Category: Market Action

It’s a wonderful economic recovery we’re having:

Retail sales rose 0.3 percent in May as American consumers took a respite following a three-month surge in shopping. The gain followed a revised 0.5 percent gain in April that was much larger than previously estimated, Commerce Department figures showed. The median forecast of 83 economists surveyed by Bloomberg called for a 0.6 percent advance.

A separate report indicated applications for unemployment benefits in the U.S. rose to 317,000 last week. The median forecast of 52 economists surveyed by Bloomberg called for 310,000. Claims have averaged around 324,000 so far in 2014.

The Bank of Canada has published the Financial System Review, June 2014. They cite four main risks:

• A sharp correction in house prices prices, resulting from a large, macroeconomic shock that leads to higher unemployment and a reduced ability of Canadian households to service their debts.
• A sharp increase in long-term interest rates globally, including in Canada, likely resulting from an overshoot in U.S. long-term interest rates.
• Stress emanating from China and other EMEs, triggered by a severe financial disruption in China associated with a significant slowdown in Chinese economic growth. There would be widespread repercussions on global economic and financial systems that would feed back to Canada. (The Globe highlighted this one).
• Serious financial stress from the euro area with global consequences, possibly caused by market concern about the adequacy of bank balance sheet repair or a sudden economic shock related to heightened geopolitical stress in Ukraine and Russia.

In Making Banks Safer: Implementing Basel III, Éric Chouinard and Graydon Paulin sing the usual Rah-Rah-Canada song and make a plea for more cushy foreign based jobs for ex-Bank of Canada personnel:

Early evidence that the Canadian and international banking systems have already made good progress in implementing Basel III—particularly by augmenting the quantity and quality of capital—is excellent news. As this process continues, it is imperative to continuously assess the impact of the reforms on financial stability and their macroeconomic implications more broadly.

Additional analysis and rigorous monitoring are essential, in part to identify any unexpected adverse consequences should they occur. It is also critical that the minimum standards be rigorously respected across all jurisdictions to achieve the full benefits of the reforms and to maintain a level playingfield. This is why the Basel Committee’s enhanced efforts with respect to monitoring are so important. It is essential that, in future impact analyses and consistency assessments, authorities continue to improve prudential standards for the banking sector by supporting greater consistency in risk weights and by addressing the implementation gaps that have been identified.

In Reforming Financial Benchmarks: An International Perspective, Thomas Thorn and Harri Vikstedt emphasize that there must be new employment possibilities for domestic regulators as well:

Public sector authorities around the world are developing and implementing their responses to the allegations of manipulation that have emerged for many financial benchmarks. These efforts seek to ensure that benchmarks are robust without compromising their intended economic role, while also taking into account the complex issues that can arise in transitioning to alternative benchmarks. Canada is no exception: our public sector authorities are working closely with the industry to ensure that our financial benchmarks are robust and meet international standards.

And in Stress Testing the Canadian Banking System: A System-Wide Approach a case is made for more back-room staff:

Stress testing is an important component of the tool kit available to authorities, including the Bank of Canada, to assess risks to the financial system. However, it is important to highlight that, despite recent significant progress in the development of stress-testing models, stress testing remains challenging because it attempts to capture the effects of tail events.

In most stress tests, solvency risk explains a large share of the deterioration in the capital ratios of banks during periods of severe stress. As demonstrated by the recent financial crisis, however, liquidity risk and network spillover effects can generate substantial additional losses for banks. Hence, it is important to take them into account when assessing risks. To this end, the Bank of Canada has developed an innovative stress-testing model, the Macro Financial Risk Assessment Framework (MFRAF), which incorporates various sources of risk for banks—solvency risk, liquidity risk and spillover effects.

Research is ongoing to improve MFRAF in two directions. First, the liquidity module could be enhanced by developing a model to link the evolution of market liquidity conditions with the behaviour of banks under stress (e.g., their decision to sell liquid or illiquid assets to meet their funding needs). Second, MFRAF should incorporate a model of risk-weighted assets to more accurately estimate the effects of solvency risk, liquidity risk and network effects on bank capital levels.

Not mentioned in all of this were the implications of the Ban the Bond movement:

As governments around the world implement “bail-in” provisions to avoid taxpayer-funded bank bailouts, Moody’s Investors Service took action in Canada on Wednesday by changing the outlook to negative from stable on some of the senior debt and uninsured deposits of Canada’s largest seven banks.

The ratings agency, which at the same time affirmed the long-term ratings of the banks, said it took the action on the supported senior debt and uninsured deposit ratings “in the context of previously announced plans by the Canadian government to implement a ‘bail-in’ regime for domestic systemically important banks.”

Moody’s also cited an “accelerating” global trend towards reducing the public cost of future bank “resolutions.”
…
“The negative outlook reflects Moody’s view that the balance of risk for the Canadian bank’s senior debt holders and uninsured depositors has shifted to the downside.”

Sure. Before, the senior debt holders and uninsured depositors could rely on bankruptcy court. Now they’ve got to hope that an unaccountable bureaucrat or panicking politician will give their interests some weight. Result – I’ll bet there ain’t gonna be no more long term senior bank debt.

But most of the interesting news today comes from Britain where, after twenty-two years of intensive study, they have decided what to do if speculators like George Soros attack the sterling: jail ’em:

British finance minister George Osborne will reject European Union plans to outlaw currency market manipulation on Thursday and instead set out his own proposals to make rigging exchange rates a criminal offence.

EU laws taking effect in 2016 will make it a criminal offence with a four-year jail term to rig key prices in a wide range of financial markets.
…
Britain has already introduced a maximum seven-year jail term for trying to manipulate the LIBOR interbank interest rate, and plans to introduce similar criminal penalties for rigging benchmarks in currency, commodity and fixed income markets.

“Our own rules will be as strong or stronger than those of the EU, but will preserve flexibility to reflect specific circumstances in the UK’s globally important financial sector,” Britain’s finance ministry said in a statement late on Wednesday.

We know that this flexibility to reflect specific circumstances will never, ever be misused by the government of the day. After all, as discussed on Guy Fawkes Day, 2008, the counter-terrorist rules have never been misused. Well, hardly ever.

The UK government has instructed one of its junior spokesmen to prepare the market for higher policy rates:

Mark Carney said the Bank of England could raise interest rates from a record low earlier than investors expect as he expressed concern that mounting debt related to the housing market could undermine stability.

“There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced,” the BOE governor said in a speech at the Mansion House in London today. “It could happen sooner than markets currently expect.” The pound strengthened after the remarks.

And future recessions will be completely eliminated through the miracle of central planning!

Chancellor of the Exchequer George Osborne promised the Bank of England new powers over mortgage lending to prevent the strengthening housing market derailing the recovery.

While real estate poses no immediate threat, it could do in the future unless action is taken, Osborne said his annual speech at the Mansion House in London tonight. Under the plans, financial-stability officials would be able to cap the size of mortgages as a proportion of income or property value.

“I want to make sure the Bank of England has all the weapons it needs to guard against risks in the housing market,” Osborne said. “I want to protect those who own homes, protect those who aspire to own a home, and protect the millions who suffer when boom turns to bust.”
…
The new controls will give Carney more power over the mortgage market than his predecessor, Mervyn King, wanted when he was governor. When the Financial Policy Committee was deciding in 2012 on the “powers of direction” it might need, it resisted requesting authority over loan-to-income and loan-to-value ratios as these would require a high level of “public acceptability.”

Such measures are now publicly acceptable due to the Global War on Traders; the public has been properly conditioned into a state of highly advantageous fear and loathing.

Bloomberg reports that Larry Tabb is pushing block-trades:

If you’re a whale in the stock market, maybe it’s time to stop pretending you’re a guppy.

That’s basically the case being made these days by market researcher [Tabb Group LLC head] Larry Tabb, who argues that the time is right to revive the art of block trading for institutional investors.

The status quo among brokers currently is to slice and dice large trades into tiny orders in an effort to quickly access liquidity scattered across multiple exchanges and dark pools. Much of the song and dance performed by computer algorithms is an effort to buy or sell large chunks of stock without throwing off a scent to high-frequency trading computers trying to sniff out big buyers and sellers in the market.
…
VWAP became a standard for trading execution, in Tabb’s view, amid the proliferation of exchanges and alternative trading venues coupled with paranoia that super-fast computers will exploit “information leakage.”
…
The youngest traders may be most uncomfortable with the patience needed to trade blocks and the notion that faster is not always better, according to Tabb.

VWAP is a standard due to the general incompetence of portfolio managers exacerbated by separation of duties between PMs and traders. I mean, really! If I want to sell A to buy B and take out $X, who really gives a flying Fibonacci Sequence about what the VWAP was, is or might be? But it is very helpful in providing a lowest common denominator in the de-skilling of the market place.

VWAP is useful only in those situations in which the PM says ‘Hey – I have no idea what the fair values for A & B are, but not only is there a headline in the Wall Street Journal today about how wonderful B is, but my big toe is hurting, which I’ve always found to be an excellent indicator, and I have a client meeting next week and haven’t figured out what to talk about yet. So sell A and buy B, will ya? Price doesn’t matter, I don’t have a clue. Just do the VWAP.’

I haven’t been hanging around the institutional trading desks much in the last decade, but I have in the past and probably will in the future. A good salesman will understand what you’re trying to do and how you’re trying to do it and bring things to your attention when he thinks it might get him some business (“Hey – that 5-10-20 butterfly you were trying yesterday is a dime better now!”). In a lot of cases, the salesman is the only person in the entire process who has a clue about the market, because the putative portfolio manager is just a jumped-up stockbroker whose only interest is in sales; or, on the other hand, he’s just a dork off the street, inventing and implementing some dorky strategy and employed only because the front office needs an actual product to sell; performance is not important.

A good salesman will make a huge amount of money because his calls to investment management firms get returned and a lot of the buy side will trust him unquestioningly when a trade is suggested. That adds up to deal flow and deal flow makes the world go ’round.

However, in some third world countries such as Canada, it doesn’t matter all that much. You don’t like us? You want to know something about something that’s not in my script? So what? Where else are you gonna go? The banks have bought up the dealers and banks make their money by deskilling their personnel and running an ice-cream stand with one flavour. In my intermittent exposures to bond institutional desks over the past decade, I certainly got the impression that the actual salesmen (good, bad and indifferent) of the ’90’s were gradually being replaced by high school students spending Career Day at the bank to write down the orders, get the prices from one of the Smart People, and read them back to the client. They’re much cheaper for the bank to hire. So I suspect Mr. Tabb won’t be drumming up much consulting business in Canada.

GMP Capital, proud issuer of GMP.PR.B, was confirmed at Pfd-3(low) [Trend Negative] by DBRS:

DBRS has today confirmed the Pfd-3 (low) rating on the Cumulative Preferred Shares of GMP Capital Inc. (GMP or the Company). The trend remains Negative. The rating reflects the strength of the Company’s business franchise as a provider of investment banking and capital markets products and services to its targeted market of mid-sized, primarily Canadian companies, many operating in the resource and energy sectors. While DBRS recognizes the Company’s demonstrated resilience through the prolonged challenging market environment, the Negative trend reflects the current adverse commodities and M&A market environment, GMP’s modest earnings and coverage ratios and the uncertain outlook going forward given the uneven global economic recovery and overall subdued client demand. While the Company is more diverse geographically and by business line than in the past, GMP has yet to demonstrate the benefits originally anticipated by its U.S. acquisition.

