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TXPR closed at 515.55, up 0.78% on the day. Volume today was 1.92-million, slightly below average in the context of the past thirty days.
CPD closed at 10.36, up 0.58% on the day. Volume was 72,755, slightly below the average of the past 30 trading days.
ZPR closed at 8.07, up 0.88% on the day. Volume of 88,873 was well below average in the context of the past 30 trading days.
Five-year Canada yields were unchanged at 0.42% today.
Don’t look to inflation to drive up 5-year bond yields, says the Bank of Canada:
The Bank of Canada thinks there is likely to be downward pressure on inflation once coronavirus-related shutdowns are lifted, a senior official said on Wednesday, a sign the Bank is in no rush to raise near-record low interest rates.
…
Deputy governor Timothy Lane said Canada would likely emerge with both demand and supply weaker than before. The scarring associated with the shutdown could lower productivity, which tends to result in higher inflation.“But the Bank’s analysis suggests that the decline in demand stemming in part from weaker business and consumer confidence is likely to have a larger effect. On balance, there is likely to be downward pressure on inflation,” he said in a speech to a Winnipeg business audience via video.
Lane reiterated that the bank expected second quarter growth to plunge anywhere between 15 and 30 percent from its level in late 2019.
Gloom about the immediate future is widespread:
Only one in five Americans expects overall business conditions to be “very” or “somewhat” good over the next year, according to a poll conducted this month for The New York Times by the online research platform SurveyMonkey. Sixty percent said they expected the next five years to be characterized by “periods of widespread unemployment or depression.”
Those numbers are little changed from a month earlier, and may even reflect a slight decline in outlook, signaling that the reopenings and federal and state political moves to deal with the pandemic have had little impact on confidence.
Other data tells a similar story. A survey from the University of Michigan last week found that consumers’ assessment of current economic conditions had improved modestly in early May, but that their view of the future had continued to darken.
PerpetualDiscounts now yield 6.06%, equivalent to 7.88% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.38%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed slightly (and perhaps spuriously), to 450bp from the 455bp reported May 13. We are still above the pre-2020 record of 445bp briefly touched in 2008.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| 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 | 1.0143 % | 1,434.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 1.0143 % | 2,632.9 |
| Floater | 5.38 % | 5.61 % | 30,666 | 14.42 | 4 | 1.0143 % | 1,517.4 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3645 % | 3,386.9 |
| SplitShare | 4.90 % | 5.29 % | 77,232 | 3.87 | 7 | 0.3645 % | 4,044.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3645 % | 3,155.8 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.5121 % | 2,899.5 |
| Perpetual-Discount | 5.80 % | 6.06 % | 84,789 | 13.80 | 35 | 0.5121 % | 3,110.0 |
| FixedReset Disc | 6.45 % | 5.38 % | 190,978 | 14.63 | 83 | 0.4574 % | 1,766.1 |
| Deemed-Retractible | 5.48 % | 5.79 % | 90,710 | 13.92 | 27 | 1.0218 % | 3,094.1 |
| FloatingReset | 4.99 % | 4.93 % | 53,015 | 15.56 | 3 | 3.1660 % | 1,770.4 |
| FixedReset Prem | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4574 % | 2,442.4 |
| FixedReset Bank Non | 2.02 % | 4.17 % | 169,776 | 1.66 | 2 | 0.0000 % | 2,733.7 |
| FixedReset Ins Non | 6.71 % | 5.50 % | 122,093 | 14.36 | 22 | 0.7933 % | 1,770.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| NA.PR.G | FixedReset Disc | -3.54 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 15.51 Evaluated at bid price : 15.51 Bid-YTW : 5.79 % |
| BAM.PF.B | FixedReset Disc | -3.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 13.41 Evaluated at bid price : 13.41 Bid-YTW : 6.46 % |
| TRP.PR.A | FixedReset Disc | -3.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 11.26 Evaluated at bid price : 11.26 Bid-YTW : 6.03 % |
