Category: Market Action

Market Action

June 4, 2015

I have reiterated to the point of boredom (some might say past it) that exchange trading will give you tight spreads, sure, but thin brittle markets. And yet people keep trying:

The $7.8 trillion U.S. corporate bond market has yet to figure out how to trade large chunks of debt electronically, according to industry executives.

Alerting other investors that you want to buy or sell a certain security is the problem, said Robert Douglass, chief operating officer of U.S. corporate debt trading at Barclays Plc. Once that’s done, your competitors can steal a potentially profitable trade by executing an order ahead of yours.

“There is so much sensitivity about information leakage,” Douglass said Wednesday during a panel discussion at a Sandler O’Neill & Partners LP conference in New York. Being able to show the market a desire to buy or sell a large amount of an illiquid bond without the price immediately moving against you “would be a great market for everyone,” he said.

I mentioned the ding-dong Avon investors on May 14 … profits from their hair-trigger idiocy have been frozen:

The Securities and Exchange Commission today announced an emergency asset freeze of two U.S. brokerage accounts connected to schemes to manipulate Avon and other stocks, thwarting any ability to cash in on ill-gotten proceeds.

According to an SEC complaint filed in federal court in Manhattan, the agency has tracked a filing on its EDGAR system last month about a false Avon tender offer to a foreign entity using an IP address located in Sofia, Bulgaria. A Bulgarian trader named Nedko Nedev controlled at least one of the two now-frozen brokerage accounts, and his account held a substantial position in Avon contracts-for-difference (CFDs) that were losing value in recent months. The SEC alleges that Nedev generated approximately $5,000 in excess profits by selling almost half of the account’s Avon CFDs at inflated prices after the EDGAR filing led to a 20-percent increase in the value of Avon stock on May 14.

The court issued an order at the SEC’s request freezing the two accounts, which contain approximately $2 million in assets.

Can there possibly be a misprint there? “$5,000 in excess profits”? Really?

David Parkinson of the Globe passes on some poor Canadian economic news:

The merchandise trade report released by Statistics Canada on Wednesday was, in a word, grim. The April trade deficit of $2.97-billion was the second-biggest on record – trailing only the March deficit, which was revised to $3.85-billion from the originally reported $3.02-billion. That’s a $6.8-billion trade hole in just two months; for the year to date, the cumulative trade deficit is nearly $11-billion.
…
Yes, exports to the U.S. rose 1.6 per cent in April, but that comes after eight consecutive months of declines. Over the past 12 months, exports to the U.S. are down 4.3 per cent. While April’s upturn in U.S. shipments may provide a glimmer of hope, it appears largely driven by a rebound, from great depths, of the energy sector.

Several key non-energy sectors that were supposed to benefit from an accelerating U.S. economy this year have gone AWOL. Exports of metal ores fell 5.8 per cent in April; metal products fell 1.4 per cent. Building and packaging materials dropped 5.8 per cent. Consumer goods slumped 6 per cent. Industrial machinery and equipment flatlined in the month, after slipping 1.2 per cent in March.
…
There’s little question that the elements in trade for an economic recovery remain missing in action. Bank of Canada Governor Stephen Poloz has remained optimistic about a brighter second quarter and a strong second half, but with each new economic release, the doubts creep in. Maybe the cavalry won’t arrive on time; maybe reinforcements, in the form of another interest rate cut, might need to be called in.

And the IMF’s Lagarde has appointed herself a Fed governor, but it remains to be seen whether anybody’s listening:

The Federal Reserve should delay raising interest rates until the first half of 2016, the International Monetary Fund said as it cut its U.S. growth forecast for the second time this year.

The lender also said that the dollar was “moderately overvalued” and a further marked appreciation would be “harmful,” in a statement released in Washington on Thursday on its annual checkup of the U.S. economy.

“We still believe that the underpinnings for continued expansion are in place,” IMF Managing Director Christine Lagarde said at a press briefing in Washington. “The inflation rate is not progressing at a rate that would warrant, without risk, a rate hike in the next few months.”

That means the Fed should wait until early 2016, even if there’s a risk of “slight overinflation” relative to the central bank’s 2 percent target, Lagarde said.
…
The fund’s latest U.S. monetary-policy advice is among its most explicit on record. In 2012, for instance, IMF staff suggested that further easing might be warranted if the outlook worsened, while in the crisis of 2008 they said rates “should stay on hold” until a recovery is established.

“The IMF is making a pronouncement on the Fed because the U.S. economy is still so important to the globe,” said Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, who expects a September rate increase. “The question is: Will the Fed listen and does it have any bearing on monetary policy decision-making? And my guess is no.”

And there’s more chatter about the global bond rout:

It all started with German government bonds. Yields on 10-year bunds, which move inversely to price, jumped as much as 51 basis points over the week to touch the highest in more than eight months on Thursday as investors reacted to signs of inflation in the eurozone. Mario Draghi, President of the European Central Bank, helped fuel the sell-off by saying investors should “get used” to bond market volatility thanks to very low interest rates that can exacerbate price swings on the debt.

Yields on U.S. 10-year Treasuries followed suit, rising about 30 basis points to the highest since October. With the rout spreading, traders cancelled meetings and rushed back to the office to deal with the swings.

“Traders” in the last sentence was a misnomer. Clearly, from the fact that these guys had meetings as a matter of routine and had to rush back to the office, they are “salesmen”. Salesmen with authority to trade, to be sure, but basically salesmen.

However, Lisa Abramowicz of Bloomberg mocks the idea that this decline can be called a rout:

Yes, German and U.S. bond yields have soared to their highest levels this year. And, yes, more than $626 billion of value has simply evaporated from an index of global sovereign bonds since the end of March.

But all bond owners aren’t racing to the exits just yet. Investors have actually poured almost $1 billion into fixed-income exchange-traded funds over the past week, just one proxy showing sustained demand for debt, according to data compiled by Bloomberg. While trading volumes are somewhat higher than average in Treasuries this year, they’re pretty typical for corporate bonds and not what you’d expect in the case of a wholesale exodus.

“Volume has been significant but not frenetic given the move in yields,” wrote Jim Vogel, an interest-rate strategist at FTN Financial, in a note Thursday. “It is still not clear to most market participants what is driving the intense sale” of European bonds.
…
Without a significant change in the fundamental backdrop of central-bank stimulus and relatively slow growth worldwide, big investors are showing they’re not quite ready to part ways with their bonds. When they are, that’s when the drama will really ensue.

That was a very good article, that was, and introduced me to the paper Investor Flows and Fragility in Corporate Bond Funds.

Brian Milner of the Globe comments:

The Canadian market has so far avoided the worst of the upheaval experienced in Europe and the U.S. But RBC sees longer-term yields climbing another 50 basis points in both Canada and the U.S. by the end of the year.

“We won’t quickly get back to yields of 4 to 5 per cent,” [head of Canadian fixed income and currency strategy at RBC Dominion Securities Inc.] Mr. [Mark] Chandler said. “But to expect us to rewind what we saw in the last six to eight weeks is wrong.”

Central banks have been “complicit” in the selloff, he said, because several took advantage of lower world oil prices and higher headline inflation to cut interest rates.

“For them to have piled on as they did exacerbated the rally that we saw in the first couple of months this year. Now that oil has sort of stabilized and turned the other way, they’re almost living by the sword and dying by the sword.”

Assiduous Readers will remember that Bernanke took some shots at the Wall Street Journal regarding fiscal and monetary policy, as reported April 30. Kevin Carmichael blames fiscal policy for the current woes:

The recovery from the financial crisis has been painfully slow for two reasons. One is private debt, which has weighed on households’ propensity to spend. The other is that governments have contributed almost nothing to gross domestic product since before the crisis.

Remember the 2010 Toronto G20 Summit? Canadian Prime Minister Stephen Harper used his influence as chairman to get the Group of 20 to endorse a pledge to quickly reduce budget deficits and pay debt. In retrospect, it was a bad idea. Mr. Harper and the G20 mistakenly assumed that the passing of the storm meant things would get back to normal. But the sun refused to shine. Private demand remained weak, forcing central banks to get ever more creative. Most governments carried on as if nothing was the matter. They restrained spending, exacerbating the situation.

Back to Canada. The country’s politicians accept no blame for the poor state of the economy. For many, this spring was a moment of triumph, for – in the face of that devastating oil shock – the federal government and some provincial ones were able to keep their budgets in check.

It was a mildly negative day for the Canadian preferred share market, with PerpetualDiscounts down 12bp, FixedResets flat and DeemedRetractibles off 8bp. The Performance Highlights table is quite short, by this year’s standards. Volume was below average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.50 to be $1.23 rich, while TRP.PR.G, which resets 2020-11-30 at +296, is $0.76 cheap at its bid price of 24.56.

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Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule). It is clear that the lowest spread issue, MFC.PR.F, is well off the relationship defined by the other issues, but this doesn’t resolve the conundrum – it just makes it more conundrous.

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 23.75 to be $0.88 rich, while MFC.PR.F, resetting at +141bp on 2016-6-19, is bid at 17.90 to be $0.75 cheap.

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The cheapest issue relative to its peers is BAM.PR.Z, resetting at +296bp on 2017-12-31, bid at 24.54 to be $0.36 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.93 and appears to be $0.62 rich.

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FTS.PR.H, with a spread of +145bp, and bid at 16.05, looks $0.90 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.61 and is $0.42 rich.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.55%, including FTS.PR.H / FTS.PR.I at 1.34%. On the junk side, three pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -0.78%; AIM.PR.A / AIM.PR.B at -0.89%; and BRF.PR.A / BRF.PR.B at -1.27%.

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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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	-1.4081 %	2,154.9
FixedFloater	0.00 %	0.00 %	0	0.00	0	-1.4081 %	3,767.7
Floater	3.56 %	3.61 %	62,517	18.20	3	-1.4081 %	2,290.8
OpRet	4.44 %	-13.79 %	26,594	0.09	2	0.0000 %	2,782.9
SplitShare	4.59 %	4.85 %	72,091	3.32	3	-0.5201 %	3,247.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,544.7
Perpetual-Premium	5.46 %	4.72 %	64,303	4.96	19	-0.1159 %	2,515.6
Perpetual-Discount	5.07 %	5.05 %	115,225	15.38	14	-0.1176 %	2,769.8
FixedReset	4.46 %	3.78 %	256,541	16.62	86	0.0047 %	2,379.4
Deemed-Retractible	4.99 %	3.36 %	109,308	0.71	34	-0.0760 %	2,632.5
FloatingReset	2.48 %	2.86 %	54,549	6.15	9	-0.0686 %	2,342.3

Performance Highlights
Issue	Index	Change	Notes
TRP.PR.F	FloatingReset	-1.73 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 18.75 Evaluated at bid price : 18.75 Bid-YTW : 3.32 %
BAM.PR.K	Floater	-1.69 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 13.96 Evaluated at bid price : 13.96 Bid-YTW : 3.61 %
BAM.PR.B	Floater	-1.40 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 14.10 Evaluated at bid price : 14.10 Bid-YTW : 3.58 %
PVS.PR.C	SplitShare	-1.23 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2017-12-10 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 4.89 %
BMO.PR.T	FixedReset	-1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 22.63 Evaluated at bid price : 23.57 Bid-YTW : 3.44 %
BAM.PR.C	Floater	-1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 13.95 Evaluated at bid price : 13.95 Bid-YTW : 3.61 %
ENB.PR.H	FixedReset	-1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 17.56 Evaluated at bid price : 17.56 Bid-YTW : 4.58 %
BNS.PR.Y	FixedReset	1.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.38 Bid-YTW : 2.95 %
ENB.PR.T	FixedReset	1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 19.40 Evaluated at bid price : 19.40 Bid-YTW : 4.58 %
GWO.PR.N	FixedReset	2.05 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.45 Bid-YTW : 6.59 %

Volume Highlights
Issue	Index	Shares Traded	Notes
HSE.PR.C	FixedReset	129,952	TD crossed blocks of 80,600 and 19,000, both at 25.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 23.07 Evaluated at bid price : 24.65 Bid-YTW : 4.10 %
ENB.PR.F	FixedReset	67,412	Scotia bought blocks of 10,000 and 10,400 at 19.00, then another 10,000 at 18.95, all from National. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 18.95 Evaluated at bid price : 18.95 Bid-YTW : 4.66 %
ENB.PR.Y	FixedReset	63,177	TD crossed 40,000 at 18.54. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 18.52 Evaluated at bid price : 18.52 Bid-YTW : 4.69 %
MFC.PR.B	Deemed-Retractible	33,665	RBC crossed 30,000 at 23.23. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.12 Bid-YTW : 5.68 %
BMO.PR.M	FixedReset	31,600	Scotia crossed 30,000 at 25.12. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.12 Bid-YTW : 2.92 %
ENB.PF.A	FixedReset	29,383	Scotia crossed 20,000 at 20.80. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 20.59 Evaluated at bid price : 20.59 Bid-YTW : 4.60 %
There were 24 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
RY.PR.K	FloatingReset	Quote: 24.40 – 25.00 Spot Rate : 0.6000 Average : 0.4111 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.40 Bid-YTW : 2.86 %
BMO.PR.T	FixedReset	Quote: 23.57 – 23.95 Spot Rate : 0.3800 Average : 0.2530 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 22.63 Evaluated at bid price : 23.57 Bid-YTW : 3.44 %
TRP.PR.G	FixedReset	Quote: 24.56 – 24.90 Spot Rate : 0.3400 Average : 0.2343 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 22.98 Evaluated at bid price : 24.56 Bid-YTW : 3.83 %
CU.PR.F	Perpetual-Discount	Quote: 22.57 – 22.99 Spot Rate : 0.4200 Average : 0.3166 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 22.22 Evaluated at bid price : 22.57 Bid-YTW : 4.99 %
TRP.PR.F	FloatingReset	Quote: 18.75 – 19.12 Spot Rate : 0.3700 Average : 0.2707 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 18.75 Evaluated at bid price : 18.75 Bid-YTW : 3.32 %
RY.PR.H	FixedReset	Quote: 23.85 – 24.19 Spot Rate : 0.3400 Average : 0.2546 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-04 Maturity Price : 22.77 Evaluated at bid price : 23.85 Bid-YTW : 3.41 %

Market Action

June 3, 2015

SEC Commissioner Daniel M. Gallagher has updated his Crazy Quilt Chart of Regulation:

Click for Full Version

SEC Chair Mary Jo White touts efforts to open up the market to smaller IPOs … but instead of simplifying the rules, they’re trying to create a web of exceptions:

Indeed, more than 20 states have enacted some form of intrastate crowdfunding legislation or rules, and a number of others are considering similar initiatives. As states are seeking to expand the avenues in which issuers may conduct intrastate offerings, we have focused on the fact that some of our laws and rules were put into place years ago prior to widespread use of the internet and may present challenges to the states’ efforts.

