March 3, 2020

The Fed slashed its policy rate today:

The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

This had mixed results:

Stocks in the United States rallied for about 15 minutes after the rate cut, but worries about the Fed’s impotence in the face of economic risks from the coronavirus quickly fueled a market sell-off. By late Tuesday, stocks were sharply lower and bond yields had plummeted to previously unthinkable lows as investors sought a safe place to park their money.

The S&P 500 fell about 2.8 percent, undoing some of Monday’s 4.6 percent surge. The yield on 10-year Treasury notes dipped below 1 percent.

Interest rates are now set in a 1 percent to 1.25 percent range, and Jerome H. Powell, the Fed chair, signaled that further moves were possible. “The virus and the measures that are being taken to contain it will surely weigh on economic activity, both here and abroad, for some time,” Mr. Powell said at a news conference, adding the Fed was “prepared to use our tools and act appropriately, depending on the flow of events.”

But the market’s negative reaction may reflect a recognition that cutting interest rates or engaging in other types of fiscal stimulus will do little to contain the virus that has sickened more than 90,000 people, with major outbreaks taking hold in South Korea, Japan, Iran and Italy.

So now all eyes are on the Bank of Canada:

The Canadian dollar fell against the greenback on Tuesday, giving up much of the prior day’s rally, as the Federal Reserve cut interest rates in an emergency move that investors see the Bank of Canada matching at a policy decision on Wednesday.

At 2:50 p.m. (1950 GMT), the Canadian dollar was trading 0.4% lower at 1.3371 to the greenback, or 74.79 U.S. cents. The currency, which on Friday hit its weakest intraday level in nearly nine months at 1.3465, traded in a range of 1.3319 to 1.3387.

Canadian government bond yields tumbled across a steeper yield curve in sympathy with U.S. Treasuries. The 10-year yield was down 14.9 basis points at 0.953%, its lowest level since October 2016.

The Canada five year yield was down 15bp to 0.90%. On February 21, just before the Great Coronavirus Panic of 2020, the yield was 1.30%. That’s a fast decline, particularly when considering that the year-end value was 1.69%!

So, the Canadian preferred share market got hit again today; and I’m afraid that the constant repetition isn’t helping my comprehension of the correlation at all! I’m just glad I don’t have to provide any valuations of accounts today – the quote quality is disgraceful. Who knows where anything is priced? But don’t worry – jobs at the Toronto Exchange are protected.

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 -0.4523 % 1,850.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.4523 % 3,395.3
Floater 6.61 % 6.91 % 51,419 12.55 4 -0.4523 % 1,956.7
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0848 % 3,449.7
SplitShare 4.81 % 4.39 % 53,734 4.09 7 -0.0848 % 4,119.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0848 % 3,214.4
Perpetual-Premium 5.58 % 4.85 % 75,661 0.08 12 0.2218 % 3,052.2
Perpetual-Discount 5.28 % 5.35 % 71,507 14.87 24 0.4339 % 3,308.0
FixedReset Disc 6.08 % 5.69 % 185,736 14.25 64 -2.0277 % 1,974.6
Deemed-Retractible 5.22 % 5.34 % 86,471 14.85 27 0.3963 % 3,232.2
FloatingReset 6.44 % 6.27 % 69,553 13.47 3 -1.1175 % 2,272.9
FixedReset Prem 5.15 % 4.54 % 136,985 1.39 22 -0.2008 % 2,630.2
FixedReset Bank Non 1.93 % 3.31 % 97,374 1.87 3 -0.0948 % 2,754.3
FixedReset Ins Non 5.88 % 5.54 % 103,734 14.41 22 -1.9290 % 2,015.0
Performance Highlights
Issue Index Change Notes
TD.PF.D FixedReset Disc -22.48 % A nonsensical quote provided at high cost by Nonsense Central, as the issue traded 4101 shares today in a range of 17.71-01 before being quoted at 14.00-17.88. The closing price was 17.73, reached at 3:13pm.

I have not checked whether the lamentable state of the quote is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 14.00
Evaluated at bid price : 14.00
Bid-YTW : 6.99 %

TRP.PR.G FixedReset Disc -11.30 % A nonsensical quote provided at high cost by Nonsense Central, as the issue traded 3765 shares today in a range of 16.97-26 before being quoted at 15.15-16.97. The closing price was 16.97, reached at 3:59pm.