| GWO.PR.N | FixedReset Ins Non | -2.99 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 8.75 Evaluated at bid price : 8.75 Bid-YTW : 5.06 % |
| RY.PR.M | FixedReset Disc | -1.68 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 14.01 Evaluated at bid price : 14.01 Bid-YTW : 5.49 % |
| MFC.PR.H | FixedReset Ins Non | -1.54 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 16.00 Evaluated at bid price : 16.00 Bid-YTW : 5.69 % |
| RY.PR.S | FixedReset Disc | -1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 16.70 Evaluated at bid price : 16.70 Bid-YTW : 4.85 % |
| CM.PR.T | FixedReset Disc | -1.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 5.31 % |
| TRP.PR.E | FixedReset Disc | -1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 12.95 Evaluated at bid price : 12.95 Bid-YTW : 5.94 % |
| TRP.PR.D | FixedReset Disc | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 13.10 Evaluated at bid price : 13.10 Bid-YTW : 5.93 % |
| MFC.PR.J | FixedReset Ins Non | -1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 15.08 Evaluated at bid price : 15.08 Bid-YTW : 5.50 % |
| CM.PR.P | FixedReset Disc | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 14.05 Evaluated at bid price : 14.05 Bid-YTW : 5.43 % |
| EML.PR.A | FixedReset Ins Non | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 22.51 Evaluated at bid price : 23.05 Bid-YTW : 5.95 % |
| NA.PR.C | FixedReset Disc | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 17.28 Evaluated at bid price : 17.28 Bid-YTW : 5.76 % |
| GWO.PR.P | Deemed-Retractible | 1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 22.70 Evaluated at bid price : 22.94 Bid-YTW : 5.97 % |
| PVS.PR.F | SplitShare | 1.06 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2024-09-30 Maturity Price : 25.00 Evaluated at bid price : 24.81 Bid-YTW : 5.28 % |
| PWF.PR.T | FixedReset Disc | 1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 13.90 Evaluated at bid price : 13.90 Bid-YTW : 5.69 % |
| POW.PR.D | Perpetual-Discount | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 20.95 Evaluated at bid price : 20.95 Bid-YTW : 6.05 % |
| CM.PR.O | FixedReset Disc | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 13.65 Evaluated at bid price : 13.65 Bid-YTW : 5.55 % |
| POW.PR.A | Perpetual-Discount | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 23.11 Evaluated at bid price : 23.37 Bid-YTW : 6.06 % |
| BAM.PR.T | FixedReset Disc | 1.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 11.30 Evaluated at bid price : 11.30 Bid-YTW : 6.38 % |
| NA.PR.W | FixedReset Disc | 1.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 13.81 Evaluated at bid price : 13.81 Bid-YTW : 5.46 % |
| MFC.PR.C | Deemed-Retractible | 1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 20.18 Evaluated at bid price : 20.18 Bid-YTW : 5.58 % |
| GWO.PR.H | Deemed-Retractible | 1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 20.85 Evaluated at bid price : 20.85 Bid-YTW : 5.91 % |
| MFC.PR.G | FixedReset Ins Non | 1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 15.01 Evaluated at bid price : 15.01 Bid-YTW : 5.63 % |
| POW.PR.C | Perpetual-Discount | 1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 23.69 Evaluated at bid price : 24.00 Bid-YTW : 6.11 % |
| BAM.PR.Z | FixedReset Disc | 1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 14.58 Evaluated at bid price : 14.58 Bid-YTW : 6.30 % |
| SLF.PR.E | Deemed-Retractible | 1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 20.57 Evaluated at bid price : 20.57 Bid-YTW : 5.56 % |
| ELF.PR.H | Perpetual-Discount | 1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 22.56 Evaluated at bid price : 22.85 Bid-YTW : 6.09 % |
| BAM.PF.I | FixedReset Disc | 1.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 22.85 Evaluated at bid price : 23.21 Bid-YTW : 5.23 % |
| MFC.PR.I | FixedReset Ins Non | 1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 15.60 Evaluated at bid price : 15.60 Bid-YTW : 5.50 % |
| GWO.PR.Q | Deemed-Retractible | 1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 21.66 Evaluated at bid price : 22.04 Bid-YTW : 5.92 % |
| GWO.PR.T | Deemed-Retractible | 1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 21.69 Evaluated at bid price : 22.00 Bid-YTW : 5.93 % |