For example, Securities Act Rule 147, which you will be discussing today, created a safe harbor that issuers often rely on for intrastate offerings. Rule 147 was adopted in 1974, and how an issuer might conduct an intrastate offering using the internet was not contemplated at that time. The staff in the Division of Corporation Finance is currently considering ways to improve the rule, by looking at, among other things, the conditions included in the rule for an offering to be considered intrastate. Securities Act Rule 504, an exemption that could be used to facilitate regional crowdfunding offerings for up to $1 million that are registered in one or more states, is another rule that may benefit from modernization and the staff is considering ways to do that. We look forward to having your input on these topics and to hearing your thoughts on whether there are aspects of these or other rules that could be usefully updated or changed.

The global bond rout is becoming a headline standard:

The global bond rout gathered pace, with Japanese notes slipping a fourth day after Mario Draghi forecast faster euro-area inflation and continued market volatility. Australia’s dollar dropped as most Asian shares rose and oil held losses.

Yields on 10-year Japanese government bonds climbed 3 basis points to 0.49 percent by 11:51 a.m. in Tokyo, the highest level since November, while Australian yields increased for a third day. The Aussie declined 0.8 percent after data showed the nation’s exports slid in April. A measure of Chinese shares in Hong Kong and Japanese stocks advanced while U.S. index futures fell 0.1 percent. U.S. oil held below $60 a barrel before Friday’s OPEC meeting.

This year’s gains in global bonds evaporated as the European Central Bank chief inflamed a selloff in German bunds, saying price growth in the region would pick up further. Greece’s premier claimed to be near agreement with creditors, adding there was no need to worry about an International Monetary Fund payment due Friday.

Meanwhile – and related to the discussion on liquidity, below – there are dark mutterings about taper tantrum redux:

Prices on U.S. investment-grade bonds have fallen 1.1 percent in the first two days of June, a pace so fast it’s reminiscent of the notes’ 5 percent selloff in two months in 2013 when speculation emerged that the Federal Reserve was poised to scale back its bond buying. Bank of America Corp. strategists see the pain deepening from here.

The reason? Investors who like these bonds tend to prize safety and reliable returns above all. They plowed into corporate bonds, often instead of more-creditworthy notes such as U.S. Treasuries, for higher yields as the Fed purchased debt and held interest rates at record lows to ignite growth.

These buyers, in particular, don’t like to see losses on their monthly mutual-fund statements. When the prospects for their debt look shaky, they’ve often responded by yanking their money. And that’s what they’ll likely do now, according to Bank of America analysts.

“We expect high-grade fund flows to turn generally negative in line with the initial experience during the Taper Tantrum,” Hans Mikkelsen, a strategist in New York, wrote in a June 2 report. “Corporate bond prices are declining at a pace eerily similar to what we saw” during that selloff of 2013.

That year, U.S. bond funds reported record withdrawals as investors girded for a period of steadily rising debt yields — or, in other words, losses. Investors pulled more than $70 billion from bond mutual funds in 2013, according to TrimTabs Investment Research.

Matt Levine is one of my favourite columnists, if for no other reason than disproving the idea that PrefBlog hates everybody. He’s written a great column on bond market liquidity:

People are worried about bond market liquidity, is the point I’m trying to make here.

Should they be? I don’t know. I don’t even entirely know what the question means; it is really an assortment of interrelated questions. (What even is the “bond market”? Corporates? Treasuries? Loan ETFs?) Still I figured I would make a series of disconnected observations here, since this stuff keeps coming up.
…
The risk, it seems to me, can’t be located in the dealers (i.e. the banks). Volcker, capital requirements, etc., drive up the cost of immediacy, but they don’t increase the risk of a crash, because bond dealers were never in the business of buying all the bonds all the way down. If there’s a bond crash, the banks won’t be buying bonds, but they would never have been buying bonds in a crash. That was never their job.
…
People are also really worried about liquidity in the Treasury market, in ways that seem to me to be mostly unrelated to the worries about the corporate market. One obvious thing here is: Treasuries look much more like stocks than corporates do. Treasuries trade a lot on electronic exchanges, and banks are relatively unimportant in intermediating Treasury trades. “For Treasuries, the share of transactions by primary dealers has dwindled by more than half to 4 percent since the end of 2008,” with electronic traders like Citadel expanding their role as dealers, and the complaints about the Treasury market sound a lot like the complaints in the equity markets about human market makers being replaced by algorithmic traders.
…
The worries about the Treasury market seem to be largely microstructural; Pimco uses words like “flash crashes” and “air pockets,” not “crises” or “crashes.” The latest Treasury-market news is from ICAP, which “is studying the possibility of temporarily halting Treasurys trading following large price moves,” a classic idea imported from the equity markets. The idea is that sometimes algorithms lose their cool, and rather than letting markets chase the algorithms all the way down, you turn off the whole market for five minutes until human investors can get to their desks and realize that Treasuries are going for bargain prices. People hate flash crashes, and obviously they cause some people to lose money, but they have always struck me as sort of non-systemic, a technical glitch rather than a major fear. A sharp permanent drop in asset prices is scary. A sharp temporary drop in asset prices is kind of funny, honestly.

His first point, distinguishing the role of dealers in terms of liquidity provision vs. crash prevention, echoes the point I made yesterday when I mocked Nouriel Roubini.

Bloomberg published another illustration of the shift in holdings:

Click For Big

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 7bp, FixedResets off 24bp and DeemedRetractibles gaining 4bp. The Performance Highlights table is dominated by losing FixedResets. Volume was slightly below average.

PerpetualDiscounts now yield 5.07%, equivalent to 6.59% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.05%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 255bp, a meaningful narrowing from the 265bp reported May 27.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.50 to be $1.23 rich, while TRP.PR.B, which will reset June 30 at 2.152% (GOC5 + 128bp), is $0.64 cheap at its bid price of 14.57.

Click for Big

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 23.75 to be $0.88 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.42 to be $0.85 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.Z, resetting at +296bp on 2017-12-31, bid at 24.50 to be $0.40 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.91 and appears to be $0.59 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.10, looks $0.89 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.62 and is $0.45 rich.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.65%, including TRP.PR.A / TRP.PR.F at 1.12% and FTS.PR.H / FTS.PR.I at 1.43%. On the junk side, four pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -1.01%; AIM.PR.A / AIM.PR.B at -1.38%; BRF.PR.A / BRF.PR.B at -1.26%; and DC.PR.B / DC.PR.D at -1.75%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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	0.9476 %	2,185.6
FixedFloater	0.00 %	0.00 %	0	0.00	0	0.9476 %	3,821.5
Floater	3.51 %	3.55 %	61,508	18.34	3	0.9476 %	2,323.5
OpRet	4.44 %	-13.94 %	27,689	0.09	2	0.0000 %	2,782.9
SplitShare	4.57 %	4.36 %	72,102	3.32	3	0.6847 %	3,264.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,544.7
Perpetual-Premium	5.45 %	4.72 %	64,310	1.50	19	0.0538 %	2,518.5
Perpetual-Discount	5.07 %	5.07 %	116,220	15.37	14	0.0694 %	2,773.0
FixedReset	4.46 %	3.75 %	257,019	16.63	86	-0.2377 %	2,379.3
Deemed-Retractible	4.98 %	3.30 %	110,465	0.71	34	0.0404 %	2,634.5
FloatingReset	2.48 %	2.89 %	54,135	6.15	9	0.4976 %	2,343.9

Performance Highlights
Issue	Index	Change	Notes
CIU.PR.C	FixedReset	-3.85 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 15.75 Evaluated at bid price : 15.75 Bid-YTW : 3.72 %
TD.PF.B	FixedReset	-2.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 22.52 Evaluated at bid price : 23.35 Bid-YTW : 3.51 %
FTS.PR.M	FixedReset	-2.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 22.81 Evaluated at bid price : 24.00 Bid-YTW : 3.61 %
GWO.PR.N	FixedReset	-1.72 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.10 Bid-YTW : 6.84 %
TD.PF.C	FixedReset	-1.62 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 22.37 Evaluated at bid price : 23.14 Bid-YTW : 3.54 %
VNR.PR.A	FixedReset	-1.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 22.95 Evaluated at bid price : 23.74 Bid-YTW : 3.99 %
TRP.PR.A	FixedReset	-1.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 19.30 Evaluated at bid price : 19.30 Bid-YTW : 3.80 %
GWO.PR.P	Deemed-Retractible	-1.20 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.45 Bid-YTW : 5.14 %
TD.PF.A	FixedReset	-1.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 22.60 Evaluated at bid price : 23.53 Bid-YTW : 3.48 %
ENB.PR.B	FixedReset	-1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 18.56 Evaluated at bid price : 18.56 Bid-YTW : 4.58 %
HSE.PR.A	FixedReset	1.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 16.64 Evaluated at bid price : 16.64 Bid-YTW : 4.09 %
BAM.PR.N	Perpetual-Discount	1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 22.13 Evaluated at bid price : 22.54 Bid-YTW : 5.34 %
PVS.PR.D	SplitShare	1.40 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 24.60 Bid-YTW : 4.81 %
BAM.PF.D	Perpetual-Discount	2.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 23.12 Evaluated at bid price : 23.44 Bid-YTW : 5.30 %
BAM.PR.K	Floater	2.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 14.20 Evaluated at bid price : 14.20 Bid-YTW : 3.55 %
FTS.PR.I	FloatingReset	5.10 %	There was real trading today, with 4,636 shares changing hands, as opposed to yesterday’s quote, which was just a reasonable guess. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 16.50 Evaluated at bid price : 16.50 Bid-YTW : 3.09 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PR.B	FixedReset	227,636	Scotia crossed 205,700 at 18.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 18.56 Evaluated at bid price : 18.56 Bid-YTW : 4.58 %
CM.PR.Q	FixedReset	87,491	RBC crossed two blocks of 40,000 each, both at 24.91. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 23.08 Evaluated at bid price : 24.80 Bid-YTW : 3.64 %
BMO.PR.Q	FixedReset	62,859	TD Crossed blocks of 22,600 and 30,000, both at 23.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.50 Bid-YTW : 3.44 %
BNS.PR.M	Deemed-Retractible	55,025	Nesbitt crossed 15,000 at 25.45; TD crossed 31,300 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-27 Maturity Price : 25.25 Evaluated at bid price : 25.45 Bid-YTW : 1.89 %
TRP.PR.B	FixedReset	50,563	Desjardins crossed 35,000 at 14.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 14.57 Evaluated at bid price : 14.57 Bid-YTW : 3.77 %
ENB.PR.Y	FixedReset	46,616	Scotia crossed 40,000 at 18.55. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 18.53 Evaluated at bid price : 18.53 Bid-YTW : 4.68 %
There were 28 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
FTS.PR.M	FixedReset	Quote: 24.00 – 24.74 Spot Rate : 0.7400 Average : 0.4625 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 22.81 Evaluated at bid price : 24.00 Bid-YTW : 3.61 %
CIU.PR.C	FixedReset	Quote: 15.75 – 16.40 Spot Rate : 0.6500 Average : 0.4967 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 15.75 Evaluated at bid price : 15.75 Bid-YTW : 3.72 %
ENB.PR.B	FixedReset	Quote: 18.56 – 18.99 Spot Rate : 0.4300 Average : 0.2971 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 18.56 Evaluated at bid price : 18.56 Bid-YTW : 4.58 %
RY.PR.M	FixedReset	Quote: 24.37 – 24.74 Spot Rate : 0.3700 Average : 0.2544 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-03 Maturity Price : 22.90 Evaluated at bid price : 24.37 Bid-YTW : 3.59 %
MFC.PR.K	FixedReset	Quote: 23.32 – 23.74 Spot Rate : 0.4200 Average : 0.3070 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.32 Bid-YTW : 4.23 %
RY.PR.K	FloatingReset	Quote: 24.31 – 24.61 Spot Rate : 0.3000 Average : 0.2041 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.31 Bid-YTW : 2.92 %

Market Action

June 2, 2015

YiLi Chien of the St. Louis Fed writes a piece titled What Drives Long-Run Economic Growth?:

It has been shown, both theoretically and empirically, that technological progress is the main driver of long-run growth. The explanation is actually quite straightforward. Holding other input factors constant, the additional output obtained when adding one extra unit input of capital or labor will eventually decline, according to the law of diminishing returns. As a result, a country cannot maintain its long-run growth by simply accumulating more capital or labor. Therefore, the driver of long-run growth has to be technological progress.

Click for Legible

Good work by Canada, eh? We managed to beat Spain!

Nouriel Roubini, aka “Dr. Doom”, showed his total ignorance of markets:

So what accounts for the combination of macro liquidity and market illiquidity?
…
For starters, in equity markets, high-frequency traders (HFTs), who use algorithmic computer programs to follow market trends, account for a larger share of transactions. This creates, no surprise, herding behavior. Indeed, trading in the US nowadays is concentrated at the beginning and the last hour of the trading day, when HFTs are most active; for the rest of the day, markets are illiquid, with few transactions.

A second cause lies in the fact that fixed-income assets – such as government, corporate, and emerging-market bonds – are not traded in more liquid exchanges, as stocks are. Instead, they are traded mostly over the counter in illiquid markets.

Third, not only is fixed income more illiquid, but now most of these instruments – which have grown enormously in number, owing to the mushrooming issuance of private and public debts before and after the financial crisis – are held in open-ended funds that allow investors to exit overnight. Imagine a bank that invests in illiquid assets but allows depositors to redeem their cash overnight: if a run on these funds occurs, the need to sell the illiquid assets can push their price very low very fast, in what is effectively a fire sale.

Fourth, before the 2008 crisis, banks were market makers in fixed-income instruments. They held large inventories of these assets, thus providing liquidity and smoothing excess price volatility. But, with new regulations punishing such trading (via higher capital charges), banks and other financial institutions have reduced their market-making activity. So, in times of surprise that move bond prices and yields, the banks are not present to act as stabilizers.
…
This is the paradoxical result of the policy response to the financial crisis. Macro liquidity is feeding booms and bubbles; but market illiquidity will eventually trigger a bust and collapse.

