Category: Market Action

PerpetualDiscounts now yield 5.76%, equivalent to 7.49% interest at the standard equivalency factor of 1.3x. Long corporates now yield 2.98%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened to 450bp from the 440bp reported June 24. We are now back above the pre-2020 record of 445bp briefly touched in 2008.

Great-West Lifeco Inc. has announced:

that it has entered into an agreement with a syndicate of agents co-led by RBC Capital Markets, BMO Capital Markets and Scotiabank for the sale on an agency basis of $250 million aggregate principal amount of debentures maturing July 8, 2050 (the Debentures).

The Debentures will be dated July 8, 2020, will be issued at par and will mature on July 8, 2050. Interest on the Debentures at the rate of 2.981% per annum will be payable semi-annually in arrears on January 8 and July 8 in each year, commencing January 8, 2021, until the date on which the Debentures are repaid. The Debentures are redeemable at any time prior to January 8, 2050 in whole or in part at the greater of the Canada Yield Price and par, and on or after January 8, 2050 in whole or in part at par, together in each case with accrued and unpaid interest.

The Debenture offering is expected to close on or about July 8, 2020. The net proceeds will be used by Lifeco for general corporate purposes.

GWO PerpetualDiscounts are trading to yield about 5.65% today, equivalent to 7.34% interest at the standard equivalency factor of 1.3x, so the Seniority Spread for GWO is about 435bp, comparable to the overall figure reported June 24.

I missed this earlier, but Scotiabank issued US$1,250,000,000 of 4.900% Fixed Rate Resetting Perpetual Subordinated Additional Tier 1 Capital Notes (Non-Viability Contingent Capital (NVCC)) closing on 2020-6-4:

The US$1,250,000,000 aggregate principal amount of 4.900% Fixed Rate Resetting Perpetual Subordinated Additional Tier 1 Capital Notes (Non-Viability Contingent Capital (NVCC)) (subordinated indebtedness) (the “Notes”) offered by this prospectus supplement (this “Prospectus Supplement”) have no scheduled maturity or scheduled redemption date. From and including June 4, 2020 (the “Issue Date”) to, but excluding, June 4, 2025 (such date and each fifth (5th) anniversary date thereafter, a “Reset Date”), interest will accrue on the Notes at an initial rate equal to 4.900% per annum. From and including each Reset Date to, but excluding, the next following Reset Date, interest will accrue on the Notes at a rate per annum equal to the sum, as determined by the Calculation Agent (as defined herein), of (i) the then-prevailing U.S. Treasury Rate (as defined herein) on the relevant Reset Rate Determination Date (as defined herein) and (ii) 4.551%. Subject to the cancellation rights described below, The Bank of Nova Scotia (the “Bank”) will pay interest on the Notes quarterly in arrears on March 4, June 4, September 4 and December 4 of each year, commencing on September 4, 2020 (each, an “Interest Payment Date”).

So that’s pretty close to the initial coupon and spread to five-years as you’d see on a Canadian dollar preferred shares … but the bank can deduct the interest from income for tax purposes. Who needs preferred shares?

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TXPR closed at 531.65, down 0.54% on the day. Volume today was 738,545, the lowest of the past thirty days and far less than second-lowest June 30.

CPD closed at 10.67, up 0.19% on the day. Volume was 37,317, the lowest of the past 30 trading days and less than second-lowest June 30.

ZPR closed at 8.31, down 0.12% on the day. Volume of 539,852 was very high in the context of the past 30 trading days.

Five-year Canada yields were unchanged at 0.38% today.

Marc Jones notes in the Globe:

Canada’s main stock index gave back a small part of this week’s rally on Friday, as a record surge in COVID-19 cases in the United States raised fears of another round of lockdowns.

The United States reported more than 55,000 new COVID-19 cases on Thursday, a new daily global record for the pandemic.

The Toronto Stock Exchange’s S&P/TSX composite index closed down 0.2% at 15,596.75. With U.S. stock markets closed for a public holiday, trading volumes were lower than usual.

Coronavirus? Well, in Arizona:

As known virus cases reached above 91,000 statewide, [Governor] Mr. Ducey this week activated crisis protocols that could permit overwhelmed hospitals to deny care to patients whose age or health history make them poor candidates for recovery. When Vice President Mike Pence visited Phoenix on Wednesday, Mr. Ducey asked him to send another 500 medical workers to the state to help hospital teams depleted by exhaustion and illness.

