Category: Market Action

Matt Levine of Bloomberg has some sensible things to say about institutions victimized by evil derivatives:

This is a general rule to keep in mind when reading about governments and companies that were victimized by swaps that they didn’t understand: Governments and companies don’t understand anything. Governments and companies don’t have brains. Governments and companies do have human agents, and those human agents have brains, and they are capable of understanding many things. Different agents might or might not be capable of understanding the particular formulas at issue here. But most agents are capable of understanding (1) that getting a low low teaser rate now probably means paying a high high rate later, (2) that there are ways of saying that that don’t sound like that, (3) that their interests and the interests of the government or company they work for are not perfectly aligned, and (4) that those interests are likely to drift further apart over time.

A story about an incomprehensible tax dodge is noteworthy for two things:

Executives from Renaissance, founded by billionaire mathematician James Simons, are scheduled to testify about the transactions tomorrow in Washington, as are representatives of Barclays and Deutsche Bank.
…
Renaissance, based in East Setauket, New York, compiled one of the best records in investing history by using advanced mathematics and computer algorithms to identify mispriced securities. Its Medallion fund, open almost exclusively to Renaissance employees, returned more than 35 percent annualized over more than two decades.

“billionaire mathematician”. You don’t hear those two words together very often! The other point is that they’ve been able to do so well – outperformance is entirely possible for those who know what they’re doing.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts up 7bp, FixedResets gaining 5bp and DeemedRetractibles winning 10bp. Volatility was almost non-existent. Volume was extremely low.

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	3.09 %	3.07 %	20,709	19.50	1	0.0000 %	2,574.3
FixedFloater	4.17 %	3.40 %	28,801	18.65	1	-0.0876 %	4,163.9
Floater	2.84 %	2.92 %	45,010	19.92	4	-0.2162 %	2,783.5
OpRet	4.02 %	-4.07 %	78,744	0.08	1	-0.0783 %	2,721.1
SplitShare	4.26 %	3.95 %	44,048	4.02	6	0.3336 %	3,116.7
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0783 %	2,488.2
Perpetual-Premium	5.52 %	-5.34 %	82,168	0.09	17	0.0300 %	2,430.7
Perpetual-Discount	5.23 %	5.13 %	111,916	15.24	20	0.0703 %	2,582.4
FixedReset	4.38 %	3.54 %	200,305	6.57	77	0.0522 %	2,563.5
Deemed-Retractible	4.97 %	0.36 %	123,261	0.10	43	0.1027 %	2,553.9
FloatingReset	2.65 %	0.72 %	98,280	0.16	6	0.0131 %	2,528.7

Performance Highlights
Issue	Index	Change	Notes
PVS.PR.B	SplitShare	1.30 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 24.90 Bid-YTW : 4.60 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PR.K	FixedReset	203,248	Called for redemption July 31. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 5.48 %
ENB.PF.E	FixedReset	104,420	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-21 Maturity Price : 23.10 Evaluated at bid price : 24.95 Bid-YTW : 4.11 %
BMO.PR.S	FixedReset	84,556	Nesbitt crossed 25,000 at 25.76; RBC bought 10,000 from Scotia at 25.79. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.73 Bid-YTW : 3.27 %
TD.PF.A	FixedReset	74,550	Desjardins crossed 58,600 at 25.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-21 Maturity Price : 23.30 Evaluated at bid price : 25.50 Bid-YTW : 3.56 %
CM.PR.K	FixedReset	65,000	Called for redemption July 31. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 3.66 %
ENB.PF.C	FixedReset	54,685	TD crossed 10,000 at 25.12. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-21 Maturity Price : 23.17 Evaluated at bid price : 25.15 Bid-YTW : 4.09 %
There were 16 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
CIU.PR.C	FixedReset	Quote: 21.80 – 22.51 Spot Rate : 0.7100 Average : 0.5664 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-21 Maturity Price : 21.45 Evaluated at bid price : 21.80 Bid-YTW : 3.35 %
IAG.PR.F	Deemed-Retractible	Quote: 26.02 – 26.41 Spot Rate : 0.3900 Average : 0.2665 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-31 Maturity Price : 25.25 Evaluated at bid price : 26.02 Bid-YTW : 5.07 %
BAM.PR.E	Ratchet	Quote: 24.30 – 24.60 Spot Rate : 0.3000 Average : 0.2191 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-21 Maturity Price : 23.86 Evaluated at bid price : 24.30 Bid-YTW : 3.07 %
PWF.PR.A	Floater	Quote: 20.00 – 20.30 Spot Rate : 0.3000 Average : 0.2266 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-21 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 2.65 %
BAM.PR.M	Perpetual-Discount	Quote: 21.36 – 21.51 Spot Rate : 0.1500 Average : 0.0903 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-21 Maturity Price : 21.36 Evaluated at bid price : 21.36 Bid-YTW : 5.62 %
IAG.PR.A	Deemed-Retractible	Quote: 23.14 – 23.47 Spot Rate : 0.3300 Average : 0.2736 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.14 Bid-YTW : 5.61 %

It seems that the Canadian economy is picking up a bit:

Consumers are still driving growth in Canada’s economy, with indicators showing faster inflation led by higher food and clothing costs and increased auto wholesales adding to recent housing-market strength.

The consumer price index quickened to a two-year high of 2.4 percent in June, and a 13.3 percent jump in automobile receipts led a 2.2 percent rise in wholesale sales, according to reports today from Ottawa-based Statistics Canada. A July 15 realtor report showed home resales reached a four-year high with prices up 6.9 percent from a year earlier.

The figures suggest indebted consumers are continuing to shoulder the burden of growth as policy makers such as Bank of Canada Governor Stephen Poloz await a rebound in business investment to bring the economy to full output. Poloz kept his key lending at 1 percent two days ago and stressed weak exports and slack in the economy will hold down inflation through a temporary price surge.
…
Canada’s ratio of household debt to disposable income rose to a record last year before two quarterly declines through March. Credit-market debt such as mortgages fell to 163.2 percent of disposable income, compared with a revised 163.9 percent in the fourth quarter and a record 164.1 percent in the third quarter of last year, Statistics Canada said June 19.

Perhaps it’s due to the idea that our houses will make us all rich?

Meanwhile, the Bloomberg Nanos Canadian Confidence Index, which measures the economic mood of Canadians through a weekly survey, shows that people in this country have become upbeat – especially when they think about their property values. It found that perceptions related to the value of real estate in people’s neighbourhoods are 10 percentage points above the six-year average and seven points above the 2014 average.

“Consumer confidence in Canada is noticeably propelled by views on real estate,” Nanos Research Group chairman Nik Nanos observes.

And we’ll get even richer from our condominium rentals!

Toronto condominium sales jumped in the second quarter, as investors in Canada’s biggest city soaked up a wave of supply to feed demand for rentals.

Unit sales rose 10 percent to 6,553 in the three months ended in June from the same period a year ago, according to figures from the Toronto Real Estate Board. That follows a 9 percent annual gain in the first quarter.

The average selling price rose 5.5 percent to a record C$367,010 ($342,000), after a 5.6 percent advance in the first quarter.

“Many of these are bought by investors to rent out and there’s just not enough rental supply,” Paul Etherington, president of the board, said by phone today.“The prices will continue to go up in the future but I don’t see them going up as dramatically.”

About a quarter of new condominiums are purchased by investors who rent the units to residents in a city where the supply of purpose-built rentals is limited, he said.

Groupthink, and its perceived desirability among bond pseudo-managers, has reached global proportions:

Junk bond investors have had enough of borrowers in Europe eroding safeguards as sales of the high-yield, high-risk debt surge to a record $110 billion.

Representatives from at least six firms met in London last week with the Association for Financial Markets in Europe to discuss reinforcing language in documents governing bond sales that protect investors, according to Gary Simmons, director of the group’s high-yield division. Legal & General Investment Management, Castle Hill Asset Management and Pioneer Investments are among money managers listed as members, according to AFME.

Bondholders are seeking to challenge private-equity firms and bankers who arrange debt sales about changes to terms, including shortening the time during which securities can’t be repaid and diluting change of control clauses protecting bondholders in a takeover. The weakening of covenants has drawn warnings from policy makers, with Federal Reserve Chair Janet Yellen saying last month she was concerned about “reach-for-yield behavior.”

“In a hot market, pricing can get tighter but safeguards such as call protection and change of control should stay the same,” said Henry Craik-White, a senior investment analyst at ECM Asset Management who attended AFME’s meeting. “The correct approach is to reach out to the wider investor community and highlight the issues before they ruin the market for everybody.”

Well, golly, we wouldn’t want anybody to ruin the market for everybody, would we? That might mean that long-term performance for some firms might exceed the long-term performance of other firms, which would be disastrous. What would be the point of networking?

Brazil’s Caixa bank might be giving us a foretaste of the next crisis:

As Brazilian state-owned bank Caixa Economica Federal prepared to sell bonds this month, Marco Aurelio de Sa, the head of trading at Credit Agricole SA, told his clients to stay away.

The securities are too risky because Caixa is the lender most vulnerable to losses after a court ruling against the nation’s banks in May fueled concern they may also lose related lawsuits that would put them on the hook for an estimated 341.5 billion reais ($151 billion). The costs could force the government to re-capitalize Caixa, causing the bank to exercise a clause in the bonds to write off the principal and interest.
…
“Caixa could have serious capitalization issues if the Supreme Court rules against the banks, and then there’s a big risk the bond is written off,” de Sa, a 20-year emerging-market veteran, said in an e-mail. “Even if it’s a quasi-sovereign, the clauses are very clear on what could lead to a write-off. The returns aren’t enough to compensate for the risk. We didn’t recommend it to clients.”

But American investment grade credit remains popular:

They piled back into benchmark U.S. Treasuries (USGG10YR) yesterday after a civilian plane got shot down in eastern Ukraine and as Israeli troops entered Gaza. They accelerated withdrawals from the riskiest debt in the past week, yanking $2.3 billion from high-yield bond funds, the biggest outflow since June 2013, according to a Wells Fargo & Co. (WFC) report.

Wall Street’s largest bond dealers cut their net junk-bond holdings to $4.8 billion in the week ended July 9, the lowest level since the Federal Reserve began reporting the data in April 2013.
…
Buyers funneled $2.4 billion into investment-grade corporate debt funds, the 30th consecutive week of deposits, the Wells Fargo report shows. Money is flowing in even though analysts predict a rise in benchmark yields by year-end, which would eat into the notes’ returns.

It was a modestly negative day for the Canadian preferred share market, with PerpetualDiscounts off 2bp, FixedResets losing 5bp and DeemedRetractibles down 3bp. Volatility was negligible. Volume was average.

