Category: Market Action

Investment Executive had a piece on the preferred share market:

Since the preferred market is less liquid than some other types of fixed-income, “the capacity or the potential to outperform the benchmark is higher,” said the Montreal-based [Dynamic Funds’ Marc-André] Gaudreau [vice-president and senior portfolio manager of Dynamic Active Preferred Shares ETF.], whose ETF is one of the category’s best performers and has a five-star Morningstar rating.

Other actively managed funds that have outperformed their peer group include Global X Active Preferred, NBI Active Canadian Preferred Shares ETF and TD Active Preferred Share ETF.

“The other thing that’s very important is the flexibility in our mandate. We don’t have to be fully invested in the $25-par pref market in Canada,” Gaudreau said. “We can go to the U.S. We can go to the institutional preferred share market.” LRCNs and hybrids are also held in the Dynamic portfolio.

For his part, Fiera’s Normandeau is above market weight in rate-reset preferreds versus the fixed-rate perpetuals. Among the rate reset issues, he favours those with low- to mid-reset yields that are trading at discounts. These securities, along with having capital gains potential, are less likely to be called away by issuers.

The Global X portfolio also emphasizes high credit quality, Normandeau said. “In this environment right now, you’re not really paid to go to a weaker credit name.”

As it happens, I track all four of the active ETFs managed as part of my MAPF performance reporting – so you can check out how I did against them as of the end of September.

Thanks to Assiduous Reader A for bringing this to my attention!

PerpetualDiscounts now yield 5.62%, equivalent to 7.31% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.78% on 2025-10-8, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained at increased to 255bp from the 245bp reported October 8.

Powell spoke on quantitative tightening today:

Federal Reserve Chair Jerome Powell on Tuesday suggested the central bank is nearing a point where it will stop reducing the size of its bond holdings, but gave no long-run indication of where interest rates are heading.

Speaking to the National Association for Business Economics conference in Philadelphia, Powell provided a dissertation on where the Fed stands with “quantitative tightening,” or the effort to reduce the more than $6 trillion of securities it holds on its balance sheet.

While he provided no specific date of when the program will cease, he said there are indications the Fed is nearing its goal of “ample” reserves available for banks.

“Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions,” Powell said in prepared remarks. “We may approach that point in coming months, and we are closely monitoring a wide range of indicators to inform this decision.”
…
On a related matter, Powell noted concerns over the Fed continuing to pay interest on bank reserves.

The Fed normally remits interest it earns from its holdings to the Treasury general fund. However, because it had to raise interest rates so quickly to control inflation, it has seen operating losses. Congressional leaders such as Sen. Ted Cruz, R-Texas, have suggested terminating the payments on reserves.

However, Powell said that would be a mistake and would hinder the Fed’s ability to carry out policy.

“While our net interest income has temporarily been negative due to the rapid rise in policy rates to control inflation, this is highly unusual. Our net income will soon turn positive again, as it typically has been throughout our history,” he said. “If our ability to pay interest on reserves and other liabilities were eliminated, the Fed would lose control over rates.”

Jobs, jobs, jobs!

Canada’s economy posted a surprise 60,400 net job gains in September, almost entirely reversing the losses of the previous month, data showed on Friday, but was not enough to bring down its multiyear high unemployment rate.

The jobless rate was at 7.1 per cent, same as the prior month when the rate hit a nine-year high outside of the pandemic years.
…
The employment increase in September was completely led by full-time work and it increased in 10 out of 16 industry groups, Statscan said.
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The unemployment rate among youth or those in the age bracket of 15 to 24 years edged up to 14.7 per cent in September, the highest rate in 15 years. The youths represent around 14 per cent of the total labour force in Canada.

Also, the proportion of people working in jobs which are unrelated to their qualification as well as immigrants who were overqualified for their jobs scaled up, reflecting tough labour market conditions, the statistics agency said.
…
The average hourly wage of permanent employees – a gauge closely tracked by the Bank of Canada to ascertain inflationary trends – grew by 3.6 per cent in September on a yearly basis to $37.87, same percentage increase as last month.

So, the market reacted:

Here, in detail, is how implied probabilities of future interest rate moves stood in swaps markets after the jobs report. The current overnight rate is 2.50 per cent. While the bank moves in quarter-point increments, credit market implied rates fluctuate more fluidly and are constantly changing. Columns to the right are percentage probabilities of future rate moves.

Pre-announcement

Post-announcement

It is interesting to see that the changes are hawkish in the near term and dovish in the longer term, with the projected terminal rate declining from 2.23% to 2.18%.

Meanwhile, The Stable Genius re-ignited the trade war with China:

President Donald Trump said Friday he would impose a 100% tariff on China “over and above any Tariff they are currently paying” effective November 1 – massively escalating his trade war amid a heated dispute over export controls on rare earths.

In a Truth Social post, Trump wrote that China had “taken an extraordinarily aggressive position on Trade in sending an extremely hostile letter to the World, stating that they were going to, effective November 1st, 2025, impose large scale Export Controls on virtually every product they make, and some not even made by them.”

“This affects ALL Countries, without exception, and was obviously a plan devised by them years ago,” he wrote. “It is absolutely unheard of in International Trade, and a moral disgrace in dealing with other Nations.”

Trump said he would impose the new tariff November 1 “or sooner, depending on any further actions or changes taken by China.”

Earlier in the day, Trump had blasted Chinese leader Xi Jinping on social media over China’s ramped-up efforts to impose export controls on critical rare earths, threatening economic retaliation and saying he no longer sees any reason to meet with Xi during a scheduled visit to the region later this month. At the time, Trump also threatened economic penalties against China, warning, “Dependent on what China says about the hostile ‘order’ that they have just put out, I will be forced, as President of the United States of America, to financially counter their move.”