Versesen, proud issuer of VSN.PR.A and VSN.PR.C, was confirmed at Pfd-3(high) [Stable] by DBRS:

DBRS has today confirmed the Issuer Rating and Senior Unsecured Notes rating of Veresen Inc. (Veresen or the Company) at BBB (high) and the Preferred Shares at Pfd-3 (high), all with Stable trends. The confirmation reflects the Company’s strong business risk profile supported by (1) a diverse portfolio of energy infrastructure assets, and (2) stable cash flows underpinned by firm ship-or-pay contracts in the pipeline business and long-term contracts in the power and midstream operations, with strong counterparties. The Company has the potential to further grow and diversify its business through liquefied natural gas (LNG) exports from Jordan Cove Energy Project (Jordan Cove, or the Project) by 2019, subject to Company securing FERC approval and long-term tolling agreements with customers. Veresen’s financial metrics are consistent with current rating category.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 18bp, FixedResets gaining 7bp and DeemedRetractibles up 9bp. Volatility was minimal. 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	0.00 %	0.00 %	0	0.00	0	-1.1085 %	2,491.8
FixedFloater	4.54 %	3.80 %	29,072	17.80	1	0.0000 %	3,781.1
Floater	2.94 %	3.05 %	44,498	19.61	4	-1.1085 %	2,690.4
OpRet	4.38 %	-9.80 %	25,422	0.08	2	0.1364 %	2,711.6
SplitShare	4.80 %	4.27 %	57,373	4.13	5	0.1033 %	3,120.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1364 %	2,479.5
Perpetual-Premium	5.52 %	1.68 %	82,724	0.08	17	-0.0761 %	2,401.1
Perpetual-Discount	5.27 %	5.28 %	111,309	14.96	20	-0.1800 %	2,544.8
FixedReset	4.50 %	3.73 %	217,429	6.70	79	0.0747 %	2,533.7
Deemed-Retractible	5.00 %	-0.37 %	144,086	0.13	43	0.0911 %	2,532.5
FloatingReset	2.67 %	2.45 %	129,956	3.97	6	0.0264 %	2,488.5

Performance Highlights
Issue	Index	Change	Notes
FTS.PR.J	Perpetual-Discount	-1.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-12 Maturity Price : 23.10 Evaluated at bid price : 23.42 Bid-YTW : 5.09 %
BAM.PR.C	Floater	-1.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-12 Maturity Price : 17.16 Evaluated at bid price : 17.16 Bid-YTW : 3.05 %
PWF.PR.A	Floater	-1.23 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-12 Maturity Price : 20.15 Evaluated at bid price : 20.15 Bid-YTW : 2.62 %
IFC.PR.A	FixedReset	1.06 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.85 Bid-YTW : 4.20 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.O	FixedReset	304,855	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-12 Maturity Price : 23.16 Evaluated at bid price : 25.03 Bid-YTW : 3.80 %
BAM.PF.D	Perpetual-Discount	130,280	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-12 Maturity Price : 21.79 Evaluated at bid price : 22.10 Bid-YTW : 5.54 %
BNS.PR.P	FixedReset	90,805	RBC crossed 90,300 at 25.13. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-04-25 Maturity Price : 25.00 Evaluated at bid price : 25.13 Bid-YTW : 3.33 %
MFC.PR.E	FixedReset	64,211	TD crossed 50,000 at 25.20. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-19 Maturity Price : 25.00 Evaluated at bid price : 25.16 Bid-YTW : 2.83 %
BMO.PR.T	FixedReset	57,001	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-12 Maturity Price : 23.15 Evaluated at bid price : 25.02 Bid-YTW : 3.74 %
BAM.PF.F	FixedReset	55,094	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-12 Maturity Price : 23.18 Evaluated at bid price : 25.12 Bid-YTW : 4.36 %
There were 31 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
FTS.PR.J	Perpetual-Discount	Quote: 23.42 – 23.80 Spot Rate : 0.3800 Average : 0.2348 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-12 Maturity Price : 23.10 Evaluated at bid price : 23.42 Bid-YTW : 5.09 %
FTS.PR.F	Perpetual-Discount	Quote: 23.60 – 24.03 Spot Rate : 0.4300 Average : 0.2999 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-12 Maturity Price : 23.14 Evaluated at bid price : 23.60 Bid-YTW : 5.21 %
TRP.PR.A	FixedReset	Quote: 23.33 – 23.65 Spot Rate : 0.3200 Average : 0.2252 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-12 Maturity Price : 22.43 Evaluated at bid price : 23.33 Bid-YTW : 3.75 %
PWF.PR.A	Floater	Quote: 20.15 – 20.61 Spot Rate : 0.4600 Average : 0.3672 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-12 Maturity Price : 20.15 Evaluated at bid price : 20.15 Bid-YTW : 2.62 %
ENB.PR.A	Perpetual-Premium	Quote: 25.26 – 25.55 Spot Rate : 0.2900 Average : 0.2126 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-12 Maturity Price : 25.00 Evaluated at bid price : 25.26 Bid-YTW : -5.04 %
TD.PR.Y	FixedReset	Quote: 25.25 – 25.47 Spot Rate : 0.2200 Average : 0.1475 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.25 Bid-YTW : 3.38 %

The OECD has released its OECD Economic Surveys – CANADA – June 2014 – OVERVIEW.

Housing issues and monetary policy

• • Tighten mortgage insurance to cover only part of lenders’ losses in case of mortgage default. Continue to increase the private-sector share of the market by gradually reducing the cap on the Canada Mortgage and Housing Corporation’s (CMHC) insured mortgages. The government would also need to carefully consider its ability to achieve its housing-finance and financial-stability objectives in the context of a smaller mortgage insurance-market share for CMHC.
• …

…
Low borrowing costs and loosening credit restrictions over the mid-2000s made it easier for homeowners to carry larger mortgages, driving household debt to a historical high of 166% of disposable income. Easier credit over this period partly reflected growing mortgage securitisation by the Canada Mortgage and Housing Corporation (CMHC), which is wholly owned by the federal government.
…
The extent of federal government involvement in mortgage markets via mortgage insurance and CMHC securitisation operations is unusual by international standards. Some 65% of mortgages in Canada are insured, three-quarters of them by CMHC and the rest by private-sector insurers. The government fully backs all CMHC-insured mortgages and, in the event that a private insurer becomes insolvent, 90% of the value of the mortgages it insures (i.e. the government would honour lender claims for privately insured mortgages under insolvency, less 10% of the original principal amount of the mortgage and any applicable liquidation proceeds). Furthermore, mortgage insurance covers 100% of the loan balance (less the 10% in the event of private insurer insolvency), compared with losses of only up to 10-30% of outstanding balances in most other countries (BIS, 2013).

This extensive role exposes the taxpayer to potentially large risks, although the track record has been good so far.
…
CMHC’s currently dominant role could be reduced by progressively lowering the amount of insurance it can write (currently capped at CAD 600 billion) and raising that of the private providers (currently CAD 300 billion). Over the longer run the insurance activities of CMHC could be privatised, shifting the government’s role to one of guaranteeing only against catastrophic losses.

Oddly, these recommendations regarding the CMHC were not highlighted by either G&M story, which focussed on inequality and labour mobility barriers.

It was another good day for the Canadian preferred share market, with PerpetualDiscounts up 14bp, FixedResets winning 16bp and DeemedRetractibles gaining 10bp. There was a fair bit of volatility, but not with any clear trends. Volume was very low.

PerpetualDiscounts now yield 5.30%, equivalent to 6.89% at the standard equivalency factor of 1.3x. Long corporates now yield a hair under 4.4%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 250bp, a slight (and perhaps spurious) tightening from the 255bp reported June 4.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.2423 %	2,519.7
FixedFloater	4.54 %	3.80 %	28,774	17.80	1	0.3357 %	3,781.1
Floater	2.91 %	3.01 %	45,019	19.72	4	-0.2423 %	2,720.6
OpRet	4.39 %	-9.95 %	26,471	0.08	2	-0.0779 %	2,707.9
SplitShare	4.81 %	4.29 %	59,724	4.13	5	-0.0397 %	3,117.2
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0779 %	2,476.1
Perpetual-Premium	5.51 %	-1.87 %	83,352	0.08	17	0.1247 %	2,403.0
Perpetual-Discount	5.27 %	5.30 %	115,236	14.92	20	0.1441 %	2,549.4
FixedReset	4.50 %	3.75 %	218,422	6.78	79	0.1554 %	2,531.8
Deemed-Retractible	5.00 %	1.47 %	145,119	0.20	43	0.1043 %	2,530.2
FloatingReset	2.67 %	2.43 %	131,051	3.97	6	0.1656 %	2,487.8

Performance Highlights
Issue	Index	Change	Notes
FTS.PR.H	FixedReset	-1.31 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 21.07 Evaluated at bid price : 21.07 Bid-YTW : 3.71 %
TRP.PR.A	FixedReset	-1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 22.39 Evaluated at bid price : 23.25 Bid-YTW : 3.77 %
CIU.PR.C	FixedReset	1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 21.15 Evaluated at bid price : 21.15 Bid-YTW : 3.62 %
FTS.PR.J	Perpetual-Discount	1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 23.40 Evaluated at bid price : 23.75 Bid-YTW : 5.02 %
BAM.PF.A	FixedReset	1.14 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2018-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.55 Bid-YTW : 3.90 %
ENB.PR.D	FixedReset	1.41 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 23.06 Evaluated at bid price : 24.40 Bid-YTW : 4.01 %
BAM.PF.E	FixedReset	1.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 23.08 Evaluated at bid price : 24.90 Bid-YTW : 4.13 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.O	FixedReset	1,524,069	New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 23.16 Evaluated at bid price : 25.01 Bid-YTW : 3.81 %
TRP.PR.B	FixedReset	135,089	RBC crossed 130,000 at 20.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 20.26 Evaluated at bid price : 20.26 Bid-YTW : 3.63 %
BAM.PF.F	FixedReset	93,320	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 23.17 Evaluated at bid price : 25.09 Bid-YTW : 4.37 %
RY.PR.H	FixedReset	84,930	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 23.16 Evaluated at bid price : 25.05 Bid-YTW : 3.76 %
BMO.PR.T	FixedReset	53,980	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 23.15 Evaluated at bid price : 25.01 Bid-YTW : 3.75 %
MFC.PR.D	FixedReset	51,181	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-19 Maturity Price : 25.00 Evaluated at bid price : 24.99 Bid-YTW : 5.66 %
There were 19 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
TD.PR.P	Deemed-Retractible	Quote: 26.05 – 26.50 Spot Rate : 0.4500 Average : 0.3400 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-11 Maturity Price : 25.75 Evaluated at bid price : 26.05 Bid-YTW : -1.92 %
IFC.PR.A	FixedReset	Quote: 23.86 – 24.20 Spot Rate : 0.3400 Average : 0.2327 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.86 Bid-YTW : 4.33 %
HSE.PR.A	FixedReset	Quote: 22.71 – 22.99 Spot Rate : 0.2800 Average : 0.1845 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 22.37 Evaluated at bid price : 22.71 Bid-YTW : 3.78 %
FTS.PR.K	FixedReset	Quote: 24.75 – 24.99 Spot Rate : 0.2400 Average : 0.1517 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 23.09 Evaluated at bid price : 24.75 Bid-YTW : 3.67 %
SLF.PR.G	FixedReset	Quote: 22.12 – 22.40 Spot Rate : 0.2800 Average : 0.1981 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.12 Bid-YTW : 4.52 %
RY.PR.Z	FixedReset	Quote: 25.12 – 25.39 Spot Rate : 0.2700 Average : 0.1892 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-11 Maturity Price : 23.20 Evaluated at bid price : 25.12 Bid-YTW : 3.73 %

OK, so it looks like this series on power storage has turned into a three-day rant; particularly disconcerting because it has nothing whatsoever to do with Canadian preferred shares or even financial markets in general. Sorry, guys, but in the first place it’s interesting and in the second place Assiduous Reader JP keeps sending me interesting links, unlike youse other bums, who never send me NUTHIN’.

One thing I found myself was the 2011 Ontario Auditor General’s Report on Renewable Energy:

Since the prevalence of SBG events could threaten the reliability of the electricity system, the IESO has been taking action to ease the power surplus. However, there are technical difficulties and cost implications of these actions. Among them:

• • Storing surplus power is difficult because of the seasonal nature of renewable energy and the need for unrealistically large storage capacity.
• …

…
However, intermittent renewable energy sources such as wind and solar require fast-responding backup power and/or storage capacity to keep the supply of electricity steady when the skies are cloudy or the wind dies down. The OPA informed us that because viable large-scale energy storage is not available in Ontario, wind and solar power must be backed up by other forms of generation.
…
Despite these concerns, the cost and environmental impacts of such backup generation capacity were not formally analyzed to ensure that this information would be available to policy decision-makers. We noted that:

• • Prior to the passage of the Green Energy and Green Economy Act in 2009, the Ministry did not quantify how much backup power would be required. It was not until February 2011 that the Minister issued a new supply-mix directive that asked the OPA to consider backup options, such as converting coal-fired plants to gas-fired operation, importing power from other jurisdictions, and developing storage systems. The OPA has not yet made any recommendations to the Ministry.
• • The only analysis on backup power that the Ministry cited was a study done by a third party engaged by the OPA as part of its 2007 IPSP development. The study noted that 10,000 MW of wind would require an extra 47% of non-wind sources to handle extreme drops in wind. We noted that the third party who carried out this study also operated an Ontario wind farm, raising questions about the study’s objectivity. In spite of this, the OPA and the Ministry did not confirm or update
  this study’s projections and did not determine how much backup power would be required.

The only question left in my mind is: Is Ontario energy policy determined by morons, or is it determined by dolts? Never mind. Don’t answer. I don’t want to know.

Assiduous Reader JP sends me a link to a US Department of Energy report: Grid Energy Storage:

At present, the U.S. has about 24.6GW (approx. 2.3% of total electric production capacity) of grid storage, 95% of which is pumped storage hydro. Europe and Japan have notably higher fractions of grid storage. Pursuit of a clean energy future is motivating significantly increased storage development efforts in Europe and Asia, as well as the U.S.
…
In the past few years, the urgency of energy storage requirements has become a greater, more pressing issue that is expected to continue growing over the next decade:

• California enacted a law in October 2010 requiring the California Public Utilities Commission (CPUC) to establish appropriate 2015 and 2020 energy storage procurement targets for California load serving entities, if cost effective and commercially viable by October 2013 (AB 2514). In February 2013, the CPUC determined that Southern California Edison must procure 50 MW of energy storage capacity by 2021 in Los Angeles area. Additionally, in June 2013, the CPUC proposed storage procurement targets and mechanisms totaling 1,325 MW of storage. Other States are looking to the example that California is setting, and Congress has introduced two bills that establish incentives for storage deployment.
  …
  New capabilities of pumped hydro, through the use of variable speed pumping, is opening up the potential for the provision of additional services that may be used to assist in the integration of variable generation sources. Projects may be practically sized up to 4,000 MW and operate at about 76%–85% efficiency, depending on design. Pumped hydro plants have long lives, on the order of 50-60 years. As a general rule, a reservoir one kilometer in diameter, 25 meters deep, and having an average head of 200 meters would hold enough water to generate 10,000 MWh.