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	3.09 %	3.07 %	21,546	19.50	1	1.5886 %	2,574.3
FixedFloater	4.16 %	3.39 %	28,200	18.66	1	0.0877 %	4,167.5
Floater	2.84 %	2.92 %	45,489	19.94	4	-0.0810 %	2,789.6
OpRet	4.01 %	-5.40 %	76,891	0.08	1	-0.2345 %	2,723.2
SplitShare	4.27 %	3.98 %	44,234	4.02	6	-0.1665 %	3,106.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.2345 %	2,490.1
Perpetual-Premium	5.52 %	-4.47 %	81,926	0.09	17	0.0023 %	2,429.9
Perpetual-Discount	5.23 %	5.14 %	115,766	15.19	20	-0.0192 %	2,580.5
FixedReset	4.39 %	3.58 %	202,893	4.60	77	-0.0485 %	2,562.2
Deemed-Retractible	4.98 %	0.41 %	123,249	0.10	43	-0.0296 %	2,551.3
FloatingReset	2.66 %	0.72 %	93,766	0.16	6	-0.0262 %	2,528.4

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.E	Ratchet	1.59 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-18 Maturity Price : 23.86 Evaluated at bid price : 24.30 Bid-YTW : 3.07 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.K	Deemed-Retractible	394,115	Scotia crossed 160,000 at 26.10. TD crossed two blocks of 40,000 each, both at the same price. RBC crossed 73,500 and 75,000, both at the same price again. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-17 Maturity Price : 25.75 Evaluated at bid price : 26.10 Bid-YTW : -2.24 %
BNS.PR.O	Deemed-Retractible	280,388	Scotia crossed blocks of 80,000 and 50,000, both at 26.25; RBC crossed blocks of 74,800 and 75,000, both at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-17 Maturity Price : 25.75 Evaluated at bid price : 26.20 Bid-YTW : -17.23 %
HSB.PR.D	Deemed-Retractible	277,787	Scotia crossed blocks of 108,900 and 100,000, both at 25.43. RBC crossed 40,000 at 25.43; TD crossed 25,000 at 25.43. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-17 Maturity Price : 25.25 Evaluated at bid price : 25.43 Bid-YTW : -0.75 %
CM.PR.O	FixedReset	163,415	Scotia crossed 40,000 at 25.49. RBC crossed blocks of 50,000 and 25,000 at the same price; Nesbitt crossed 40,000 at the same price again. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.47 Bid-YTW : 3.60 %
ENB.PF.E	FixedReset	123,673	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-18 Maturity Price : 23.10 Evaluated at bid price : 24.97 Bid-YTW : 4.15 %
RY.PR.H	FixedReset	89,273	RBC bought 19,400 from Nesbitt at 25.55, then crossed 24,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-18 Maturity Price : 23.28 Evaluated at bid price : 25.39 Bid-YTW : 3.65 %
There were 35 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
PVS.PR.B	SplitShare	Quote: 24.58 – 24.90 Spot Rate : 0.3200 Average : 0.1967 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 24.58 Bid-YTW : 4.92 %
BAM.PR.G	FixedFloater	Quote: 22.82 – 23.25 Spot Rate : 0.4300 Average : 0.3188 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-18 Maturity Price : 22.87 Evaluated at bid price : 22.82 Bid-YTW : 3.39 %
MFC.PR.F	FixedReset	Quote: 23.50 – 23.83 Spot Rate : 0.3300 Average : 0.2308 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.50 Bid-YTW : 3.94 %
NEW.PR.D	SplitShare	Quote: 32.40 – 32.69 Spot Rate : 0.2900 Average : 0.1995 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-06-26 Maturity Price : 32.07 Evaluated at bid price : 32.40 Bid-YTW : 3.33 %
PVS.PR.D	SplitShare	Quote: 24.13 – 24.38 Spot Rate : 0.2500 Average : 0.1616 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 24.13 Bid-YTW : 5.13 %
RY.PR.H	FixedReset	Quote: 25.39 – 25.69 Spot Rate : 0.3000 Average : 0.2386 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-18 Maturity Price : 23.28 Evaluated at bid price : 25.39 Bid-YTW : 3.65 %

The Canadian Bond Investors Association has been mocked on PrefBlog on March 10 – at that time I said:

Yes, it will be a better world, as soon as there are more rules, more red tape, more regulators and more lawyers. It never occurs to any of these clowns that they have a choice regarding what to buy; if big enough, they can even approach issuers themselves with a proposal for a private placement.

… and again on March 14 (it was a good week):

Assiduous Readers will recognize that these are the same box-tickers who want bond covenants standardized in order to reduce the chance they might have to read a term sheet and, even worse, have to take a view on the value difference between slightly different covenants, as discussed on March 10.

… and now they are back in the news with more pathetic whimpering:

Royal Bank provided investors with insufficient information on short notice before its July 11 sale of C$1 billion ($930 million) in subordinated notes that can convert to equity, the first in Canada to comply with new international banking rules, The Canadian Bond Investors Association said in a letter yesterday to provincial securities regulators. Toronto-based Royal Bank said it met all requirements.

This time, however, there was an immediate rejoinder:

“The buyers could have gone on strike and not bought this,” said David Beattie, senior credit officer at Moody’s Investors Service, said by phone from Toronto.
…
Royal Bank “met all legal and regulatory requirements in issuing this transaction,” Sandra Nunes, a spokeswoman for the company, said in an e-mail yesterday. “The deal was well oversubscribed, and it has performed well in the secondary market.”

Since the July 11 sale at a yield of 152 basis points, or 1.52 percentage points, more than Canadian government debt, the spread on the Royal Bank bonds has narrowed to about 146 basis points, according to data compiled by Bloomberg.

My Lord. The fact that the obvious was pointed out (by David Beattie) is almost as astonishing as the fact that Bloomberg – which covers the world – did a better job than the Globe and Mail on reporting the issue. However, the Bloomberg / G&M comparison is old news. However, the G&M article is enhanced by a comment from “ontario7”, who must be some kind of genius:

If you don’t like the way bond is structured, then don’t buy it.

And look as the quoted spread! The issue has an initial coupon of 3.04%, so the spread is being quoted over five-year Canadas. Like I said, the sub-debt market consists of the sleazy selling to the stupid, so it’s no wonder the CBIA is confused.

So anyway, I looked up the CBIA admission of incompetence (bolding added):

In order to foster robust capital markets, the CBIA strongly advocates that issuers follow best practices, especially when marketing new issuers and new structures. Best practices for new debt structures include furnishing all material documents on a timely basis and with a minimum of three business days before pricing. They also include providing public investor calls with a scheduled opportunity for questions and answers and allowing rating agencies to provide preliminary reports. We believe these best practices are important for institutional investors to meet their fiduciary duty to clients. We believe that securities regulators share this view, and in fact demand this of investment managers they register.

The RBC NVCC issue of July 11, 2014 fell short of a number of these best practices. The syndicate provided only a brief, pre-recorded net roadshow to investors less than two days ahead of the deal and provided no opportunity to ask questions on the public call. When the deal came to market, no final rating agency comments were available to potential investors and only “expected” ratings were listed on the term sheet. The CBIA believes this is not in line with best practices when a deal of this significance is in the market involving an instrument that is new to institutional investors.
…
In our April 8, 2013 letter, the CBIA requested improved disclosure procedures during the new issue process. In our letter we wrote:

“Investors are often afforded insufficient time to review key terms and conditions of bond indentures when an issue comes to market.”

Further, we offered:

“As a minimum more time is required for review of indentures. For new issuers we believe that a minimum of three working days should be allowed for investors to review final form indentures and prospectus supplements and to disclose concerns with legal counsel.”

In summary, we ask that the Canadian securities regulators look at the new issue process for this security and whether it was appropriate in the circumstances.

So, in other words, the CBIA is able to chant the slogan “We believe these best practices are important for institutional investors to meet their fiduciary duty to clients”, but is unable to make the giant leap to the awesome concept that if you don’t feel you have enough information regarding a security to meet your fiduciary duty to clients YOU DON’T FUCKEN BUY THE SECURITY. The new issue was discussed on PrefBlog.

To be fair however, they did write an entirely sensible letter addressed to the Ministry of Finance, Bank of Canada and OSFI regarding bail-in debt:

We are writing to respectfully urge the Department of Finance to expedite the process for providing clarity on the “Bail-In” framework.
…
The CBIA formally commented to the Office of the Superintendent of Financial Institutions in a letter dated January 23, 2012 (attached). We stated that clarity on a regulatory regime guiding the “bail-in” of senior unsecured bank instruments and a full picture of the regulatory landscape are important to have in place ahead of NVCC issuance to allow proper risk assessment and pricing considerations. While there has been progress on some areas addressed in our letter, the critical issue of bail-in debt has not been addressed, thus leaving institutional fixed income investors in an uncomfortable position when evaluating NVCC instruments.

A worthy effort, but good luck with that. OSFI has been dragging its heels on the Life Insurance Regulatory Framework for literally years now, and Assiduous Readers will be well aware of how that has distorted pricing of preferred shares amongst Bank issues, insurance issues and unregulated issues.

There’s an interesting discussion of Maple bonds and liquidity from 2010:

EUROWEEK: How much of a concern is the lack of liquidity in the secondary market?

Lumb, CBA: You need to have at least three managers to make sure investors are confident of being able to trade some of their positions. Historically, the Maple market has always needed more managers than most. Having one just would not work.

DeRosa, MetLife: We see the liquidity in the bond market becoming increasingly more robust. Our efforts to augment our relationships with investors and dealers will help somewhat, as will our outreach to investors on the merits of our programme.

Costanzo, TD Securities: Secondary liquidity is key to any market’s success. If no one needed a secondary market, issuers would simply call investors directly and do a trade between themselves. But banks are involved in the process to commit balance sheet and provide a secondary market. That’s one of our core roles. What will be key to the continued development of the Maple market will be getting more international investors on board. This will provide an increased flow in the bonds as international investors will have different motivations to buy/sell — i.e. currency fluctuations — and therefore further the diversification and depth of the market. For this to happen, international investors need to have a reason to be involved. Canada is already very highly regarded by the global investment community. The currency story continues to be an attractive one. It would prove an even more attractive investment if yields were higher and more like the levels attainable in the Kangaroo market, which are currently about 300bp higher.

Marjaee, MFC Global: Secondary liquidity is a big issue. It was much better for some issues last year. There is still illiquidity when it comes to some subordinated bonds, especially when there is uncertainty about whether something will be called or extended. The recent deals have had hard maturities. We like that. It leaves no options on the table for the issuer, especially if the issue is priced to the shorter date and expectations have been created for the deal to be called. Liquidity has been good with the CBA issue.

