PrefBlog

Nothing happened today, except that bonds had a good day:

The S&P 500 retreated 1.6 percent at 4 p.m. in New York, erasing its gain for the week. The gauge ended lower yesterday by 0.4 percent, erasing a gain of as much as 1.3 percent after Yellen indicated that global developments overshadowed signs of strength in America.
…
U.S. two-year Treasuries extended their biggest one-day rally since 2009, while Pacific Investment Management Co. said policy makers may wait until next year before raising rates. JPMorgan Asset Management said the Fed’s statement was good for bonds and they still like debt due between seven and 10 years.

Bonds gained from Australia to Germany, while Treasuries added to an advance from Thursday. The yield on 10-year German bunds, the euro region’s benchmark sovereign securities, dropped 12 basis points to 0.66 percent, set for its biggest decline since July 7, on prospects for further easing by the European Central Bank.

Rates on similar-maturity Italian bonds fell 14 basis points to 1.76 percent, while those on Spain’s declined 15 basis points to 1.94 percent. The yield on U.S. 10-year Treasuries fell six basis points to 2.13 percent on Friday, after sliding 10 basis points the previous day.

It was yet another negative day for the Canadian preferred share market, with PerpetualDiscounts gaining 5bp, FixedResets down 48bp and DeemedRetractibles off 6bp. The Performance Highlights table is comprised entirely of losers, mostly FixedResets. Volume was extremely low.

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

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

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 20.06 to be $1.05 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $1.32 cheap at its bid price of 12.81.

Click for Big

Another good fit today for MFC, with Implied Volatility falling a bit today.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 24.41 to be 0.32 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 23.03 to be 0.30 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.80 to be $1.42 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.54 and appears to be $1.17 rich.

Click for Big

FTS.PR.M, with a spread of +248bp, and bid at 22.20, looks $0.66 expensive and resets 2019-12-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.79 and is $0.43 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.87%, with no outliers. The distribution’s bimodality has vanished. There are two junk outliers above 0.00%.

Click for Big

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

Today’s big news was the FOMC release:

Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. Household spending and business fixed investment have been increasing moderately, and the housing sector has improved further; however, net exports have been soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, labor market indicators show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation moved lower; survey-based measures of longer-term inflation expectations have remained stable.
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To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.
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The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
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Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.

Meanwhile, in Canada:

The number of EI beneficiaries rose 2 per cent to 545,200 in July from a month earlier, Statistics Canada said Thursday, led by increases in British Columbia, Ontario and Alberta. That level is 7.1 per cent higher than a year ago.

In Alberta, the province most exposed to lower oil prices, the number of EI beneficiaries climbed for the ninth straight month. EI numbers rose 1.8 per cent from a month earlier – a slower pace than in previous months – and are 72.2 per cent higher than in July of last year.

British Columbia and Ontario saw the biggest monthly percentage increases while Quebec and Saskatchewan also registered gains. Numbers fell in Manitoba and Newfoundland.

It was a mildly negative day for the Canadian preferred share market, with PerpetualDiscounts gaining 5bp, FixedResets off 8bp and DeemedRetractibles down 19bp. The Performance Highlights table is reasonably balanced. Volume was low.

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

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

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 20.00 to be $0.81 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $1.04 cheap at its bid price of 13.39.

Click for Big

Another good fit today for MFC, with Implied Volatility falling a bit today.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 24.36 to be 0.25 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 23.07 to be 0.28 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 17.00 to be $1.30 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.48 and appears to be $1.06 rich.

Click for Big

FTS.PR.M, with a spread of +248bp, and bid at 22.20, looks $0.61 expensive and resets 2019-12-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.79 and is $0.50 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.89%, with no outliers. The distribution’s bimodality has vanished. There are two junk outliers above 0.00%.

Click for Big

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

The OECD is not impressed with Canada’s growth:

In the quarterly update of its global outlook, the Organization for Economic Co-operation and Development cut its forecast for Canadian gross domestic product growth to 1.1 per cent this year, down from 1.5 per cent in its June outlook. For 2016, it reduced its GDP growth projection to 2.1 per cent from 2.3 per cent.