| GWO.PR.S | Deemed-Retractible | 1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 22.03 Evaluated at bid price : 22.40 Bid-YTW : 5.94 % |
| SLF.PR.B | Deemed-Retractible | 1.42 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 21.85 Evaluated at bid price : 22.09 Bid-YTW : 5.51 % |
| CM.PR.S | FixedReset Disc | 1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 15.02 Evaluated at bid price : 15.02 Bid-YTW : 5.31 % |
| GWO.PR.M | Deemed-Retractible | 1.55 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 23.93 Evaluated at bid price : 24.17 Bid-YTW : 6.09 % |
| SLF.PR.G | FixedReset Ins Non | 1.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 9.13 Evaluated at bid price : 9.13 Bid-YTW : 5.12 % |
| SLF.PR.H | FixedReset Ins Non | 1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 12.30 Evaluated at bid price : 12.30 Bid-YTW : 5.41 % |
| MFC.PR.M | FixedReset Ins Non | 1.59 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 14.08 Evaluated at bid price : 14.08 Bid-YTW : 5.42 % |
| MFC.PR.F | FixedReset Ins Non | 1.67 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 9.15 Evaluated at bid price : 9.15 Bid-YTW : 5.08 % |
| SLF.PR.A | Deemed-Retractible | 1.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 21.55 Evaluated at bid price : 21.81 Bid-YTW : 5.52 % |
| TD.PF.J | FixedReset Disc | 1.76 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 16.80 Evaluated at bid price : 16.80 Bid-YTW : 5.10 % |
| TD.PF.K | FixedReset Disc | 1.78 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 16.60 Evaluated at bid price : 16.60 Bid-YTW : 5.14 % |
| SLF.PR.D | Deemed-Retractible | 1.84 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 20.52 Evaluated at bid price : 20.52 Bid-YTW : 5.51 % |
| IFC.PR.F | Deemed-Retractible | 1.93 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 22.87 Evaluated at bid price : 23.20 Bid-YTW : 5.79 % |
| GWO.PR.R | Deemed-Retractible | 1.96 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 20.80 Evaluated at bid price : 20.80 Bid-YTW : 5.87 % |
| IFC.PR.G | FixedReset Ins Non | 1.99 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 15.35 Evaluated at bid price : 15.35 Bid-YTW : 5.53 % |
| SLF.PR.C | Deemed-Retractible | 2.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 20.58 Evaluated at bid price : 20.58 Bid-YTW : 5.49 % |
| MFC.PR.B | Deemed-Retractible | 2.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 20.85 Evaluated at bid price : 20.85 Bid-YTW : 5.58 % |
| MFC.PR.N | FixedReset Ins Non | 2.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 14.30 Evaluated at bid price : 14.30 Bid-YTW : 5.22 % |
| BAM.PR.K | Floater | 2.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 7.62 Evaluated at bid price : 7.62 Bid-YTW : 5.71 % |
| BAM.PR.C | Floater | 2.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 7.75 Evaluated at bid price : 7.75 Bid-YTW : 5.61 % |
| TRP.PR.G | FixedReset Disc | 2.86 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 14.74 Evaluated at bid price : 14.74 Bid-YTW : 5.79 % |
| IAF.PR.I | FixedReset Ins Non | 2.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 15.90 Evaluated at bid price : 15.90 Bid-YTW : 5.53 % |
| HSE.PR.A | FixedReset Disc | 3.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 6.20 Evaluated at bid price : 6.20 Bid-YTW : 8.99 % |
| IFC.PR.A | FixedReset Ins Non | 3.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 11.30 Evaluated at bid price : 11.30 Bid-YTW : 5.27 % |
| BAM.PR.R | FixedReset Disc | 3.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 11.15 Evaluated at bid price : 11.15 Bid-YTW : 6.28 % |
| BAM.PR.X | FixedReset Disc | 3.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 9.92 Evaluated at bid price : 9.92 Bid-YTW : 5.89 % |
| BMO.PR.W | FixedReset Disc | 3.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 14.47 Evaluated at bid price : 14.47 Bid-YTW : 5.13 % |
| MFC.PR.L | FixedReset Ins Non | 3.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 13.45 Evaluated at bid price : 13.45 Bid-YTW : 5.33 % |
| BAM.PF.G | FixedReset Disc | 3.92 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 13.25 Evaluated at bid price : 13.25 Bid-YTW : 6.28 % |