Japan is an emerging storage powerhouse:

Japan is emerging as a hot-spot for energy storage projects, as utilities and technology companies look to battery-based solutions in response to the surge in solar PV installations.

Two new battery storage projects have been announced in the past week, with Toshiba to install a 20MWh/40MW lithium-ion battery project in Tohuku, and the island of Okinawa announcing a 2MW battery storage project on Tuesday.

Japan is expected to be the largest market for solar PV installations in 2013, with around 9GW to be installed following the introduction of feed in tariffs last year in response to the Fukushima nuclear disaster.

… and Israel’s getting in on the action:

Alstom has signed two contracts totaling around €120 million1 with PSP Investment Ltd for the supply of two 150 MW pump-turbines with the associated balance of plant equipment and Alstom’s Distributed Control System (DCS) for the 300 MW Gilboa pumped storage power plant in Israel.

Alstom also signed an eighteen-year operation & maintenance (O&M) agreement, covering day-to-day operation and maintenance of the power plant. The project represents Alstom’s first entry into the Israeli hydro market and will be the country’s first pumped storage power station, Alstom already has a proven track record in the Israeli power generation market with respect to existing steam plants and gas plants.

The power plant, located 60 km east of Haifa, will be commissioned in 2018, and will increase the country’s installed power generation capacity by 2.5%. It will contribute to increasing the reliability of electricity supply and will provide an important tool to control the demand and distribution of electricity.

During off-peak hours, pumped storage uses the energy from other power stations to transfer water to a high storage reservoir. The stored water will later be reused to generate electricity to cover temporary peaks. This helps lower the overall operation cost of power production and levels the fluctuating output of intermittent power sources.

And what are we doing here in Ontari-ari-ari-owe, barely years after the Auditor-General’s report? Flywheels!

There’s nothing like a 4,000-kilogram spinning steel cylinder to smooth out the ups and downs of the power system.

At least, that’s what Temporal Power is betting on.

The fledgling firm showed off its technology to Ontario energy minister Bob Chiarelli on Wednesday.

Temporal is betting on flywheels as a solution to an increasing problem on Ontario’s power system: With an increasing amount of wind and solar power flowing onto the grid, you need systems that can counterbalance the natural ebbs and flows of renewables.
…
Temporal has an agreement with Ontario Power Generation and NRStore — a firm headed by Annette Verschuren —– for a flywheel facility to counter-balance the minute-by-minute voltage variations on the power grid.

As far as I can tell – from the DoE report – flywheels are good for conditioning power. For load-shifting … not so much.

But fear not! Time-of-Use Billing with our billion dollar smart meter programme will save us! Right? Right?

The most significant result of those presented below is that both the conventional impact analysis and the elasticity analysis report the same result for the estimated residential summer weekday On-Peak reduction, 3.3%.

The following is not a figure, it’s a table, but never mind.

Turning back to finance, just as a change of pace, it seems that while Canadian household income coverage is still lousy, asset coverage is much better:

In a new report from Merrill Lynch, economist Emanuella Enenajor says Canadian consumers have been undergoing a “stealth deleveraging” – a significant reduction in debt accumulation that has largely flown under the radar because of the focus on the market’s favoured measure of household debt loads, the debt-to-disposable-income ratio. This sat at a record 164 per cent at the end of 2013 – widely seen as evidence that Canadians simply can’t break their reckless and unsustainable debt habit.
…
Statistics Canada data show that household debt growth in the fourth quarter was just 4.5 per cent year over year, the slowest since 2001. Non-mortgage debt (credit plus loans) grew just 0.1 per cent last year.

The problem is, the other half of the equation has slowed as well. Disposable income has grown 4.3 per cent annually, on average, since 2010, compared with 5.1 per cent annually in the decade before the financial crisis.
…
Canadian households’ debt-to-net-worth ratio – which takes into account the value of the assets acquired with much of that debt, such as real estate, and thus may be a more complete measure of the household debt burden – has been generally declining since the recession, and ended 2013 at its lowest level since the middle of 2008. Ms. Enenajor said that while rising asset values (namely, the continued strength in the residential real estate market) have helped, the key has been the slowdown in household debt growth. People are also saving more as their borrowing has slowed.

Bloomberg has a story about how the ECB’s negative interest rates are bringing back the carry trade, but I was more interested in the gorgeous collection of trite slogans and thought-substitutes embodied in a single quote:

“The ECB has signaled risk is on again,” Eric Busay, a Sacramento-based money manager at the California Public Employees’ Retirement System, the largest U.S. public pension fund with $294 billion in assets, said in a June 6 phone interview. “People are concerned when to exit the trade and they understand the rush to exit could be crowded. But at the same time, you have to be in it to win it.”

I love it! Say it with a straight face, win a CFA charter!

It was another positive day for the Canadian preferred share market, with PerpetualDiscounts winning 14bp, FixedResets up 8bp and DeemedRetractibles gaining 5bp. Volatility was virtually nonexistent. Volume was a little above 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	0.00 %	0.00 %	0	0.00	0	0.4974 %	2,525.8
FixedFloater	4.56 %	3.81 %	29,955	17.78	1	0.0000 %	3,768.4
Floater	2.89 %	3.02 %	45,131	19.60	4	0.4974 %	2,727.2
OpRet	4.38 %	-10.11 %	26,719	0.08	2	-0.1167 %	2,710.0
SplitShare	4.81 %	4.24 %	62,170	4.14	5	0.1273 %	3,118.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1167 %	2,478.0
Perpetual-Premium	5.52 %	1.43 %	82,308	0.08	17	0.0532 %	2,400.0
Perpetual-Discount	5.26 %	5.29 %	115,809	14.95	20	0.1393 %	2,545.8
FixedReset	4.51 %	3.74 %	220,218	6.78	78	0.0765 %	2,527.9
Deemed-Retractible	5.00 %	1.03 %	147,343	0.14	43	0.0521 %	2,527.6
FloatingReset	2.67 %	2.51 %	132,919	3.97	6	0.1525 %	2,483.7

Performance Highlights
Issue	Index	Change	Notes
PWF.PR.A	Floater	1.24 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-10 Maturity Price : 20.40 Evaluated at bid price : 20.40 Bid-YTW : 2.59 %
MFC.PR.K	FixedReset	1.77 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.75 Bid-YTW : 3.94 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.T	FixedReset	125,224	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-10 Maturity Price : 23.15 Evaluated at bid price : 25.01 Bid-YTW : 3.75 %
RY.PR.H	FixedReset	120,030	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-10 Maturity Price : 23.16 Evaluated at bid price : 25.04 Bid-YTW : 3.76 %
TD.PF.A	FixedReset	110,150	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-10 Maturity Price : 23.15 Evaluated at bid price : 25.04 Bid-YTW : 3.74 %
RY.PR.I	FixedReset	82,215	RBC crossed 73,200 at 25.20. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.17 Bid-YTW : 3.41 %
ENB.PR.T	FixedReset	78,136	Scotia crossed blocks of 35,000 and 25,000, both at 24.35. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-10 Maturity Price : 22.91 Evaluated at bid price : 24.30 Bid-YTW : 4.13 %
SLF.PR.A	Deemed-Retractible	72,189	RBC crossed 60,000 at 23.84. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.88 Bid-YTW : 5.30 %
There were 37 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: 20.93 – 21.69 Spot Rate : 0.7600 Average : 0.5882 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-10 Maturity Price : 20.93 Evaluated at bid price : 20.93 Bid-YTW : 3.66 %
GCS.PR.A	SplitShare	Quote: 24.90 – 25.24 Spot Rate : 0.3400 Average : 0.2200 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-07-31 Maturity Price : 25.00 Evaluated at bid price : 24.90 Bid-YTW : 4.24 %
IAG.PR.A	Deemed-Retractible	Quote: 22.66 – 22.95 Spot Rate : 0.2900 Average : 0.2018 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.66 Bid-YTW : 5.79 %
PWF.PR.K	Perpetual-Discount	Quote: 23.66 – 23.88 Spot Rate : 0.2200 Average : 0.1478 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-10 Maturity Price : 23.38 Evaluated at bid price : 23.66 Bid-YTW : 5.29 %
CU.PR.F	Perpetual-Discount	Quote: 22.25 – 22.45 Spot Rate : 0.2000 Average : 0.1302 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-10 Maturity Price : 21.91 Evaluated at bid price : 22.25 Bid-YTW : 5.07 %
PWF.PR.E	Perpetual-Premium	Quote: 25.10 – 25.34 Spot Rate : 0.2400 Average : 0.1848 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-10 Maturity Price : 24.88 Evaluated at bid price : 25.10 Bid-YTW : 5.55 %

Assiduous Reader JP brings the following to my attention, in response to the bit about renewables’ effect on utilities:

Europe’s drive toward a power system based on renewable energy has gone so far that output will probably need to be cut within months because of oversupply.

Network operators are likely to curb solar and wind generation at times of low demand to prevent overloading the region’s 188,000 miles (302,557 kilometers) of power lines, Entso-e, the grid association in Brussels, said last month. Renewable output is poised to almost double to 18 percent by 2020, according to Energy Brainpool GmbH & Co. KG, a consulting firm in Berlin.

Europe’s fivefold surge in green energy in the past decade pushed prices to a nine-year low and wiped out $400 billion in market value of utilities from Germany’s RWE AG to GDF Suez SA in Paris.
…
European governments handed out $57 billion in 2012 for green energy projects, more than half of the global $101 billion, according to the International Energy Agency in Paris.

Investment in new European projects slowed to $43 billion last year from as much as $80.2 billion in 2012, according to Bloomberg New Energy Finance in London.

The spending came even as EU’s power demand peaked in 2008 and is poised to slide 0.3 percent this year, according to IHS Inc., a consulting firm based in Englewood, Colorado.

At some point, grid operators and power suppliers are going to have to come up with some way to store electricity, de facto if not de jure. My guess is that the best way to do this is to increase surge capacity in hydroelectric plants, so you just turn off the generators and let the water build up a little bit more behind the dam, until you need the power and can let things run flat out. This happens every day at Niagara Falls; surely the method could be extended to cover intermittent wind and solar supply with minimal tinkering.

Anybody with more insights into this … eMail me! I have posted a question on the Straight Dope Message Board, which is always a good resource.

What with it being close to election day and all, I thought I’d pass along Assiduous Reader JP’s note about promises, promises:

In what appears to be a first, the Lisgar GO station in Mississauga is going green.

As of about April 1 [2009], if plans stay on track, about 80 per cent of the busy train station’s electrical needs will be powered by the wind, courtesy of a brand new turbine that will generate roughly 56,000 kilowatts a day.

GO Transit spokeswoman Jessica Kosmack suggests the turbine’s $620,000 price tag will prove a bargain and perhaps become a prototype for other eco-oriented initiatives across the 8,000-kilometre GO network, which comprises 59 rail stations and numerous bus routes.

… reality, reality:

A wind turbine pilot project at a GO station in Mississauga, built for $620,000, is producing 91 per cent less electricity than originally projected.

The turbine, unveiled at Lisgar GO station in April 2009, was expected to produce 98,550 kilowatt hours (kWh) per year — enough to power 80 per cent of the station’s electricity needs.

More than four years later, it is only producing around 9,000 kWh per year, or about 9 per cent of projections.

That’s enough electricity to power a single typical household in Toronto for nine months.

Metrolinx blamed “inconsistent localized wind levels” and new development in the area for the turbine’s underperformance. A spokeswoman still called it a “marginal success.”