With respect to his second point: exchange trading harms liquidity. It’s been shown time and time again … on an exchange, you get tighter spreads, but much less depth.

With respect to his fourth point … true enough as far as it goes, but it doesn’t go very far. Banks have been willing to keep large inventories for a few days, but not for much longer than that; and even then, only when their market intelligence gives them cause to believe that it’s just a greater than usual dose of greed or fear that’s causing a transient market move. When things are wild, they increase their spreads just as much as anybody else; when something fundamental is happening, they don’t stand in the way of the freight train. Their ability to smooth out transient spikes has been impaired by post-crisis regulation; they never had any ability to do more.

My own view is that post-crisis regulation has directly harmed liquidity of corporate bonds by the restrictions on inventory; but that it is financial repression that has harmed liquidity of Treasuries. New regulation has both increased the requirement for banks to hold treasuries, while the Fed’s low policy yields have decreased the incentive for anybody else to hold them. In fact, I will suggest that there are exactly two classes of investor holding US and Canadian government debt in significant size at the moment:

Regulated entities
Idiots

Remember the quotation from April 20:

Moreover, Gluskin Sheff + Associates chief economist David Rosenberg pointed out in a note to clients that 80 per cent of the new Treasuries supply over the past year have been bought by foreign central banks, pension funds, insurers, banks, and insurance companies.

If you want a liquid market, the most efficacious way of getting it is to ensure that the population of potential investors is heterogeneous … as much as possible, you want to ensure that no matter what is going on in the economy or in the marketplace, there is a broad group of participants who have a good reason to sell and a broad group of participants who have a good reason to buy. Treasury and Canada markets don’t have that at the moment.

But, on cue, there is some bearish growling from Europe:

Another bond market meltdown is brewing where the initial one began in April, in signs of a reinflating European economy.

Traders piled on sell orders from Germany to Italy on Tuesday as the first increase in consumer prices in the euro zone in six months suggests growth in the 19-nation economy and the risk of the return of the main nemesis of fixed-income investors: inflation.

SEC Commissioner Michael S. Piwowar made an interesting speech titled Capital Unbound: Remarks at the Cato Summit on Financial Regulation:

Over thirty years ago, economist Bruce Yandle famously coined the term “Bootleggers and Baptists” to describe a public choice theory of economics, which observes that, for regulation to endure, groups that otherwise have opposite points of view choose a regulatory structure that results in private benefits for both but perhaps is suboptimal for society.[1] In Yandle’s illustration, Baptists support laws that shut down all bars and liquor stores on Sundays. Bootleggers are also in favor of such laws, but for entirely different reasons. If Sunday closing laws are in place, both parties get their preferred outcome, and the rules are easy to administer. But if the problem is consumption of alcohol, Sunday closing laws merely shift the production and distribution of alcohol from one group — bars and liquor stores — to bootleggers, while giving a false impression that the public interest is being served. No pun intended.

Yandle described this regulatory approach as making complete sense, when viewed from the regulator’s perspective. A regulator, Yandle reasoned, is most focused on minimizing its costs, rather than the overall costs of the regulation. One example is the regulator’s cost of enforcement. A regulator may be inclined to favor rules that minimize the number of circumstances in which a mistake can be made; for instance, unless a lawmaker confuses the day of the week, it is clear under a Sunday closing law whether a bar or liquor store is required to be closed. It is less costly for a regulator to adopt simple, across-the-board rules that are easy to monitor and enforce than alternatives that take into account economic efficiency and distributional effects — how costs and benefits are distributed among different groups. One area where we see this result is private securities offerings.

I hadn’t realized that this concept was a formal economic theory!

I want to move beyond the artificial distinction between so-called “accredited” and “non-accredited” investors and challenge the notion that non-accredited investors are “being protected” when the government prohibits them from investing in high-risk securities. Here, I appeal to two well-known concepts from the field of financial economics. The first is the risk-return tradeoff. Because most investors are risk averse, riskier securities must offer investors higher returns. This means that prohibiting non-accredited investors from investing in high-risk securities is the same thing as prohibiting them from investing in high-return securities.

The second economic concept is modern portfolio theory. By holding a diversified portfolio of assets, investors reap the benefits of diversification; that is, the risk of the portfolio as a whole is lower than the risk of any individual asset. I do not have the time today to give a full lecture on the mathematics and statistics of portfolio diversification, so I will just assure you the correlation of returns is key. When adding higher-risk, higher-return securities to an existing portfolio, as long as the returns from the new securities are not perfectly positively correlated with (move in exactly the same direction as) the existing portfolio, investors can reap higher returns with little or no change in overall portfolio risk. In fact, if the correlations are low enough, the overall portfolio risk could actually decrease.

These two concepts show how even a well-intentioned investor protection policy can ultimately harm the very investors the policy is intended to protect. Moreover, restricting the number of accredited investors in the “privileged class” can have additional (or what economists call “second-order”) effects. The accredited investors may enjoy even higher returns because the non-accredited investors are prohibited from buying and bidding up the price of, high-risk, high-return securities. Remarkably, if you think about it, by allowing only high-income and high-net-worth individuals to reap the risk and return benefits from investing in certain securities, the government may actually exacerbate wealth inequality.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 23bp, FixedResets off 7bp and DeemedRetractibles down 9bp. Floaters got hammered (and, unusually, featured in the Volume Highlights, suggesting that somebody really wanted out!), but otherwise the Performance Highlights table is much shorter than has been the norm for the past six months! Volume was well below average.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.68 to be $1.30 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.59 cheap at its bid price of 24.80.

Click for Big

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 23.75 to be $0.84 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.00 to be $0.72 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.Z, resetting at +296bp on 2017-12-31, bid at 24.50 to be $0.36 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.97 and appears to be $0.67 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.14, looks $0.91 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.62 and is $0.31 rich.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.50%, and are very nicely clustered today. On the junk side, three pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -0.97%; AIM.PR.A / AIM.PR.B at -1.43%; and BRF.PR.A / BRF.PR.B at -1.38%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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	-2.8091 %	2,165.1
FixedFloater	0.00 %	0.00 %	0	0.00	0	-2.8091 %	3,785.6
Floater	3.54 %	3.60 %	60,998	18.24	3	-2.8091 %	2,301.7
OpRet	4.44 %	-14.09 %	28,776	0.09	2	0.0000 %	2,782.9
SplitShare	4.60 %	4.47 %	70,145	3.32	3	-0.2545 %	3,242.3
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,544.7
Perpetual-Premium	5.45 %	4.72 %	64,156	1.50	19	-0.1406 %	2,517.2
Perpetual-Discount	5.07 %	5.04 %	115,590	15.44	14	0.2329 %	2,771.1
FixedReset	4.45 %	3.74 %	260,257	16.56	86	-0.0721 %	2,385.0
Deemed-Retractible	4.98 %	3.42 %	110,781	0.88	34	-0.0902 %	2,633.5
FloatingReset	2.49 %	2.90 %	54,947	6.16	9	-0.1656 %	2,332.3

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.K	Floater	-3.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 13.90 Evaluated at bid price : 13.90 Bid-YTW : 3.63 %
BAM.PR.B	Floater	-3.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 14.29 Evaluated at bid price : 14.29 Bid-YTW : 3.53 %
BAM.PR.C	Floater	-1.96 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 14.02 Evaluated at bid price : 14.02 Bid-YTW : 3.60 %
BAM.PF.E	FixedReset	-1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 22.12 Evaluated at bid price : 22.72 Bid-YTW : 4.08 %
HSE.PR.A	FixedReset	-1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 16.75 Evaluated at bid price : 16.75 Bid-YTW : 4.16 %
TRP.PR.C	FixedReset	-1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 16.52 Evaluated at bid price : 16.52 Bid-YTW : 3.83 %
ENB.PF.E	FixedReset	-1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 20.48 Evaluated at bid price : 20.48 Bid-YTW : 4.65 %
ENB.PF.A	FixedReset	-1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 20.59 Evaluated at bid price : 20.59 Bid-YTW : 4.60 %
TRP.PR.F	FloatingReset	1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 18.91 Evaluated at bid price : 18.91 Bid-YTW : 3.29 %
BAM.PF.C	Perpetual-Discount	1.33 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 22.48 Evaluated at bid price : 22.88 Bid-YTW : 5.37 %
BAM.PR.M	Perpetual-Discount	1.94 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 22.24 Evaluated at bid price : 22.54 Bid-YTW : 5.35 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PR.T	FixedReset	86,200	RBC crossed blocks of 35,000 and 34,700, both at 19.35. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 19.31 Evaluated at bid price : 19.31 Bid-YTW : 4.60 %
ENB.PR.F	FixedReset	71,061	Nesbitt crossed 60,000 at 19.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 18.97 Evaluated at bid price : 18.97 Bid-YTW : 4.66 %
BAM.PR.C	Floater	54,189	TD crossed 47,400 at 14.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 14.02 Evaluated at bid price : 14.02 Bid-YTW : 3.60 %
RY.PR.D	Deemed-Retractible	52,290	RBC crossed 50,000 at 25.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.26 Bid-YTW : 3.20 %
BAM.PR.B	Floater	39,484	TD crossed 24,500 at 14.58. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 14.29 Evaluated at bid price : 14.29 Bid-YTW : 3.53 %
ENB.PF.A	FixedReset	28,475	Nesbitt crossed 12,000 at 20.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 20.59 Evaluated at bid price : 20.59 Bid-YTW : 4.60 %
There were 20 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
CM.PR.O	FixedReset	Quote: 24.13 – 24.65 Spot Rate : 0.5200 Average : 0.3823 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 22.90 Evaluated at bid price : 24.13 Bid-YTW : 3.43 %
BAM.PF.D	Perpetual-Discount	Quote: 22.96 – 23.47 Spot Rate : 0.5100 Average : 0.4108 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 22.56 Evaluated at bid price : 22.96 Bid-YTW : 5.41 %
PVS.PR.D	SplitShare	Quote: 24.26 – 24.62 Spot Rate : 0.3600 Average : 0.2639 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 24.26 Bid-YTW : 5.07 %
CU.PR.E	Perpetual-Discount	Quote: 24.58 – 24.85 Spot Rate : 0.2700 Average : 0.1743 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 24.12 Evaluated at bid price : 24.58 Bid-YTW : 4.99 %
CM.PR.P	FixedReset	Quote: 23.49 – 23.89 Spot Rate : 0.4000 Average : 0.3051 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 22.56 Evaluated at bid price : 23.49 Bid-YTW : 3.46 %
ELF.PR.F	Perpetual-Premium	Quote: 25.05 – 25.36 Spot Rate : 0.3100 Average : 0.2170 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-02 Maturity Price : 24.83 Evaluated at bid price : 25.05 Bid-YTW : 5.36 %

Market Action

June 1, 2015

Fed Vice Chairman Stanley Fischer reiterated Fed caution:

When it comes to describing how the Federal Reserve will exit the zero-rate era, “liftoff” is all wrong, says Vice Chairman Stanley Fischer.

The term, dear to investors and headline writers, “is the most misleading word you can imagine,” he said on Monday in Toronto.

“Liftoff says we’re going straight up with the interest rate,” Fischer said during a question-and-answer session after a speech on financial crises. “Well, we’re going up with the interest rate, then along, and then another little jump. That’s not liftoff, that’s crawling.”

His remarks underline a theme hammered home by Fed officials in recent weeks: They won’t follow a predictable path in raising rates, and instead will be guided by the latest economic data.

This is a nice try – a very nice try – but only one shift? Regrettably, it belongs in the “stunt” category:

After Starboard Value took over the board of Darden Restaurants Inc., the hedge fund wanted its newly minted directors to have a feel for the business. So it put them to work.

Every board member worked a night in a restaurant, said Starboard Chief Executive Officer Jeff Smith, who also is Darden’s chairman. Smith said he waited on tables and served food in the kitchen.

“It was not undercover — everyone knew,” Smith said in an interview on Bloomberg Television’s “Market Makers” with Stephanie Ruhle and Erik Schatzker. “It was an amazing experience. We felt we could not make the decisions without knowing what was happening in the restaurants.”

Hopefully, the directors are spending a lot of time in the restaurants, talking to staff, even if they’re not trying to prove they’re mennathepeople.

I have more education complaints, this time about attracting foreign students to Canada:

Canadian officials are finding it difficult to keep up with the increasing demand from international students, leading to waiting times for visas that are weeks longer than those in Britain or the United States, and reducing the program’s competitiveness.

The lengthy timelines are contained in a report from Citizenship and Immigration Canada (CIC), obtained by The Globe and Mail through freedom of information legislation. While the federal government wants to double the number of students from abroad by 2022, it has not provided sufficient resources to process the increased numbers, the report says. CIC blames this “lack of coordination” between federal departments for an increase of 30 per cent in processing times for study permits and a doubling of the time for temporary resident visas.
…
The report also recommends clarifying what role international students play in Canada’s overall immigration strategy. The goal of doubling student numbers was set by a 2012 panel as a way to fill labour-market shortages and increase global economic links. But those economic needs can’t be met without government co-ordination, said the panel’s chair.

Foreign students are great! They pay high fees (and therefore probably come from reasonably well-off families), they may well immigrate – with Canadian qualifications, which will help get a first job – and if they don’t immigrate, then they’ll at least live their lives not only knowing that we don’t all live in igloos, but (with luck) having a soft spot for us. I cannot understand why this programme is understaffed.

It was another disappointing day for the Canadian preferred share market, with PerpetualDiscounts down 2bp, FixedResets losing 19bp and DeemedRetractibles off 1bp. The lengthy Performance Highlights table is dominated by losing FixedResets. Volume was average.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.50 to be $1.10 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.68 cheap at its bid price of 24.76.

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Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 23.60 to be $0.64 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.01 to be $0.69 cheap.

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The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.90 to be $0.43 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.91 and appears to be $0.56 rich.

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FTS.PR.H, with a spread of +145bp, and bid at 16.06, looks $0.92 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.79 and is $0.47 rich.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.50%, and are very nicely clustered today. On the junk side, four pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -1.02%; AIM.PR.A / AIM.PR.B at -0.91%; BRF.PR.A / BRF.PR.B at -1.83%; and FFH.PR.C / FFH.PR.D at +1.00%.