I have not checked whether the lamentable state of the quote is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.15
Evaluated at bid price : 15.15
Bid-YTW : 6.69 %

RY.PR.H FixedReset Disc -8.54 % A nonsensical quote provided at high cost by Nonsense Central, as the issue traded 15,510 shares today in a range of 16.00-30 before being quoted at 14.77-16.10. The closing price was 16.01, reached at 3:57pm.

I have not checked whether the lamentable state of the quote is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 14.77
Evaluated at bid price : 14.77
Bid-YTW : 5.83 %

IFC.PR.A FixedReset Ins Non -7.38 % A nonsensical quote provided at high cost by Nonsense Central, as the issue traded 3,300 shares today in a range of 13.22-47 before being quoted at no bid-13.30 (in cases of no bid, HIMIPref™ uses a bid one dollar below the ask). The closing price was 13.22, reached at 3:55pm.

I have not checked whether the lamentable state of the quote is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 12.30
Evaluated at bid price : 12.30
Bid-YTW : 6.01 %

TRP.PR.C FixedReset Disc -6.71 % A nonsensical quote provided at high cost by Nonsense Central, as the issue traded 7,373 shares today in a range of 10.55-82 before being quoted at 10.01-57. The closing price was 10.55, reached at 3:59pm.

I have not checked whether the lamentable state of the quote is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 10.01
Evaluated at bid price : 10.01
Bid-YTW : 6.57 %

BAM.PF.B FixedReset Disc -6.35 % A nonsensical quote provided at high cost by Nonsense Central, as the issue traded 19,135 shares today in a range of 16.57-15 before being quoted at no bid – 16.92 (in cases of no bid, HIMIPref™ uses a bid one dollar below the ask). The closing price was 16.91, reached at 3:44pm.

I have not checked whether the lamentable state of the quote is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.92
Evaluated at bid price : 15.92
Bid-YTW : 6.24 %

MFC.PR.M FixedReset Ins Non -5.80 % A nonsensical quote provided at high cost by Nonsense Central, as the issue traded 31,763 shares today in a range of 16.39-52 before being quoted at no bid – 16.44 (in cases of no bid, HIMIPref™ uses a bid one dollar below the ask). The closing price was 16.42, reached at 3:24pm.

I have not checked whether the lamentable state of the quote is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.44
Evaluated at bid price : 15.44
Bid-YTW : 5.74 %

MFC.PR.F FixedReset Ins Non -5.66 % A nonsensical quote provided at high cost by Nonsense Central, as the issue traded 13,680 shares today in a range of 10.99-30 before being quoted at 10.50-00. The closing price was 10.99, reached at 2.27pm.

I have not checked whether the lamentable state of the quote is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 10.50
Evaluated at bid price : 10.50
Bid-YTW : 5.88 %

RY.PR.M FixedReset Disc -5.48 % A nonsensical quote provided at high cost by Nonsense Central, as the issue traded 86,900 shares today in a range of 16.90-10 before being quoted at 16.05-90. The closing price was 16.90, reached at 2.30pm.

I have not checked whether the lamentable state of the quote is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers.

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.05
Evaluated at bid price : 16.05
Bid-YTW : 5.79 %