Other marginal successes include Enron, Chrysler, Bre-X and Nortel.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 14bp, FixedResets up 12bp and DeemedRetractibles gaining 8bp. Volatility was average and the Performance Highlights table is comprised entirely of FixedResets, which continue to adjust after the recent carnage and partial recovery. Volume was very 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	0.00 %	0.00 %	0	0.00	0	-0.2618 %	2,513.3
FixedFloater	4.56 %	3.81 %	30,237	17.78	1	0.0000 %	3,768.4
Floater	2.90 %	3.03 %	45,595	19.58	4	-0.2618 %	2,713.7
OpRet	4.38 %	-12.47 %	27,822	0.08	2	-0.1748 %	2,713.2
SplitShare	4.81 %	4.30 %	64,716	4.14	5	0.1753 %	3,114.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1748 %	2,480.9
Perpetual-Premium	5.52 %	2.65 %	82,715	0.08	17	-0.0139 %	2,398.7
Perpetual-Discount	5.27 %	5.28 %	107,160	14.97	20	0.1374 %	2,542.2
FixedReset	4.51 %	3.74 %	220,259	6.78	78	0.1214 %	2,525.9
Deemed-Retractible	5.01 %	1.44 %	148,691	0.21	43	0.0773 %	2,526.2
FloatingReset	2.68 %	2.52 %	134,814	3.97	6	-0.0199 %	2,479.9

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.K	FixedReset	-2.21 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.32 Bid-YTW : 4.14 %
CU.PR.C	FixedReset	-1.13 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.31 Bid-YTW : 3.61 %
MFC.PR.J	FixedReset	-1.10 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.28 Bid-YTW : 3.66 %
BAM.PR.T	FixedReset	1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-09 Maturity Price : 23.34 Evaluated at bid price : 24.79 Bid-YTW : 4.01 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.T	FixedReset	239,548	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-09 Maturity Price : 23.15 Evaluated at bid price : 25.00 Bid-YTW : 3.75 %
IFC.PR.A	FixedReset	215,207	RBC crossed blocks of 133,700 and 64,800, both at 23.75. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.75 Bid-YTW : 4.38 %
BAM.PF.F	FixedReset	135,410	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-09 Maturity Price : 23.14 Evaluated at bid price : 24.98 Bid-YTW : 4.39 %
RY.PR.H	FixedReset	113,905	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-09 Maturity Price : 23.15 Evaluated at bid price : 25.01 Bid-YTW : 3.76 %
BAM.PF.C	Perpetual-Discount	110,571	Scotia crossed blocks of 58,200 and 30,000, both at 22.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-09 Maturity Price : 21.82 Evaluated at bid price : 22.12 Bid-YTW : 5.57 %
TD.PF.A	FixedReset	106,020	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-09 Maturity Price : 23.15 Evaluated at bid price : 25.04 Bid-YTW : 3.74 %
There were 18 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.K	FixedReset	Quote: 24.32 – 24.95 Spot Rate : 0.6300 Average : 0.4507 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.32 Bid-YTW : 4.14 %
HSB.PR.C	Deemed-Retractible	Quote: 25.46 – 25.70 Spot Rate : 0.2400 Average : 0.1604 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 25.46 Bid-YTW : -1.03 %
ELF.PR.H	Perpetual-Discount	Quote: 24.75 – 25.03 Spot Rate : 0.2800 Average : 0.2075 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-09 Maturity Price : 24.33 Evaluated at bid price : 24.75 Bid-YTW : 5.63 %
RY.PR.I	FixedReset	Quote: 25.12 – 25.33 Spot Rate : 0.2100 Average : 0.1390 YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.12 Bid-YTW : 3.46 %
VNR.PR.A	FixedReset	Quote: 25.65 – 26.00 Spot Rate : 0.3500 Average : 0.2827 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.65 Bid-YTW : 3.75 %
ENB.PF.A	FixedReset	Quote: 25.10 – 25.33 Spot Rate : 0.2300 Average : 0.1648 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-09 Maturity Price : 23.17 Evaluated at bid price : 25.10 Bid-YTW : 4.19 %

So the big news of the day was the US jobs number:

Payrolls pushed past their U.S. pre-recession peak for the first time in May, a milestone that’s been five years in the making.

The 217,000 advance in hiring followed a 282,000 gain in April, figures from the Labor Department showed today in Washington. It marked the fourth consecutive month employment increased by more than 200,000, the first time that’s happened since early 2000. The jobless rate unexpectedly held at an almost six-year low of 6.3 percent.
…
The report also showed incomes climbed, the ranks of the long-term unemployed decreased and businesses took on more full-time help, evidence of the type of economic progress that will keep the Federal Reserve paring record monetary stimulus.
…
The so-called participation rate, which indicates the share of working-age people in the labor force, held at 62.8 percent, matching the lowest since March 1978.

Drew DeSilver of Pew Research points out:

But while the country may have climbed out of the deepest jobs hole since the Depression, that hardly means everything is peachy. There are about 15 million more working-age people now than there were in January 2008, but essentially the same number of jobs. Only 58.9% of the adult population is employed, four percentage points below the level in January 2008.

As the above chart from the Economic Policy Institute (prepared before today’s jobs report) shows, the economy is still some 7 million jobs short of what it would need for the employment-to-population ratio to reach its pre-recession level. EPI economist Heidi Shierholz commented, “We are far, far from healthy labor market conditions.”

The morally pure among us will be thrilled that Christian Bittar has been fined megabucks for a back-dated crime:

Britain’s markets regulator is seeking to fine former Deutsche Bank AG (DBK) trader Christian Bittar about 10 million pounds ($17 million) for trying to rig benchmark interest rates, its largest ever penalty against an individual, said a person with knowledge of the situation.
…
The penalty would dwarf the $9.6 million imposed on Rameshkumar Goenka, a Dubai-based investor, for manipulating stocks in London, the regulator’s biggest to date. The FCA has said it’s preparing to fine at least seven other traders it didn’t identify for their roles in trying to rig the London interbank offered rate or similar benchmarks. At least two may be fined more than one million pounds each, according to people with knowledge of the talks.

Well, Zero Hedge will be happy, anyway:

So to summarize:

1.Deutsche tells an internal prop trader to invest billions in the Libor market,but tells him: “do everything legally and by the book or else.”
2.Bittar colludes with virtually everyone else under the sun (for a full roster of names all of which point to one place: Switzerland, and secondly Singapore, see here), to generate billions in profits;
3.Bittar makes tens if not hundreds of millions of bonuses for himself;
4.Finally, DB no longer can hide the deception and claws back a portion of Bittar’s bonuses, while washing its hands of the full affair;
5.Scapegoat punished, life goes on.
And then what happened to Bittar?

He now works for Bluecrest Capital Management LLP, Europe’s third- biggest hedge fund with $30 billion under management.

I.e., nothing changes.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 4bp, FixedResets up 15bp and DeemedRetractibles gaining 5bp. Volatility was minimal. 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	0.00 %	0.00 %	0	0.00	0	0.1380 %	2,519.9
FixedFloater	4.56 %	3.81 %	30,598	17.79	1	0.0000 %	3,768.4
Floater	2.89 %	3.02 %	46,130	19.61	4	0.1380 %	2,720.8
OpRet	4.37 %	-13.36 %	28,178	0.08	2	0.2336 %	2,717.9
SplitShare	4.82 %	4.31 %	65,310	4.15	5	-0.1750 %	3,109.0
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.2336 %	2,485.3
Perpetual-Premium	5.52 %	3.63 %	83,738	0.09	17	-0.0785 %	2,399.0
Perpetual-Discount	5.27 %	5.27 %	104,443	14.99	20	-0.0408 %	2,538.7
FixedReset	4.52 %	3.70 %	221,981	8.57	78	0.1465 %	2,522.9
Deemed-Retractible	5.01 %	1.38 %	149,083	0.15	43	0.0466 %	2,524.3
FloatingReset	2.68 %	2.53 %	136,565	3.98	6	0.0332 %	2,480.4

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.K	FixedReset	1.10 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.87 Bid-YTW : 3.85 %
MFC.PR.J	FixedReset	1.27 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.56 Bid-YTW : 3.34 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.T	FixedReset	1,105,469	New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-06 Maturity Price : 23.14 Evaluated at bid price : 24.97 Bid-YTW : 3.71 %
TD.PF.A	FixedReset	167,080	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-06 Maturity Price : 23.14 Evaluated at bid price : 25.02 Bid-YTW : 3.70 %
RY.PR.H	FixedReset	107,539	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-06 Maturity Price : 23.14 Evaluated at bid price : 24.98 Bid-YTW : 3.73 %
BAM.PF.F	FixedReset	83,105	Recent new issue YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-06 Maturity Price : 23.13 Evaluated at bid price : 24.97 Bid-YTW : 4.35 %
BAM.PR.T	FixedReset	77,881	TD crossed 67,700 at 24.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-06 Maturity Price : 23.23 Evaluated at bid price : 24.52 Bid-YTW : 4.02 %
BNS.PR.Z	FixedReset	29,540	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.03 Bid-YTW : 3.75 %
There were 16 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
FTS.PR.H	FixedReset	Quote: 21.13 – 22.25 Spot Rate : 1.1200 Average : 0.6481 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-06 Maturity Price : 21.13 Evaluated at bid price : 21.13 Bid-YTW : 3.64 %
GWO.PR.I	Deemed-Retractible	Quote: 22.35 – 23.10 Spot Rate : 0.7500 Average : 0.4865 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.35 Bid-YTW : 5.84 %
FTS.PR.F	Perpetual-Discount	Quote: 23.85 – 24.47 Spot Rate : 0.6200 Average : 0.3938 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-06 Maturity Price : 23.57 Evaluated at bid price : 23.85 Bid-YTW : 5.16 %
CIU.PR.C	FixedReset	Quote: 20.93 – 21.70 Spot Rate : 0.7700 Average : 0.5972 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-06 Maturity Price : 20.93 Evaluated at bid price : 20.93 Bid-YTW : 3.60 %
TRP.PR.E	FixedReset	Quote: 25.06 – 25.44 Spot Rate : 0.3800 Average : 0.2243 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-06 Maturity Price : 23.16 Evaluated at bid price : 25.06 Bid-YTW : 3.90 %
ELF.PR.F	Perpetual-Discount	Quote: 24.01 – 24.43 Spot Rate : 0.4200 Average : 0.3036 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-06 Maturity Price : 23.70 Evaluated at bid price : 24.01 Bid-YTW : 5.59 %

DBRS commented on the Quebec budget:

Following disappointing real GDP growth of just 1.1% in 2013, the new budget assumes accelerating growth of 1.8% in 2014 and 2.0% in 2015, supported by an improvement in domestic demand and the external environment. This is consistent with the private sector consensus tracked by DBRS. Despite a difficult first quarter, the outlook for the U.S. economy is encouraging and a lower Canadian dollar will add further support to Québec exports.

At the time of last year’s rating review, DBRS anticipated that the debt-to-GDP ratio had peaked around 61% in 2012-13 and would begin to decline in 2013-14. As a result of the deterioration in fiscal performance, the latest estimates again point to a debt burden of approximately 61% in 2013-14, with another modest increase projected in 2014-15. After which, the debt burden is forecast to gradually decline to roughly 56% by 2018-19, provided that the fiscal recovery remains on target and capital spending moderates as planned.

Assiduous Reader BC wrote in and said:

One other thing I was curious about and thought you might well be the best source to ask.

Years ago, in 2006, the government outlawed income trusts and in the aftermath, a lot of companies began paying eligible dividends that qualify for the dividend tax credit

What possibility might there be that in the future, a revenue hungry government might decide to take similar action in connection with the dividend tax credit.

Thanks very much for any input you can provide

Well, nothing’s guaranteed. For all I know, the Trotskyists will form the next federal government and then I’ll be harvesting potatoes for a living.

That being said, the dividend tax credit seems politically safe to me; none of the three major parties is making it an issue and the major influence on it since it was introduced in 1972 (over the past ten years, anyway) has been changes in corporate tax rates.

However, it should be noted that the explicit purpose of the DTC is to encourage equity investment:

There will be a major increase in the dividend tax credit. Starting January 1, 1978, the amount of dividends received from taxable Canadian corporations will be grossed-up by one-half, as opposed to the current one-third, and taxpayers will be allowed to claim against tax a credit equal to this higher amount.

This measure will provide benefits in a progressive manner in that the net tax on each dollar of cash dividend received will decline by a larger dollar amount the lower the income of the taxpayer. This is shown in the table included in the Supplementary Information. The table also illustrates how this measure will improve the return on equity investments. The proposed increase in the dividend tax credit should thus make it more attractive for investors in all income brackets to return to the equity market. The federal revenue loss from this measure is estimated to be $120 million in the first full year of operation and the measure will also affect provincial tax revenues.

Geez, those were the days, eh? When a tax expenditure of $120-million wasn’t just a rounding error?

However, there are rising concerns about income inequality and its cause:

More than a quarter (26%) of self-identified Democrats and those who lean Democratic cited the tax system as a main reason for the gap. Just 14% of self-identified Republicans and those who lean Republican said the same.

This is particularly evident at the very top of the tree:

But Mr. Zucman and Mr. Saez show a dramatic increase in wealth inequality at the very top of the distribution, among households with more than $20 million in wealth – and especially among those with more than $100 million.

… and we all remember Warren Buffet’s secretary:

Buffett cited himself, the third-richest person in the world, as an example. Last year, Buffett said, he was taxed at 17.7 percent on his taxable income of more than $46 million. His receptionist was taxed at about 30 percent.

Buffett said that was despite the fact that he was not trying to avoid paying higher taxes. “I don’t have a tax shelter,” he said. And he challenged Congress and his audience to see what the people who “clean our offices” are taxed, to loud applause.

And why does this happen:

You might wonder how Mr Buffett managed such a low tax rate. Most likely, it arose because corporate dividends and capital gains are taxed at only 15 percent. But the corporate income that funded those returns was already taxed at the corporate level, where the tax rate is 35 percent. Mr Buffett seems to be ignoring the first round of taxation. Is it possible that the world’s most successful has failed to pierce the corporate veil? (If you want to more reliable data on the progressivity of the tax code, see this old post for numbers from the CBO.)

Even more striking to me is a fact that Mr Buffett did not emphasize: how low his taxable income is. His income of $46 million represents a mere 0.1 percent of his reported net worth of over $50 billion. That is not an impressive rate of return!