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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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	-1.4746 %	2,227.7
FixedFloater	0.00 %	0.00 %	0	0.00	0	-1.4746 %	3,895.1
Floater	3.45 %	3.50 %	56,594	18.45	3	-1.4746 %	2,368.2
OpRet	4.44 %	-14.24 %	29,960	0.09	2	0.0395 %	2,782.9
SplitShare	4.59 %	4.47 %	68,554	3.33	3	-0.2005 %	3,250.6
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0395 %	2,544.7
Perpetual-Premium	5.45 %	3.99 %	61,593	0.41	19	0.0434 %	2,520.7
Perpetual-Discount	5.08 %	5.06 %	115,767	15.38	14	-0.0151 %	2,764.7
FixedReset	4.44 %	3.76 %	264,096	16.58	86	-0.1933 %	2,386.7
Deemed-Retractible	4.98 %	3.41 %	107,115	0.88	34	-0.0059 %	2,635.8
FloatingReset	2.43 %	2.91 %	54,502	6.14	8	-0.0907 %	2,336.2

Performance Highlights
Issue	Index	Change	Notes
TRP.PR.B	FixedReset	-3.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 14.71 Evaluated at bid price : 14.71 Bid-YTW : 3.73 %
TRP.PR.A	FixedReset	-2.95 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 19.41 Evaluated at bid price : 19.41 Bid-YTW : 3.78 %
SLF.PR.G	FixedReset	-2.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.63 Bid-YTW : 7.19 %
FTS.PR.H	FixedReset	-1.95 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 16.06 Evaluated at bid price : 16.06 Bid-YTW : 3.70 %
BAM.PR.K	Floater	-1.84 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 14.38 Evaluated at bid price : 14.38 Bid-YTW : 3.50 %
ENB.PR.F	FixedReset	-1.66 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 19.01 Evaluated at bid price : 19.01 Bid-YTW : 4.65 %
ENB.PR.B	FixedReset	-1.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 18.76 Evaluated at bid price : 18.76 Bid-YTW : 4.53 %
TRP.PR.F	FloatingReset	-1.47 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 18.72 Evaluated at bid price : 18.72 Bid-YTW : 3.33 %
BAM.PR.C	Floater	-1.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 14.30 Evaluated at bid price : 14.30 Bid-YTW : 3.52 %
ENB.PR.J	FixedReset	-1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 4.54 %
BAM.PR.B	Floater	-1.21 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 14.75 Evaluated at bid price : 14.75 Bid-YTW : 3.41 %
ENB.PR.Y	FixedReset	-1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 18.46 Evaluated at bid price : 18.46 Bid-YTW : 4.70 %
CU.PR.D	Perpetual-Discount	-1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 24.14 Evaluated at bid price : 24.60 Bid-YTW : 4.98 %
ENB.PR.P	FixedReset	-1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 19.28 Evaluated at bid price : 19.28 Bid-YTW : 4.60 %
ENB.PR.H	FixedReset	-1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 17.75 Evaluated at bid price : 17.75 Bid-YTW : 4.53 %
IAG.PR.G	FixedReset	-1.04 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.82 Bid-YTW : 3.95 %
BAM.PR.X	FixedReset	-1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 18.21 Evaluated at bid price : 18.21 Bid-YTW : 4.07 %
BAM.PF.F	FixedReset	-1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 23.03 Evaluated at bid price : 24.50 Bid-YTW : 3.97 %
GWO.PR.S	Deemed-Retractible	1.28 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 26.20 Bid-YTW : 4.60 %
BAM.PF.C	Perpetual-Discount	1.35 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 22.23 Evaluated at bid price : 22.58 Bid-YTW : 5.45 %
MFC.PR.F	FixedReset	1.40 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.10 Bid-YTW : 6.40 %
GWO.PR.N	FixedReset	1.53 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.30 Bid-YTW : 6.69 %
MFC.PR.L	FixedReset	1.72 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.60 Bid-YTW : 4.15 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CU.PR.F	Perpetual-Discount	174,900	Desjardins crossed 166,700 at 22.70. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 22.29 Evaluated at bid price : 22.65 Bid-YTW : 4.97 %
MFC.PR.A	OpRet	100,240	Called for redemption 2015-6-19. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-19 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 3.19 %
ENB.PR.D	FixedReset	29,342	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 18.68 Evaluated at bid price : 18.68 Bid-YTW : 4.56 %
SLF.PR.G	FixedReset	26,478	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.63 Bid-YTW : 7.19 %
BAM.PR.T	FixedReset	24,862	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 21.49 Evaluated at bid price : 21.85 Bid-YTW : 3.85 %
BNS.PR.Z	FixedReset	24,065	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.73 Bid-YTW : 3.33 %
There were 30 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
POW.PR.A	Perpetual-Premium	Quote: 25.54 – 26.49 Spot Rate : 0.9500 Average : 0.5414 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-01 Maturity Price : 25.00 Evaluated at bid price : 25.54 Bid-YTW : -11.39 %
PWF.PR.P	FixedReset	Quote: 18.32 – 18.99 Spot Rate : 0.6700 Average : 0.4250 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 18.32 Evaluated at bid price : 18.32 Bid-YTW : 3.57 %
TRP.PR.A	FixedReset	Quote: 19.41 – 19.93 Spot Rate : 0.5200 Average : 0.3772 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 19.41 Evaluated at bid price : 19.41 Bid-YTW : 3.78 %
VNR.PR.A	FixedReset	Quote: 24.10 – 24.56 Spot Rate : 0.4600 Average : 0.3233 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 23.13 Evaluated at bid price : 24.10 Bid-YTW : 3.92 %
TRP.PR.B	FixedReset	Quote: 14.71 – 15.13 Spot Rate : 0.4200 Average : 0.3101 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 14.71 Evaluated at bid price : 14.71 Bid-YTW : 3.73 %
ENB.PR.J	FixedReset	Quote: 20.30 – 20.60 Spot Rate : 0.3000 Average : 0.2103 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-01 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 4.54 %

Market Action

May 29, 2015

There was some unpleasant Canadian economic news:

Canada’s economy shrank between January and March, the first contraction in four years and the largest since the 2009 recession as collapsing energy prices prompted a plunge in business investment.

Gross domestic product fell at a 0.6 percent annualized pace in the first quarter, Statistics Canada said Friday in Ottawa. The drop exceeded all 22 economist forecasts in a Bloomberg News survey, in which the median call was for an expansion of 0.3 percent. The agency revised its fourth-quarter growth estimate to 2.2 percent, from 2.4 percent previously.
…
Canada’s dollar weakened 0.7 percent to C$1.2521 per U.S. dollar at 9:20 a.m. Toronto time. Government bond yields fell, with debt due in two years down 4 basis points to 0.58 percent.

In the U.S., gross domestic product shrank at a 0.7 percent annualized rate, revised from a previously reported 0.2 percent gain, according to Commerce Department figures issued Friday in Washington.
…
Business gross fixed capital formation — or business investment — fell at a 9.7 percent annualized pace in the first quarter, the most since the first three months of 2009. Support activities for mining and oil and gas extraction fell by 30 percent.

Consumer spending growth slowed to an annualized 0.4 percent rate, the slowest since the start of 2009, from 2.1 percent in the fourth quarter. Transportation fell for the first time in 10 quarters, as vehicle purchases declined.

Exports fell 1.1 percent, the second straight quarterly decline. Imports dropped 1.5 percent.

Crude oil is Canada’s top export, and lower prices triggered a deterioration in housing markets in Alberta, site of major oil sands deposits.

On a monthly basis, Canada’s gross domestic product fell 0.2 percent in March, the third straight decline. The contraction was led by a 2.6 percent fall in mining, quarrying, and oil and gas extraction. Economists forecast a monthly GDP expansion of 0.2 percent.

Returning to yesterday‘s scandalmongering, there are rumours that Hastert was blackmailed due to a little old-fashioned pederasty in the ’80’s (some might say, “old school”). But what really gets my goat is the smarmy propaganda from the IRS:

The USA PATRIOT Act of 2001 increased the scope of these laws to help trace funds used for terrorism.

Ha! There’s even more bullshit from the FBI, although they now admit the Patriot Act hasn’t accomplished much vis a vis terror. However, that hasn’t stopped the sleazebags in Canada from cranking up the old fearometer, although it doesn’t work as well as it used to.

The month closed with another poor day for the Canadian preferred share market, with PerpetualDiscounts down 12bp, FixedResets losing 27bp and DeemedRetractibles off 9bp. A lengthy Performance Highlights table is notable for the number of FixedReset losers. Volume was slightly below average.

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.70 to be $1.05 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.70 cheap at its bid price of 24.82.

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Most expensive is MFC.PR.M, resetting at +236 on 2019-12-19, bid at 24.26 to be $0.49 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.05 to be $0.66 cheap.

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The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.90 to be $0.48 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.90 and appears to be $0.51 rich.

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FTS.PR.H, with a spread of +145bp, and bid at 16.38, looks $0.65 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.80 and is $0.38 rich.

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Investment-grade pairs predict an average over the next five-odd years of about 0.45%, and the TRP.PR.A / TRP.PR.F pair is no longer an abnormal outlier. On the junk side, four pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -1.09%; AIM.PR.A / AIM.PR.B at -0.71%; BRF.PR.A / BRF.PR.B at -0.60%; and FFH.PR.C / FFH.PR.D at +1.12%.

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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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	0.2097 %	2,261.0
FixedFloater	0.00 %	0.00 %	0	0.00	0	0.2097 %	3,953.4
Floater	3.21 %	3.37 %	54,815	18.76	4	0.2097 %	2,403.6
OpRet	4.44 %	-12.58 %	31,193	0.09	2	0.0593 %	2,781.8
SplitShare	4.58 %	4.46 %	69,276	3.33	3	-0.0801 %	3,257.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0593 %	2,543.7
Perpetual-Premium	5.46 %	4.71 %	61,897	0.58	18	0.0524 %	2,519.6
Perpetual-Discount	5.09 %	5.07 %	116,873	15.37	15	-0.1207 %	2,765.1
FixedReset	4.46 %	3.80 %	266,309	16.46	86	-0.2661 %	2,391.3
Deemed-Retractible	4.98 %	3.47 %	108,299	0.58	34	-0.0860 %	2,636.0
FloatingReset	2.55 %	2.93 %	59,748	6.14	7	-0.0304 %	2,338.3

Performance Highlights
Issue	Index	Change	Notes
GWO.PR.N	FixedReset	-2.99 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.04 Bid-YTW : 7.03 %
TRP.PR.C	FixedReset	-2.62 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 16.75 Evaluated at bid price : 16.75 Bid-YTW : 3.98 %
SLF.PR.H	FixedReset	-2.34 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.73 Bid-YTW : 5.02 %
MFC.PR.B	Deemed-Retractible	-2.03 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.22 Bid-YTW : 5.61 %
BAM.PF.C	Perpetual-Discount	-1.85 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 21.96 Evaluated at bid price : 22.28 Bid-YTW : 5.52 %
MFC.PR.K	FixedReset	-1.69 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.20 Bid-YTW : 4.38 %
BMO.PR.T	FixedReset	-1.36 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 22.78 Evaluated at bid price : 23.89 Bid-YTW : 3.50 %
RY.PR.Z	FixedReset	-1.35 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 22.90 Evaluated at bid price : 24.10 Bid-YTW : 3.45 %
TRP.PR.D	FixedReset	-1.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 22.29 Evaluated at bid price : 22.90 Bid-YTW : 3.85 %
SLF.PR.G	FixedReset	-1.22 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.99 Bid-YTW : 7.09 %
IFC.PR.C	FixedReset	-1.18 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.26 Bid-YTW : 4.26 %
TRP.PR.B	FixedReset	-1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 15.24 Evaluated at bid price : 15.24 Bid-YTW : 3.83 %
ENB.PR.H	FixedReset	-1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 17.95 Evaluated at bid price : 17.95 Bid-YTW : 4.64 %
TD.PF.B	FixedReset	-1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 22.72 Evaluated at bid price : 23.74 Bid-YTW : 3.55 %
MFC.PR.C	Deemed-Retractible	-1.04 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.83 Bid-YTW : 5.67 %
CM.PR.O	FixedReset	-1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 22.75 Evaluated at bid price : 23.81 Bid-YTW : 3.61 %
NA.PR.W	FixedReset	-1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 22.86 Evaluated at bid price : 24.15 Bid-YTW : 3.47 %
BMO.PR.W	FixedReset	-1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 22.58 Evaluated at bid price : 23.51 Bid-YTW : 3.54 %
BIP.PR.A	FixedReset	1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 23.05 Evaluated at bid price : 24.71 Bid-YTW : 4.62 %
TRP.PR.F	FloatingReset	1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 3.32 %
ENB.PR.F	FixedReset	1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 19.33 Evaluated at bid price : 19.33 Bid-YTW : 4.72 %
BAM.PR.B	Floater	1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 14.93 Evaluated at bid price : 14.93 Bid-YTW : 3.37 %
CIU.PR.C	FixedReset	1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 16.56 Evaluated at bid price : 16.56 Bid-YTW : 3.75 %

Volume Highlights
Issue	Index	Shares Traded	Notes
HSE.PR.C	FixedReset	105,036	TD crossed 88,500 at 24.99. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 23.16 Evaluated at bid price : 24.92 Bid-YTW : 4.21 %
HSE.PR.A	FixedReset	96,175	TD crossed 88,500 at 17.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 16.95 Evaluated at bid price : 16.95 Bid-YTW : 4.28 %
BNS.PR.Z	FixedReset	54,670	RBC bought 15,000 from Nesbitt at 23.69, then crossed 14,700 at 23.75. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.52 Bid-YTW : 3.60 %
CU.PR.E	Perpetual-Discount	50,350	Desjardins crossed 48,200 at 24.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 24.32 Evaluated at bid price : 24.78 Bid-YTW : 4.94 %
RY.PR.D	Deemed-Retractible	38,847	Nesbitt crossed 28,000 at 25.32. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-06-28 Maturity Price : 25.25 Evaluated at bid price : 25.32 Bid-YTW : 1.82 %
BMO.PR.M	FixedReset	37,165	Scotia crossed 35,700 at 25.10. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.10 Bid-YTW : 2.99 %
There were 28 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.N	FixedReset	Quote: 23.91 – 24.65 Spot Rate : 0.7400 Average : 0.5463 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.91 Bid-YTW : 4.13 %
POW.PR.G	Perpetual-Premium	Quote: 26.10 – 26.59 Spot Rate : 0.4900 Average : 0.3372 YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-15 Maturity Price : 25.00 Evaluated at bid price : 26.10 Bid-YTW : 4.89 %
BAM.PF.C	Perpetual-Discount	Quote: 22.28 – 22.74 Spot Rate : 0.4600 Average : 0.3288 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 21.96 Evaluated at bid price : 22.28 Bid-YTW : 5.52 %
BMO.PR.T	FixedReset	Quote: 23.89 – 24.20 Spot Rate : 0.3100 Average : 0.1935 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-29 Maturity Price : 22.78 Evaluated at bid price : 23.89 Bid-YTW : 3.50 %
HSB.PR.C	Deemed-Retractible	Quote: 25.40 – 25.80 Spot Rate : 0.4000 Average : 0.2839 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-06-28 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : -4.41 %
IFC.PR.C	FixedReset	Quote: 24.26 – 24.64 Spot Rate : 0.3800 Average : 0.2672 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.26 Bid-YTW : 4.26 %

Market Action

May 28, 2015

There’s more handwringing about liquidity problems:

Matt King, Citigroup’s global head of credit strategy, believes Hotel Californias – credit investments where underlying liquidity will dry up quickly in the event of a sell-off – are everywhere in the current market. “… [A]lmost every institutional investor, in almost every market, seems worried about liquidity. Even if it’s here today, they fear it will be gone tomorrow. The growing frequency of ‘flash crashes’ and [similar but less severe] ‘air pockets’ – often without obvious cause – adds weight to their fears.”