| TRP.PR.H | FloatingReset | 4.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 7.80 Evaluated at bid price : 7.80 Bid-YTW : 4.93 % |
| HSE.PR.E | FixedReset Disc | 4.55 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 11.50 Evaluated at bid price : 11.50 Bid-YTW : 9.44 % |
| SLF.PR.J | FloatingReset | 5.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 9.15 Evaluated at bid price : 9.15 Bid-YTW : 4.56 % |
| HSE.PR.G | FixedReset Disc | 6.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 10.80 Evaluated at bid price : 10.80 Bid-YTW : 9.37 % |
| CU.PR.C | FixedReset Disc | 7.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 15.31 Evaluated at bid price : 15.31 Bid-YTW : 4.74 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.R | FixedReset Disc | 101,025 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 24.47 Evaluated at bid price : 24.80 Bid-YTW : 5.30 % |
| CU.PR.C | FixedReset Disc | 54,225 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 15.31 Evaluated at bid price : 15.31 Bid-YTW : 4.74 % |
| RY.PR.Q | FixedReset Disc | 44,783 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 23.94 Evaluated at bid price : 24.42 Bid-YTW : 5.11 % |
| MFC.PR.Q | FixedReset Ins Non | 44,782 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 15.20 Evaluated at bid price : 15.20 Bid-YTW : 5.40 % |
| CM.PR.R | FixedReset Disc | 42,175 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 17.16 Evaluated at bid price : 17.16 Bid-YTW : 5.74 % |
| MFC.PR.I | FixedReset Ins Non | 41,300 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-05-20 Maturity Price : 15.60 Evaluated at bid price : 15.60 Bid-YTW : 5.50 % |
| There were 29 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| HSE.PR.G | FixedReset Disc | Quote: 10.80 – 20.40 Spot Rate : 9.6000 Average : 5.2614 YTW SCENARIO |
| TD.PF.D | FixedReset Disc | Quote: 15.35 – 18.80 Spot Rate : 3.4500 Average : 2.2021 YTW SCENARIO |
| RY.PR.M | FixedReset Disc | Quote: 14.01 – 16.85 Spot Rate : 2.8400 Average : 1.7880 YTW SCENARIO |
| MFC.PR.I | FixedReset Ins Non | Quote: 15.60 – 18.00 Spot Rate : 2.4000 Average : 1.3943 YTW SCENARIO |
| MFC.PR.M | FixedReset Ins Non | Quote: 14.08 – 16.17 Spot Rate : 2.0900 Average : 1.5478 YTW SCENARIO |
| CU.PR.C | FixedReset Disc | Quote: 15.31 – 17.19 Spot Rate : 1.8800 Average : 1.4751 YTW SCENARIO |
Whilst I believe the BoC view that at least short term we will see downward pressure on consumer prices, I recall that when inflation took off in the 70s and again in the 80s it was a surprise to all concerned and it took decades to bring back under control. Perhaps central bankers have truly learnt from these experiences how to manage the inflation rate, perhaps not. If one wanted to hedge a little against inflation what is the best preferred share type to use? Low spread resets? or would floaters be better? Or is a government issued inflation protected bond a better idea?
If one wanted to hedge a little against inflation what is the best preferred share type to use? Low spread resets? or would floaters be better? Or is a government issued inflation protected bond a better idea?
For a good hedge against inflation your best friend, surprisingly enough, is price. This is because all of the choices mentioned pay dividends or interest based on their par value.
This means, for instance, that a preferred share priced at 12.50 will see its yield go up by 2bp for every 1bp increase in its benchmark rate (oh, all right, a decimal place or two might result from a delay in implementing the change in base rate, which would be three-months for a Floater or FloatingReset, or up to five years for a FixedReset) – and the price can reasonably be expected to adjust very quickly.
So, for instance, consider BAM.PR.K, which pays 70% of prime and is bid at 7.46. Therefore, its leverage to prime is 70% * 25 / 7.46 = 2.34:1
This leverage factor is beaten by PWF.PR.P, which pays GOC-5 + 160bp (resetting 2021-1-31) while being bid at 8.15, so its leverage to GOC-5 is 25 / 8.15 = 3.07:1, subject to an adjustment to reflect the delay until implementation.
The easiest way is to estimate the ‘delay adjustment’ is to play with the Yield Calculator for FixedResets and determine the change in yield given a 10bp (say) change in benchmark yield.
Thank you James for teaching us how to fish