MFC.PR.N FixedReset Ins Non -3.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.00
Evaluated at bid price : 15.00
Bid-YTW : 5.64 %
CU.PR.C FixedReset Disc -3.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.75
Evaluated at bid price : 15.75
Bid-YTW : 5.53 %
MFC.PR.I FixedReset Ins Non -3.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 17.05
Evaluated at bid price : 17.05
Bid-YTW : 5.88 %
BIP.PR.D FixedReset Disc -3.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 21.28
Evaluated at bid price : 21.56
Bid-YTW : 5.79 %
BAM.PF.A FixedReset Disc -2.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 18.35
Evaluated at bid price : 18.35
Bid-YTW : 5.85 %
IFC.PR.C FixedReset Ins Non -2.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 5.88 %
BMO.PR.W FixedReset Disc -2.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.60
Evaluated at bid price : 15.60
Bid-YTW : 5.56 %
IAF.PR.I FixedReset Ins Non -2.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 18.13
Evaluated at bid price : 18.13
Bid-YTW : 5.51 %
SLF.PR.J FloatingReset -2.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 11.50
Evaluated at bid price : 11.50
Bid-YTW : 6.26 %
SLF.PR.H FixedReset Ins Non -2.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 14.52
Evaluated at bid price : 14.52
Bid-YTW : 5.53 %
PWF.PR.A Floater -2.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 11.26
Evaluated at bid price : 11.26
Bid-YTW : 6.21 %
EMA.PR.C FixedReset Disc -2.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.81
Evaluated at bid price : 16.81
Bid-YTW : 5.91 %
CM.PR.S FixedReset Disc -2.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 5.69 %
PWF.PR.T FixedReset Disc -2.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.95
Evaluated at bid price : 16.95
Bid-YTW : 5.40 %
NA.PR.E FixedReset Disc -2.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 17.20
Evaluated at bid price : 17.20
Bid-YTW : 5.62 %
NA.PR.G FixedReset Disc -2.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 18.35
Evaluated at bid price : 18.35
Bid-YTW : 5.62 %
NA.PR.C FixedReset Disc -2.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 19.86
Evaluated at bid price : 19.86
Bid-YTW : 5.71 %
IFC.PR.G FixedReset Ins Non -2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 17.25
Evaluated at bid price : 17.25
Bid-YTW : 5.74 %
TRP.PR.B FixedReset Disc -2.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 9.85
Evaluated at bid price : 9.85
Bid-YTW : 5.97 %
TRP.PR.D FixedReset Disc -2.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.02
Evaluated at bid price : 15.02
Bid-YTW : 6.02 %
GWO.PR.N FixedReset Ins Non -2.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 12.15
Evaluated at bid price : 12.15
Bid-YTW : 4.87 %
MFC.PR.J FixedReset Ins Non -1.96 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 5.54 %
TD.PF.I FixedReset Disc -1.93 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 19.30
Evaluated at bid price : 19.30
Bid-YTW : 5.44 %
BMO.PR.Y FixedReset Disc -1.93 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.80
Evaluated at bid price : 16.80
Bid-YTW : 5.67 %
CM.PR.Q FixedReset Disc -1.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.82
Evaluated at bid price : 16.82
Bid-YTW : 5.80 %
BIP.PR.A FixedReset Disc -1.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 18.01
Evaluated at bid price : 18.01
Bid-YTW : 6.44 %
HSE.PR.E FixedReset Disc -1.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.40
Evaluated at bid price : 16.40
Bid-YTW : 7.24 %
HSE.PR.C FixedReset Disc -1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.29
Evaluated at bid price : 15.29
Bid-YTW : 7.29 %
HSE.PR.G FixedReset Disc -1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 7.11 %
BNS.PR.I FixedReset Disc -1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 18.44
Evaluated at bid price : 18.44
Bid-YTW : 5.22 %
EMA.PR.F FixedReset Disc -1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 5.89 %
BIK.PR.A FixedReset Prem -1.55 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2024-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 5.26 %
MFC.PR.R FixedReset Ins Non -1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 22.58
Evaluated at bid price : 22.90
Bid-YTW : 5.34 %
TD.PF.A FixedReset Disc -1.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.85
Evaluated at bid price : 15.85
Bid-YTW : 5.44 %
MFC.PR.H FixedReset Ins Non -1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 5.62 %
BMO.PR.B FixedReset Prem -1.38 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 4.93 %
NA.PR.S FixedReset Disc -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.14
Evaluated at bid price : 16.14
Bid-YTW : 5.64 %
BNS.PR.H FixedReset Prem -1.33 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-01-26
Maturity Price : 25.00
Evaluated at bid price : 25.22
Bid-YTW : 4.66 %
CM.PR.R FixedReset Disc -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 19.60
Evaluated at bid price : 19.60
Bid-YTW : 5.74 %
BMO.PR.S FixedReset Disc -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.04
Evaluated at bid price : 16.04
Bid-YTW : 5.52 %
BMO.PR.F FixedReset Disc -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 22.34
Evaluated at bid price : 23.02
Bid-YTW : 5.10 %
SLF.PR.G FixedReset Ins Non -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 11.65
Evaluated at bid price : 11.65
Bid-YTW : 5.33 %
TRP.PR.E FixedReset Disc -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.00
Evaluated at bid price : 15.00
Bid-YTW : 5.94 %
EMA.PR.E Perpetual-Discount -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 5.34 %
CM.PR.P FixedReset Disc -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.39
Evaluated at bid price : 15.39
Bid-YTW : 5.75 %
SLF.PR.I FixedReset Ins Non -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 17.17
Evaluated at bid price : 17.17
Bid-YTW : 5.54 %
MFC.PR.G FixedReset Ins Non -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 5.68 %
TD.PF.H FixedReset Prem -1.10 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.17
Bid-YTW : 4.72 %
RY.PR.Z FixedReset Disc -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.90
Evaluated at bid price : 15.90
Bid-YTW : 5.36 %
BIP.PR.F FixedReset Disc -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 21.31
Evaluated at bid price : 21.60
Bid-YTW : 5.90 %
TD.PF.C FixedReset Disc -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 5.52 %
PVS.PR.H SplitShare -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2027-02-28
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 5.06 %
GWO.PR.R Deemed-Retractible 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 22.21
Evaluated at bid price : 22.49
Bid-YTW : 5.33 %
BAM.PR.M Perpetual-Discount 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 21.80
Evaluated at bid price : 22.04
Bid-YTW : 5.47 %
SLF.PR.C Deemed-Retractible 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 5.30 %
CU.PR.F Perpetual-Discount 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 5.27 %
BAM.PF.D Perpetual-Discount 1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 22.15
Evaluated at bid price : 22.49
Bid-YTW : 5.53 %
BAM.PF.C Perpetual-Discount 1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 22.10
Evaluated at bid price : 22.34
Bid-YTW : 5.51 %
Volume Highlights
Issue Index Shares
Traded
Notes
HSE.PR.A FixedReset Disc 218,525 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 9.50
Evaluated at bid price : 9.50
Bid-YTW : 7.46 %
PVS.PR.H SplitShare 185,500 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2027-02-28
Maturity Price : 25.00
Evaluated at bid price : 24.50
Bid-YTW : 5.06 %
RY.PR.J FixedReset Disc 106,390 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 17.25
Evaluated at bid price : 17.25
Bid-YTW : 5.57 %
BMO.PR.B FixedReset Prem 96,440 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 4.93 %
CM.PR.R FixedReset Disc 92,855 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 19.60
Evaluated at bid price : 19.60
Bid-YTW : 5.74 %
RY.PR.M FixedReset Disc 86,900 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 16.05
Evaluated at bid price : 16.05
Bid-YTW : 5.79 %
There were 59 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PF.D FixedReset Disc Quote: 14.00 – 17.88
Spot Rate : 3.8800
Average : 2.1328