Why is it so low? I can think of at least four possible ways investors like Mr Buffet can keep their taxable income, as opposed to their true income, low:
1.They hold stocks that pay minimal dividends.
2.They avoid realizing capital gains.
3.They hold some of their portfolios in tax-free municipal bonds.
4.They give appreciated assets to charity, getting a deduction for the current market value without ever having to realize and pay tax on the capital gain

… and at least some of the super-rich are indulging in conspicuous consumption:

Money managers may resent Prof. Piketty’s book but they appear to love its takeaway notion, especially the implication that the market for expensive goods is just going to keep on getting bigger.

Further evidence for that viewpoint came this week when McLaren Automotive reported that it had made a profit in only its third year of operation. The British auto maker, which was spun out of McLaren Group, the Formula One racer, sells high-performance but road-legal cars that go for about $1.8-million.

This is a company that considers Ferrari and Porsche to be downmarket. Yet it has had no trouble selling out production of its P1 supercar.

Call it the 0.01 per cent market. Before Prof. Piketty and colleagues such as Emmanuel Saez at the University of California in Berkeley came on the scene, economists tended to pooh-pooh concerns about wealth distribution, since the middle class was clearly getting richer and at a pace not wildly different from that of the top 10 per cent of society.

It’s the old story, one that particularly impressed me when I visited Russia a few times and saw the glorious architecture in Moscow and St. Petersburg and the awesome craftsmanship of the relics in the Hermitage. I was so overwhelmed in the Hermitage that I decided I needed to concentrate my attention on one thing and just wandered from room to room looking at tables. How do you get such awesome craftsmanship? Well, first you spend ten years training a guy to make tables of superb quality. And then you tell him to spend the next five years to make a table for you. You can only afford to do this in conditions of extreme income inequality.

So, given all the above, I think that at some point the Dividend Tax Credit and Gross Up will attract some populist political criticism, as will the capital gains inclusion rate. It might well be that people will decide that double-taxation of distributed corporate profits is a Good Thing, particularly if snooty rich folks on Bay Street are getting the benefit of the tax breaks instead of hard-working ordinary Canadians on Main Street.

On the other hand, perhaps one of the biggest macro-economic problems facing governments nowadays is that hard-working ordinary Canadians on Main Street are showing an increasing preference for personal real-estate as an investment rather than productive investment. So my political prediction is that eventually the DTC and the lower inclusion rate capital gains will be capped at some figure that is extremely high as far as the man in the street is concerned (say, income of $150,000) but is mere pocket change to the about-to-be-soaked rich. And remember: with one of my political predictions and $2.00, you can get a coffee at Timmy’s. After all, I didn’t expect the The Pickton-ization of Communities and Exploited Persons Act.

On a less philosophical note, Draghi has earned himself a chapter in future histories of monetary policy:

Mario Draghi unveiled an unprecedented round of measures to help the European Central Bank’s record-low interest rates feed through to an economy threatened by deflation.

The ECB today cut its deposit rate to minus 0.1 percent, becoming the first major central bank to take one of its main rates negative. In a bid to get credit flowing to parts of the economy that need it, the ECB also opened a 400-billion-euro ($542 billion) liquidity channel tied to bank lending and officials will start work on an asset-purchase plan. While conceding that rates are at the lower bound “for all practical purposes,” the ECB president signaled policy makers are willing to act again.
…
Draghi announced a new liquidity program designed to encourage lending. Financial institutions will be allowed to borrow money from the ECB equivalent to as much as 7 percent of their outstanding loans to non-financial corporations and households, excluding mortgages.
…
The negative deposit rate, which means charging banks that want to deposit excess funds with the ECB, has been heralded by Draghi as a way to stem unwarranted increases in money-market rates, as well as to curb euro strength that has contributed to slower inflation.

The measure has been used by a handful of smaller central banks in recent years, including Sweden’s, which conducted a 14-month experiment in 2009-2010. Denmark moved below zero in July 2012 — though the cut was aimed more at protecting its currency than stimulating growth — and ended the policy in April.

“It’s another whatever-it-takes moment in the life of the ECB and the euro zone,” said Carsten Brzeski, chief economist at ING-DiBa AG in Brussels “He threw in all he had.”

Excluding mortgages, mind you. Don’t spend no more damned money on your damned houses, people! Use it to collateralize your carry trades:

The policy divergences will widen even further over the next three years as the Fed and then the BOE raise rates, putting them on a course counter to the ECB and the BOJ, according to Andrew Kenningham, an economist at Capital Economics Ltd. in London. By 2017, he estimates, the gap between the U.S. benchmark and those of the euro area and Japan could be nearing four percentage points.

Such divides, he says, are unusual although not unprecedented. The split between U.S. and Japanese rates has often exceeded four percentage points in recent decades and between the U.S. and Germany it topped three percentage points for much of the 1980s.

There are some very interesting musings about solar power:

Deregulated electricity generators make most of their profits on hot summer afternoons, when air conditioners and offices force grid operators to call up their most expensive electricity: natural gas “peaker” plants. Cheap to build but expensive to operate, these plants are essentially jet engines, producing power on demand for a few hours at a time. However, the entire industry benefits when peaker plants kick in, because every other generator, including the cheapest hydropower operator, receives the same top dollar during those peak hours.

Solar panels — whether utility scale or residential rooftop — generate maximum power on exactly those hot afternoons when demand peaks. What’s more, they do so at no marginal cost; the sun is free. This reduces reliance on peakers, causing prices to fall across the board, including for customers without solar power.

This is what terrifies power companies. In California, the afternoon peak has effectively collapsed. CAISO, the state’s grid manager, projects that the peak will become an afternoon chasm, so low that even power plants designed to operate 24 hours a day as “baseload power” (nuclear energy is a good example) may face difficult decisions about when to operate.

The first victims among utilities will be generators that sell electricity from peakers and other plants in the open market. Soon, their plants will be needed only for the few hours around dusk when the sun is weak but demand is still relatively high.

Arizona has net metering, but is considering changes:

The future of solar net metering in Arizona is under attack, with the state’s largest utility Arizona Public Service (APS) proposing changes that undermine cost benefits for residential solar installations.

Under a plan submitted in July with the state’s public utility commission, APS proposes two options for future residential solar customers – both of which will reduce potential financial returns homeowners would receive on their investment.

One alternative would model net-metering contracts much the same as today but require residential customers to pay what APS calls a “convenience fee” – a monthly charge for sending power to the grid. The other option would give homeowners a small ongoing bill reduction, based on market rates APS pays to other power generators.

Seems to me a two-part electricity bill is what’s required – one part for actual electricity use, one part for access to the grid. This would be similar to Toronto Hydro’s charges, but ideally the grid access charge will be based on capacity rather that usage.

TransCanada, proud issuer of TRP.PR.A, TRP.PR.B, TRP.PR.C, TRP.PR.D and TRP.PR.E, was confirmed at Pfd-2(low) by DBRS:

DBRS has today confirmed the ratings of TransCanada Corporation (TCC or the Company) and its wholly owned subsidiary, TransCanada PipeLines Limited (TCPL), both with Stable trends. The ratings primarily reflect (1) expected improvement in TCC’s overall business risk profile over the medium term, (2) potential medium term pressure on its credit metrics and (3) environmental, regulatory and political risks with respect to its natural gas and liquids pipelines segments.

It was a positive day for the Canadian preferred share market, with PerpetualDiscounts gaining 3bp, FixedResets winning 19bp and DeemedRetractibles up 9bp. The longer-than-usual Performance Highlights table, still reflecting the dislocations of the past two weeks, is dominated by winning FixedResets. Volume was quite low and dominated by recent new 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	0.00 %	0.00 %	0	0.00	0	0.6947 %	2,516.4
FixedFloater	4.56 %	3.81 %	30,670	17.79	1	0.2404 %	3,768.4
Floater	2.90 %	3.02 %	46,382	19.61	4	0.6947 %	2,717.1
OpRet	4.38 %	-14.38 %	29,338	0.09	2	0.0000 %	2,711.6
SplitShare	4.81 %	4.30 %	62,878	4.15	5	0.0159 %	3,114.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,479.5
Perpetual-Premium	5.52 %	1.99 %	84,673	0.09	17	-0.0669 %	2,400.9
Perpetual-Discount	5.27 %	5.27 %	104,272	14.99	20	0.0322 %	2,539.8
FixedReset	4.53 %	3.72 %	220,173	8.57	77	0.1852 %	2,519.2
Deemed-Retractible	5.01 %	1.55 %	150,678	0.22	43	0.0895 %	2,523.1
FloatingReset	2.68 %	2.51 %	138,158	3.99	6	0.1461 %	2,479.6

Performance Highlights
Issue	Index	Change	Notes
CIU.PR.C	FixedReset	-1.74 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 20.93 Evaluated at bid price : 20.93 Bid-YTW : 3.60 %
CU.PR.D	Perpetual-Discount	-1.35 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.79 Evaluated at bid price : 24.17 Bid-YTW : 5.08 %
ENB.PR.N	FixedReset	1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.06 Evaluated at bid price : 24.60 Bid-YTW : 4.15 %
ENB.PR.T	FixedReset	1.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 22.80 Evaluated at bid price : 24.06 Bid-YTW : 4.14 %
CU.PR.C	FixedReset	1.15 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : 3.45 %
ENB.PR.P	FixedReset	1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 22.84 Evaluated at bid price : 24.10 Bid-YTW : 4.13 %
BAM.PR.K	Floater	1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 17.44 Evaluated at bid price : 17.44 Bid-YTW : 3.04 %
ENB.PR.B	FixedReset	1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.03 Evaluated at bid price : 24.11 Bid-YTW : 4.06 %
ENB.PR.F	FixedReset	1.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 22.92 Evaluated at bid price : 24.15 Bid-YTW : 4.14 %
BAM.PR.B	Floater	1.50 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 17.55 Evaluated at bid price : 17.55 Bid-YTW : 3.02 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BAM.PF.F	FixedReset	598,107	New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.12 Evaluated at bid price : 24.94 Bid-YTW : 4.36 %
TD.PF.A	FixedReset	335,413	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.13 Evaluated at bid price : 24.97 Bid-YTW : 3.71 %
RY.PR.Z	FixedReset	178,865	Nesbitt crossed 150,000 at 25.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.22 Evaluated at bid price : 25.17 Bid-YTW : 3.68 %
RY.PR.H	FixedReset	126,844	Recent new issue YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.13 Evaluated at bid price : 24.95 Bid-YTW : 3.73 %
ENB.PF.C	FixedReset	88,294	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.12 Evaluated at bid price : 25.00 Bid-YTW : 4.16 %
SLF.PR.H	FixedReset	61,777	Desjardins crossed 11,600 at 25.16; RBC crossed 26,400 at 25.09. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.10 Bid-YTW : 3.61 %
There were 21 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.K	FixedReset	Quote: 24.60 – 25.07 Spot Rate : 0.4700 Average : 0.3243 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.60 Bid-YTW : 3.98 %
MFC.PR.J	FixedReset	Quote: 25.24 – 25.63 Spot Rate : 0.3900 Average : 0.2734 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.24 Bid-YTW : 3.70 %
CU.PR.D	Perpetual-Discount	Quote: 24.17 – 24.75 Spot Rate : 0.5800 Average : 0.4653 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.79 Evaluated at bid price : 24.17 Bid-YTW : 5.08 %
TD.PR.R	Deemed-Retractible	Quote: 26.33 – 26.61 Spot Rate : 0.2800 Average : 0.1853 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-05 Maturity Price : 25.75 Evaluated at bid price : 26.33 Bid-YTW : -14.65 %
CU.PR.G	Perpetual-Discount	Quote: 22.24 – 22.50 Spot Rate : 0.2600 Average : 0.1808 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 21.89 Evaluated at bid price : 22.24 Bid-YTW : 5.07 %
TRP.PR.C	FixedReset	Quote: 22.30 – 22.65 Spot Rate : 0.3500 Average : 0.2774 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 21.80 Evaluated at bid price : 22.30 Bid-YTW : 3.59 %

It’s nice to see a statistic about how many CLOs lost money in the Credit Crunch:

Issuance of CLOs, which helped finance some of the biggest leveraged buyouts in history during the last credit boom, has picked up following an early 2014 slump brought on by the publication of the Volcker Rule designed to limit risk-taking by banks — major buyers of the funds. CLOs are investors in speculative-grade loans, an asset class in which U.S. banking regulators have said underwriting standards have become too lax.
…
CLOs pool high-yield corporate loans and slice them into securities of varying risk and return, typically from AAA ratings down to BB. The lowest portion, known as the equity tranche, offers the highest potential returns and the greatest risk because investors are the first to see their interest payouts reduced when loans backing the CLO default.

CLO managers may also be trying to issue deals ahead of risk-retention rules proposed by the Dodd-Frank Act in order to increase assets under management and income, said Kroszner. The regulation may require CLO managers to hold 5 percent of the debt they package or sell.
…
Out of 719 U.S. CLOs that purchased widely syndicated loans and were rated by Moody’s Investors Service between January 1996 and May 2012, only 14 funds lost any of their principal at maturity, according to a July 2012 report from the ratings firm.
…
The growth in riskier corporate lending led the Federal Reserve and the Office of the Comptroller of the Currency to warn lenders last year to improve lax underwriting practices. Todd Vermilyea, a Fed official, said May 13 that standards “have continued to deteriorate in 2014” and that “stronger supervisory action” may be needed.