Regrettably, the Maple bond market remains tiny. Even more regrettably, the regulatory push to reduce liquidity is succeeding:

CanPX, Canada’s government-mandated bond-market information service, will make trade prices freely available on its website amid a review by regulators concerned that smaller investors don’t have access to the data.

The for-profit joint venture of Canada’s major bond dealers and interdealer brokers has begun posting the previous day’s price and yield highs, lows and closing levels for all 340 corporate securities it tracks, CanPX said in a statement.

The move follows the Canadian Securities Administrators’ announcement last month it would review transparency in the C$390 billion ($363 billion) corporate bond market. The group, a coalition of Canada’s provincial and territorial securities regulators, questioned whether the private-sector model led by CanPX was working, and if more active regulation is needed.

A good chunk of government bonds have gone abroad:

Foreigners made their largest purchase of Canadian securities in two years in May, led by demand for provincial and federal government bonds.

The net purchases worth C$21.4 billion ($19.9 billion) in May included C$15.9 billion of bonds, and were more than double the April total, Statistics Canada said today in Ottawa.

Demand for bonds was led by a net C$6.3 billion purchase of provincial debt, the biggest since April 2009. Non-Canadian investors also bought C$6.9 billion of federal government debt, the most since May 2012 after sales of C$15.4 billion over the five prior months.

But government bonds did very well today:

Treasury (USGG2YR) 10-year notes rallied the most since March as reports of a Malaysian plane being shot down in eastern Ukraine and Israel’s military starting ground operations in the Gaza strip boosted refuge demand.

Thirty-year bond yields fell to the lowest level in more than a year after a Malaysian Boeing 777 with 295 aboard crashed near the Russian-Ukraine border added to to haven appeal linked to expanded sanctions against Russia for support of separatist rebels. The difference between five- and 30-year yields narrowed to the least since 2009 a day after Federal Reserve Chair Janet Yellen told lawmakers monetary stimulus is still needed, while increases in interest rates may occur sooner if the economy accelerates.
…
The 10-year yield dropped eight basis points, or 0.08 percentage point, to 2.45 percent at 4:59 p.m. New York time, according to Bloomberg Bond Trader Prices. The 2.5 percent notes maturing in May 2024 added 22/32, or $6.88 percent $1,000 face amount, to 100 15/32. The yield fell as much as nine basis points, the most since March 13.

U.S. 30-year yield fell seven basis points to 3.27 percent, touching the lowest level since June 2013.

According to CBid, closed at a startling 1.48% today.

Parakeet Poluz is hinting that low rates may be here to stay:

Bank of Canada Governor Stephen Poloz says the central bank may discuss the interest rate that would keep the economy at full output, a rate he said has been lowered following the global recession.

The central bank is researching what economists call a neutral interest rate, and will discuss the issue in the next quarterly economic forecast paper due in October, Poloz said in an interview aired today on CBC Radio’s “The Current” program.

Despite the fireworks in the government bond market, it was a relatively poor day for the Canadian preferred share market, with PerpetualDiscounts down 9bp, FixedResets flat and DeemedRetractibles off 4bp. Volatility was good. Volume was average.

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	3.14 %	3.14 %	21,072	19.40	1	0.7158 %	2,534.0
FixedFloater	4.17 %	3.39 %	29,131	18.66	1	0.0000 %	4,163.9
Floater	2.84 %	2.93 %	45,730	19.92	4	0.1352 %	2,791.8
OpRet	4.01 %	-8.29 %	79,620	0.08	1	0.2350 %	2,729.6
SplitShare	4.26 %	3.97 %	46,056	4.03	6	-0.0266 %	3,111.6
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.2350 %	2,496.0
Perpetual-Premium	5.52 %	-3.71 %	80,166	0.09	17	0.0069 %	2,429.9
Perpetual-Discount	5.23 %	5.16 %	107,143	15.22	20	-0.0851 %	2,581.0
FixedReset	4.38 %	3.59 %	199,468	4.60	77	0.0000 %	2,563.4
Deemed-Retractible	4.98 %	0.21 %	123,742	0.11	43	-0.0360 %	2,552.0
FloatingReset	2.66 %	2.08 %	103,091	3.84	6	0.0065 %	2,529.0

Performance Highlights
Issue	Index	Change	Notes
CIU.PR.C	FixedReset	-1.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-17 Maturity Price : 21.47 Evaluated at bid price : 21.82 Bid-YTW : 3.41 %
TD.PR.P	Deemed-Retractible	1.08 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-16 Maturity Price : 25.75 Evaluated at bid price : 26.21 Bid-YTW : -17.99 %
BAM.PR.R	FixedReset	1.37 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.91 Bid-YTW : 3.61 %
FTS.PR.H	FixedReset	2.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-17 Maturity Price : 21.47 Evaluated at bid price : 21.80 Bid-YTW : 3.49 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PF.E	FixedReset	839,123	New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-17 Maturity Price : 23.10 Evaluated at bid price : 24.95 Bid-YTW : 4.16 %
CM.PR.M	FixedReset	302,941	Called for redemption July 31. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 5.30 %
TD.PR.I	FixedReset	241,143	Called for redemption July 31. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 24.99 Bid-YTW : 4.63 %
TD.PR.K	FixedReset	188,914	Called for redemption July 31. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 4.97 %
ENB.PF.C	FixedReset	159,117	TD crossed 115,600 at 25.09. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-17 Maturity Price : 23.18 Evaluated at bid price : 25.16 Bid-YTW : 4.13 %
BNS.PR.M	Deemed-Retractible	111,653	Nesbitt crossed 109,200 at 25.88. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-26 Maturity Price : 25.50 Evaluated at bid price : 25.83 Bid-YTW : -8.69 %
There were 31 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
SLF.PR.H	FixedReset	Quote: 25.70 – 26.10 Spot Rate : 0.4000 Average : 0.2685 YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.70 Bid-YTW : 2.68 %
BNS.PR.B	FloatingReset	Quote: 25.41 – 25.60 Spot Rate : 0.1900 Average : 0.1176 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-10-25 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : 2.09 %
TD.PF.A	FixedReset	Quote: 25.35 – 25.53 Spot Rate : 0.1800 Average : 0.1098 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-17 Maturity Price : 23.25 Evaluated at bid price : 25.35 Bid-YTW : 3.64 %
CU.PR.C	FixedReset	Quote: 26.00 – 26.24 Spot Rate : 0.2400 Average : 0.1847 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 2.74 %
VNR.PR.A	FixedReset	Quote: 25.64 – 25.91 Spot Rate : 0.2700 Average : 0.2154 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.64 Bid-YTW : 3.53 %
GWO.PR.N	FixedReset	Quote: 21.37 – 21.55 Spot Rate : 0.1800 Average : 0.1255 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.37 Bid-YTW : 4.78 %

The regulators’ crack-down on European banks is having the intended effect:

Ignoring the rules has never been so pricey for European lenders, spurring them to hire more people to ferret out wrongdoing and offer salaries more in line with the bankers they police.

“It’s actually a very hot market right now,” said Mike Roemer, who became head of compliance at London-based Barclays Plc (BARC) in January. Today the role is seen “as an integral part of how companies manage the overall risk of the organization,” he said.

After the U.S. extracted almost $12 billion in fines in settlements with France’s BNP Paribas SA (BNP) and Zurich-based Credit Suisse Group AG (CSGN) since May, European firms say they’re overhauling culture and boosting pay for compliance staff faster than for revenue-earning bankers.
…
The average annual salary for a compliance employee in London rose 12.9 percent to 80,538 pounds ($138,000) in 2013, according to a survey by London-based recruitment firm Astbury Marsden & Partners Ltd. That compares with a 6.1 percent increase to 90,669 pounds for a revenue-generating banker.

No real surprises in the BoC rate announcement:

Total CPI inflation has moved up to around the 2 per cent target in recent months, sooner than expected. Core inflation has also increased but remains below 2 per cent. Recent higher inflation is attributable to the temporary effects of higher energy prices, exchange rate pass-through and other sector-specific shocks, rather than to any change in domestic economic fundamentals.
…
Given the downgrade to the global outlook, economic activity in Canada is now projected to be a little weaker than previously forecast.
…
For the inflation target to be achieved on a sustained basis in 2016, the economy must reach and remain at full capacity. Closing the output gap over the time frame described above is reliant on continued stimulative monetary policy and hinges critically on stronger exports and business investment. Meanwhile, the risks associated with household imbalances, while evolving in a constructive way, are still elevated. Weighing these considerations within the Bank’s risk-management framework, the monetary policy stance remains appropriate and the target for the overnight rate remains at 1 per cent. The Bank is neutral with respect to the timing and direction of the next change to the policy rate, which will depend on how new information influences the outlook and assessment of risks.

Today’s PrefBlog Wingnut of the Day Award goes to the authors of a new book:

In their new book, House of Debt, Atif Mian and Amir Sufi argue that out-of-control housing prices tend to inflict long-lasting pain on a country’s economy, but much of that distress can be avoided. The key? Forcing banks and other lenders to share in the ups-and-downs of the real estate cycle by requiring them to bear part of the cost if a housing boom implodes.

The authors, who teach at Princeton and the University of Chicago, respectively, are mostly concerned with the U.S. housing debacle, but their work deserves attention in any country that suspects it, too, may be suffering from real estate dementia.
…
The two professors propose an idea with far more teeth. They suggest rewriting mortgage contracts so that a homeowner’s payments and principal shrink if an index of local home prices declines. In effect, their system would shove part of the losses onto the shoulders of the mortgage holder. (Yes, in Canada that would be mostly you, Big Six banks.) In return, the lender would get a 5-per-cent slice of any capital gains on the house when it is sold or refinanced.

Wondderful. So my mortgage rate will go up if the bank figures the market will go down, and vice versa. Classic negative convexity, just for starters. I continue to advocate a gradual withdrawal of the government from mortgage insurance and countercyclical capital requirements when the proportion of mortgage assets to financial system assets deviates significantly from historical norms.

There’s some cheerful news for those in the investment management business:

Net flows into U.S. investment accounts were just 1 percent last year. That could create problems when, inevitably, stocks cool off. And if a bear market comes along, managers of funds may face a true reckoning.

The hardest hit will likely be traditional active money managers. They’re being underpriced by cheap passive strategies that hold stocks and bonds based on indexes in mutual funds or exchange-traded funds. Managers of mutual funds are also getting squeezed by a variety of new, more sophisticated strategies, which BCG calls “solutions.” These are options like target-date funds, income funds and global asset allocation funds that operate pretty much on autopilot.

The result is that an elite group of big asset managers, who provide such alternatives, are winning the lion’s share of new dollars. In the U.S., Vanguard Group, famous for its cheap index funds and ETFs, and BlackRock, the world’s largest money manager, together get two of every five new dollars that get invested in the U.S. BCG says the top 10 asset managers make up almost three-quarters of new investment flows.

