015. The Dow Jones Industrial Average swung 500 points from peak to trough, and heavy selling in megacap technology shares pushed the Nasdaq indexes to losses of at least 0.9 percent. While the Cboe Volatility Index eased back from levels last seen in August 2015, at 26.84 it remains about 40 percent above its average since 1990.

Luke Kawa and Tracy Alloway of Bloomberg provided a bit more colour regarding the relationship between VIX products and equity prices:

Products such as XIV and its close relation, the ProShares Short VIX Short-Term Futures ETF (SVXY), aim to offer investors exposure to the inverse of the daily moves at the front portion of the VIX futures curve, and typically benefit from market tranquility.

The VIX futures curve is linked to the Cboe Volatility Index, often called the market’s “fear gauge,” which in turn is a measure of the implied volatility in the S&P 500 Index over the next month. (The VIX tends to move in the opposite direction of U.S. stocks.) Such products typically buy VIX futures as the index rises and sell them as it falls as they seek to maintain a constant degree of exposure to the underlying index.

It was a theory echoed by Barclays Plc analysts in a research note published after Monday’s sharp spike in the VIX. As volatility-related products scrambled to buy VIX futures in order to rebalance ahead of their 4:15 p.m. daily deadline to calculate the value of their underlying assets — they effectively pushed up the price of the contracts and eventually the index.

Demand from leveraged VIX exchanged-traded products was “the major driver for the move post the cash close,” Barclays analysts led by Maneesh Deshpande said.

The NYT ran a piece on VIX daytrading last summer and there’s a suddenly woeful subreddit devoted to the topic.

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Click for Big

PerpetualDiscounts now yield 5.35%, equivalent to 6.96% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little over 3.95%, so the pre-tax interest-equivalent spread is now about 300bp, unchanged from January 31.

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 0.9932 % 2,927.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.9932 % 5,372.5
Floater 3.39 % 3.56 % 59,800 18.35 4 0.9932 % 3,096.2
OpRet 0.00 % 0.00 % 0 0.00 0 0.0623 % 3,152.4
SplitShare 4.66 % 4.27 % 64,245 4.12 5 0.0623 % 3,764.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0623 % 2,937.3
Perpetual-Premium 5.41 % 4.90 % 63,654 2.08 20 0.1111 % 2,849.1
Perpetual-Discount 5.36 % 5.35 % 67,604 14.88 14 0.2210 % 2,967.0
FixedReset 4.22 % 4.54 % 150,081 3.90 101 0.5061 % 2,531.3
Deemed-Retractible 5.12 % 5.73 % 91,450 5.77 28 0.2639 % 2,921.2
FloatingReset 3.03 % 2.93 % 42,028 3.75 10 0.2564 % 2,773.4
Performance Highlights
Issue Index Change Notes
PWF.PR.L Perpetual-Discount -1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 23.24
Evaluated at bid price : 23.54
Bid-YTW : 5.44 %
HSE.PR.G FixedReset 1.00 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-06-30
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.48 %
HSE.PR.C FixedReset 1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 4.79 %
BAM.PR.R FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 5.00 %
TRP.PR.J FixedReset 1.07 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.38
Bid-YTW : 4.06 %
SLF.PR.D Deemed-Retractible 1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.53
Bid-YTW : 7.13 %
RY.PR.Z FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 23.35
Evaluated at bid price : 23.82
Bid-YTW : 4.51 %
BAM.PR.B Floater 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 17.08
Evaluated at bid price : 17.08
Bid-YTW : 3.56 %
TRP.PR.E FixedReset 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 23.47
Evaluated at bid price : 23.85
Bid-YTW : 4.67 %
SLF.PR.G FixedReset 1.19 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.49
Bid-YTW : 7.21 %
MFC.PR.M FixedReset 1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.13
Bid-YTW : 5.04 %
BAM.PF.F FixedReset 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 23.65
Evaluated at bid price : 24.91
Bid-YTW : 4.94 %
RY.PR.H FixedReset 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 23.47
Evaluated at bid price : 23.88
Bid-YTW : 4.53 %
BAM.PF.G FixedReset 1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 23.42
Evaluated at bid price : 24.79
Bid-YTW : 4.92 %
PWF.PR.A Floater 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 20.30
Evaluated at bid price : 20.30
Bid-YTW : 2.97 %
SLF.PR.H FixedReset 1.52 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.08
Bid-YTW : 5.62 %
Volume Highlights
Issue Index Shares
Traded
Notes
BAM.PF.A FixedReset 150,546 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 24.35
Evaluated at bid price : 24.85
Bid-YTW : 5.07 %
BNS.PR.A FloatingReset 138,104 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 24.97
Bid-YTW : 0.57 %
BMO.PR.T FixedReset 132,900 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 23.41
Evaluated at bid price : 23.82
Bid-YTW : 4.52 %
W.PR.M FixedReset 81,520 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-15
Maturity Price : 25.00
Evaluated at bid price : 25.90
Bid-YTW : 4.26 %
CM.PR.O FixedReset 69,600 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 23.38
Evaluated at bid price : 23.81
Bid-YTW : 4.62 %
CM.PR.R FixedReset 66,982 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.25 %
There were 24 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: 24.01 – 24.60
Spot Rate : 0.5900
Average : 0.3833

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 23.01
Evaluated at bid price : 24.01
Bid-YTW : 5.10 %

BIP.PR.B FixedReset Quote: 25.56 – 26.04
Spot Rate : 0.4800
Average : 0.3272

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 4.91 %

PWF.PR.L Perpetual-Discount Quote: 23.54 – 23.89
Spot Rate : 0.3500
Average : 0.2241

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 23.24
Evaluated at bid price : 23.54
Bid-YTW : 5.44 %

BAM.PR.T FixedReset Quote: 21.13 – 21.90
Spot Rate : 0.7700
Average : 0.6500

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 21.13
Evaluated at bid price : 21.13
Bid-YTW : 5.04 %

CU.PR.C FixedReset Quote: 22.28 – 22.60
Spot Rate : 0.3200
Average : 0.2297

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 21.87
Evaluated at bid price : 22.28
Bid-YTW : 4.76 %

PWF.PR.A Floater Quote: 20.30 – 20.53
Spot Rate : 0.2300
Average : 0.1438

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2048-02-07
Maturity Price : 20.30
Evaluated at bid price : 20.30
Bid-YTW : 2.97 %

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