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TXPR closed at 534.55, up 0.77% on the day. Volume today was 1.82-million, about the median of the past thirty days.

CPD closed at 10.65, up 0.95% on the day. Volume was 65,080, near the lows of the past 30 trading days.

ZPR closed at 8.32, up 1.09% on the day. Volume of 584,299 was second-highest of the past 30 trading days, behind only June 30.

Five-year Canada yields were up 1bp at 0.38% today.

Jobs, jobs, jobs!

Employers brought back millions more workers in June as businesses began to reopen across the country. But the recent surge in coronavirus cases is threatening to stall the economic recovery long before it has reached most of the people who lost their jobs.

U.S. payrolls grew by 4.8 million in June, the Labor Department said Thursday. It was the second month of strong gains after April’s huge losses, when businesses laid off or furloughed tens of millions of workers as the pandemic put a large swath of economic activity on ice.
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But the thaw is far from complete. There were still nearly 15 million fewer jobs in June than in February, before the pandemic forced businesses to close. The unemployment rate fell to 11.1 percent in June, down from a peak of 14.7 percent in April but still higher than in any previous period since World War II. The rate would have been about one percentage point higher, the Labor Department said, had it not been for persistent data-collection problems.

There was another American figure of interest:

More than 50,000 new coronavirus infections were reported across the United States on Thursday, according to a New York Times database, as the country set a new daily case record for the sixth time in nine days. The alarming new milestone came as some of the country’s most populous states reported major surges, and as public health officials scrambled to limit the damage. At least seven states reported single-day case records on Thursday: Alaska, Arkansas, Florida, Georgia, Montana, South Carolina and Tennessee.

Thursday’s reported total was an 87 percent increase in daily cases from two weeks ago, when states were reopening after extensive lockdowns eased the outbreak, particularly in the hard-hit Northeast.

But the market appeared to consider the former more important than the latter:

Wall Street closed higher and the Nasdaq reached an all-time closing high on Thursday as investors headed into their long holiday weekend buoyed by a record surge in payrolls, which provided assurance that the U.S. economic recovery was well under way.

All three major U.S. stock averages advanced, with the benchmark S&P 500 posting its fourth straight daily gain. The TSX also rose Thursday, for its third straight trading day of gains. U.S. markets are closed Friday for the Fourth of July holiday.
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The Dow Jones Industrial Average rose 92.39 points, or 0.36%, to 25,827.36, the S&P 500 gained 14.15 points, or 0.45%, to 3,130.01 and the Nasdaq Composite added 53.00 points, or 0.52%, to 10,207.63.

The S&P/TSX Composite Index rose 107.18 points, or 0.69%, at 15,622.40. Sector performance was mixed, with the Canadian Real Estate Index gaining 2.84%, and tech rising 3.67% thanks to a 8.36% jump in shares of Shopify to a new record high. Materials and industrials were lower.

Fitch downgraded Alberta:

Alberta’s credit rating was downgraded Tuesday, hours after the province released a multibillion-dollar economic recovery plan in an attempt to climb out of the economic wreckage caused by the COVID-19 pandemic and a collapse in world oil prices.

Fitch Ratings downgraded Alberta to a double-A-minus from double-A, citing higher provincial borrowing during the pandemic-driven economic crisis and a debt burden relative to GDP that is “incompatible” with a double-A rating.

The New York-based agency also pointed to the lack of details from the government about the extent of damage to Alberta’s bottom line, and the fact the province has no planned path toward economic recovery.

Tuesday’s downgrade is the third for Alberta since December, when Moody’s Investors Service changed the province’s rating to Aa2 from Aa1, citing continued weakness in the provincial economy and its reliance on non-renewable resources. In March, DBRS Morningstar downgraded Alberta to double-A (low) from double-A.

GWO is making a major investment in US wealth management:

Canadian insurer Great-West Lifeco Inc. is boosting its presence in the United States and broadening its retail wealth management with the US$1-billion purchase of Personal Capital Corp.

On Monday, Great-West’s subsidiary Empower Retirement agreed to acquire Personal Capital for an initial US$825-million, with the potential to add up to US$175-million if certain growth metrics are met. The upfront payment is expected to be funded with cash on hand and $500-million in debt financing.