Mr. King describes a number of reasons for these liquidity-driven bouts of volatility. These include the low trading volume for the underlying holdings of high-yield bond ETFs, regulations that limit market-making activities for major global banks and the huge global growth in open-ended mutual-fund investments. (Open-ended funds guarantee daily liquidity even if the fund holdings are illiquid and hard to sell.)

Above all, however, Mr. King singles out a familiar target.

“Central bank distortions have forced investors into positions they would not have held otherwise, and forced them to be the ‘same way round’ [similarly positioned in the market with overweights and underweights] to a much greater extent than previously …. Every so often, when they start to doubt their convictions, they find that the clearing price for risk as they try to reverse positions is nowhere near where they’d expected.”

There’s a scandal brewing:

Former Speaker of the U.S. House of Representatives Dennis Hastert was indicted by a federal grand jury on charges that he evaded currency-reporting requirements and lied to the FBI as part of a hush-money scheme.

Hastert, 73, withdrew $952,000 in small increments to avoid a requirement that banks report cash transactions exceeding $10,000, the U.S. Justice Department said Thursday. The withdrawals were part of a plan to give an individual who wasn’t named $3.5 million as a payoff to conceal “prior misconduct,” Chicago U.S. Attorney Zachary Fardon said in a statement.

Hastert, a Republican from Plano, Illinois, served in the House from 1987 to 2007. He became the chamber’s speaker — second in line of succession to the U.S. presidency — in 1999.

Starting in July 2012, Hastert began structuring withdrawals in increments of less than $10,000 to evade currency transaction reports, prosecutors said. Later, when questioned by agents of the Federal Bureau of Investigation, he told them he was keeping the cash, they said.

So it looks like ridiculously intrusive banking laws (and an FBI investigation of something that does not appear to be a crime!) seems to have caught another stupid person. Perhaps he can talk to Elliot Spitzer about his problems; but if he permitted himself to be blackmailed, there’s something really pathetic going on. But look at the indictment! Police snoopery run amok:

In approximately 2013, the Federal Bureau of Investigation and Internal Revenue Service, agencies within the executive branch of the Government of the United States, began investigating defendant JOHN DENNIS HASTERT’s cash withdrawals as possible structuring of currency transactions to evade the reporting requirements described above.

As of December 8, 2014, the following matters, among others, were material to the Federal Bureau of Investigation and Internal Revenue Service regarding possible structuring by defendant JOHN DENNIS HASTERT:

i. Whether defendant JOHN DENNIS HASTERT was withdrawing less than $10,000 in cash at a time in order to evade currency transaction reporting requirements;
ii. Whether defendant JOHN DENNIS HASTERT was using the cash he was withdrawing to cover up past misconduct;
iii. Whether defendant JOHN DENNIS HASTERT was using the cash he was withdrawing for a criminal purpose;
iv. Whether defendant JOHN DENNIS HASTERT was the victim of a criminal extortion related to, among other matters, his prior positions in government and was giving the cash to another individual as payment; and
v. Whether defendant JOHN DENNIS HASTERT was using the cash for some other purpose, not related to a crime or past misconduct.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 6bp, FixedResets off 8bp and DeemedRetractibles up 29bp. Sun Life and Manulife DeemedRetractibles were notable winners in the Performance Highlights table. Volume was below average.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.90 to be $1.07 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.66 cheap at its bid price of 24.95.

Click for Big

Most expensive is MFC.PR.M, resetting at +236 on 2019-12-19, bid at 24.41 to be $0.52 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.05 to be $0.79 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 21.00 to be $0.51 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.71 and appears to be $0.43 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.31, looks $0.74 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.61 and is $0.30 rich.

Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.50%, including the TRP.PR.A / TRP.PR.F at -0.09%. On the junk side, four pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -0.99%; AIM.PR.A / AIM.PR.B at -0.79%; BRF.PR.A / BRF.PR.B at -1.51%; and FFH.PR.C / FFH.PR.D at +1.00%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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	-0.9901 %	2,256.3
FixedFloater	0.00 %	0.00 %	0	0.00	0	-0.9901 %	3,945.1
Floater	3.22 %	3.41 %	52,188	18.66	4	-0.9901 %	2,398.6
OpRet	4.45 %	-11.04 %	29,269	0.10	2	-0.0198 %	2,780.2
SplitShare	4.57 %	4.48 %	65,909	3.34	3	0.1605 %	3,259.7
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0198 %	2,542.2
Perpetual-Premium	5.46 %	3.27 %	61,233	0.42	18	-0.0371 %	2,518.3
Perpetual-Discount	5.08 %	5.07 %	118,162	15.38	15	0.0618 %	2,768.4
FixedReset	4.44 %	3.79 %	269,590	16.43	86	-0.0802 %	2,397.7
Deemed-Retractible	4.96 %	3.54 %	107,199	0.73	34	0.2866 %	2,638.3
FloatingReset	2.55 %	2.88 %	60,227	6.15	7	-0.0767 %	2,339.0

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.C	Floater	-2.41 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 14.55 Evaluated at bid price : 14.55 Bid-YTW : 3.46 %
BAM.PR.B	Floater	-2.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 14.75 Evaluated at bid price : 14.75 Bid-YTW : 3.41 %
ENB.PR.F	FixedReset	-2.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 19.10 Evaluated at bid price : 19.10 Bid-YTW : 4.78 %
FTS.PR.H	FixedReset	-2.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 16.31 Evaluated at bid price : 16.31 Bid-YTW : 3.86 %
BAM.PR.K	Floater	-1.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 14.65 Evaluated at bid price : 14.65 Bid-YTW : 3.44 %
ENB.PR.D	FixedReset	-1.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 18.68 Evaluated at bid price : 18.68 Bid-YTW : 4.72 %
MFC.PR.F	FixedReset	-1.53 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.00 Bid-YTW : 6.61 %
MFC.PR.L	FixedReset	-1.27 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.35 Bid-YTW : 4.35 %
TRP.PR.F	FloatingReset	-1.23 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 18.80 Evaluated at bid price : 18.80 Bid-YTW : 3.35 %
BAM.PR.R	FixedReset	-1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 4.19 %
BNS.PR.Z	FixedReset	-1.10 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.45 Bid-YTW : 3.65 %
SLF.PR.B	Deemed-Retractible	1.05 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.10 Bid-YTW : 5.25 %
SLF.PR.A	Deemed-Retractible	1.10 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.96 Bid-YTW : 5.28 %
SLF.PR.E	Deemed-Retractible	1.11 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.80 Bid-YTW : 5.67 %
SLF.PR.C	Deemed-Retractible	1.16 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.67 Bid-YTW : 5.69 %
MFC.PR.C	Deemed-Retractible	1.27 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.07 Bid-YTW : 5.53 %
MFC.PR.B	Deemed-Retractible	1.33 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.70 Bid-YTW : 5.34 %
ENB.PR.J	FixedReset	1.37 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 20.72 Evaluated at bid price : 20.72 Bid-YTW : 4.58 %
MFC.PR.N	FixedReset	1.56 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.02 Bid-YTW : 4.07 %
PWF.PR.A	Floater	1.98 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 18.05 Evaluated at bid price : 18.05 Bid-YTW : 2.78 %
SLF.PR.H	FixedReset	2.72 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.25 Bid-YTW : 4.72 %
GWO.PR.N	FixedReset	3.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.80 Bid-YTW : 6.65 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.M	FixedReset	87,369	Desjardins crossed 81,600 at 24.70. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 23.00 Evaluated at bid price : 24.62 Bid-YTW : 3.64 %
ENB.PR.Y	FixedReset	83,504	Scotia crossed 75,400 at 18.85. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 18.83 Evaluated at bid price : 18.83 Bid-YTW : 4.75 %
HSE.PR.A	FixedReset	49,730	TD crossed 40,000 at 17.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 17.12 Evaluated at bid price : 17.12 Bid-YTW : 4.23 %
HSE.PR.C	FixedReset	47,415	TD crossed 37,500 at 24.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 23.12 Evaluated at bid price : 24.80 Bid-YTW : 4.24 %
BNS.PR.R	FixedReset	35,700	Nesbitt crossed 20,000 at 25.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 3.21 %
BNS.PR.Z	FixedReset	26,500	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.45 Bid-YTW : 3.65 %
There were 25 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
TD.PF.B	FixedReset	Quote: 24.00 – 24.45 Spot Rate : 0.4500 Average : 0.3081 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 22.84 Evaluated at bid price : 24.00 Bid-YTW : 3.50 %
BNS.PR.Z	FixedReset	Quote: 23.45 – 23.83 Spot Rate : 0.3800 Average : 0.2391 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.45 Bid-YTW : 3.65 %
TRP.PR.F	FloatingReset	Quote: 18.80 – 19.28 Spot Rate : 0.4800 Average : 0.3469 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 18.80 Evaluated at bid price : 18.80 Bid-YTW : 3.35 %
FTS.PR.H	FixedReset	Quote: 16.31 – 16.65 Spot Rate : 0.3400 Average : 0.2256 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 16.31 Evaluated at bid price : 16.31 Bid-YTW : 3.86 %
BAM.PF.A	FixedReset	Quote: 24.51 – 24.79 Spot Rate : 0.2800 Average : 0.1730 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 23.15 Evaluated at bid price : 24.51 Bid-YTW : 4.09 %
BNS.PR.Y	FixedReset	Quote: 23.21 – 23.50 Spot Rate : 0.2900 Average : 0.1875 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.21 Bid-YTW : 3.10 %

Market Action

May 27, 2015

The Bank of Canada didn’t move today:

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.

Inflation in Canada continues to track the path outlined in the Bank’s April Monetary Policy Report (MPR). Total CPI inflation is near the bottom of the Bank’s 1 to 3 per cent inflation control range, largely due to the transitory effects of sharply lower energy prices. Core inflation remains above 2 per cent, boosted by the pass-through effects of past depreciation of the Canadian dollar, as well as certain sector-specific factors. Seeing through the various temporary factors, the Bank estimates that the underlying trend of inflation is 1.6 to 1.8 per cent, consistent with persistent slack in the economy.

The outlook for the Canadian economy also remains largely in line with the April MPR. While a weak first quarter in the United States has raised questions about that economy’s underlying strength, the Bank expects a return to solid growth in the second quarter. This will help advance the rotation of demand in Canada toward more exports and business investment. Recent indicators suggest consumption in Canada is holding up relatively well, given the impact of lower oil prices on gross domestic income.

Despite the recent back-up in global bond yields, financial conditions for Canadian households and firms remain highly stimulative. The Canadian dollar has strengthened in recent weeks in the context of higher oil prices and a softer U.S. dollar. If these developments are sustained, their net effect will need to be assessed as more data become available in the months ahead.

Although a number of complex adjustments are under way, the Bank’s assessment of risks to the inflation profile has not materially changed. Risks to financial stability remain elevated, but appear to be evolving as expected. Weighing all of these risks, the Bank judges that the current degree of monetary policy stimulus remains appropriate and therefore the target for the overnight rate remains at 3/4 per cent.

John Heinzl had an interview with Nicolas Normandeau, the manager of the $430-million Horizons Active Preferred Share ETF (HPR):

He was on the other end of the trades scooping up shares at fire-sale prices.

“During the selloff I was buying everything,” said the manager of the $430-million Horizons Active Preferred Share ETF (HPR). “I was buying about $4-million to $5-million a day. That’s a big number.”
…
Faced with falling shares prices and reduced dividend income, many preferred shareholders panicked – particularly retail investors, Mr. Normandeau said. “They were just selling every issue they have,” he said. That’s when he started aggressively investing the cash he had been accumulating.

His timing worked out well. Preferred share prices have rebounded in recent weeks and, although he’s not buying as aggressively as he was in late 2014 and early 2015, he still thinks many rate-reset preferreds offer attractive potential returns – and acceptable interest rate risks – at current levels.

Market timing, feh. Live by the sword, die by the sword. He’s doing pretty well on a three-year basis … but with market timing you’ve got to be right all the time.

Yesterday I expressed my approbation of the plan to allow voluntary contributions to the Canada Pension Plan. It would seem I’m not the only one:

“We think it’s a good proposal,” said Graham Smith, senior policy adviser at the Investment Funds Institute of Canada, which advocates on behalf of the investment industry.

Ian Russell, president and chief executive of the Investment Industry Association of Canada, also sounded upbeat.

“It provides Canadians with another option,” he said.
…
Don Drummond, a professor at Queen’s University and former chief economist at Toronto-Dominion Bank, pointed out that mutual fund fees are particularly hard for investors to stomach in a low-return environment.

The industry would likely have to respond to competition for savers’ assets by cutting fees, or creating new genres of investment vehicles that stand apart from what the CPP Fund offers.

Mr. Drummond said people will love the option of contributing extra funds to the CPP, which could override any concerns voiced from the investment industry during the upcoming consultations on the issue.

In any case, he noted, the investment industry tends to chase people who have savings of more than $600,000 – a relatively small slice of the population that might not be significantly swayed by the potential for a bigger CPP contribution.

Mr. Drummond is an optimist. It would be far more logical to raise mutual fund fees so salesmen can be paid a bigger trailer.

As far as industry reaction is concerned, I’m looking forward to competition from deferred annuities, with a little head-to-head competition between the CPPIB and the insurance companies.