Short selling is a dangerous game:

A Wall Street trader said Cynk Technology Corp.’s (CYNK) 36,000 percent stock surge cost him his job, and he blames a short squeeze and regulators who didn’t halt the shares before the company’s value shot past $6 billion.

Tom Laresca, a market-maker at Buckman Buckman & Reid Inc., said he was among traders who thought they spotted a scam as the shares jumped to $2.25 last month from pennies. He sold it short last week around $6 — which means selling stock you don’t own with a plan to buy it cheaper soon, pocketing the difference. Laresca figured the Securities and Exchange Commission would suspend trading, sending the price toward zero. Cynk has said it’s a social-network service with no revenue and one employee.

“The stock looked worthless, if there’s even a company behind it,” Laresca said. “My 10-year-old knew it was a scam. It was a complete joke.”

Instead of falling, the price more than doubled the next day, July 9, starting the squeeze. Market-makers who had sold the shares short got nervous and scrambled to buy them to close their positions, driving the price even higher, Laresca said. The SEC stopped trading two days later, citing concerns about the accuracy of information in the marketplace and “potentially manipulative transactions.” That was too late, Laresca said.
…
Only 500,000 of those shares were authorized to trade publicly, according to Cynk’s transfer agent, Pacific Stock Transfer. About $12 million of stock changed hands during the past month, according to data compiled by Bloomberg. The low volume meant that market-makers couldn’t find shares to cover their short positions, Laresca said.
…
Kevin Kelly, chief investment officer at Recon Capital Partners LLC, which manages about $150 million and issues exchange-traded funds, said Laresca took a risk by shorting Cynk even if he thought it was sketchy.

“He should know that markets can stay irrational longer than you can stay solvent,” Kelly said. “He’s a professional.”

The video interview makes one thing clear: he’s got a great accent!

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 14bp, FixedResets off 11bp and DeemedRetractibles gaining 4bp. Volatility was nothing special, but comprised entirely of FixedReset losers. Volume was below average.

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	3.16 %	3.15 %	21,887	19.34	1	0.0000 %	2,516.0
FixedFloater	4.17 %	3.39 %	29,402	18.66	1	0.0000 %	4,163.9
Floater	2.84 %	2.93 %	45,714	19.92	4	0.1897 %	2,788.1
OpRet	4.01 %	-5.66 %	79,751	0.08	1	-0.3124 %	2,723.2
SplitShare	4.26 %	3.97 %	46,694	4.03	6	-0.0067 %	3,112.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.3124 %	2,490.1
Perpetual-Premium	5.52 %	-3.89 %	78,949	0.09	17	0.0462 %	2,429.7
Perpetual-Discount	5.23 %	5.07 %	109,540	15.21	20	0.1364 %	2,583.2
FixedReset	4.38 %	3.59 %	197,727	4.75	76	-0.1062 %	2,563.4
Deemed-Retractible	4.97 %	0.12 %	124,614	0.09	43	0.0407 %	2,553.0
FloatingReset	2.66 %	-0.95 %	96,187	0.09	6	0.0917 %	2,528.9

Performance Highlights
Issue	Index	Change	Notes
SLF.PR.I	FixedReset	-1.32 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.20 Bid-YTW : 2.32 %
MFC.PR.F	FixedReset	-1.19 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.29 Bid-YTW : 4.04 %
BAM.PR.X	FixedReset	-1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-16 Maturity Price : 21.76 Evaluated at bid price : 22.01 Bid-YTW : 4.01 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.M	FixedReset	100,633	Called for redemption July 31. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 5.18 %
ENB.PR.F	FixedReset	65,318	RBC crossed 55,000 at 24.70. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-16 Maturity Price : 23.13 Evaluated at bid price : 24.63 Bid-YTW : 4.04 %
BMO.PR.S	FixedReset	61,067	TD crossed 35,000 at 25.72. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.72 Bid-YTW : 3.57 %
ENB.PR.Y	FixedReset	55,882	Desjardins crossed blocks of 17,500 and 32,500, both at 24.27. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-16 Maturity Price : 22.89 Evaluated at bid price : 24.28 Bid-YTW : 4.00 %
GWO.PR.S	Deemed-Retractible	48,590	Scotia crossed 40,000 at 25.65. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.56 Bid-YTW : 5.10 %
BNA.PR.F	SplitShare	40,027	Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 24.20 Bid-YTW : 5.07 %
There were 26 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PR.R	FixedReset	Quote: 25.56 – 25.78 Spot Rate : 0.2200 Average : 0.1418 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-16 Maturity Price : 23.79 Evaluated at bid price : 25.56 Bid-YTW : 3.79 %
RY.PR.L	FixedReset	Quote: 26.51 – 26.75 Spot Rate : 0.2400 Average : 0.1842 YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.51 Bid-YTW : 3.00 %
IFC.PR.A	FixedReset	Quote: 24.20 – 24.42 Spot Rate : 0.2200 Average : 0.1670 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.20 Bid-YTW : 4.03 %
SLF.PR.I	FixedReset	Quote: 26.20 – 26.45 Spot Rate : 0.2500 Average : 0.2000 YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.20 Bid-YTW : 2.32 %
RY.PR.H	FixedReset	Quote: 25.35 – 25.55 Spot Rate : 0.2000 Average : 0.1510 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-16 Maturity Price : 23.27 Evaluated at bid price : 25.35 Bid-YTW : 3.65 %
GWO.PR.I	Deemed-Retractible	Quote: 22.81 – 23.00 Spot Rate : 0.1900 Average : 0.1430 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.81 Bid-YTW : 5.67 %

I was sent a link to an article from 2007 by Keith Ambachsheer and Rob Bauer titled Losing ground: Do Canadian mutual funds produce fair value for their customers?:

The study specifically compares the net excess returns produced by a large sample of Canadian mutual funds with domestic equity mandates against the net excess returns produced by a large sample of the domestic equity components of Canadian pension funds. An important study finding is that, over the nine-year period from 1996 to 2004, the Canadian equity components of Canadian pension funds outperformed their Canadian equity market benchmark by an average +1.2% per annum, net of expenses. Over the same nine-year period, Canadian equity mutual funds with domestic mandates underperformed their Canadian equity market benchmark by an average -2.6% per annum, net of management fees, but before any applicable sales charges. Any such sales charges would reduce mutual fund net returns even further.

Very sweet, but nowhere does the article attempt to attribute reported outperformance of Canadian pension funds, which I suggest was due to enormous post-Tech-Wreck outperformance overcompensating for pre-Tech-Wreck underperformance. In addition, it does not attempt to address the outperformance itself, which any first-year B-School student will be pleased to tell you cannot be persistent.

The authors then ask:

Why would Canadian mutual fund investors subject themselves to an average wealth-loss of 3.8% per annum relative to implementing the same basic investment policy through Canadian pension funds? Or equivalently, why would Canadian mutual fund investors pay an average 2.75%(or more including sales charges)for an investment service that is available to Canadian pension fund participants for an average 0.25%, and which produced inferior investment results even before the far greater expenses?

… but of their four hypotheses, only one seems plausible:

Mutual funds are sold, not bought: the market for investment management services is highly asymmetric, with the buyers of these services knowing far less about what they are buying than the sellers know about what they are selling. Information economics predicts that in such a market buyers will pay too much for too little. Research results from the field of behavioural finance support this conclusion. This research shows people to be generally unsophisticated, inconsistent, hesitant, and even irrational regarding financial matters, which creates the opportunity for the for-profit financial services industry to proactively step in and sell their products and services at too-high prices.8 The veracity of his third explanation is supported by the findings of a recent survey of 1865 Canadian mutual fund investors. When asked why they had bought mutual funds, 85% said they were persuaded by “someone who provided me with advice and guidance.”9 In our view, it is the combined effects of informational asymmetry and behavioural dysfunction on the part of the customers, and opportunistic acuity on the part of the suppliers, that best explains the findings summarized in Table 1. Mahoney(2004)reaches similar conclusions in a paper titled “Manager-Investor Conflicts in Mutual Funds.”

This emphasis on prices is reasonable, but there is no attempt to reconcile the fees charged with the performance gap. In addition, the authors conveniently ignore the investment environment of the first half of their period: tech sold! Dividends were old-fashioned; managers had a choice between throwing a good portion of their mutual fund assets into tech or, alternatively, just stay home and catch up on sleep. Without tech on offer, nobody would come to the office and the ‘phones wouldn’t ring.

All this is meant to tout the idea of Government Investment Management:

We favour a middle way: the “paternalistic libertarian” approach currently in the process of being adopted in the UK. The basic idea is to create a number of arm’s-length, expert, pension delivery organizations, and then to automatically enroll the entire non-covered part of the workforce into one of them. People can elect to opt out if they do not wish to participate.
…
A key assumption in these calculations is that the pension delivery organizations operate in the sole best interests of plan participants, with expense ratios of 0.3%.

I wonder if Mr. Ambachsheer is involved with the proposed Ontario Pension Plan? It sounds rather similar …

The battle to make life easier for incompetent bond investors is heating up:

The Canadian Securities Administrators, a coalition of the country’s provincial and territorial securities regulators, announced last month it’s starting a review of transparency in the $390-billion corporate bond market. The CSA questioned whether the private sector-led transparency model currently in place is working, and if more active regulation is needed.

The move comes as bond trading falls under closer scrutiny worldwide with the top regulator in the U.S. calling for more public information on private trading, and the European Union seeking to build a system to publicly disclose prices in real time.

Unlike stocks, bonds aren’t traded on public exchanges but as private transactions with securities dealers acting as middlemen, giving the brokerages — many of whom are owned by banks — an informational advantage.
It’s historically been more profitable for firms to trade bonds than stocks because the debt markets are less transparent, making it easier for brokers to take a bigger fee for each exchange.

“We have a sort of oligopolistic banking system where the banks kind of set their own rules, and there’s been a lack of transparency in the bond market forever,” said Ed Waitzer, chairman of the Ontario Securities Commission from 1993 to 1997 and a senior partner at Toronto-based law firm Stikeman Elliot LLP. “It sounds like the commission is feeling a little bit of heat again because the rest of the world is kind of shining a light on dark markets.”

Yellen is still dovish on rates:

Federal Reserve Chair Janet Yellen told lawmakers the central bank must press on with record monetary stimulus to combat persistent job-market weakness.

“There are mixed signals concerning the economy,” Yellen said in response to questions during testimony to the Senate Banking Committee today. “We need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates.”