While the Volcker Rule hasn’t led to fewer CLOs it has kept the cost to raise the funds elevated.

The average rate paid on CLO portions ranked AAA was about 150 basis points more than the London interbank offered rate in May, according to Wells Fargo. That’s up from a spread as low as 110 basis points on AAA slices last year.

As I have often complained, regulators and politicians are always careful to talk about downgrades of engineered products, rather than actual defaults.

Watch out for falling house prices!

In May, new home prices in 62 Chinese cities edged downward from the month before, dragging down the Chinese average for the first time in nearly two years. The biggest decline came in Shantou, where prices fell 3.64 per cent from April, according to China Index Academy, a research arm of SouFun, which operates the country’s largest real estate portal.

China’s real estate market is the bedrock of its economy. Residential housing is worth some 12.5 per cent of GDP, and homes contain some two-thirds of Chinese household wealth. A fracture in Chinese housing, in other words, is a fracture in China’s financial well-being.

And the slowdown has come with remarkable speed. Last December, Chinese housing prices rose 12 per cent year-on-year, the biggest gain of 2013. By May, sales were down more than 50 per cent from April at Shantou’s Jiacheng Real Estate Agency.

Assiduous Readers will know of my fondness for mocking CalPERS – the politicized fund that doesn’t do credit analysis. I’ve acquired another target – The Norwegian Government Pension Fund, an $853.9 billion pension fund with no trading expertise:

Norway’s $880 billion sovereign wealth fund, the world’s largest, is throwing its support behind Brad Katsuyama’s new exchange.

Katsuyama’s IEX Group Inc., made famous in Michael Lewis’s best-selling book “Flash Boys,” could shield investors from the predatory habits of high-frequency traders, said the fund, which holds $521.2 billion in stocks globally and is Europe’s biggest equity investor.

“IEX is a trading venue where all players participate on the same terms,” oil fund spokesman Thomas Sevang said in an e-mailed response to questions. “We support this.”

The BoC kept overnight rates steady:

Total CPI inflation has moved up to around the 2 per cent target, sooner than anticipated in the Bank’s April Monetary Policy Report (MPR), largely due to the temporary effects of higher energy prices and exchange rate pass-through. Core inflation remains significantly below 2 per cent although it has drifted up slightly, partly owing to past exchange rate movements.
…
The Canadian economy grew at a modest rate in the first quarter, held back by severe weather and supply constraints. The ingredients for a pickup in exports remain in place, including the lower Canadian dollar and an anticipated strengthening of foreign demand. Improved corporate profits, especially in exchange rate-sensitive sectors, should also support higher business investment in the coming quarters. There are continued signs of a soft landing in the housing market and a constructive evolution of household imbalances. We still expect excess supply to be absorbed gradually as the fundamental drivers of growth and inflation in Canada strengthen.

Weighing recent higher inflation readings against slightly increased risks to economic growth leaves the downside risks to the inflation outlook as important as before. At the same time, the risks associated with household imbalances remain elevated. The Bank judges that the balance of risks remains within the zone for which the current stance of monetary policy is appropriate and therefore has decided to maintain the target for the overnight rate at 1 per cent. The timing and direction of the next change to the policy rate will depend on how new information influences the balance of risks.

There was some chatter about the effect on the dollar:

The loonie had been as high as about 91.7 cents, but began to slip in anticipation of the announcement, to 91.5 cents. In the wake of the statement, it dipped further to 91.3 cents, and by midday stood at 91.4 cents.

Before today, the currency had been hovering around the 92-cent level, having moved up recently.
…
“It could have been expected that downside interest rates moves were taken off the table but this is not the case,” said Rahim Madhavji of Knightsbridge Foreign Exchange.

“The Canadian dollar fell lower on the Bank of Canada continuing to harp a tone of we’re still nowhere close to raising interest rates,” he added in a research note titled “Bank of Canada slaps loonie lower.”

“It seems that the Bank of Canada is quite content with the lower Canadian dollar boosting exports and assisting with inflation. Today’s BoC statement removes any catalyst for loonie bulls in the near term.”

… and some criticism of the dovish language:

“Comes a point the central bank will have to drop the dovish language, although it’s clear that it will try to delay as long as possible,” said Krishen Rangasamy, senior economist the National Bank of Canada.

The bank’s insistence that disinflation remains a threat could prove tough to defend as as the summer and fall wear on, Bank of Nova Scotia economists Derek Holt and Dov Zigler said in a research note. “The Bank of Canada faces a greater sales job to explain why the ‘downside risks to the inflation outlook [are] as important as before,’” they said.

… though mind you, the dollar isn’t helping exports much:

For months, Mr. Poloz and other bank officials have stressed the importance of exports and business investment to putting the economy back on track.

But so far, exports continue to underperform – a reality underscored by Statistics Canada’s report Wednesday that exports dropped 1.8 per cent in April, tilting the trade balance back into deficit.

I think it’s unclear as to where all this hyperinflation and wheelbarrowfulls of cash are going to come from. Not Europe!

Euro zone price inflation fell unexpectedly in May, increasing the risks of deflation in the currency area and sealing the case for the European Central Bank to act this week.

Annual consumer inflation in the 18 countries sharing the euro fell to 0.5 per cent in May from 0.7 per cent in April, the EU’s statistics office Eurostat said on Tuesday.

… not with negative interest rates in Europe, it won’t:

Mario Draghi’s experiment with negative interest rates is unlikely to stop investors from seeking something stronger.

The European Central Bank president will herald a new era today by taking the deposit rate below zero, according to economists in a Bloomberg News survey. That probably won’t quell calls for more radical measures such as quantitative easing to stop the euro area from sliding into deflation.
…
In the Bloomberg survey, 44 of 50 economists said the ECB will cut its deposit rate to negative from zero, with the median estimate for a level of minus 0.1 percent. The survey also predicts that the benchmark main refinancing rate will be reduced by 15 basis points to a record-low 0.1 percent.

The decision will be announced at 1:45 p.m. in Frankfurt. Draghi will hold a press conference 45 minutes later, where he’ll also release revised ECB forecasts on inflation and economic growth.

… which may help a mouthpiece for the UK government carry out his instructions:

Mark Carney has a new ally in his battle to keep Bank of England policy loose: Mario Draghi.

As the BOE’s nine-person Monetary Policy Committee divides between Carney’s view that low rates are still needed and a faction leaning toward higher borrowing costs, events in Frankfurt may favor the governor by weakening the euro against the pound, helping to curb U.K. inflation pressure. The MPC meets in London today and will announce its decision at noon.

It was a mixed day of adjustment for the Canadian preferred share market today, following yesterday’s fireworks, with PerpetualDiscounts down 26bp, FixedResets up 23bp and DeemedRetractibles gaining 4bp. The Performance Highlights table is longer than usual and dominated by winning FixedResets. Volume was on the high side of average.

PerpetualDiscounts now yield 5.30%, equivalent to 6.89% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.35%, so the pre-tax interest-equivalent spread (in this context the “Seniority Spread”) is now about 255bp, a slight (and perhaps spurious) widening from the 250bp reported May 28.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.4840 %	2,499.1
FixedFloater	4.57 %	3.82 %	31,867	17.77	1	0.3377 %	3,759.4
Floater	2.92 %	3.04 %	46,985	19.57	4	-0.4840 %	2,698.3
OpRet	4.38 %	-13.66 %	30,546	0.09	2	0.0389 %	2,711.6
SplitShare	4.81 %	4.31 %	63,765	4.15	5	0.0796 %	3,113.9
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0389 %	2,479.5
Perpetual-Premium	5.51 %	1.02 %	85,658	0.08	17	0.0069 %	2,402.5
Perpetual-Discount	5.27 %	5.30 %	103,148	14.94	20	-0.2568 %	2,539.0
FixedReset	4.54 %	3.72 %	220,557	8.79	76	0.2269 %	2,514.5
Deemed-Retractible	5.02 %	1.17 %	151,916	0.22	43	0.0410 %	2,520.9
FloatingReset	2.68 %	2.53 %	143,048	3.99	6	-0.2452 %	2,476.0

Performance Highlights
Issue	Index	Change	Notes
TD.PR.Z	FloatingReset	-1.08 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.82 Bid-YTW : 2.76 %
MFC.PR.J	FixedReset	1.07 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.49 Bid-YTW : 3.41 %
TRP.PR.A	FixedReset	1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 22.76 Evaluated at bid price : 23.46 Bid-YTW : 3.69 %
BAM.PF.B	FixedReset	1.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.05 Evaluated at bid price : 24.65 Bid-YTW : 4.21 %
TRP.PR.D	FixedReset	1.49 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 22.99 Evaluated at bid price : 24.51 Bid-YTW : 3.97 %
CU.PR.C	FixedReset	1.66 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.42 Evaluated at bid price : 25.12 Bid-YTW : 3.85 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PF.A	FixedReset	872,717	New issue settled today. I know this volume is different from the volume reported on the Issue Comments post; here, it’s TSX; there, it’s consolidated. Sue me. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.12 Evaluated at bid price : 24.94 Bid-YTW : 3.72 %
RY.PR.H	FixedReset	323,000	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.12 Evaluated at bid price : 24.93 Bid-YTW : 3.74 %
ENB.PF.C	FixedReset	76,753	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.10 Evaluated at bid price : 24.95 Bid-YTW : 4.17 %
GWO.PR.G	Deemed-Retractible	38,971	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.82 Bid-YTW : 5.28 %
BNS.PR.Z	FixedReset	35,680	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 3.77 %
MFC.PR.G	FixedReset	33,809	Scotia crossed 30,000 at 25.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-19 Maturity Price : 25.00 Evaluated at bid price : 25.67 Bid-YTW : 3.23 %
There were 36 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
CU.PR.C	FixedReset	Quote: 25.12 – 25.59 Spot Rate : 0.4700 Average : 0.3468 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.42 Evaluated at bid price : 25.12 Bid-YTW : 3.85 %
ELF.PR.G	Perpetual-Discount	Quote: 21.81 – 22.29 Spot Rate : 0.4800 Average : 0.3596 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 21.81 Evaluated at bid price : 21.81 Bid-YTW : 5.53 %
VNR.PR.A	FixedReset	Quote: 25.62 – 25.99 Spot Rate : 0.3700 Average : 0.2626 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.62 Bid-YTW : 3.77 %
TD.PR.Z	FloatingReset	Quote: 24.82 – 25.07 Spot Rate : 0.2500 Average : 0.1497 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.82 Bid-YTW : 2.76 %
FTS.PR.J	Perpetual-Discount	Quote: 23.45 – 23.78 Spot Rate : 0.3300 Average : 0.2312 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.13 Evaluated at bid price : 23.45 Bid-YTW : 5.08 %
BAM.PR.T	FixedReset	Quote: 24.22 – 24.55 Spot Rate : 0.3300 Average : 0.2440 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.10 Evaluated at bid price : 24.22 Bid-YTW : 4.08 %

Scott Barlow had a polemic in the Globe titled Debt markets’ ‘lunacy’ threatens equity investors:

U.S. credit markets are absurdly overbought and equity investors on both sides of the border will be very much in the way of the inevitable correction when it occurs.

The most common method of gauging whether corporate debt is attractive or expensive is the spread – the difference in yield between a corporate bond issue and a government bond issue of the same maturity. When the spread is low, it is more difficult for investors to generate returns and there is less margin of safety.

The accompanying chart shows that the spread on the riskiest form of corporate debt – high yield bonds – are trading at spreads very close to the pre-2007 lows. At the same time, the CBOE Volatility Index – which uses equity option prices to measure expected volatility and market risk – is hitting all time lows. In other words, debt markets are expensive, and investors are broadly complacent.
…
New River Investments LLC hedge fund manager Guillermo Roditi Dominguez’s exasperation with current prices was evident on Twitter last week (where insiders can be particularly blunt on this issue) after a Walt Disney Co. three-year bond was issued: “just saw the disney bond. 20 over [treasuries]. twenty. time to pack it up and go hit the pool. i aint abuyin no more bonds this year [sic].”

Well, fine. But the reference to Disney led me to do a little more digging on the deal:

The strong demand for double A rated company’s offering has allowed the deal to price inside its outstanding bonds, which is a market coup for the technology giant.
…
Apple’s outstanding 2.4% May 2023s are quoted at a G-spread of 75bp, suggesting the new issue concession on the 10-year is around 2bp. The 30-year bonds are offering just 4bp of concession, based on where the outstanding 3.85% May 2043 is trading at Treasuries plus 104bp, while the five-year bonds offer a roughly negative 1.5bp concession compared with the outstanding 1% May 2018s trading at a G-spread of 39bp.

Outstanding three-year bonds were quoted at a G-spread of 19bp, so the concession on the new bonds was about negative 1bp.

A negative concession is fascinating and in conjunction with yesterday‘s discussion of increased underwriting competition – as well as previous discussions of US corporate bond liquidity – lead me to suspect that liquidity is in very short supply in the States. Where else but in the new issue market can a PM buy $10-million in corporates at a reasonable – albeit historically narrow – spread?