However, opinion is not unanimous, or at least it wasn’t five years ago:

The Conservative government rejected a voluntary expansion of the Canada Pension Plan five years ago as overly expensive and misguided, a history that is raising questions as to why it is now proposing that very idea.
…
The call for consultations is in spite of the fact that Finance Canada held detailed talks and contracted policy experts throughout 2009 and 2010 to weigh in on the state of retirement saving in Canada.

After the study, then-finance minister Jim Flaherty said it was clear that “some sort of voluntary new CPP method” wouldn’t work.

“This was rejected unanimously by our partners in the federation when we met and discussed the issue because it would not work and because the CPP would be unable to administer it,” he told the House of Commons in September 2010.

Ted Menzies, who was then the Conservative minister responsible for the pensions file, went further.

“The verdict was unanimous. This was not a good idea,” Mr. Menzies told the House in November 2010. “The consensus of governments and public-interest groups from across the political spectrum has been that this would be costly, ineffective and, ultimately, a misguided solution.”

It’s good to see some bio-octane being produced:

Global Bioenergies (Alternext Paris: ALGBE) and Audi announce that the first batch of renewable gasoline has been produced. It will be presented to Audi by Global Bioenergies during a press conference to be held in Pomacle on the 21st of May.

The first isobutene batch produced from renewable resources (here: corn-derived glucose) at Global Bioenergies’ industrial pilot in Pomacle-Bazancourt, near Reims in France, had been delivered to the chemical company Arkema early May 2015. Subsequent isobutene batches have been converted into isooctane by the Fraunhofer Institute at the Leuna refinery near Leipzig where Global Bioenergies is now building its demo plant.
…
Reiner Mangold, Head of sustainable product development at Audi declares: “The confirmation that Global Bioenergies’ renewable isobutene is compatible with a commonly used fossil isobutene to isooctane conversion technology represents a key step on our way to Audi ‘ebenzin’. We are now looking forward to working together with Global Bioenergies on a technology allowing the production of renewable isooctane not derived from biomass sources, following Audi’s ‘e-fuels’ strategy.”

It’s a pity that they didn’t put more meat in the press release. What’s the efficiency of this process vs. gasohol production? And where do they stand in the project not to use biomass?

Canadian General Investments, Limited, proud issuer of CGI.PR.C and CGI.PR.D, was confirmed at Pfd-1(low) by DBRS:

DBRS Limited (DBRS) has today confirmed the ratings of the 3.90% Cumulative Redeemable Class A Preference Shares, Series 3 (the Series 3 Preference Shares) and the 3.75% Cumulative Redeemable Class A Preference Shares, Series 4 (the Series 4 Preference Shares; collectively, with the Series 3 Preference Shares, the Preference Shares) issued by Canadian General Investments, Limited (the Company) at Pfd-1 (low). The Series 3 Preference Shares and Series 4 Preference Shares rank pari passu and will be retractable at the option of their holders on or after June 15, 2016, and June 15, 2023, respectively.

The Company holds a well-diversified portfolio consisting primarily of common shares of Canadian companies (the Portfolio). Since the last rating confirmation in May 2014, the performance of the portfolio has been stable. The current downside protection available to the portfolio is approximately 79.8%. Holders of the Series 3 Preference Shares are entitled to receive fixed cumulative preferential cash dividends of $0.975 per annum, yielding 3.90% on the initial issue price, while holders of the Series 4 Preference Shares are entitled to cash dividends of $0.9375 per annum, yielding 3.75% per annum on the initial issue price. Income received on the Portfolio will be able to cover approximately 65% of distributions to all series of Preference Shares, based on the Portfolio holdings as of May 15, 2015. Despite the grind caused by the drop in the distribution coverage ratio and the regular distributions to holders of the common shares of the Company, downside protection remains commensurate with the current ratings of the Preference Shares.

It was a positive day for the Canadian preferred share market, with PerpetualDiscounts up 10bp, FixedResets gaining 6bp and DeemedRetractibles winning 28bp. The Performance Highlights table is very lengthy, with ENB issues prominent winners. Volume was below average.

PerpetualDiscounts now yield 5.07%, equivalent to 6.59% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.95%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 265bp, unchanged from the May 20 report.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.10 to be $1.07 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.75 cheap at its bid price of 25.00.

Click for Big

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 23.65 to be $0.69 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.05 to be $0.63 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.76 to be $0.57 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.81 and appears to be $0.53 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.65, looks $0.49 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.75 and is $0.32 rich.

Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.45%, including the TRP.PR.A / TRP.PR.F at 0.01%. On the junk side, four pairs are showing negative breakeven rates and are not shown: FFH.PR.E / FFH.PR.F at -1.15%; DC.PR.B / DC.PR.D at -1.39%; AIM.PR.A / AIM.PR.B at -1.01% and BRF.PR.A / BRF.PR.B at -0.63%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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	1.2941 %	2,278.9
FixedFloater	0.00 %	0.00 %	0	0.00	0	1.2941 %	3,984.5
Floater	3.19 %	3.34 %	51,933	18.84	4	1.2941 %	2,422.6
OpRet	4.45 %	-11.12 %	29,708	0.10	2	0.0198 %	2,780.8
SplitShare	4.58 %	4.47 %	65,105	3.34	3	0.4164 %	3,254.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0198 %	2,542.7
Perpetual-Premium	5.46 %	3.09 %	61,776	0.42	18	0.1202 %	2,519.3
Perpetual-Discount	5.09 %	5.07 %	119,276	15.36	15	0.0956 %	2,766.7
FixedReset	4.44 %	3.78 %	269,552	16.08	86	0.0619 %	2,399.6
Deemed-Retractible	4.97 %	3.45 %	103,825	0.73	34	0.2787 %	2,630.7
FloatingReset	2.55 %	2.91 %	57,617	6.15	7	0.0364 %	2,340.8

Performance Highlights
Issue	Index	Change	Notes
GWO.PR.N	FixedReset	-4.42 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.28 Bid-YTW : 7.02 %
PWF.PR.A	Floater	-1.72 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 17.70 Evaluated at bid price : 17.70 Bid-YTW : 2.83 %
SLF.PR.G	FixedReset	-1.71 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.25 Bid-YTW : 6.90 %
PWF.PR.P	FixedReset	-1.67 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 18.21 Evaluated at bid price : 18.21 Bid-YTW : 3.77 %
TD.PF.C	FixedReset	-1.51 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 22.56 Evaluated at bid price : 23.50 Bid-YTW : 3.58 %
TRP.PR.A	FixedReset	-1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 20.51 Evaluated at bid price : 20.51 Bid-YTW : 3.76 %
MFC.PR.F	FixedReset	-1.08 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.28 Bid-YTW : 6.42 %
TRP.PR.B	FixedReset	-1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 15.55 Evaluated at bid price : 15.55 Bid-YTW : 3.80 %
RY.PR.M	FixedReset	1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 22.95 Evaluated at bid price : 24.50 Bid-YTW : 3.67 %
ENB.PR.T	FixedReset	1.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 19.47 Evaluated at bid price : 19.47 Bid-YTW : 4.71 %
SLF.PR.B	Deemed-Retractible	1.15 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.85 Bid-YTW : 5.39 %
ENB.PR.H	FixedReset	1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 18.31 Evaluated at bid price : 18.31 Bid-YTW : 4.55 %
ENB.PR.F	FixedReset	1.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 4.68 %
ENB.PR.N	FixedReset	1.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 20.21 Evaluated at bid price : 20.21 Bid-YTW : 4.67 %
BAM.PR.R	FixedReset	1.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 21.24 Evaluated at bid price : 21.24 Bid-YTW : 4.14 %
SLF.PR.A	Deemed-Retractible	1.46 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.70 Bid-YTW : 5.42 %
FTS.PR.H	FixedReset	1.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 16.65 Evaluated at bid price : 16.65 Bid-YTW : 3.78 %
ENB.PR.P	FixedReset	1.56 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 19.51 Evaluated at bid price : 19.51 Bid-YTW : 4.69 %
BAM.PR.X	FixedReset	1.59 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 4.18 %
HSE.PR.A	FixedReset	1.66 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 17.15 Evaluated at bid price : 17.15 Bid-YTW : 4.22 %
BAM.PR.C	Floater	1.77 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 14.91 Evaluated at bid price : 14.91 Bid-YTW : 3.38 %
ENB.PR.D	FixedReset	1.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 4.64 %
ENB.PR.B	FixedReset	1.97 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 19.14 Evaluated at bid price : 19.14 Bid-YTW : 4.60 %
MFC.PR.B	Deemed-Retractible	2.32 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.39 Bid-YTW : 5.51 %
MFC.PR.L	FixedReset	2.38 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.65 Bid-YTW : 4.19 %
BAM.PR.B	Floater	2.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 15.08 Evaluated at bid price : 15.08 Bid-YTW : 3.34 %
BAM.PR.K	Floater	3.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 14.93 Evaluated at bid price : 14.93 Bid-YTW : 3.37 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.S	FixedReset	226,190	Scotia crossed 200,000 at 24.50. Nice ticket! YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 23.06 Evaluated at bid price : 24.48 Bid-YTW : 3.48 %
RY.PR.G	Deemed-Retractible	75,750	TD crossed 75,000 at 25.35. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-06-26 Maturity Price : 25.25 Evaluated at bid price : 25.32 Bid-YTW : 1.53 %
BMO.PR.Q	FixedReset	47,150	Nesbitt crossed 32,700 at 23.58. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.55 Bid-YTW : 3.51 %
BNS.PR.Z	FixedReset	37,700	TD crossed two blocks of 16,000 each, both at 23.75. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.71 Bid-YTW : 3.46 %
TRP.PR.A	FixedReset	35,430	TD crossed 30,000 at 20.80. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 20.51 Evaluated at bid price : 20.51 Bid-YTW : 3.76 %
TRP.PR.F	FloatingReset	32,700	TD crossed 30,000 at 19.35. Perhaps related to the above? YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 19.21 Evaluated at bid price : 19.21 Bid-YTW : 3.32 %
There were 25 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
GWO.PR.N	FixedReset	Quote: 17.28 – 17.90 Spot Rate : 0.6200 Average : 0.4160 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.28 Bid-YTW : 7.02 %
GWO.PR.S	Deemed-Retractible	Quote: 26.26 – 26.75 Spot Rate : 0.4900 Average : 0.3126 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 26.26 Bid-YTW : 4.73 %
PWF.PR.A	Floater	Quote: 17.70 – 18.35 Spot Rate : 0.6500 Average : 0.4894 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 17.70 Evaluated at bid price : 17.70 Bid-YTW : 2.83 %
HSB.PR.C	Deemed-Retractible	Quote: 25.40 – 25.80 Spot Rate : 0.4000 Average : 0.2515 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-06-26 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : -4.74 %
CIU.PR.C	FixedReset	Quote: 16.35 – 17.00 Spot Rate : 0.6500 Average : 0.5149 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-27 Maturity Price : 16.35 Evaluated at bid price : 16.35 Bid-YTW : 3.80 %
GWO.PR.R	Deemed-Retractible	Quote: 24.81 – 25.19 Spot Rate : 0.3800 Average : 0.2491 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.81 Bid-YTW : 5.03 %

Market Action

May 26, 2015

Fischer doesn’t want the Fed to trigger a global depression:

Federal Reserve Vice Chairman Stanley Fischer said policy makers will consider global growth as they begin to raise interest rates, and that they could increase them more gradually should the world economy falter.

“If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise,” Fischer said in a speech prepared for delivery Tuesday at Tel Aviv University.

The Fed will weigh how raising rates will affect other nations, said Fischer, 71, a former governor of the Bank of Israel. While tightening will probably will cause spillovers, the Fed is working to communicate policy changes clearly to smooth the transition, and emerging market economies are in better shape to endure the shift than in recent years, he said.

Meanwhile the all-important data seems to be strengthening the hands of Fed hawks:

U.S. stocks fell the most in three weeks, as better-than-forecast economic data and comments by Federal Reserve officials bolstered bets for an interest-rate increase this year.
…
A better-than-forecast increase in capital goods orders and new-home sales came after Federal Reserve Chair Janet Yellen indicated the central bank will raise borrowing costs this year if the economy improves as she expects. Fed Bank of Cleveland President Loretta Mester echoed her comments on Monday, saying the U.S. economy is close to the point where it can support higher rates.

But there’s always a counter-argument:

For years, the $12.6 trillion U.S. Treasury market has signaled — correctly — that the Federal Reserve was too optimistic in its outlook for the economy and interest rates.

That’s no different now even though policy makers have moved closer to how traders view the world, which is to say that it wouldn’t be surprising if the central bank failed to lift borrowing costs this year.

Despite the backup in yields in recent weeks, bond prices still signal the unexpected slowdown in the economy was more than just the result of some bad weather that kept Americans indoors and idled factories in the first quarter. Regardless of when the first increase comes, futures show traders don’t see rates exceeding 1 percent by the end of 2016, versus the Fed’s estimate of 1.875 percent.

I can’t say I’m very happy about Yellen’s deprecation of the Jackson Hole conference:

It turns out that being the first woman to head the Federal Reserve is not the only tradition Janet Yellen is breaking. The Fed said Tuesday that she plans on skipping this year’s gathering of the world’s central bankers at Jackson Hole, Wyoming.
…
The faithful attendance of Yellen’s three predecessors — Paul Volcker, Alan Greenspan and Ben Bernanke — made the conference sponsored by the Kansas City Federal Reserve Bank a widely sought invitation by central bankers from around the globe. Kansas City Fed officials said they would have no comment on Yellen’s decision.

There’s a rather opaque story on Bloomberg about corporate bonds – I think it’s just a little chatter about capturing new issue concessions:

However, one place where alpha can be generated is in the corporate bond market where big companies sell their debt. The reason is simple. When companies sell a new bond there is typically a lag between the bond being issued and when it’s included in benchmark fixed income indexes.

If the bonds perform well during that one month, then investment managers lucky enough to have purchased the debt have an immediate leg-up on the benchmark, or pure alpha.

Citigroup credit strategist Jason Shoup estimates that investors can add 20 basis points of alpha, as measured by annual excess returns, to their portfolios just by purchasing new-issue bonds. In a world of low and even negative interest rates, that is a not insignificant opportunity and it’s one that investors have been eager to take advantage of in recent years.

Click for Big

So my first thought is that it’s about capturing the new issue concession … the extra yield the issuers have to pay in order for investors to bother buying the issue. It is also possible that there is a duration effect – for instance, somebody investing in medium term bonds is restricted to 5-10 years maturity (maybe with some cheating) and new issues will tend to be at the top of that range. But it’s not clear!