While her “overall view is more positive,” Yellen said low wages are one sign of “significant slack” in labor markets, even after the jobless rate fell to an almost six-year low.
…
In prepared testimony, Yellen repeated that interest rates are likely to stay low for a “considerable period” after the Fed ends its asset-purchase program, which she said could happen following the October meeting.

“A high degree of monetary policy accommodation remains appropriate,” Yellen said in her semi-annual testimony. “Although the economy continues to improve, the recovery is not yet complete.”

She also commented on irrational exuberance:

Ms. Yellen delivered her observation during off-script Congressional testimony on Tuesday. Well, sort of: She was actually singling out social media and biotech stocks – along with lower-rated corporate debt – as pockets of the market that look frothy and are vulnerable to setbacks, particularly when the Fed starts raising its key interest rate.

The fact that a Fed chair would discuss stock valuations of any kind is highly unusual and should push investors into evaluating market conditions after a 190 per cent rally by the S&P 500 over the past five-and-a-half years.

Dubai’s making an effort to attract the hated hedge funds:

When Ahmad Zuaiter started a frontier-markets hedge fund, the former Soros Fund Management LLC money manager chose Dubai over New York and London.

Zuaiter’s Jadara Capital Partners LP and VY Capital Management Co. Ltd. opened in the emirate in the past year, bringing to three the number of hedge-fund firms in the Dubai International Financial Centre, according to Dechert LLP, a law firm that helped establish both companies in the sheikhdom.

“If you want to run a boutique model, the best way is to be located in a centrally positioned hub like Dubai and use it as a nexus to travel extensively and frequently to your target markets,” Zuaiter, 46, said in an interview in his office, close to celebrity chef Marco Pierre White’s Wheeler’s of St James’s restaurant.

…
For Dubai to rival London as a finance and hedge-fund capital, it must overcome concerns about political instability in the region and 50 degree Celsius (122 degrees Fahrenheit) temperatures that drive residents to seek refuge in Geneva and other European cities during the summer. Still, zero tax, office rents one-third the price of London’s West End and an airport that connects with 90 percent of frontier markets make it attractive to startups, Zuaiter said.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 19bp, FixedResets up 13bp and DeemedRetractibles gaining 8bp. Volatility was reasonable, highlighted by FixedReset winners. Volume was low.

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	3.16 %	3.15 %	21,951	19.34	1	0.0000 %	2,516.0
FixedFloater	4.17 %	3.39 %	29,778	18.66	1	-0.2188 %	4,163.9
Floater	2.84 %	2.94 %	46,108	19.90	4	0.4627 %	2,782.8
OpRet	4.00 %	-9.45 %	80,441	0.08	1	0.4708 %	2,731.8
SplitShare	4.26 %	3.98 %	48,616	4.04	6	-0.1794 %	3,112.6
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.4708 %	2,497.9
Perpetual-Premium	5.52 %	-3.72 %	79,129	0.09	17	-0.0208 %	2,428.6
Perpetual-Discount	5.24 %	5.08 %	107,470	15.23	20	0.1900 %	2,579.7
FixedReset	4.38 %	3.56 %	196,859	4.61	76	0.1275 %	2,566.2
Deemed-Retractible	4.98 %	1.49 %	126,241	0.30	43	0.0787 %	2,551.9
FloatingReset	2.66 %	1.92 %	107,335	0.16	6	0.3614 %	2,526.5

Performance Highlights
Issue	Index	Change	Notes
CIU.PR.C	FixedReset	-2.89 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-15 Maturity Price : 21.71 Evaluated at bid price : 22.17 Bid-YTW : 3.35 %
BNA.PR.F	SplitShare	-1.15 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 24.14 Bid-YTW : 5.11 %
BNS.PR.R	FixedReset	1.21 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2019-01-26 Maturity Price : 25.00 Evaluated at bid price : 25.93 Bid-YTW : 2.92 %
SLF.PR.I	FixedReset	1.34 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.55 Bid-YTW : 1.75 %
BMO.PR.Q	FixedReset	1.70 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.07 Bid-YTW : 3.08 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BAM.PF.F	FixedReset	105,916	RBC crossed 29,100 at 25.52. TD crossed 45,000 at 25.55; Scotia sold 19,500 to Nesbitt at 25.55. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.55 Bid-YTW : 4.16 %
BMO.PR.S	FixedReset	92,735	Nesbitt crossed 50,000 at 25.72; TD crossed 25,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.70 Bid-YTW : 3.59 %
TD.PF.A	FixedReset	81,916	Nesbitt crossed 30,000 at 25.52; Desjardins crossed 20,000 at 25.55. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.51 Bid-YTW : 3.58 %
BNA.PR.F	SplitShare	63,860	Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 24.14 Bid-YTW : 5.11 %
BNS.PR.K	Deemed-Retractible	47,640	Called for redemption July 29. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-14 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 3.24 %
CM.PR.O	FixedReset	36,835	TD crossed 10,300 at 25.55. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.51 Bid-YTW : 3.56 %
There were 20 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
CIU.PR.C	FixedReset	Quote: 22.17 – 22.83 Spot Rate : 0.6600 Average : 0.4463 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-15 Maturity Price : 21.71 Evaluated at bid price : 22.17 Bid-YTW : 3.35 %
BAM.PR.E	Ratchet	Quote: 23.75 – 24.14 Spot Rate : 0.3900 Average : 0.2401 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-15 Maturity Price : 23.42 Evaluated at bid price : 23.75 Bid-YTW : 3.15 %
FTS.PR.H	FixedReset	Quote: 21.37 – 21.72 Spot Rate : 0.3500 Average : 0.2617 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-15 Maturity Price : 21.37 Evaluated at bid price : 21.37 Bid-YTW : 3.59 %
BAM.PF.E	FixedReset	Quote: 24.83 – 25.07 Spot Rate : 0.2400 Average : 0.1645 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-15 Maturity Price : 23.06 Evaluated at bid price : 24.83 Bid-YTW : 4.11 %
IGM.PR.B	Perpetual-Premium	Quote: 25.90 – 26.19 Spot Rate : 0.2900 Average : 0.2159 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.90 Bid-YTW : 4.96 %
BMO.PR.K	Deemed-Retractible	Quote: 26.07 – 26.24 Spot Rate : 0.1700 Average : 0.1057 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-14 Maturity Price : 25.75 Evaluated at bid price : 26.07 Bid-YTW : -1.35 %

Fitch is urging government micromanagement of housing:

Canadian home prices remain overvalued relative to historical macroeconomic fundamental drivers, Fitch Ratings says. Despite government efforts to moderate growth, home prices rose 7.1% in May (on a year-over-year basis) according to the Canadian Real Estate Association. In addition, both property sales and building permits for residential construction have picked up in recent months. Home prices also continue to be supported by historically low interest rates and a lack of supply in the major metropolitan areas; these factors have propped up affordability and drive demand. According to Fitch’s sustainable home price model, which measures home prices relative to long-term fundamentals, Canadian home prices remain approximately 20% overvalued in real terms.
We believe high household debt relative to disposable income has made the market more susceptible to market stresses like unemployment or interest rate increases. The ratio reached a high of 164.1% in third-quarter 2013 before declining slightly in the following two quarters. Fitch projects unemployment will likely remain in its current 7% range. But low interest rates are unlikely to fall further. Rising interest rates could pressure the market more than others given high borrower leverage and the short-term structure of Canadian mortgages.

Fitch believes the Canadian government has taken several proactive steps in recent years to mitigate some of the risks to the housing market. The underwriting guidelines for loans insured by the Canadian Mortgage and Housing Corporation (CMHC) have been tightened. CMHC has also pulled back on the amount of low-ratio portfolio insurance offered to lenders and limited securitization of insured mortgages to CMHC-administered programs. Furthermore, The Office of the Superintendent of Financial Institutions has issued a guideline for prudent bank underwriting that must be adhered to for bank originations as well as those purchased from nonbank lenders. However, the long-term impacts remain unclear, and policy makers may be required to take additional steps over the short term to engineer a soft landing.

Sadly, there is nothing in today’s Ontario budget about buying us all new houses. They missed that one:

Most of the budget, however, lays out long-term plans for new spending.

It provides for $29-billion in new funds for transit, roads and bridges over the next decade, plus tens of billions more for other capital costs, including schools. The budget puts more than a billion dollars into various social programs, with raises for personal support workers and more funds for programs for people with developmental disabilities.

A new $2.5-billion fund for businesses is meant to help lure corporations to the province and encourage existing operations to expand.

The plan also allocates a billion for a new road or rail link to the Ring of Fire, a Northern Ontario mineral deposit that the government estimates will yield $60-billion worth of economic activity.

The document further introduces the Ontario Retirement Pension Plan, a pension system for people who do not already have one through their employer, that aims to double the benefits of the Canada Pension Plan for retirees.

There have been an interesting couple of articles lately on US employment trends. The first approves of extreme pickiness when hiring:

Since the recession, many employers halted widely distributed cost-of-living raises. Instead, they’re giving big bonuses and salary boosts to a select few. The average pay raise might be 2 percent, but the extra cash is shared among a small group of employees who have leverage, says Thomas Gimbel, chief executive officer of Chicago-based staffing company LaSalle Network. For them, he says, “Things are better than they’ve ever been.”

These wily pay strategies may also explain why there are so many open jobs. According to data released July 8, there were 4.6 million job openings in the U.S. in May, up from 3.9 million a year before. For key positions, companies are letting job openings stay open until they find exactly the right person, Gimbel says. In the meantime, existing employees must work harder to fill the gap. Then, for the perfect job candidate, they’ll pay up, he says. For example, a job listed for a $125,000 salary might be vacant for a year but then filled by someone who demands — and receives — $140,000.

The second one blames it on algorithms (beloved of Human Resources departments):

Expanding use of technology that uses ultra-specific criteria to screen and winnow candidates may be perpetuating one of the most unusual features of the slow rebound in the U.S. labor market: Despite a steady increase in openings since the recession ended in 2009, these positions are being matched with job seekers less efficiently than in the past. For each 100,000 new openings, for example, companies have hired about 48,000 people, compared with about 54,000 following the 2001 recession.

Software provided by Taleo, a unit of Oracle Corp. (ORCL), allows recruiters to conduct “precision matching” through a “profile-based recruiting system” that uses “advanced search and artificial intelligence to find and short list top talent,” according to a brochure on Oracle’s website.

For workers and job-seekers with exactly the right skills industries need today, the software programs can be a boon, filling their e-mail with notes from recruiters, talent scouts said. There’s also a benefit for companies in lower talent-acquisition and training costs.

There are also disadvantages for other job prospects: A candidate with some, but not all, of the required attributes may be eliminated or moved down the list. This may be one reason why people out of work for 27 weeks or more still represent about a third of the total unemployed, compared with an average of 19 percent between 2004 and 2007. The share is down from about 37 percent in June 2013.