Other Disney commentary led into a discussion of Enbridge (briefly mentioned on May 29):

Other deals Wednesday saw spreads tighten even further from IPTs to pricing, which one banker said was down to Disney beginning with little in the way of new issue concession – leaving investors unwilling to lose out on any further pick-up.

At pricing the four-part trade appeared to carry concessions between flat to 8bp compared with the company’s outstandings.
…
“But broadly, after the recent flurry of issuance, most other issuers may need to be a bit more conservative at the start to create momentum in the book.” [said an unnamed banker].

Canadian energy company Enbridge did just that – and was able to tighten levels on its 10- and 30-year fixed rate bonds and three-year floaters substantially.

The 10s and 30s were announced with IPTs of Treasuries plus 125bp–130bp and plus 145bp–150bp, while the floater came at Libor plus low 60s.

These levels were pushed tighter to final pricing levels of plus 110bp and plus 125bp on the fixed and plus 45bp on the floater.

At the IPT stage, compared with outstanding 4% October 2023s at a G-spread of 114bp, the 10-year seemed to carry about 11bp to 16bp in concession, while the 30-year had about 15bp to 20bp in concession versus 4.55% August 2043s at G+130bp.

These juicy concessions enticed investors to jump in with orders that subsequently allowed it to tighten levels – and end up paying concessions of negative 4bp and negative 5bp.

Low yields are not confined to the US:

Europe’s lowest government bond yields since the Napoleonic Wars are signaling investors want more action from Mario Draghi.

Instead of a vote of confidence, the most pronounced rally in 200 years suggests the European Central Bank president needs to stave off the risks of stagnation and deflation. Austria, Belgium, France (GFRN10) and Germany can borrow at lower rates than the U.S. as inflation less than half the ECB’s target stokes concern the euro zone will take many years to recover from its longest-ever recession.
…
Speculation the ECB will provide more stimulus pushed yields on euro-region sovereign debt to a record-low 1.43 percent on May 30, according to Bank of America Merrill Lynch’s Euro Government Bond Index. Draghi said May 8 the Governing Council is “comfortable” taking action to boost consumer-price growth, which at 0.7 percent in April was well below the ECB’s aim of keeping it just under 2 percent.
…
Rates on German 10-year bonds were at 1.37 percent yesterday, less than a quarter of a percentage point away from 1.127 percent reached in June 2012, the lowest since at least 1815, according to “The History of Interest Rates” by Sidney Homer and Richard Sylla. That was the year of Napoleon’s final defeat at Waterloo, after which the Congress of Vienna redrew the map of Europe, leading to the creation of the German Confederation.

Germany’s current yield compares with an average of 3.03 percent in the past 10 years. The interest rate for government loans was 3.6 percent in 1944 during World War II and 12.5 percent in 1931 amid the Great Depression, according to the book.

I’m not sure I’d want to be a fixed income manager in Germany in 1944, even if I was seeing 3.6% yields!

I understand that marketing for the NEW.PR.C refunding has commenced, but a prospectus is not yet available.

It was a negative day for the Canadian preferred share market, with FixedReset prices collapsing in the final hour of trading; PerpetualDiscounts were off 1bp, FixedResets got whacked for 44bp and DeemedRetractibles were flat. A lengthy Performance Highlights table is comprised almost entirely of losing FixedResets, with the solitary exception being a FixedFloater loser. Volume was very heavy.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.0967 %	2,511.2
FixedFloater	4.58 %	3.83 %	33,179	17.75	1	-1.2857 %	3,746.7
Floater	2.90 %	3.01 %	47,560	19.63	4	-0.0967 %	2,711.4
OpRet	4.38 %	-13.81 %	31,803	0.09	2	0.0000 %	2,710.5
SplitShare	4.82 %	4.22 %	62,357	4.16	5	-0.0318 %	3,111.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,478.5
Perpetual-Premium	5.52 %	-2.26 %	84,910	0.09	17	-0.0530 %	2,402.4
Perpetual-Discount	5.26 %	5.27 %	105,152	14.99	20	-0.0086 %	2,545.5
FixedReset	4.56 %	3.75 %	220,363	8.76	75	-0.4410 %	2,508.8
Deemed-Retractible	5.02 %	1.33 %	154,769	0.16	43	0.0047 %	2,519.8
FloatingReset	2.67 %	2.51 %	122,560	4.13	6	-0.0331 %	2,482.1

Performance Highlights
Issue	Index	Change	Notes
TRP.PR.D	FixedReset	-2.62 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 22.85 Evaluated at bid price : 24.15 Bid-YTW : 4.04 %
BAM.PR.X	FixedReset	-2.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 21.33 Evaluated at bid price : 21.33 Bid-YTW : 4.25 %
BAM.PR.R	FixedReset	-2.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 23.50 Evaluated at bid price : 24.82 Bid-YTW : 4.03 %
TRP.PR.B	FixedReset	-1.86 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 20.05 Evaluated at bid price : 20.05 Bid-YTW : 3.61 %
MFC.PR.F	FixedReset	-1.75 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.42 Bid-YTW : 4.45 %
ENB.PR.Y	FixedReset	-1.69 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 22.44 Evaluated at bid price : 23.33 Bid-YTW : 4.20 %
CU.PR.C	FixedReset	-1.55 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 23.28 Evaluated at bid price : 24.71 Bid-YTW : 3.93 %
HSE.PR.A	FixedReset	-1.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 22.27 Evaluated at bid price : 22.60 Bid-YTW : 3.79 %
BNS.PR.Y	FixedReset	-1.43 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.42 Bid-YTW : 3.71 %
VNR.PR.A	FixedReset	-1.36 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.45 Bid-YTW : 3.98 %
BAM.PR.G	FixedFloater	-1.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 21.44 Evaluated at bid price : 20.73 Bid-YTW : 3.83 %
MFC.PR.J	FixedReset	-1.21 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.22 Bid-YTW : 3.72 %
RY.PR.Z	FixedReset	-1.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 23.22 Evaluated at bid price : 25.16 Bid-YTW : 3.68 %
ENB.PR.B	FixedReset	-1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 22.88 Evaluated at bid price : 23.80 Bid-YTW : 4.12 %
SLF.PR.G	FixedReset	-1.03 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.12 Bid-YTW : 4.46 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.H	FixedReset	1,106,001	New issue closed today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 23.10 Evaluated at bid price : 24.86 Bid-YTW : 3.75 %
CM.PR.K	FixedReset	464,641	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.27 Bid-YTW : 1.70 %
NA.PR.S	FixedReset	182,828	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 23.24 Evaluated at bid price : 25.22 Bid-YTW : 3.85 %
RY.PR.L	FixedReset	162,850	YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.92 Bid-YTW : 3.45 %
HSB.PR.E	FixedReset	124,070	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 25.39 Bid-YTW : 3.62 %
CM.PR.M	FixedReset	107,754	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.34 Bid-YTW : 1.76 %
There were 60 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
TRP.PR.D	FixedReset	Quote: 24.15 – 24.95 Spot Rate : 0.8000 Average : 0.4743 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 22.85 Evaluated at bid price : 24.15 Bid-YTW : 4.04 %
TRP.PR.B	FixedReset	Quote: 20.05 – 20.45 Spot Rate : 0.4000 Average : 0.2238 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 20.05 Evaluated at bid price : 20.05 Bid-YTW : 3.61 %
CU.PR.D	Perpetual-Discount	Quote: 24.30 – 24.85 Spot Rate : 0.5500 Average : 0.3830 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 23.91 Evaluated at bid price : 24.30 Bid-YTW : 5.05 %
BNS.PR.Y	FixedReset	Quote: 23.42 – 23.88 Spot Rate : 0.4600 Average : 0.2962 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.42 Bid-YTW : 3.71 %
BAM.PR.X	FixedReset	Quote: 21.33 – 21.79 Spot Rate : 0.4600 Average : 0.3093 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 21.33 Evaluated at bid price : 21.33 Bid-YTW : 4.25 %
PWF.PR.R	Perpetual-Premium	Quote: 25.51 – 25.83 Spot Rate : 0.3200 Average : 0.1918 YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-30 Maturity Price : 25.00 Evaluated at bid price : 25.51 Bid-YTW : 5.27 %

No sooner had I delivered my crushing retort to my cashless friends than I became aware of a piece in the Globe by Ian McGugan titled Why central bankers would like to trash your cash:

An end to folding money could offer many advantages, according to Kenneth Rogoff, a Harvard professor and former chief economist at the International Monetary Fund. The most immediate payoffs would come from cracking down on drug traffickers and tax evaders.

This could have surprisingly large benefits for government coffers. In a column in the Financial Times this week, Prof. Rogoff estimates that untaxed, underground transactions account for 7 to 8 per cent of the U.S. economy and probably even more of its European counterpart. Bringing all those cash-only transactions into the light by forcing them to be conducted through the banking system, where the taxman could track them, would provide governments with a nice revenue boost.
…
One option, in theory, would be to impose negative interest rates – to apply a penalty charge on bank balances to spur people to spend. One big problem with this in practice, however, is that it just won’t work because “people will start bailing out into cash,” as Prof. Rogoff writes.

But what if there was no cash? Government could then adjust rates however it wanted, even well into negative territory, to force people to stop sitting on their wealth.

A miracle has occurred! Competition is having an effect on underwriting fees … maybe!

With trading profits dwindling, more dealers than ever are fighting for assignments managing U.S. corporate-bond sales, one of the few bright spots in fixed income. Companies from the most-creditworthy to the most-indebted have been selling trillions of dollars of debt, locking in record-low borrowing costs ahead of the anticipated rise in interest rates.
…
A record 144 underwriters for the period have split an estimated $4.2 billion of fees on U.S. sales, the data show.
…
The five most-active corporate-debt underwriters this year landed 47 percent of the business, the smallest share on record. That’s down from 59 percent of the assignments for all of 2009.
…
Smaller firms see an opportunity to break into the business as Wall Street’s behemoths unload inventories of riskier securities in the face of higher capital requirements and limits imposed by the U.S. Dodd-Frank Act’s Volcker Rule on the amount of their own money they can use to trade.

Royal Bank of Canada has climbed to 11th most-active underwriter of corporate bonds in the U.S., from 14th place in the period four years earlier, Bloomberg data show.
…
Debt underwriting fees among the nine-biggest banks were 5.8 percent lower in the first three months of 2014 from the same period last year, according to data compiled by Bloomberg Industries. The slump in fees outpaced a 2.6 percent drop in the volume of global corporate bond sales.

The article isn’t all that clear on actual fees. The fee drop among the nine-biggest firms outpaces the drop in total issuance, but the market share of the five-biggest has dropped considerably. It is conceivable that prices haven’t dropped at all and that the quoted differences are due the changes in volume, market share and product mix. But we can hope!

Tobias Adrian, Richard Crump, Benjamin Mills and Emanuel Moench have been working on the Treasury term premium:

Treasury yields can be decomposed into two components: expectations of the future path of short-term Treasury yields and the Treasury term premium. The term premium is the compensation that investors require for bearing the risk that short-term Treasury yields do not evolve as they expected. Studying the term premium over a long time period allows us to investigate what has historically driven changes in Treasury yields. In this blog post, we estimate and analyze the Treasury term premium from 1961 to the present, and make these estimates available for download here.
…
In a previous post, we compared our estimated term premium to a number of observable variables. We showed that the term premium is a countercyclical variable which tends to move with measures of uncertainty and disagreement about the future level of yields.
…
The evolution of term premia has been of particular interest since the Federal Reserve began large-scale asset purchases. Over this time, short-term interest rates have been close to zero, and our estimates show that the term premium has been compressed and has at times even been negative. An advantage of our estimate is that it is available back to 1961. Hence, we can study the term premium at another time when short-term interest rates were close to zero. By comparing the ten-year ACM term premium of the past decade to that of the 1960s in the first chart, we find that the ten-year term premium was negative at times in the 1960s, but reverted back to positive. Similarly, our estimate of the term premium has risen above zero recently.

Daily estimates of the ACM term premium from 1961 to the present are now available for download from the Data & Indicators section of the New York Fed’s website. The data are updated weekly and include estimates of the term premium for yearly Treasury maturities from one to ten years, as well as fitted yields and the expected average level of short-term interest rates.

I get lots of ‘friend’ requests on LinkedIn and Facebook from people whose names I don’t recognize. If I don’t recognize the name, I don’t respond; to me, that sounds basic. Some people disagree:

In an unprecedented, three-year cyber espionage campaign, Iranian hackers created false social networking accounts and a fake news website to spy on military and political leaders in the United States, Israel and other countries, a cyber intelligence firm said on Thursday.

ISight Partners, which uncovered the operation, said the hackers’ targets include a four-star U.S. Navy admiral, U.S. lawmakers and ambassadors, members of the U.S.-Israeli lobby, and personnel from Britain, Saudi Arabia, Syria, Iraq and Afghanistan.
…
The hackers set up false accounts on Facebook and other online social networks for these 14 personas, populated their profiles with fictitious personal content, and then tried to befriend target victims, according to iSight.
…
To build credibility, the hackers would approach high-value targets by first establishing ties with the victims’ friends, classmates, colleagues, relatives and other connections over social networks run by Facebook Inc., Google Inc. and its YouTube, LinkedIn Corp. and Twitter Inc.