Note that there is typically a new issue concession for Canadian preferred shares … but typically it’s the investors who pay it!

I don’t know if I can take much more of this. Yesterday a financial regulator did something useful; today, the Federal Conservatives have had a good idea:

Sorry, finding money to save for retirement remains strictly your problem. But choosing the right investments for your retirement savings would be radically simplified under the government’s proposal to allow people to voluntarily contribute additional money to the Canada Pension Plan beyond the required amounts.

Baffled by the choice of mutual funds, exchange-traded funds, closed-end funds, hedge funds, structured products, term deposits and individual stocks and bonds? Put some extra money into the CPP instead.
…
Mr. [Fred] Vettese [chief actuary at the benefits consulting firm Morneau Shepell] said voluntary extra payments would especially look good in comparison to investing in mainstream mutual funds, where the cost of ownership can run between 2 and 3 per cent. “My estimate would be that over a lifetime, the additional pension that people would be able to earn [through the voluntary CPP option] would be an extra 25 to 30 per cent on the same level of contributions.”

Yes, post-secondary education costs are going through the roof. And yes, I am highly indignant about this. But it’s an ill wind…:

Ivy League presidential pay is looking more like the big leagues.

Columbia University paid President Lee Bollinger $4.6 million in 2013, a 36 percent increase from the year before, according to a tax filing released Tuesday. Yale University recently revealed it paid former President Richard Levin a bonus of $8.5 million when he retired in 2013 after 20 years.

Presidential pay at elite universities is increasingly resembling that of corporate America, with performance bonuses and exit packages.

Another day, another slaughter, as us preferred share investors like to say! However it was, technically, a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 23bp, FixedResets down 33bp and DeemedRetractibles gaining 7bp. A lengthy Performance Highlights table is dominated by losers. Volume was quite high.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.06 to be $1.02 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.85 cheap at its bid price of 24.90.

Click for Big

Most expensive is MFC.PR.M, resetting at +236 on 2019-12-19, bid at 24.26 to be $0.51 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.05 to be $0.53 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.75 to be $0.46 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.65 and appears to be $0.43 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.40, looks $0.76 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.77 and is $0.37 rich.

Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.45%, including the TRP.PR.A / TRP.PR.F at -0.23%. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -1.22%, while DC.PR.B / DC.PR.D is at -1.01.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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	-1.5762 %	2,249.8
FixedFloater	0.00 %	0.00 %	0	0.00	0	-1.5762 %	3,933.6
Floater	3.23 %	3.42 %	52,565	18.65	4	-1.5762 %	2,391.7
OpRet	4.45 %	-10.44 %	30,931	0.10	2	0.0198 %	2,780.2
SplitShare	4.60 %	4.72 %	65,593	3.34	3	-0.0939 %	3,241.0
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0198 %	2,542.2
Perpetual-Premium	5.47 %	2.92 %	62,382	0.43	18	0.0197 %	2,516.2
Perpetual-Discount	5.09 %	5.04 %	120,522	15.33	15	-0.2300 %	2,764.1
FixedReset	4.44 %	3.76 %	272,260	16.40	86	-0.3268 %	2,398.1
Deemed-Retractible	4.98 %	3.44 %	102,505	0.74	34	0.0680 %	2,623.4
FloatingReset	2.55 %	2.91 %	58,102	6.15	7	0.0243 %	2,340.0

Performance Highlights
Issue	Index	Change	Notes
ENB.PF.G	FixedReset	-2.90 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 20.73 Evaluated at bid price : 20.73 Bid-YTW : 4.75 %
BAM.PR.K	Floater	-2.76 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 14.45 Evaluated at bid price : 14.45 Bid-YTW : 3.48 %
SLF.PR.G	FixedReset	-2.39 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.55 Bid-YTW : 6.69 %
TRP.PR.B	FixedReset	-2.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 15.72 Evaluated at bid price : 15.72 Bid-YTW : 3.76 %
BAM.PR.B	Floater	-1.93 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 14.71 Evaluated at bid price : 14.71 Bid-YTW : 3.42 %
HSE.PR.A	FixedReset	-1.92 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 16.87 Evaluated at bid price : 16.87 Bid-YTW : 4.29 %
ENB.PR.Y	FixedReset	-1.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 18.74 Evaluated at bid price : 18.74 Bid-YTW : 4.77 %
ENB.PF.A	FixedReset	-1.76 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 20.68 Evaluated at bid price : 20.68 Bid-YTW : 4.71 %
MFC.PR.F	FixedReset	-1.70 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.48 Bid-YTW : 6.28 %
BAM.PR.C	Floater	-1.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 14.65 Evaluated at bid price : 14.65 Bid-YTW : 3.44 %
ENB.PF.C	FixedReset	-1.62 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 20.71 Evaluated at bid price : 20.71 Bid-YTW : 4.69 %
ENB.PF.E	FixedReset	-1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 20.75 Evaluated at bid price : 20.75 Bid-YTW : 4.71 %
MFC.PR.N	FixedReset	-1.21 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.75 Bid-YTW : 4.21 %
BAM.PF.D	Perpetual-Discount	-1.21 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 22.55 Evaluated at bid price : 22.95 Bid-YTW : 5.40 %
TRP.PR.A	FixedReset	-1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 20.75 Evaluated at bid price : 20.75 Bid-YTW : 3.71 %
BAM.PF.G	FixedReset	-1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 23.03 Evaluated at bid price : 24.65 Bid-YTW : 4.05 %
BAM.PF.F	FixedReset	-1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 23.00 Evaluated at bid price : 24.42 Bid-YTW : 4.10 %
BAM.PR.M	Perpetual-Discount	-1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 21.85 Evaluated at bid price : 22.13 Bid-YTW : 5.44 %
TD.PF.B	FixedReset	-1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 22.88 Evaluated at bid price : 24.10 Bid-YTW : 3.48 %
BIP.PR.A	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 23.02 Evaluated at bid price : 24.61 Bid-YTW : 4.64 %
CM.PR.P	FixedReset	-1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 22.66 Evaluated at bid price : 23.70 Bid-YTW : 3.53 %
TD.PR.S	FixedReset	-1.04 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.85 Bid-YTW : 3.16 %
FTS.PR.G	FixedReset	1.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 21.73 Evaluated at bid price : 22.00 Bid-YTW : 3.73 %
BAM.PR.T	FixedReset	1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 21.31 Evaluated at bid price : 21.60 Bid-YTW : 4.05 %
FTS.PR.J	Perpetual-Discount	1.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 23.89 Evaluated at bid price : 24.30 Bid-YTW : 4.89 %
IAG.PR.A	Deemed-Retractible	1.60 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.55 Bid-YTW : 5.51 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PF.E	FixedReset	127,870	TD crossed 50,000 at 25.05. Scotia crossed 40,000 at the same price; RBC crossed 18,000 at the same price again. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 23.13 Evaluated at bid price : 25.00 Bid-YTW : 3.76 %
FTS.PR.M	FixedReset	96,330	RBC crossed 71,900 at 24.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 23.10 Evaluated at bid price : 24.71 Bid-YTW : 3.59 %
FTS.PR.G	FixedReset	91,359	RBC crossed 75,000 at 22.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 21.73 Evaluated at bid price : 22.00 Bid-YTW : 3.73 %
ENB.PR.T	FixedReset	90,999	RBC crossed 50,000 at 19.35. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 19.26 Evaluated at bid price : 19.26 Bid-YTW : 4.76 %
BAM.PF.F	FixedReset	85,779	TD crossed 80,000 at 24.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 23.00 Evaluated at bid price : 24.42 Bid-YTW : 4.10 %
ENB.PR.F	FixedReset	71,619	TD crossed 50,000 at 19.20. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 19.26 Evaluated at bid price : 19.26 Bid-YTW : 4.74 %
There were 48 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.L	FixedReset	Quote: 23.10 – 23.88 Spot Rate : 0.7800 Average : 0.5524 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.10 Bid-YTW : 4.49 %
HSE.PR.A	FixedReset	Quote: 16.87 – 17.43 Spot Rate : 0.5600 Average : 0.3851 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 16.87 Evaluated at bid price : 16.87 Bid-YTW : 4.29 %
MFC.PR.N	FixedReset	Quote: 23.75 – 24.42 Spot Rate : 0.6700 Average : 0.5094 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.75 Bid-YTW : 4.21 %
TD.PF.C	FixedReset	Quote: 23.86 – 24.40 Spot Rate : 0.5400 Average : 0.4025 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 22.74 Evaluated at bid price : 23.86 Bid-YTW : 3.51 %
ENB.PF.G	FixedReset	Quote: 20.73 – 21.10 Spot Rate : 0.3700 Average : 0.2331 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 20.73 Evaluated at bid price : 20.73 Bid-YTW : 4.75 %
ENB.PR.D	FixedReset	Quote: 18.65 – 19.08 Spot Rate : 0.4300 Average : 0.2941 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-26 Maturity Price : 18.65 Evaluated at bid price : 18.65 Bid-YTW : 4.72 %

Market Action

May 25, 2015

Knock me down with a feather! A regulatory organization has done something useful:

Some of the country’s top financial minds think you should expect to make 6.3-per-cent a year in Canadian stocks over the long term and 3.9 per cent in bonds.

You’ll find these numbers in a new document created by a pair of financial planning organizations as a reference for planners and advisers. The investment industry works hard to maintain an aura of expertise in matters such as estimating returns, but the truth is that this process can be subject to personal biases and agendas. For example, an adviser might try to wow a new client by insisting big returns are possible.

The new Projection Assumption Guidelines (download the document here) aim to standardize and professionalize the planning process by providing the latest and best thinking on returns, inflation, interest rates and life expectancy.

“Canadians benefit from objective assumptions, and they also benefit from a standardization of assumptions across the industry – firms and planners,” said Joan Yudelson, vice-president of professional practice at the Financial Planning Standards Council, which produced the guidelines in collaboration with the Institut québécois de planification financière. Both the IQPF and the FPSC set standards for financial planners – the IQPF in Quebec, and the FPSC by overseeing the certified financial planner (CFP) designation. The IQPF has been producing the guidelines since 2009 and recently joined forces with the FPSC.

According to the actual report:

These Guidelines were set by combining assumptions from the following sources (each weighted at 20%):

assumption used in the most recent QPP actuarial analysis, weighted as follows: 50% of the medium-term assumption (2013 to 2022) and 50% of the long-term assumption (2023 and later)
assumption used in the most recent CPP actuarial report (2019 and later)
result of the Towers Watson annual portfolio managers’ survey, weighted as follows:1/15 of the short-term projection, 4/15 of the medium-term projection and 10/15 of the long-term projection
general assumption of the Aon Hewitt (formerly Aon Consulting) index
historic returns on these asset classes over the 50 years ending the previous December 31 (adjusted for inflation according to what follows).

I don’t see the point of including historic returns to estimate future returns of bonds, but the projection of 3.9% may be achieved with a portfolio of long corporates, so I’m not going to complain too loudly.

The Globe also published a table taken from the report of the historical figures:

Click for Legible
I don’t understand why PNGs look so terrible in WordPress

There was carnage on the Canadian preferred share market today, with PerpetualDiscounts down 43bp, FixedResets off 30bp and DeemedRetractibles losing 52bp. DeemedRetractibles of the insurance persuasion got hammered, ENB FixedResets were prominent losers, while the only winners on the lengthy performance highlights table were FixedResets. Volume was low.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.90 to be $0.84 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.85 cheap at its bid price of 24.88.

Click for Big

Most expensive is MFC.PR.N, resetting at +230 on 2020-3-19, bid at 24.04 to be $0.44 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.52 to be $0.62 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.75 to be $0.53 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.94 and appears to be $0.51 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.32, looks $0.88 cheap and resets 2015-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 24.90 and is $0.59 rich.

Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.35%, including the TRP.PR.A / TRP.PR.F at -0.50%. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -1.14%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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	-0.2065 %	2,285.8
FixedFloater	0.00 %	0.00 %	0	0.00	0	-0.2065 %	3,996.6
Floater	3.18 %	3.36 %	53,225	18.81	4	-0.2065 %	2,430.0
OpRet	4.45 %	-9.80 %	32,099	0.10	2	0.0198 %	2,779.7
SplitShare	4.60 %	4.83 %	62,950	3.35	3	0.1209 %	3,244.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0198 %	2,541.7
Perpetual-Premium	5.47 %	2.92 %	62,866	0.43	18	-0.0808 %	2,515.7
Perpetual-Discount	5.08 %	5.06 %	118,470	15.35	15	-0.4274 %	2,770.5
FixedReset	4.43 %	3.77 %	271,409	16.03	86	-0.3002 %	2,406.0
Deemed-Retractible	4.97 %	3.52 %	107,451	0.82	35	-0.5184 %	2,621.6
FloatingReset	2.55 %	2.92 %	57,019	6.15	7	0.1763 %	2,339.4