Based in Denver, Empower Retirement administers US$656-billion in assets for more than 9.7 million investors enrolled in defined contribution pension plans. Upon closing the deal, Empower will combine its retirement services, which include 401(k) group benefit plans, with Personal Capital’s online financial planning capabilities to expand into the U.S. retail wealth management sector.

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TXPR closed at 528.61, down 0.55% on the day. Volume today was 1.49-million, near the lows of the past thirty days.

CPD closed at 10.525, down 0.43% on the day. Volume was 135,867, a little above the median of the past 30 trading days.

ZPR closed at 8.185, down 1.50% on the day. Volume of 301,200 was near the median the context of the past 30 trading days.

Five-year Canada yields were down 2bp at 0.36% today.

The carnage has been attributed to a familiar villain:

Wall Street’s major indexes tumbled more than 2% on Friday as several U.S. states imposed business restrictions in response to a surge in coronavirus cases. The TSX lost 1.66%, with both energy and financial sectors losing more than 2.5%.

Some U.S. states that were spared the brunt of the initial coronavirus outbreak or moved early to lift restrictions are seeing a resurgence in new infections. On Friday, Texas and Florida ordered bars to close down again.
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A Wall Street Journal report that the Phase 1 U.S.-China trade deal could be at risk placed additional pressure on U.S. stocks. According to that report, Chinese officials warned that “meddling” in Hong Kong and Taiwan could lead Beijing to back away from its commitment to purchase U.S. farm goods.
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Among sectors, financial, communication services and energy shares outpaced the broader S&P 500 in declines. S&P 500 bank shares plummeted 6.1% after the Federal Reserve limited dividend payments and barred share repurchases until at least the fourth quarter following its annual stress test.

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TXPR closed at 533.89, down 0.58% on the day. Volume today was 1.89-million, near the median of the past thirty days.

CPD closed at 10.68, down 0.65% on the day. Volume was 66,270, low in the context of the past 30 trading days.

ZPR closed at 8.37, down 0.48% on the day. Volume of 161,796 was very low in the context of the past 30 trading days.

Five-year Canada yields were down 2bp at 0.38% today.

Markets got whacked today, which was attributed to renewed coronavirus fears:

Wall Street’s three major indexes suffered their biggest daily percentage drop in almost two weeks on Wednesday as a surge in U.S. coronavirus cases intensified fears of another round of government lockdowns and worsening economic damage.

The TSX also closed lower, led by a 3.84% decline in the energy sector, with investors largely shrugging off a downgrade of Canada’s debt rating by Fitch Ratings.
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The United States has recorded the second-largest rise in infections since the health crisis began, with a flare-up of cases in states where restrictions meant to contain the disease were lifted early.

Highlighting the seriousness of the resurgence in cases for many investors, the governors of New York, New Jersey and Connecticut announced that visitors from states with high coronavirus infection rates must self-quarantine for 14 days on arrival.

And, as noted above, Fitch downgraded Canada:

Fitch Ratings has downgraded Canada’s triple-A credit rating to double-A-plus in light of “much expanded” 2020 deficits due to billions in emergency spending during the novel coronavirus pandemic.

The decision reflects growing public debt at both the federal and provincial levels.
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“The rating downgrade reflects the deterioration of Canada’s public finances in 2020 resulting from the coronavirus pandemic,” the agency stated. Wednesday’s announcement says Canada’s rating outlook is stable.

Fitch expects the coronavirus response to raise Canada’s consolidated gross general government debt to 115.1 per cent of GDP, up from 88.3 per cent of GDP in 2019.

“Canada has a track record of fiscal adjustment during the 1990s. However, the structure of Canada’s decentralized fiscal framework increases the complexity of any fiscal adjustment,” the agency said. “The pandemic has caused several provinces to pause deficit-reduction plans, and some premiers have urged greater direct federal financial support to the provinces.”

“Federal borrowing for crown corporations also increases debt,” Fitch said. “The federal minority Liberal government, which was returned to office in October 2019, has already loosened fiscal policy relative to the first term and postponed a pledge to stabilize net federal government debt in order to address the priorities of allied minority parties.”

PerpetualDiscounts now yield 5.71%, equivalent to 7.42% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.00%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened slightly (and perhaps spuriously) to 440bp from the 435bp reported June 17.