Well, the proof of the pudding is in the eating and I would be loathe to pontificate about the evils of HR algorithms. But I will bet a nickel that over the long run, it is more costly for a company to be too lean than it is for it to be slightly over-staffed, with guys who are familiar with InventoryMaster 8.0, but – critically – unfamiliar with InventoryMaster 9.1.

Housing pundit Will Dunning, who I featured in the post How to Dissect a Housing Bubble, is in the news again, criticizing government micro-management of housing:

“If and when there is a correction in the condo market, the severity will have been aggravated by the actions of the federal government, which elected to depress demand at a time when demand was already beginning to weaken organically and a wave of supply has been developing,” Mr. Dunning writes in a new research note.
…
He sketched out a scenario in which Toronto’s condo prices would fall by about 10 per cent, as a result of rising supply and falling demand.

“I believe that the federal mortgage insurance policy changes of the past few years will continue to weigh on demand, for both owner-occupants and investors,” Mr. Dunning writes.

His 10-per-cent-price-correction scenario also assumes that job creation does not bounce back to a healthier rate in Canada’s most populous city, and that interest rates remain constant.

“The timing of this process is highly uncertain – it probably won’t start for at least a half-year, and if there are further delays in (condo construction) completions, it could be a long way off,” he writes.

But micro-management is all the rage:

Banks shouldn’t count on a fresh round of European Central Bank cash to trade sovereign debt and reap big profits, Mario Draghi said.

“The convenience to use the ECB cheap money to buy government bonds is much less” than in a previous funding round which started in 2011, the ECB president said in testimony to the European Parliament in Strasbourg, France yesterday. “The general situation is such that these carry trades are going to be much less profitable.”

As spreads on government debt from Spain to Italy over similar German securities have fallen to record lows, a carry trade that was lucrative two years ago may now yield less, Draghi said. In a liquidity drive that pins cash to banks’ performance in extending loans to the economy, the Frankfurt-based ECB could extend as much as 1 trillion euros ($1.36 trillion) in its so-called TLTRO program starting in September.

A condition of that program is that banks have to meet a benchmark on lending to businesses and households, excluding mortgages, or else hand back the money in 2016.

“If banks don’t lend to the non-financial private sector, they’ll have to repay,” Draghi said.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 13bp, FixedResets up 9bp and DeemedRetractibles gaining 8bp. Volatility looks pretty good at first – until you realize it’s half Floaters, which always bounce around a lot. Still, the Performance Highlights table is comprised exclusively of winners! Volume was low.

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	3.16 %	3.15 %	21,896	19.34	1	-0.6276 %	2,516.0
FixedFloater	4.16 %	3.38 %	28,978	18.68	1	0.3513 %	4,173.0
Floater	2.86 %	2.96 %	46,632	19.85	4	1.1842 %	2,770.0
OpRet	4.02 %	-4.06 %	83,161	0.08	1	-0.1176 %	2,719.0
SplitShare	4.25 %	4.01 %	50,620	4.04	6	-0.0422 %	3,118.2
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1176 %	2,486.2
Perpetual-Premium	5.52 %	-2.46 %	81,951	0.09	17	0.0786 %	2,429.1
Perpetual-Discount	5.25 %	5.10 %	107,435	15.23	20	0.1304 %	2,574.8
FixedReset	4.39 %	3.58 %	196,522	4.76	76	0.0942 %	2,562.9
Deemed-Retractible	4.98 %	1.48 %	126,906	0.12	43	0.0824 %	2,549.9
FloatingReset	2.67 %	2.12 %	108,859	3.88	6	0.0526 %	2,517.4

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.C	Floater	1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-14 Maturity Price : 17.83 Evaluated at bid price : 17.83 Bid-YTW : 2.96 %
SLF.PR.H	FixedReset	1.03 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.61 Bid-YTW : 2.84 %
CIU.PR.C	FixedReset	1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-14 Maturity Price : 22.49 Evaluated at bid price : 22.83 Bid-YTW : 3.26 %
BAM.PR.B	Floater	1.37 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-14 Maturity Price : 17.78 Evaluated at bid price : 17.78 Bid-YTW : 2.97 %
CU.PR.C	FixedReset	1.51 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 26.26 Bid-YTW : 2.36 %
BAM.PR.K	Floater	1.55 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-14 Maturity Price : 17.70 Evaluated at bid price : 17.70 Bid-YTW : 2.98 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BNS.PR.N	Deemed-Retractible	150,500	Scotia crossed 150,000 at 26.04. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-13 Maturity Price : 25.75 Evaluated at bid price : 26.01 Bid-YTW : -9.78 %
TRP.PR.A	FixedReset	139,622	RBC bought two blocks of 10,000 each from anonymous at 23.29. Desjardins crossed blocks of 24,400 and 21,400, both at 23.30. RBC crossed two blocks of 20,000 each, both at 23.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-14 Maturity Price : 22.42 Evaluated at bid price : 23.30 Bid-YTW : 3.69 %
TD.PF.A	FixedReset	77,444	Nesbitt crossed 44,600 at 25.51. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.52 Bid-YTW : 3.57 %
POW.PR.G	Perpetual-Premium	63,961	Scotia crossed blocks of 19,400 and 40,000, both at 25.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-15 Maturity Price : 25.00 Evaluated at bid price : 25.70 Bid-YTW : 5.13 %
BMO.PR.K	Deemed-Retractible	53,462	TD crossed two blocks of 25,000 each, both at 26.08. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-13 Maturity Price : 25.75 Evaluated at bid price : 26.06 Bid-YTW : -1.05 %
MFC.PR.H	FixedReset	53,051	RBC crossed blocks of 23,600 and 25,000, both at 26.45. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-03-19 Maturity Price : 25.00 Evaluated at bid price : 26.32 Bid-YTW : 2.68 %
There were 23 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BNS.PR.R	FixedReset	Quote: 25.62 – 25.94 Spot Rate : 0.3200 Average : 0.2016 YTW SCENARIO Maturity Type : Call Maturity Date : 2019-01-26 Maturity Price : 25.00 Evaluated at bid price : 25.62 Bid-YTW : 3.21 %
SLF.PR.G	FixedReset	Quote: 22.53 – 22.85 Spot Rate : 0.3200 Average : 0.2108 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.53 Bid-YTW : 4.27 %
HSE.PR.A	FixedReset	Quote: 23.11 – 23.39 Spot Rate : 0.2800 Average : 0.1847 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-14 Maturity Price : 22.73 Evaluated at bid price : 23.11 Bid-YTW : 3.64 %
MFC.PR.L	FixedReset	Quote: 25.16 – 25.48 Spot Rate : 0.3200 Average : 0.2291 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.16 Bid-YTW : 3.77 %
FTS.PR.G	FixedReset	Quote: 24.83 – 25.14 Spot Rate : 0.3100 Average : 0.2230 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-14 Maturity Price : 23.17 Evaluated at bid price : 24.83 Bid-YTW : 3.65 %
GWO.PR.S	Deemed-Retractible	Quote: 25.50 – 25.73 Spot Rate : 0.2300 Average : 0.1470 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 5.13 %

Tammy Schirle of Wilfrid Laurier writes a good piece titled Six questions Ontario must answer before it starts a pension plan (although the headline writer confused ‘exhortations’ with ‘questions’):

• 1. Be clear about the market failures you are trying to address.
• 2. Be precise about the policy target.
• 3. Be clear about any redistribution that will occur.
• 4. Notice that low-income families won’t benefit from a simple expansion of benefits
• 5. How are you going to deal with interprovincial migration and interprovincial employment arrangements?
• 6. Enhancing the CPP remains the Ontario government’s preferred solution.

It was mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 1bp, FixedResets off 7bp and DeemedRetractibles up 2bp. Volatility was minimal. Volume was extremely low.

And now it’s time to start work on the July PrefLetter!

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	3.14 %	3.13 %	21,886	19.40	1	0.0000 %	2,531.9
FixedFloater	4.17 %	3.40 %	27,277	18.66	1	0.4694 %	4,158.4
Floater	2.89 %	2.99 %	47,081	19.78	4	-0.8330 %	2,737.5
OpRet	4.02 %	-5.85 %	83,269	0.08	1	0.0784 %	2,722.2
SplitShare	4.25 %	3.94 %	52,705	4.05	6	0.1397 %	3,119.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0784 %	2,489.1
Perpetual-Premium	5.53 %	-4.80 %	84,342	0.09	17	0.0671 %	2,427.2
Perpetual-Discount	5.25 %	5.11 %	109,101	15.23	20	0.0086 %	2,571.5
FixedReset	4.39 %	3.58 %	193,323	4.62	76	-0.0651 %	2,560.5
Deemed-Retractible	4.98 %	1.91 %	129,476	0.12	43	0.0222 %	2,547.8
FloatingReset	2.67 %	2.12 %	107,909	3.89	6	0.0658 %	2,516.1

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.X	FixedReset	-1.51 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-11 Maturity Price : 21.84 Evaluated at bid price : 22.11 Bid-YTW : 3.98 %
BAM.PR.K	Floater	-1.36 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-11 Maturity Price : 17.43 Evaluated at bid price : 17.43 Bid-YTW : 3.03 %
BAM.PR.C	Floater	-1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-11 Maturity Price : 17.65 Evaluated at bid price : 17.65 Bid-YTW : 2.99 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BAM.PF.F	FixedReset	76,399	Scotia crossed two blocks of 30,000 each, both at 25.55. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.54 Bid-YTW : 4.16 %
RY.PR.H	FixedReset	75,221	RBC bought blocks of 11,400 and 10,400 from TD, both at 25.55. Desjardins crossed 16,000 at the same price; Scotia crossed 21,600 at the same price again. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-08-24 Maturity Price : 25.00 Evaluated at bid price : 25.52 Bid-YTW : 3.56 %
GWO.PR.G	Deemed-Retractible	56,124	RBC crossed 50,000 at 25.07. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.95 Bid-YTW : 5.28 %
BNA.PR.F	SplitShare	29,738	Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 24.42 Bid-YTW : 4.91 %
CM.PR.O	FixedReset	28,267	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.49 Bid-YTW : 3.57 %
CU.PR.G	Perpetual-Discount	23,038	Nesbitt crossed 20,000 at 22.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-11 Maturity Price : 22.18 Evaluated at bid price : 22.47 Bid-YTW : 5.05 %
There were 11 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
W.PR.H	Perpetual-Premium	Quote: 25.09 – 26.09 Spot Rate : 1.0000 Average : 0.6089 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-10 Maturity Price : 25.00 Evaluated at bid price : 25.09 Bid-YTW : 0.38 %
BAM.PR.X	FixedReset	Quote: 22.11 – 22.51 Spot Rate : 0.4000 Average : 0.2474 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-11 Maturity Price : 21.84 Evaluated at bid price : 22.11 Bid-YTW : 3.98 %
CU.PR.C	FixedReset	Quote: 25.87 – 26.25 Spot Rate : 0.3800 Average : 0.2693 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.87 Bid-YTW : 2.91 %
VNR.PR.A	FixedReset	Quote: 25.52 – 25.88 Spot Rate : 0.3600 Average : 0.2688 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.52 Bid-YTW : 3.67 %
MFC.PR.K	FixedReset	Quote: 25.12 – 25.49 Spot Rate : 0.3700 Average : 0.2796 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-09-19 Maturity Price : 25.00 Evaluated at bid price : 25.12 Bid-YTW : 3.75 %
IAG.PR.A	Deemed-Retractible	Quote: 23.17 – 23.45 Spot Rate : 0.2800 Average : 0.1963 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.17 Bid-YTW : 5.57 %