Performance Highlights
Issue	Index	Change	Notes
IAG.PR.A	Deemed-Retractible	-3.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.18 Bid-YTW : 5.71 %
CIU.PR.C	FixedReset	-2.91 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 16.35 Evaluated at bid price : 16.35 Bid-YTW : 3.79 %
SLF.PR.B	Deemed-Retractible	-2.30 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.53 Bid-YTW : 5.56 %
MFC.PR.B	Deemed-Retractible	-2.14 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.90 Bid-YTW : 5.78 %
SLF.PR.E	Deemed-Retractible	-2.11 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.35 Bid-YTW : 5.93 %
SLF.PR.C	Deemed-Retractible	-2.10 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.17 Bid-YTW : 5.98 %
MFC.PR.C	Deemed-Retractible	-1.72 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.90 Bid-YTW : 5.63 %
TRP.PR.C	FixedReset	-1.70 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 17.31 Evaluated at bid price : 17.31 Bid-YTW : 3.85 %
MFC.PR.L	FixedReset	-1.70 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.10 Bid-YTW : 4.48 %
VNR.PR.A	FixedReset	-1.69 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 23.00 Evaluated at bid price : 23.84 Bid-YTW : 4.10 %
SLF.PR.D	Deemed-Retractible	-1.67 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.24 Bid-YTW : 5.94 %
CU.PR.G	Perpetual-Discount	-1.57 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 22.29 Evaluated at bid price : 22.64 Bid-YTW : 4.97 %
ENB.PR.J	FixedReset	-1.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 20.63 Evaluated at bid price : 20.63 Bid-YTW : 4.60 %
BAM.PF.C	Perpetual-Discount	-1.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 22.30 Evaluated at bid price : 22.67 Bid-YTW : 5.42 %
ENB.PR.F	FixedReset	-1.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 19.23 Evaluated at bid price : 19.23 Bid-YTW : 4.74 %
GWO.PR.I	Deemed-Retractible	-1.34 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.50 Bid-YTW : 5.42 %
SLF.PR.A	Deemed-Retractible	-1.30 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.40 Bid-YTW : 5.58 %
PWF.PR.S	Perpetual-Discount	-1.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 24.09 Evaluated at bid price : 24.50 Bid-YTW : 4.92 %
ENB.PF.A	FixedReset	-1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 21.05 Evaluated at bid price : 21.05 Bid-YTW : 4.62 %
ENB.PR.B	FixedReset	-1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 18.86 Evaluated at bid price : 18.86 Bid-YTW : 4.67 %
ENB.PF.C	FixedReset	-1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 21.05 Evaluated at bid price : 21.05 Bid-YTW : 4.62 %
ENB.PF.G	FixedReset	-1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 21.35 Evaluated at bid price : 21.35 Bid-YTW : 4.61 %
BAM.PR.N	Perpetual-Discount	-1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 21.94 Evaluated at bid price : 22.32 Bid-YTW : 5.39 %
MFC.PR.F	FixedReset	-1.10 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.80 Bid-YTW : 6.07 %
MFC.PR.N	FixedReset	-1.07 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.04 Bid-YTW : 4.06 %
PWF.PR.P	FixedReset	-1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 18.70 Evaluated at bid price : 18.70 Bid-YTW : 3.67 %
RY.PR.M	FixedReset	1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 22.85 Evaluated at bid price : 24.25 Bid-YTW : 3.72 %
MFC.PR.M	FixedReset	1.17 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.25 Bid-YTW : 4.02 %
SLF.PR.G	FixedReset	1.40 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.98 Bid-YTW : 6.39 %
FTS.PR.H	FixedReset	1.56 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 16.32 Evaluated at bid price : 16.32 Bid-YTW : 3.85 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PR.D	FixedReset	453,161	Scotia crossed blocks of 245,000 and 194,100 at 18.70. Nice tickets! YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 18.78 Evaluated at bid price : 18.78 Bid-YTW : 4.69 %
TRP.PR.C	FixedReset	285,118	Nesbitt crossed 275,900 at 17.43. There’s another nice ticket! YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 17.31 Evaluated at bid price : 17.31 Bid-YTW : 3.85 %
ENB.PR.T	FixedReset	92,041	RBC crossed 25,000 at 19.35. Scotia crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 19.33 Evaluated at bid price : 19.33 Bid-YTW : 4.74 %
ENB.PR.P	FixedReset	64,834	Desjardins crossed 50,000 at 19.45. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 19.30 Evaluated at bid price : 19.30 Bid-YTW : 4.74 %
TRP.PR.G	FixedReset	63,103	Nesbitt crossed 60,000 at 24.94. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 23.09 Evaluated at bid price : 24.88 Bid-YTW : 3.86 %
TD.PF.E	FixedReset	41,400	TD crossed 35,000 at 25.05. YTW SCENARIO Maturity Type : Call Maturity Date : 2020-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.06 Bid-YTW : 3.73 %
There were 23 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
IAG.PR.A	Deemed-Retractible	Quote: 23.18 – 23.98 Spot Rate : 0.8000 Average : 0.4983 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.18 Bid-YTW : 5.71 %
CIU.PR.C	FixedReset	Quote: 16.35 – 17.16 Spot Rate : 0.8100 Average : 0.6043 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 16.35 Evaluated at bid price : 16.35 Bid-YTW : 3.79 %
SLF.PR.B	Deemed-Retractible	Quote: 23.53 – 23.98 Spot Rate : 0.4500 Average : 0.2720 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.53 Bid-YTW : 5.56 %
VNR.PR.A	FixedReset	Quote: 23.84 – 24.38 Spot Rate : 0.5400 Average : 0.3747 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 23.00 Evaluated at bid price : 23.84 Bid-YTW : 4.10 %
MFC.PR.B	Deemed-Retractible	Quote: 22.90 – 23.39 Spot Rate : 0.4900 Average : 0.3419 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.90 Bid-YTW : 5.78 %
CU.PR.G	Perpetual-Discount	Quote: 22.64 – 23.00 Spot Rate : 0.3600 Average : 0.2274 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-25 Maturity Price : 22.29 Evaluated at bid price : 22.64 Bid-YTW : 4.97 %

Market Action

May 22, 2015

Inflation picked up a little in the US:

The U.S. cost of living excluding what households pay for food and fuel climbed more than forecast in April, indicating inflation is gravitating toward the Federal Reserve’s goal.

The core consumer-price index rose 0.3 percent, the biggest gain since January 2013 and reflecting broad-based increases, a Labor Department report showed Friday. In the last three months, core inflation advanced an annualized 2.6 percent, the most since August 2011. Including food and fuel, the gauge was up a more moderate 0.1 percent as prices fell at grocery stores and gas stations.
…
Inflation will need to keep rising in order for Fed officials to be “reasonably confident” that progress on their price stability mandate is sufficient to allow for an increase in the benchmark interest rate. The Fed’s preferred measure of price growth, the personal consumption expenditures gauge, rose 0.3 percent in the year ended March and hasn’t met the bank’s goal since April 2012.

And Yellen sees a gradual tightening commencing this year:

Federal Reserve Chair Janet Yellen said she still expects to raise interest rates this year if the economy meets her forecasts, with a gradual pace of tightening to follow.

While the labor market is nearing full strength, “we are not there yet,” she said Friday in a speech in Providence, Rhode Island.

“If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate,” she said.

Even after the first rate increase since 2006, “I anticipate that the pace of normalization is likely to be gradual,” Yellen, 68, said.
…
She also repeated the Fed’s two criteria for raising rates, which have been kept near zero since December 2008: “I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term.”

Assiduous Reader prefhound sent me a wonderful link in the Economist:

So-called contingent convertible bonds, or “cocos”, turn into equity when a bank is struggling, trimming its debts and interest payments. Coco issuance has soared since 2010, as banks have sought to keep regulators happy by bolstering their ability to withstand losses. These fancy bonds have the upsides of debt in good times, but provide a cushion in a crisis.

Or so the theory goes. Cocos usually convert when regulators decree that a bank’s capital has fallen below some threshold. In the height of a crisis, that puts regulators in a bind: announcing that a bank is weak can cause panic. A conversion also imposes sudden losses on bondholders, who find themselves holding shares worth much less than the bonds that spawned them. If the bondholders are themselves in distress, those losses can reverberate around the financial system.

Jeremy Bulow of Stanford University and Paul Klemperer of Oxford University see a way to overcome these problems with a new instrument called an equity recourse note, or ERN. Like a coco, an ERN functions as debt in normal times. But the trigger for the conversion is the bank’s share price, rather than a regulatory measure of capital. When the share price falls by enough—say, to 25% of its initial value—the bank can make repayments on the bond with new shares rather than with cash.
…
This avoids several problems with cocos. There is no uncertainty about how regulators will behave. Abrupt losses are minimised: investors can see when the share price is nearing the trigger, and if it recovers, cash payments resume. Because the new shares are worth no more than the cash saved, ERN conversions should shore up a bank’s share price (by contrast, when cocos convert, enough new shares are created to push the price down).

The source paper is Equity Recourse Notes: Creating Counter-cyclical Bank Capital. I will try to give this its own dedicated post soon.

So the Dalhousie Dentistry Debacle has come to a conclusion:

“There was an immense amount of trying to find out what happened here and then the next stage was how did the facts matter, what was the impact,” said Jennifer Llewellyn, the law school professor who led the restorative justice process that began in December.

Twelve of the 13 male dentistry students in the group were involved in that process and participated in more than 150 hours each of seminars, workshops and discussions with their male and female classmates, faculty, staff and community members. The 12 have now met professionalism standards and are eligible to graduate if they complete their clinical work, the university said.
…
Friday’s report is only the first of several to come. A separate, independent task force led by University of Ottawa law professor Constance Backhouse will release its own report at the end of June.

And this crap, boys and girls, is why university education is so expensive. The best part, however, comes from an Ontario regulator:

“I have always taken the position that just because a university gives out a dental degree does not mean I have to give out a licence,” said Irwin Fefergrad, registrar of the Royal College of Dental Surgeons of Ontario.

In January, the college changed the application form required for every applicant who wants to practise in the province to include a question about whether they have ever been the subject of an inquiry or investigation by a university. If the answer is yes, the College will collect information on that inquiry before issuing a licence, Mr. Fefergrad said.

So the useless parasite will trust a University to grant a dental degree, but not to come to acceptable conclusions following an inquiry or investigation; he intends to gather information and, presumably, weigh it carefully. Nice work if you can get it! Particularly since anybody who wants to be a dentist in Ontario had damn well better be very polite to wise Mr. Fefergrad.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 1bp, FixedResets off 2bp and DeemedRetractibles down 4bp. Volatility was higher than one might expect, given the calm overall figures, with ENB FixedResets prominent on the downside. Volume was average.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.03 to be $0.87 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.82 cheap at its bid price of 24.98.

Click for Big

Most expensive is MFC.PR.N, resetting at +230 on 2020-3-19, bid at 24.30 to be $0.63 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.10 to be $0.54 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.77 to be $0.51 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.96 and appears to be $0.53 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.07, looks $1.13 cheap and resets 2015-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 25.00 and is $0.69 rich.

Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.30%, including the TRP.PR.A / TRP.PR.F at -0.55%. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -1.18%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

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	0.3028 %	2,290.5
FixedFloater	0.00 %	0.00 %	0	0.00	0	0.3028 %	4,004.9
Floater	3.17 %	3.33 %	53,861	18.87	4	0.3028 %	2,435.0
OpRet	4.45 %	-8.74 %	33,209	0.11	2	0.0792 %	2,779.1
SplitShare	4.60 %	4.77 %	63,567	3.35	3	-0.0269 %	3,240.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0792 %	2,541.2
Perpetual-Premium	5.46 %	2.54 %	63,683	0.08	18	0.0349 %	2,517.8
Perpetual-Discount	5.06 %	5.06 %	117,647	15.37	15	0.0112 %	2,782.3
FixedReset	4.41 %	3.80 %	271,221	16.02	86	-0.0239 %	2,413.3
Deemed-Retractible	4.94 %	3.49 %	107,955	0.83	35	-0.0389 %	2,635.3
FloatingReset	2.56 %	2.92 %	57,844	6.16	7	0.0852 %	2,335.3

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.M	FixedReset	-2.36 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.97 Bid-YTW : 4.18 %
BAM.PR.X	FixedReset	-2.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 18.20 Evaluated at bid price : 18.20 Bid-YTW : 4.30 %
ENB.PR.D	FixedReset	-1.62 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 18.78 Evaluated at bid price : 18.78 Bid-YTW : 4.73 %
ENB.PR.P	FixedReset	-1.42 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 19.45 Evaluated at bid price : 19.45 Bid-YTW : 4.74 %
SLF.PR.A	Deemed-Retractible	-1.36 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.01 Bid-YTW : 5.40 %
TRP.PR.C	FixedReset	-1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 17.61 Evaluated at bid price : 17.61 Bid-YTW : 3.84 %
RY.PR.M	FixedReset	-1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 22.75 Evaluated at bid price : 24.00 Bid-YTW : 3.80 %
ENB.PR.Y	FixedReset	-1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 19.25 Evaluated at bid price : 19.25 Bid-YTW : 4.68 %
MFC.PR.F	FixedReset	1.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.01 Bid-YTW : 5.97 %
FTS.PR.G	FixedReset	1.40 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 21.42 Evaluated at bid price : 21.75 Bid-YTW : 3.81 %
TRP.PR.B	FixedReset	1.91 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 16.00 Evaluated at bid price : 16.00 Bid-YTW : 3.76 %
SLF.PR.G	FixedReset	2.56 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.00 Bid-YTW : 6.52 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.T	FixedReset	128,880	Desjardins crossed blocks of 50,000 and 11,000, both at 24.72. Nesbitt crossed 40,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 23.09 Evaluated at bid price : 24.62 Bid-YTW : 3.39 %
TD.PF.B	FixedReset	104,491	TD crossed blocks of 24,700 and 25,000 at 24.50. Desjardins crossed blocks of 21,700 and 10,500 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 23.03 Evaluated at bid price : 24.45 Bid-YTW : 3.45 %
IFC.PR.C	FixedReset	57,304	Nesbitt crossed 50,000 at 24.80. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.75 Bid-YTW : 4.03 %
TD.PF.D	FixedReset	57,258	TD crossed 50,000 at 24.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 23.09 Evaluated at bid price : 24.84 Bid-YTW : 3.76 %
CM.PR.Q	FixedReset	52,190	Scotia crossed 25,000 at 25.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 23.15 Evaluated at bid price : 25.00 Bid-YTW : 3.73 %
ENB.PR.N	FixedReset	51,912	Scotia crossed 40,000 at 20.20. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 20.13 Evaluated at bid price : 20.13 Bid-YTW : 4.73 %
There were 32 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.M	FixedReset	Quote: 23.97 – 24.60 Spot Rate : 0.6300 Average : 0.4011 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.97 Bid-YTW : 4.18 %
RY.PR.M	FixedReset	Quote: 24.00 – 24.70 Spot Rate : 0.7000 Average : 0.5309 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 22.75 Evaluated at bid price : 24.00 Bid-YTW : 3.80 %
BAM.PF.D	Perpetual-Discount	Quote: 23.28 – 23.65 Spot Rate : 0.3700 Average : 0.2162 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 22.97 Evaluated at bid price : 23.28 Bid-YTW : 5.33 %
ENB.PR.P	FixedReset	Quote: 19.45 – 19.74 Spot Rate : 0.2900 Average : 0.1751 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 19.45 Evaluated at bid price : 19.45 Bid-YTW : 4.74 %
BAM.PR.X	FixedReset	Quote: 18.20 – 18.53 Spot Rate : 0.3300 Average : 0.2252 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 18.20 Evaluated at bid price : 18.20 Bid-YTW : 4.30 %
CU.PR.D	Perpetual-Discount	Quote: 24.92 – 25.33 Spot Rate : 0.4100 Average : 0.3475 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-22 Maturity Price : 24.45 Evaluated at bid price : 24.92 Bid-YTW : 4.91 %

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