The hackers would initially send the targets content that was not malicious, such as links to news articles on NewsOnAir.org, in a bid to establish trust. Then they would send links that infected PCs with malicious software, or direct targets to web portals that ask for network log-in credentials, iSight said.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 20bp, FixedResets up 10bp and DeemedRetractibles gaining 1bp. The Performance Highlights table is of above-average length, with a preponderance of FixedReset issues on the winning side, bouncing back a bit from Friday‘s carnage. 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	0.00 %	0.00 %	0	0.00	0	0.7656 %	2,513.7
FixedFloater	4.52 %	3.77 %	32,676	17.85	1	0.0000 %	3,795.5
Floater	2.90 %	3.03 %	47,845	19.60	4	0.7656 %	2,714.1
OpRet	4.38 %	-13.95 %	31,765	0.09	2	0.0195 %	2,710.5
SplitShare	4.82 %	4.10 %	62,358	4.16	5	-0.1828 %	3,112.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0195 %	2,478.5
Perpetual-Premium	5.51 %	-5.26 %	85,724	0.09	17	-0.0438 %	2,403.6
Perpetual-Discount	5.26 %	5.26 %	104,570	15.00	20	-0.1965 %	2,545.7
FixedReset	4.55 %	3.73 %	214,927	8.77	74	0.0995 %	2,519.9
Deemed-Retractible	5.02 %	2.20 %	156,423	0.16	43	0.0149 %	2,519.7
FloatingReset	2.67 %	2.51 %	142,182	3.99	6	0.0597 %	2,482.9

Performance Highlights
Issue	Index	Change	Notes
ELF.PR.G	Perpetual-Discount	-1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 21.76 Evaluated at bid price : 22.15 Bid-YTW : 5.42 %
PWF.PR.S	Perpetual-Discount	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 23.14 Evaluated at bid price : 23.45 Bid-YTW : 5.16 %
RY.PR.Z	FixedReset	1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 23.30 Evaluated at bid price : 25.45 Bid-YTW : 3.62 %
CU.PR.D	Perpetual-Discount	1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 24.02 Evaluated at bid price : 24.42 Bid-YTW : 5.02 %
BAM.PR.R	FixedReset	1.36 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 23.69 Evaluated at bid price : 25.35 Bid-YTW : 3.92 %
IFC.PR.A	FixedReset	2.05 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.88 Bid-YTW : 4.25 %
PWF.PR.A	Floater	2.51 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 20.04 Evaluated at bid price : 20.04 Bid-YTW : 2.63 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.K	FixedReset	86,855	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : 1.18 %
CM.PR.M	FixedReset	86,080	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.39 Bid-YTW : 0.51 %
SLF.PR.H	FixedReset	84,905	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 3.75 %
ENB.PF.C	FixedReset	81,159	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 23.10 Evaluated at bid price : 24.95 Bid-YTW : 4.17 %
CU.PR.E	Perpetual-Discount	41,865	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 23.66 Evaluated at bid price : 24.03 Bid-YTW : 5.11 %
BMO.PR.P	FixedReset	38,843	YTW SCENARIO Maturity Type : Call Maturity Date : 2015-02-25 Maturity Price : 25.00 Evaluated at bid price : 25.60 Bid-YTW : 2.23 %
There were 25 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.K	FixedReset	Quote: 24.60 – 25.00 Spot Rate : 0.4000 Average : 0.2562 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.60 Bid-YTW : 3.97 %
TD.PR.R	Deemed-Retractible	Quote: 26.35 – 26.59 Spot Rate : 0.2400 Average : 0.1556 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-02 Maturity Price : 25.75 Evaluated at bid price : 26.35 Bid-YTW : -16.00 %
FTS.PR.G	FixedReset	Quote: 24.30 – 24.60 Spot Rate : 0.3000 Average : 0.2186 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 22.96 Evaluated at bid price : 24.30 Bid-YTW : 3.75 %
MFC.PR.L	FixedReset	Quote: 24.60 – 24.89 Spot Rate : 0.2900 Average : 0.2121 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.60 Bid-YTW : 3.99 %
CU.PR.E	Perpetual-Discount	Quote: 24.03 – 24.54 Spot Rate : 0.5100 Average : 0.4379 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 23.66 Evaluated at bid price : 24.03 Bid-YTW : 5.11 %
ELF.PR.G	Perpetual-Discount	Quote: 22.15 – 22.38 Spot Rate : 0.2300 Average : 0.1591 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 21.76 Evaluated at bid price : 22.15 Bid-YTW : 5.42 %

There’s an interesting pension fund trend:

Companies eager to “de-risk” their long-term pension obligations are expected to increasingly offer voluntary one-time lump sum payments to former employees as an alternative to a pension’s stream of lifetime income. A Towers Watson survey reports that nearly six in 10 companies with a defined-benefit plan either have offered a lump sum payment or plan to offer one.

The game of pension hot potato between corporations and former employees is partly due to a phased-in rule change that became fully effective in 2012. It centers on the interest rate and investment return assumptions companies use to calculate their future pension liabilities. Pension bean counters can now calculate lump sum obligations using a corporate bond yield for the discount rate, rather than a 30-year Treasury rate. Using that higher corporate bond rate in the calculation reduces the amount of the lump sum. Prudential Retirement estimates that this tweak could reduce corporate lump sum payouts by 5 to 25 percent, depending on the recipient’s age.

…
For those who will rely primarily on pension income in retirement, the Pension Rights Center, a non-profit consumer advocacy group, suggests turning down the lump sum.

What happens when you force institutions to buy and hold more Treasuries? More Treasuries are bought and held:

It’s getting easier for a smaller group of bulls in the U.S. Treasury market to create angst for the bears.

That’s because government-debt trading volumes have slumped to 18 percent below the decade-long average, Federal Reserve data show. As Brean Capital LLC’s Peter Tchir wrote this week: “There is no liquidity even in the mighty Treasury market.”

So as 10-year Treasury yields plunged toward the lowest level in almost a year, a smaller group of active traders may have had a much bigger influence over the $12 trillion market that determines rates on everything from auto loans to corporate debt.
…
U.S. government-bond trading has declined even as the size of the market tripled in the last decade. Trading volumes fell to an average $429 billion a day in the week ended May 21, Fed data show. That’s down from daily averages of $502 billion this year and about $566 billion back in 2007.

One reason for the slowdown is there aren’t as many obvious sellers of the notes. The Fed has been buying U.S. bonds for years, making it the biggest single owner of the debt. Other central banks have locked the bonds away in their vaults across the globe.

Another reason is banks have less incentive to trade the debt. They’re reducing fixed-income inventories in response to risk-curbing regulations, such as the U.S. Dodd-Frank Act’s Volcker Rule, which limits the amount of their own money they may use to buy and sell riskier securities. Many are paring fixed-income staff, too, in the face of lower trading revenues.

While banks can still trade government bonds on economic views, the risk management necessary is expensive and the opportunities limited, Vogel wrote in his note.

The moral of the story is: always listen to sell side analysts!

A Bloomberg survey of analysts in February called for the 10-year Treasury rate to jump this quarter to 3.15 percent, which would’ve been the highest since 2011. Instead, the yield fell steadily through May and touched an almost one-year low of 2.40 percent. Sovereign rates reached record lows in Spain and Italy amid speculation European central banksters would puff up prices with imaginary euros so no one notices when they come to grab their Vespas and Nebbiolo.

But that’s all typical. Many preferred share investors have migrated to FixedResets, attracted to the potential for some protection in stormy weather:

It was stormy weather for the Canadian preferred share market today, with PerpetualDiscounts off 4bp, FixedResets losing 53bp and DeemedRetractibles flat. The lengthy Performance Highlights table is exclusively negative and virtually entirely FixedResets – mostly low-Reset ones, since hyper-inflation is old-fashioned now and it’s clear that low rates are here forever. Volume was very high.

And that’s it for another month!

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.4848 %	2,494.6
FixedFloater	4.52 %	3.77 %	34,012	17.86	1	-1.0834 %	3,795.5
Floater	2.92 %	3.02 %	48,309	19.62	4	-0.4848 %	2,693.4
OpRet	4.38 %	-10.76 %	32,806	0.09	2	0.0195 %	2,710.0
SplitShare	4.81 %	3.98 %	61,321	4.17	5	-0.1270 %	3,118.2
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0195 %	2,478.0
Perpetual-Premium	5.51 %	-9.28 %	90,109	0.09	15	-0.0469 %	2,404.7
Perpetual-Discount	5.29 %	5.35 %	103,528	14.86	21	-0.0383 %	2,550.7
FixedReset	4.59 %	3.74 %	213,003	8.77	75	-0.5261 %	2,517.4
Deemed-Retractible	5.02 %	2.29 %	160,258	0.23	43	-0.0019 %	2,519.3
FloatingReset	2.66 %	2.50 %	143,983	4.00	6	-0.1390 %	2,481.4

Performance Highlights
Issue	Index	Change	Notes
PWF.PR.A	Floater	-2.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 19.55 Evaluated at bid price : 19.55 Bid-YTW : 2.70 %
TRP.PR.A	FixedReset	-1.74 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 22.34 Evaluated at bid price : 23.16 Bid-YTW : 3.74 %
BAM.PR.X	FixedReset	-1.71 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 21.49 Evaluated at bid price : 21.85 Bid-YTW : 4.12 %
MFC.PR.F	FixedReset	-1.71 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.00 Bid-YTW : 4.16 %
MFC.PR.H	FixedReset	-1.58 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.55 Bid-YTW : 3.69 %
CU.PR.C	FixedReset	-1.57 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 23.38 Evaluated at bid price : 25.00 Bid-YTW : 3.88 %
FTS.PR.H	FixedReset	-1.54 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 21.07 Evaluated at bid price : 21.07 Bid-YTW : 3.66 %
CIU.PR.C	FixedReset	-1.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 21.28 Evaluated at bid price : 21.28 Bid-YTW : 3.56 %
FTS.PR.G	FixedReset	-1.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 22.92 Evaluated at bid price : 24.20 Bid-YTW : 3.78 %
BAM.PR.R	FixedReset	-1.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 23.57 Evaluated at bid price : 25.01 Bid-YTW : 4.00 %
MFC.PR.I	FixedReset	-1.32 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-09-19 Maturity Price : 25.00 Evaluated at bid price : 25.45 Bid-YTW : 3.76 %
TRP.PR.C	FixedReset	-1.30 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 22.35 Evaluated at bid price : 22.71 Bid-YTW : 3.54 %
PWF.PR.P	FixedReset	-1.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 23.31 Evaluated at bid price : 23.70 Bid-YTW : 3.46 %
GWO.PR.N	FixedReset	-1.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.06 Bid-YTW : 4.39 %
SLF.PR.G	FixedReset	-1.11 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.20 Bid-YTW : 4.42 %
ENB.PR.H	FixedReset	-1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 22.46 Evaluated at bid price : 23.25 Bid-YTW : 4.00 %
BAM.PR.G	FixedFloater	-1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 21.59 Evaluated at bid price : 21.00 Bid-YTW : 3.77 %
MFC.PR.J	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 3.39 %
BMO.PR.Q	FixedReset	-1.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.40 Bid-YTW : 3.46 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PF.C	FixedReset	115,565	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 23.10 Evaluated at bid price : 24.95 Bid-YTW : 4.18 %
TD.PR.O	Deemed-Retractible	94,075	YTW SCENARIO Maturity Type : Call Maturity Date : 2014-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.32 Bid-YTW : 2.74 %
GWO.PR.P	Deemed-Retractible	90,200	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.25 Bid-YTW : 5.25 %
HSB.PR.E	FixedReset	67,319	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.37 Bid-YTW : 1.70 %
BAM.PR.P	FixedReset	60,407	To be called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.65 Bid-YTW : 2.63 %
GWO.PR.N	FixedReset	51,605	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.06 Bid-YTW : 4.39 %
There were 56 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
FTS.PR.H	FixedReset	Quote: 21.07 – 21.85 Spot Rate : 0.7800 Average : 0.4741 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 21.07 Evaluated at bid price : 21.07 Bid-YTW : 3.66 %
MFC.PR.F	FixedReset	Quote: 23.00 – 23.50 Spot Rate : 0.5000 Average : 0.3137 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.00 Bid-YTW : 4.16 %
PWF.PR.A	Floater	Quote: 19.55 – 20.30 Spot Rate : 0.7500 Average : 0.5860 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 19.55 Evaluated at bid price : 19.55 Bid-YTW : 2.70 %
BAM.PR.G	FixedFloater	Quote: 21.00 – 21.60 Spot Rate : 0.6000 Average : 0.4397 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 21.59 Evaluated at bid price : 21.00 Bid-YTW : 3.77 %
CIU.PR.C	FixedReset	Quote: 21.28 – 21.80 Spot Rate : 0.5200 Average : 0.3788 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-05-30 Maturity Price : 21.28 Evaluated at bid price : 21.28 Bid-YTW : 3.56 %
SLF.PR.I	FixedReset	Quote: 25.54 – 25.89 Spot Rate : 0.3500 Average : 0.2162 YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.54 Bid-YTW : 3.24 %