Looks like Canadian shadow banking is picking up:

Canada’s banks developed their commercial banking arms over decades by lending to companies that typically generate annual revenue of $50-million or less, nurturing scores of client relationships. Since the financial crisis, however, private equity firms have been scooping up smaller companies, shaking up their historical banking relationships.
…
Anatol von Hahn, Bank of Nova Scotia’s head of personal and commercial banking, said he would be “be very surprised if we don’t have double, triple” the number of small Canadian companies that are owned by private equity firms twenty years from now. Because they are flush with cash that they simply can’t sit on, private equity firms are often willing to pay big multiples to buy small businesses. “They’re playing a huge role,” he said.
…
To adapt to the changing dynamics, Scotiabank has gone so far as to invest in certain private equity funds in order to get access to the companies they acquire, according to Mr. von Hahn, allowing the bank to pitch itself as a potential banking partner.

The trend isn’t playing out in Canada alone. U.S. firms are looking for mid-market acquisitions north of the border. In May, New Jersey-based private equity player Swander Pace Capital acquired Montreal’s Recochem, marking its 10th acquisition north of the border in the past decade. More acquisitions could come because the firm recently raised a brand new $350-million fund.

Could we be heading towards European banking crisis redux?

Shares in Banco Espírito Santo SA … were suspended from trading Thursday after falling an additional 17%. Shares of the lender’s controlling shareholder, Espírito Santo Financial Group SA, were also suspended because, it said, of “ongoing material difficulties” at its parent company, Espírito Santo International. “ESFG is currently assessing the financial impact of its exposure to ESI.”

A spokesman for Espírito Santo International declined to comment.

This week’s downward spiral has knocked 32% off the bank’s market value and has dragged down Portugal’s main stock index with it.

On Thursday, the turmoil spread elsewhere in Southern Europe, illustrating how investors remain nervous about the fragility of the continent’s financial system. In Spain, a bank and a construction company each called off planned bond sales. In Italy, a drug company pulled its stock offering. In Greece, a government-bond sale came in smaller than expected. And stock markets across the continent fell, along with the euro.
…
It has been more than a year since fears about the health of a European bank rattled markets. Lately, after years of crisis, investors, bankers and regulators have been growing more confident about the stability of the continent’s financial system. Regulators hoped the banking industry’s improving health would be on display in coming months as they conduct so-called stress tests on more than 120 large banks.

Instead, Espírito Santo’s rapid descent, and the collateral damage in other European markets, suggests that conditions remain precarious.

Critics of Espírito Santo’s complex corporate structure have worried for years about the linkages among companies within the conglomerate. Among the concerns: whether the group’s nonfinancial companies—including a hotel chain and a hospital operator—were using the bank and its customers to raise funds.

Here in Ontario, our wise masters are protecting us from lower prices:

Ontario’s governing Liberals say they want to remove barriers to interprovincial trade, but suggest they’re reluctant to lift some restrictions that give Ontario companies an advantage.

Finance Minister Charles Sousa says there are a number of sectors within Ontario’s economy that are strong because they’re protected.

Sousa says he’s open to talks on how to grow the economy, but he doesn’t want to jeopardize the livelihood of Ontario companies.
…
Sousa’s comments come after the leaders of three western provinces called for the removal of trade barriers to reduce the cost of doing business and help provincial economies grow.

As far as I can tell, Mr. Sousa did not explain why strong companies need protection.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 4bp, FixedResets gaining 14bp and DeemedRetractibles off 3bp. Volatility was average, but uniformly positive. Volume was below average overall, and concentrated in a handful of issues.

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	3.14 %	3.13 %	22,179	19.40	1	0.0000 %	2,531.9
FixedFloater	4.15 %	3.43 %	28,342	18.45	1	-0.2179 %	4,138.9
Floater	2.87 %	2.95 %	46,425	19.86	4	0.1367 %	2,760.5
OpRet	4.02 %	-5.05 %	86,525	0.08	1	0.0785 %	2,720.0
SplitShare	4.26 %	3.99 %	54,773	4.05	6	-0.0333 %	3,115.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0785 %	2,487.2
Perpetual-Premium	5.53 %	-4.30 %	85,467	0.09	17	0.0417 %	2,425.6
Perpetual-Discount	5.25 %	5.18 %	110,158	15.23	20	-0.0449 %	2,571.2
FixedReset	4.39 %	3.59 %	200,106	4.61	76	0.1436 %	2,562.2
Deemed-Retractible	4.98 %	1.94 %	131,236	0.12	43	-0.0278 %	2,547.2
FloatingReset	2.66 %	2.15 %	109,597	3.89	6	-0.0723 %	2,514.5

Performance Highlights
Issue	Index	Change	Notes
CU.PR.C	FixedReset	1.13 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 26.05 Bid-YTW : 2.65 %
RY.PR.L	FixedReset	1.33 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.76 Bid-YTW : 2.77 %
CIU.PR.C	FixedReset	1.35 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-10 Maturity Price : 22.24 Evaluated at bid price : 22.55 Bid-YTW : 3.38 %
BAM.PR.C	Floater	1.42 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-10 Maturity Price : 17.85 Evaluated at bid price : 17.85 Bid-YTW : 2.95 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PF.A	FixedReset	318,878	Nesbitt crossed 100,000 at 25.50. TD crossed blocks of 14,700 and 84,900 at the same price. Desjardins crossed 100,000 at the same price again. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.51 Bid-YTW : 3.57 %
BMO.PR.T	FixedReset	212,720	Nesbitt crossed two blocks of 50,000 each, both at 25.45. Scotia crossed blocks of 32,000 and 50,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.45 Bid-YTW : 3.61 %
BMO.PR.S	FixedReset	192,599	RBC crossed blocks of 10,000 and 11,600 at 25.60. TD crossed 25,000 at 25.70. Nesbitt crossed blocks of 50,000 and 69,300, both at 25.70. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.73 Bid-YTW : 3.55 %
CM.PR.M	FixedReset	184,573	Called for redemption July 31. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 24.97 Bid-YTW : 4.86 %
CM.PR.K	FixedReset	181,858	Called for redemption July 31. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 3.79 %
CM.PR.O	FixedReset	176,412	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.51 Bid-YTW : 3.55 %
TD.PR.K	FixedReset	144,299	Called for redemption July 31.. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 4.29 %
NA.PR.S	FixedReset	135,592	Scotia crossed blocks of 35,400 and 25,000, both at 25.56. National sold 28,400 to anonymous at 25.60. TD crossed 24,700 at 25.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-15 Maturity Price : 25.00 Evaluated at bid price : 25.62 Bid-YTW : 3.46 %
RY.PR.H	FixedReset	126,715	Desjardins crossed 26,500 at 25.50 and blocks of 25,000 and 15,000 at 25.55. Scotia crossed 30,000 at 25.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-08-24 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 3.57 %
BNS.PR.Q	FixedReset	125,406	RBC crossed 75,000 at 25.43; Desjardins crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-10-25 Maturity Price : 25.00 Evaluated at bid price : 25.44 Bid-YTW : 3.13 %
There were 20 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
PWF.PR.O	Perpetual-Premium	Quote: 26.15 – 26.45 Spot Rate : 0.3000 Average : 0.2062 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-31 Maturity Price : 26.00 Evaluated at bid price : 26.15 Bid-YTW : 2.67 %
PWF.PR.A	Floater	Quote: 20.00 – 20.30 Spot Rate : 0.3000 Average : 0.2133 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-10 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 2.64 %
HSB.PR.D	Deemed-Retractible	Quote: 25.33 – 25.60 Spot Rate : 0.2700 Average : 0.1942 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.33 Bid-YTW : 2.49 %
SLF.PR.I	FixedReset	Quote: 26.13 – 26.40 Spot Rate : 0.2700 Average : 0.2059 YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.13 Bid-YTW : 2.42 %
PWF.PR.P	FixedReset	Quote: 23.16 – 23.38 Spot Rate : 0.2200 Average : 0.1769 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-10 Maturity Price : 22.75 Evaluated at bid price : 23.16 Bid-YTW : 3.52 %
HSE.PR.A	FixedReset	Quote: 23.10 – 23.22 Spot Rate : 0.1200 Average : 0.0805 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-10 Maturity Price : 22.72 Evaluated at bid price : 23.10 Bid-YTW : 3.72 %

The National Securities Regulator has just gotten a little more national:

Two more provinces have agreed to join a voluntary national securities regulator expected to begin operations in the fall of 2015, bringing the total number on board to four and giving the upcoming capital markets watchdog a more pan-Canadian scope.

Sources say Saskatchewan and New Brunswick will sign on to the Cooperative Capital Markets Regulator Wednesday in a ceremony in Ottawa with federal Finance Minister Joe Oliver, embracing a plan backed by Ontario and British Columbia last September.

Marketwatch has a nice chart on market trends:

This chart shows how much money is flooding into investment vehicles — index mutual funds and exchange-traded funds — that track stock indexes. These two types of funds have grabbed about 24% of the U.S. mutual fund and ETF market, down from less than 5% in 1998, according to Deutsche Bank data.

Big full-service brokerages, “which control 50% of all invested household wealth in America, have successfully pushed the majority of their advisors’ practices toward more hands-off investing approaches,” said Josh Brown of The Reformed Broker in a recent blog post, referring to charging a flat percentage fee on assets, rather than commissions. “At the same time, do-it-yourselfers have made Vanguard, State Street and BlackRock’s iShares three of the world’s largest asset managers — and they are primarily purveyors of passive indexing products.”

There were modest gains for the Canadian preferred share market, with PerpetualDiscounts winning 7bp, FixedResets gaining 1bp and DeemedRetractibles up 2bp. Volatility was minimal. Volume was average.

PerpetualDiscounts now yield 5.17%, equivalent to 6.72% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.3%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 240bp, a slight (and perhaps spurious) narrowing from the 245bp reported July 2.