“For every Element that they have been able to monopolize, we have two,” he added.

… and markets reacted to that:

The S&P 500 sank 2.7% and the S&P/TSX Composite Index dropped 1.4% in their worst day since April. The Dow Jones Industrial lost 1.9%, and the Nasdaq composite fell 3.6%.

Stocks had been heading for a slight gain in the morning, until Trump took to his social media platform and said he’s considering “a massive increase of tariffs” on Chinese imports.
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The S&P/TSX composite index ended down 414.09 points at 29,850.89, its lowest closing level since September 26. For the week, the index was down 2%.

The TSX has advanced 20.7% since the start of the year and posted a record closing high as recently as Monday.

The high-flying TSX technology sector dropped 4.3%, with shares of e-commerce company Shopify Inc dropping 8%.

The TSX energy sector was down 3.3%. Some of Friday’s strongest action was in the oil market, where the price of a barrel of benchmark U.S. crude sank 4.2% to US$58.90. It fell as a ceasefire between Israel and Hamas came into effect in Gaza. An end to the war could remove worries about disruptions to oil supplies, which had kept crude’s price higher than it otherwise would have been. Trump’s tariff threat could gum up global trade and lead the economy to burn less fuel.
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In the absence of official data, investors looked to the U.S. Federal Reserve for clues regarding near-term interest rate cuts. Fed Governor Christopher Waller said that while private employment data continues to show labor market weakness, the central bank should act with caution when reducing the Fed funds target rate as it evaluates the economy. St. Louis Fed President Alberto Musalem echoed that sentiment, saying that another rate cut could be warranted as insurance against a weakening labor market. “I believe that we have to tread with caution” before monetary policy becomes too accommodative, he said.

The TXPR Price Index hit a new 52-week high today of 682.28, replacing the old mark of 681.80 set yesterday.

The TXPR Price Index hit a new 52-week high today of 681.80, edging the previous mark of 681.51 set on 2025-9-12.

PerpetualDiscounts now yield 5.64%, equivalent to 7.33% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.86% on 2025-10-8, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed to 245bp from the the 255bp reported October 1.

A new Survey of Consumer Expectations is out:

September Survey: Inflation Expectations Tick Up at Short- and Longer-Term Horizons; Labor Market Expectations Deteriorate

• Median inflation expectations increased at the one-year-ahead horizon to 3.4 percent from 3.2 percent and at the five-year-ahead horizon to 3.0 percent from 2.9 percent. They remained steady at the three-year-ahead horizon at 3.0 percent. The increase in the year-ahead measure was largest for those with at most a high school education and those with household incomes under $50,000.
• Median one-year-ahead earnings growth expectations decreased by 0.1 percentage point (ppt) to 2.4 percent in September, the lowest reading since April 2021.
• Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—increased 2.0 ppts to 41.1 percent.
• The mean perceived probability of losing one’s job in the next twelve months increased by 0.4 ppt to 14.9 percent, above the trailing twelve-month average of 14.1 percent.

I’ve been spending my programming time recently speeding up HIMIPref™ and stumbled across the following interesting comparison of access times for data in various places:

… which is kind of cool. Puts things in perspective! They also have L3 cache, nowadays, that services all the cores on the CPU, not just one; and even, so I am informed, L4 cache!

Which reminds me of a funny story. The nineties was an interesting time to be buying computers, which I was doing for my prior employer, since everything about them was changing at breakneck speed; performance bottlenecks were shifting kaleidoscopically every time you looked. So I read PC Magazine every month and tried to keep up with what was going on; at one point, PC Mag concluded that for computationally intensive work (like we were doing) the most usual bottleneck had become the speed of the L2 cache. If I remember correctly, the speed of the good kind at the time was 15ns.

So next time I ordered a (small) batch of computers and asked my salesman for quotes, I asked what the speed of the L2 cache was. Silence. He obviously had no idea what that was and eventually told me he’d have to call his vendor and get back to me.

We needed the order filled! So I called him up (a few days? a week?) later and asked about the speed of the L2 cache was on the machines he was quoting.

He got mad and snapped “Look, James, it’s fast, OK?”

Shortly afterwards we changed computer vendors.

On 2025-9-19, National Bank of Canada announced:

its intention to redeem, on November 15, 2025 (the “Redemption Date”), all of its outstanding $500,000,000 aggregate principal amount of 4.300% Limited Recourse Capital Notes Series 1 (Non-Viability Contingent Capital (NVCC)) (Subordinated Indebtedness) (the “Series 1 LRCNs”), at a redemption price equal to the principal amount of the Series 1 LRCNs, plus any accrued and unpaid interest up to, but excluding, the Redemption Date. Formal notice of the redemption will be delivered to registered holders of the Series 1 LRCNs in accordance with the terms outlined in the trust indenture for the Series 1 LRCNs.

In connection with the redemption of the Series 1 LRCNs, the Bank will redeem all 500,000 Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares, Series 44 (Non-Viability Contingent Capital (NVCC)) (the “Series 44 Preferred Shares”) that are held by Computershare Trust Company of Canada as trustee of NBC LRCN Limited Recourse Trust.

Since November 15, 2025 is not a business day, amounts due to holders of the Series 1 LRCNs will be paid on the first business day following that date.

The redemption of the Series 44 Preferred Shares and Series 1 LRCNs has been approved by the Office of the Superintendent of Financial Institutions and is part of the Bank’s ongoing management of its regulatory capital.

These issues are discussed on PDF pages 209 and 210 of the 2024 Annual Report – the preferreds were 4.30%+394.3 , which would imply quite a pop in interest paid to the LRCN holders if they had reset!

Thanks to Assiduous Reader DB for bringing this to my attention!