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 14.00
Evaluated at bid price : 14.00
Bid-YTW : 6.99 %

TRP.PR.G FixedReset Disc Quote: 15.15 – 16.97
Spot Rate : 1.8200
Average : 1.1082

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.15
Evaluated at bid price : 15.15
Bid-YTW : 6.69 %

NA.PR.C FixedReset Disc Quote: 19.86 – 21.40
Spot Rate : 1.5400
Average : 0.9298

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 19.86
Evaluated at bid price : 19.86
Bid-YTW : 5.71 %

RY.PR.H FixedReset Disc Quote: 14.77 – 16.10
Spot Rate : 1.3300
Average : 0.7540

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 14.77
Evaluated at bid price : 14.77
Bid-YTW : 5.83 %

GWO.PR.M Deemed-Retractible Quote: 25.42 – 26.42
Spot Rate : 1.0000
Average : 0.6054

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-04-02
Maturity Price : 25.00
Evaluated at bid price : 25.42
Bid-YTW : -19.11 %

MFC.PR.M FixedReset Ins Non Quote: 15.44 – 16.44
Spot Rate : 1.0000
Average : 0.6080

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2050-03-03
Maturity Price : 15.44
Evaluated at bid price : 15.44
Bid-YTW : 5.74 %

9 Responses to “March 3, 2020”

  1. stusclues says:

    So, the Canadian preferred share market got hit again today; and I’m afraid that the constant repetition isn’t helping my comprehension of the correlation at all!

    For Fixed Resets, the following applies:

    Target Price = Dividend at Time of Target Price / Yield at Time of Target Price

    So, for example, if we have a view of improving credit quality for an issuer and a view of when that might be recognized in the market (as a lower spread), both the dividend and yield at that time can be predicted. The dividend will be the issue spread plus the prevailing GOC rate X $25 and the yield will be our estimate of the spread likely to be demanding in the market plus the prevailing GOC5.

    Everything we need to know to adjust our target price is included above, if our models relate the future prevailing rate to current rates, or even more simply – just use it.

    Therefore, falling current rates result in a lower target price. Current bids then must fall to facilitate the same required return.

  2. jiHymas says:

    For Fixed Resets, the following applies:

    Target Price = Dividend at Time of Target Price / Yield at Time of Target Price

    For this to serve as an explanation of the correlation between GOC-5 yields and FixedReset prices, then “Yield at time of Target Price” must be relatively invariant, and I don’t see why this should be.

    How does the model assume that “Yield at time of Target Price” is calculated?