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	3.14 %	3.13 %	22,987	19.41	1	-0.0418 %	2,531.9
FixedFloater	4.14 %	3.42 %	28,662	18.47	1	2.6846 %	4,148.0
Floater	2.87 %	2.98 %	46,793	19.80	4	0.2605 %	2,756.8
OpRet	4.02 %	-4.25 %	87,763	0.08	1	-0.0392 %	2,717.9
SplitShare	4.26 %	4.01 %	56,618	4.05	6	0.0603 %	3,116.2
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0392 %	2,485.2
Perpetual-Premium	5.53 %	-2.41 %	85,341	0.09	17	-0.0231 %	2,424.6
Perpetual-Discount	5.25 %	5.17 %	111,585	15.23	20	0.0663 %	2,572.4
FixedReset	4.39 %	3.62 %	199,089	4.62	76	0.0076 %	2,558.5
Deemed-Retractible	4.98 %	1.63 %	136,042	0.13	43	0.0202 %	2,548.0
FloatingReset	2.66 %	2.13 %	110,761	3.86	6	0.0526 %	2,516.3

Performance Highlights
Issue	Index	Change	Notes
CIU.PR.C	FixedReset	1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-09 Maturity Price : 21.76 Evaluated at bid price : 22.25 Bid-YTW : 3.41 %
BAM.PR.G	FixedFloater	2.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-09 Maturity Price : 22.98 Evaluated at bid price : 22.95 Bid-YTW : 3.42 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.T	FixedReset	334,546	Nesbitt crossed two blocks of 100,000 each, both at 25.45. RBC crossed blocks of 10,000 shares, 12,300 and 50,000, all at 25.45. TD crossed 40,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.44 Bid-YTW : 3.62 %
CM.PR.O	FixedReset	201,900	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.43 Bid-YTW : 3.62 %
TD.PF.A	FixedReset	168,241	TD crossed 100,000 at 25.47. Desjardins crossed 30,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.47 Bid-YTW : 3.60 %
RY.PR.H	FixedReset	164,150	RBC crossed 50,000 at 25.45. TD crossed 30,000 at the same price; Nesbitt crossed 50,000 at the same price. CIBC sold 10,000 to anonymous at the same price again. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-08-24 Maturity Price : 25.00 Evaluated at bid price : 25.46 Bid-YTW : 3.61 %
ENB.PF.C	FixedReset	133,597	Scotia crossed 75,400 at 25.12. RBC crossed 10,000 at 25.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-09 Maturity Price : 23.16 Evaluated at bid price : 25.10 Bid-YTW : 4.20 %
BNS.PR.P	FixedReset	132,946	RBC crossed 88,600 and 40,000, both at 25.46. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-04-25 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : 2.84 %
There were 30 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PR.B	Floater	Quote: 17.70 – 18.20 Spot Rate : 0.5000 Average : 0.3060 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-09 Maturity Price : 17.70 Evaluated at bid price : 17.70 Bid-YTW : 2.98 %
BAM.PR.G	FixedFloater	Quote: 22.95 – 23.95 Spot Rate : 1.0000 Average : 0.8072 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-09 Maturity Price : 22.98 Evaluated at bid price : 22.95 Bid-YTW : 3.42 %
CIU.PR.C	FixedReset	Quote: 22.25 – 22.84 Spot Rate : 0.5900 Average : 0.4280 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-09 Maturity Price : 21.76 Evaluated at bid price : 22.25 Bid-YTW : 3.41 %
RY.PR.L	FixedReset	Quote: 26.41 – 26.84 Spot Rate : 0.4300 Average : 0.2895 YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.41 Bid-YTW : 3.08 %
BAM.PR.C	Floater	Quote: 17.60 – 17.95 Spot Rate : 0.3500 Average : 0.2904 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-09 Maturity Price : 17.60 Evaluated at bid price : 17.60 Bid-YTW : 3.00 %
GWO.PR.H	Deemed-Retractible	Quote: 23.87 – 24.05 Spot Rate : 0.1800 Average : 0.1219 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.87 Bid-YTW : 5.47 %

Banks engage in maturity transformation and this sometimes gets them in trouble. Many mutual funds and ETFs engage in liquidity transformation, and this is getting some people worried:

Junk-loan funds harbor a significant, structural risk that’s been masked by a three-year rally: Managers may struggle to raise enough cash to meet investor redemptions if too many try to get out at once.

While investors have plowed into the loan market by purchasing mutual-fund shares that trade daily, it typically takes more than two weeks for a money manager selling loans to get cash in exchange for the debt. The concern is that this discrepancy will make it difficult for fund investors to leave the $750 billion leveraged-loan market, where individuals have been playing a bigger role than ever.

“Should investor flows reverse, the mismatch in bank-loan funds could pose a material risk,” Moody’s Investors Service analysts led by Stephen Tu wrote in a July 7 report. “Methods to address sizable investor redemptions in bank loan funds are inadequate.”

In the US Regulation NMS is coming under attack:

The Securities and Exchange Commission’s rules for a national market system have come under scrutiny as lawmakers examine whether high-frequency traders have exploited changes introduced by regulators, exchanges and brokers. The SEC’s rules require all exchanges and brokers to connect to one another to ensure that investors receive the best available prices when they buy shares.

The Senate Banking Committee’s hearing today could intensify pressure on the SEC to change rules it enacted over the past decade. SEC Chair Mary Jo White has said the agency will examine whether its rules have pushed trading away from public markets in favor of private venues such as dark pools.

“The costs associated with maintaining access to each venue, retaining technologists and regulatory staff, and developing increasingly sophisticated risk controls are passed on to investors and result in unnecessary systemic risk,” exchange operator Intercontinental Exchange Inc. (ICE) Chief Executive Officer Jeffrey Sprecher told lawmakers.

Certainly, requirements that everybody connect everywhere are ridiculous; antithetical to the entire concept of competition. It will be quite enough if brokerages disclose the names of the exchanges to which they connect directly and those to which they are indirectly connected by virtue of jitney arrangements with other brokers.

It was an off day for the Canadian preferred share market, with PerpetualDiscounts and DeemedRetractibles both off 2bp and FixedResets down 16bp. The Performance Highlights table is dominated by losing Enbridge issues (which saw yet another new issue announcement today) and winning Power Financial issues (which went ex-dividend). Volume was low.

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	3.14 %	3.13 %	22,246	19.41	1	0.8435 %	2,533.0
FixedFloater	4.25 %	3.53 %	28,399	18.26	1	-0.2677 %	4,039.5
Floater	2.88 %	2.99 %	46,246	19.79	4	-0.4776 %	2,749.6
OpRet	4.02 %	-4.85 %	86,468	0.08	1	-0.4297 %	2,719.0
SplitShare	4.68 %	4.00 %	84,899	4.06	7	-0.1139 %	3,114.3
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.4297 %	2,486.2
Perpetual-Premium	5.53 %	-6.52 %	81,712	0.09	17	0.1068 %	2,425.1
Perpetual-Discount	5.25 %	5.16 %	113,007	15.23	20	-0.0242 %	2,570.7
FixedReset	4.39 %	3.65 %	202,939	4.62	76	-0.1598 %	2,558.3
Deemed-Retractible	4.98 %	1.83 %	135,252	0.14	43	-0.0194 %	2,547.4
FloatingReset	2.66 %	2.15 %	114,976	3.86	6	-0.0329 %	2,515.0

Performance Highlights
Issue	Index	Change	Notes
ENB.PR.F	FixedReset	-1.40 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.13 Evaluated at bid price : 24.65 Bid-YTW : 4.09 %
ENB.PF.A	FixedReset	-1.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.19 Evaluated at bid price : 25.17 Bid-YTW : 4.19 %
ENB.PR.B	FixedReset	-1.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.23 Evaluated at bid price : 24.56 Bid-YTW : 4.03 %
BAM.PF.E	FixedReset	-1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.16 Evaluated at bid price : 25.11 Bid-YTW : 4.10 %
PWF.PR.K	Perpetual-Discount	1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.73 Evaluated at bid price : 24.00 Bid-YTW : 5.15 %
PWF.PR.L	Perpetual-Discount	1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 24.12 Evaluated at bid price : 24.61 Bid-YTW : 5.16 %
CIU.PR.C	FixedReset	1.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 21.61 Evaluated at bid price : 22.02 Bid-YTW : 3.46 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PF.C	FixedReset	300,831	RBC crossed blocks of 65,000 and 10,000, both at 25.10. TD crossed blocks of two blocks of 25,000 shares each and one of 34,600 at the same price. Nesbitt crossed 14,800 at the same price again. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.16 Evaluated at bid price : 25.11 Bid-YTW : 4.20 %
BNA.PR.F	SplitShare	191,265	Recent new issue. I understand there was an inventory blow-out sale today. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 24.41 Bid-YTW : 4.91 %
ENB.PR.J	FixedReset	130,410	Nesbitt crossed blocks of 16,100 and 100,000, both at 25.19. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.25 Evaluated at bid price : 25.19 Bid-YTW : 4.11 %
BMO.PR.T	FixedReset	94,125	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-08-25 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 3.65 %
MFC.PR.L	FixedReset	85,730	Nesbitt crossed 70,000 at 25.18. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.11 Bid-YTW : 3.83 %
HSE.PR.A	FixedReset	84,044	Nesbitt crossed 75,000 at 23.14. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 22.65 Evaluated at bid price : 23.02 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
CU.PR.E	Perpetual-Discount	Quote: 24.16 – 24.60 Spot Rate : 0.4400 Average : 0.2932 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 23.77 Evaluated at bid price : 24.16 Bid-YTW : 5.11 %
BAM.PR.G	FixedFloater	Quote: 22.35 – 23.09 Spot Rate : 0.7400 Average : 0.5958 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-08 Maturity Price : 22.53 Evaluated at bid price : 22.35 Bid-YTW : 3.53 %
IGM.PR.B	Perpetual-Premium	Quote: 25.75 – 26.08 Spot Rate : 0.3300 Average : 0.2295 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.75 Bid-YTW : 5.08 %
BAM.PF.A	FixedReset	Quote: 25.78 – 26.02 Spot Rate : 0.2400 Average : 0.1481 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.78 Bid-YTW : 3.74 %
MFC.PR.F	FixedReset	Quote: 23.29 – 23.75 Spot Rate : 0.4600 Average : 0.3770 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.29 Bid-YTW : 4.10 %
RY.PR.A	Deemed-Retractible	Quote: 25.49 – 25.74 Spot Rate : 0.2500 Average : 0.1682 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-07 Maturity Price : 25.25 Evaluated at bid price : 25.49 Bid-YTW : -0.55 %