The OECD report underlines Canada’s underperformance this year relative to other major world economies, even as its neighbour and biggest trading partner, the United States, continues to gain momentum. The OECD upgraded its projection for U.S. GDP growth this year to 2.4 per cent, up from 2 per cent in its June report. Among the G7 major industrialized countries, Canada’s forecast 2015 growth is in the middle of the pack, ahead of Japan (0.6 per cent), Italy (0.7 per cent) and France (1.0 per cent). But Canada’s slowdown this year is the worst in G7, and the cut in its OECD forecast is the largest in the group.

Meanwhile, US inflation is moderate:

Prices paid by American households declined in August as cheaper gasoline helped keep inflation below the objective of Federal Reserve policy makers.

The consumer-price index fell 0.1 percent, the first decrease since January, after a 0.1 percent gain in July, Labor Department figures showed Wednesday. The so-called core measure, which strips out often-volatile fuel and food costs, rose 0.1 percent for a second month. Goods prices declined, while services barely rose.
…
The consumer price gauge increased 0.2 percent in the 12 months ended in August, the same as in July.

The core CPI measure, which excludes volatile food and fuel costs, rose 1.8 percent from August 2014, matching the prior month’s year-over-year gain.

In the comments to yesterday’s post, Assiduous Reader gimlimike brings to my attention a perpetual Dutch bond issued in 1648. I love perpetuals! If I’m reading the Dutch in the photograph correctly, the bond pays 25 guilders annually on an initial investment of 1,000 guilders, or 2.5%.

A similar bond was auctioned by Christies in 2000 with some interesting historical notes:

The Lekdijk Bovendams was incorporated in 1971 into a larger municipal organization, the Waterschap Kromme Rijn, which took over the payment of annual interest on the handful of extant original bonds. According to a 1978 report of the Waterschap’s Secretary, the corporation had issued a total of 48 bonds in the 17th and 18th century; their denominations ranged from 400 to 8,000 Guilders. Only 4 bonds were issued in the amount of 1200 Guilders. In 1978, only 22 of the 48 issued were still traceable (most in the hands of banks and other institutions, a few in private hands). According to a recent communication from C. Vanema, Archivist of the Streekarchief “Rijnstreek,” where the papers of the Waterschaap are deposited, there are today only five of these early bonds still active. Only one, issued in 1624 and owned since 1938 by the New York Stock Exchange, pre-dates the present bond, and only two of bonds issued in the 17th century are still active.

The good effects of centuries of such care may be observed via Google Maps. Given that one Guilder is 0.453780 Euros, the bond pays 11.34 Euros per year; given that Yale paid 24,000 Euros for it in 2003, the yield is 0.05% and the duration is therefore 2,000.

Yet another candidate has been dropped from the ballot over past indiscretions, and rewarded for his willingness to serve by being publicly vilified. At some point, we’re going to have to learn that not everybody has been a saint since birth; and that those who have been may not necessarily make the best legislators. But it makes us feel better about ourselves to scapegoat those unlucky enough to have been caught … meanwhile, I will continue to quite adequately represented provincially by Cheri DiNovo, who doubtless wouldn’t even be called for an interview in these puritanical times.

It was a negative day for the Canadian preferred share market, with PerpetualDiscounts off 5bp, FixedResets losing 25bp and DeemedRetractibles down 9bp. The Performance Highlights table is dominated by losing FixedResets, mostly of the low-spread variety. Volume was well below average.

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

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

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 20.02 to be $0.89 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $1.02 cheap at its bid price of 13.45.

Click for Big

Another good fit today for MFC, with Implied Volatility falling a bit today.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 24.49 to be 0.49 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 23.00 to be 0.23 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.80 to be $1.48 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.33 and appears to be $0.95 rich.

Click for Big

FTS.PR.M, with a spread of +248bp, and bid at 21.89, looks $0.41 expensive and resets 2019-12-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.73 and is $0.52 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.03%, with no outliers. The distribution has become bimodal again, with bank NVCC non-compliant issues averaging -1.17% and other issues averaging -0.82%. There are no junk outliers below -2.00%, but one above 0.00%.