  3. stusclues says:

    It isn’t calculated, it is chosen. For example, TransAlta prefs are priced at a spread of about 6.5% now. If we believe that efforts at TA underway now might reduce that spread to say 4.5% by a certain date, then we can generate a target price. This price will go up or down with prevailing rates

  4. jiHymas says:

    You’re making two points here, one based on credit quality:

    If we believe that efforts at TA underway now might reduce that spread to say 4.5% by a certain date, then we can generate a target price.

    … and the other based on the general level of interest rates:

    This price will go up or down with prevailing rates

    I have no problems with the credit quality argument. It’s clear that an investor will be willing to pay more money for a security the more likely it is to keep its promises.

    But I don’t understand what you’re saying about the effect of the general level of interest rates.

    Let the general level of interest rates at the initial time be R(0) and let it change to R(1) at time = 1. Similarly, let the Target Yield at time 0 be Y(0) and let it be Y(1) at time 1.

    Just to keep things simple, assume that the yield curve is perfectly flat at all times and that there is no change in credit quality.

    If the general level of interest rates declines, so that R(0) – R(1) = 0.50%, what do you believe should happen to Y?

  5. stusclues says:

    If the general level of interest rates declines, so that R(0) – R(1) = 0.50%, what do you believe should happen to Y?

    With the future spread chosen (e.g. I expect the spread to narrow by X%), Y will move down by X + 0.5%. The Dividend at reset will also be adjusted down from (R(0)+ issue spread) X 25 to (R(1) + issue spread) X 25.

    It is the target price that is important here though. The target price will move down.

    Take TA.PR.D with an issue spread of 203 basis points for example. The cash yield at reset with the GOC5 at 0.905% today and a closing price of $10.10 is 7.3%. If I think that the market spread ought to move to say 4.5% in the future, then that is the same as predicting a target price of $13.58. If the GOC5 falls by 0.5% (i.e. to 0.405%), then my target price falls to $12.41. Therefore, to meet my required return I need to lower my bid.

  6. stusclues says:

    With the future spread chosen (e.g. I expect the spread to narrow by X%), Y will move down by X + 0.5%.

    I mean X + R(0) – 0.5%

  7. stusclues says:

    Aargh its late and these boxes are unforgiving.

    Y will be the future spread I choose + R(0) – 0.5%

  8. jiHymas says:

    OK, let me recast your argument in terms with which I am more comfortable.

    Take TA.PR.D with an issue spread of 203 basis points for example. The cash yield at reset with the GOC5 at 0.905% today and a closing price of $10.10 is 7.3%. If I think that the market spread ought to move to say 4.5% in the future, then that is the same as predicting a target price of $13.58.

    So at time=0, you’re saying that R(0) is 0.905%, the expected future dividend is D(0) = (0.905%+2.03%)*25 = 2.935% * 25 = $0.73375 and the fair value, P(0) is 13.58. This means that the Target Yield, Y(0) = D(0) / P(0) = 0.73375 / 13.58 = 5.403% and the spread to five-year Canadas is Y(0) – R(0) = 5.403% – 0.905% = 4.498%, rounded to 4.50%.

    Then there’s an interest rate shock:

    If the GOC5 falls by 0.5% (i.e. to 0.405%), then my target price falls to $12.41.

    So R(1) = 0.405%, D(1) = 0.60875, and you claim that P(1) = 12.41.

    Is all the above correct?

    If so, then your expected future yield, Y(1) is:

    Y(1) = D(1) / P(1) = 0.60875 / 12.41 = 4.905%

    and the spread to Canadas is:

    Y(1) – R(1) = 4.905% – 0.405% = 4.500%

    So the spread to five-year Canadas for this issue is unchanged between time=0 and time=1 and the 50bp change in R has resulted in a price change from 13.50 to 12.41, or -8.62%.

    Is all this correct?

  9. stusclues says:

    Yes. All correct.

    Let me remind readers following along that this is all based on an identity – i.e. yield = dividend divided by price.

    This is not a theory or conjecture, but you were right James to identify that multiple things are going on here.

    We need to test one thing at a time with this identity – the impact of changes in rates on price or changes in yield on price.

    I use this identity primarily to understand relative cheapness at current rates, much the way you use your implied volatility calculator.

    Readers may ask why I might assume that my assumptions about changing spread are not also changed by changing rates. I will say that I never contemplated using my model this way.

    I use my model to ask simple and relatively near term questions such as what happens if the seniority spread narrows or if credit quality improves?

    Using this approach I more or less simply noticed the impact that changing rates have on the resulting target prices. James’ asks a good question as to how to explain price movements due to rates. I think this has some explanatory power.

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