Click for Big

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

“Markets, schmarkets!” says the US consumer, “Where can I spend what I just saved on gas?“:

Retail sales in the U.S. climbed for a second straight month, a sign consumers may be looking past recent volatility in financial markets.

The 0.2 percent increase in August followed a 0.7 percent gain in July that was larger than previously reported, Commerce Department figures showed Tuesday in Washington. The median forecast of 84 economists surveyed by Bloomberg called for a 0.3 percent advance.

Although confidence has taken a hit from stock-market turmoil and global-growth concerns, the data show households are still putting their savings from cheap energy to work. More jobs and higher pay would go a long way in supporting household spending, which Federal Reserve policy makers are watching as they consider raising interest rates as soon as this week.

The news whacked Treasuries:

Treasuries tumbled, lifting the two-year note yield to the highest since April 2011, as gains in U.S. retail sales prompted investors to retreat from the securities that would be most affected if the Federal Reserve raises interest rates.

Sell orders in two- and five-year Treasury futures helped accelerate the move higher in yields amid investors’ concern that the Fed may raise rates as soon as Thursday for the first time since 2006. Yields rose the most in almost three weeks after data showed retail sales increased 0.2 percent in August while July’s gain was larger than previously reported. The figures signal consumers may be looking past recent financial-market volatility.
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Treasury two-year note yields rose eight basis points, or 0.08 percentage point, to 0.80 percent as of 5 p.m. in New York, based on Bloomberg Bond Trader data. The price of the 0.625 percent security due in August 2017 fell 5/32, or $1.56 per $1,000 face amount, to 99 21/32.

Benchmark 10-year note yields rose 10 basis points to 2.29 percent.

Futures contracts show a 28 percent probability that the Fed will boost rates when it meets Sept. 16-17, according to data compiled by Bloomberg.The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase, versus the current target of zero to 0.25 percent.

It was a mostly lousy day for the Canadian preferred share market, with PerpetualDiscounts gaining 1bp, FixedResets down 58bp and DeemedRetractibles off 14bp. The Performance Highlights table is comprised almost entirely of losers. Volume was below average.

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

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

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 20.00 to be $0.79 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $1.05 cheap at its bid price of 13.35.

Click for Big

Another good fit today for MFC, with Implied Volatility falling a bit today.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 24.41 to be 0.48 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 19.95 to be 0.29 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.90 to be $1.37 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.44 and appears to be $0.99 rich.

Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 19.50, looks $0.57 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.74 and is $0.69 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.08%, with no outliers. The distribution is no longer bimodal. There are no junk outliers below -2.00%, but two above 0.00%.

Click for Big

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

It’s nice to see an intelligently run bond ETF:

The Market Vectors Fallen Angel High Yield Bond ETF (ANGL) is up 28 percent since its April 2012 inception, which is double the performance of the SPDR Barclays High Yield Bond ETF (JNK) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), as seen in the chart below.
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Generally speaking, it really comes down to a value factor in bonds that ANGL has tapped into. When these bonds — typically issued by large companies such as Alcoa, Sprint, and Nokia — get downgraded from investment grade to high-yield, they tend to get oversold leading up to the downgrade. Much of this selling is from active managers and institutions getting rid of these bonds that they owned to keep up with their investment-grade benchmarks. This means extra selling pressure.

It was a poor day for the Canadian preferred share market today, with PerpetualDiscounts down 24bp, FixedResets losing 43bp and DeemedRetractibles off 1bp. There is a fairly long Performance Highlights table dominated by losing FixedResets, but three TRP issues did well. Volume was below average.

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

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

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 20.05 to be $0.61 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $0.91 cheap at its bid price of 13.50.

Click for Big

Another good fit today for MFC, with Implied Volatility falling a bit today.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 24.36 to be 0.34 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 19.83 to be 0.63 cheap.

Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.90 to be $1.40 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 22.64 and appears to be $1.11 rich.

Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 19.48, looks $0.41 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 18.75 and is $0.80 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.14%, with no outliers. Note that the distribution is bimodal, with NVCC non-compliant bank issues averaging -1.28% and the unregulated issues averaging -0.95%. There are no junk outliers below -2.00%, but two above 0.00%.

Click for Big

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