PrefBlog

Market Action

March 20, 2015

Greek bank depositors not only have to deal with the potential for bank failure should Greece exit the Euro, but I’m sure they’re also worried about a punitive tax on deposits in good banks. So they’ve found another option:

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It nice to see a supervisor fired for poor supervision:

Citigroup Inc. fired a trader on Friday for allegedly mismarking an inflation-options book and dismissed his boss for lax oversight, according to a person familiar with the matter.

Carl Bonde lost his job in New York after the bank determined he’d inflated the value of his trading positions by less than $30 million, the person said. Keith Price, head of U.S. inflation trading, was dismissed for his failure to supervise Bonde, said the person, who asked not to be identified discussing a personnel matter.

How ’bout them equities, eh?

Global stocks powered to their best weekly rally in nearly two years, sending two of the biggest equity benchmarks to the brink of records, on speculation the U.S. Federal Reserve will leave interest rates at zero past mid-year while European policy makers press stimulus.

The MSCI All-Country World Index surged 3.2 percent for the five days, pushing the Nasdaq Composite Index to within 7 points of wiping out all its losses since the Internet bubble. The Stoxx Europe 600 Index soared 1.9 percent to close 0.4 percent from its March 2000 high.
…
Other benchmark indexes also gained during the week. The Standard & Poor’s 500 Index rose 2.7 percent to 2,108.10 in the five days, 0.4 percent away from a record. In London, the FTSE 100 Index hit a fresh record, climbing above 7,000 for the first time. The Russell 2000 Index gained 2.8 percent to an all-time high.

Capital Power Corporation, proud issuer of CPX.PR.A, CPX.PR.C and CPX.PR.E, has been confirmed at Pfd-3(low) by DBRS:

DBRS Limited (DBRS) has today confirmed the rating of the Preferred Shares of Capital Power Corporation (CPC or the Company) at Pfd-3 (low) with a Stable trend. CPC’s Preferred Shares rating is based on the credit quality of its subsidiary, Capital Power L.P. (CPLP; rated BBB). Please see the CPLP rating report dated March 20, 2015, for more information on the credit quality of CPLP. The one-notch differential in the ratings of CPC and CPLP reflects the structural subordination at CPC.
…
CPC’s financial risk profile is based on its deconsolidated credit metrics. As CPC has no bonds/debentures issued at the parent level and is not expected to issue any debt in the foreseeable future, its adjusted leverage primarily consists of its preferred shares outstanding, which are treated as debt by DBRS. In the adjusted debt-to-capital calculation, the amount of preferred shares over the 20% preferred shares-to-equity threshold (defined as the percentage of preferred shares outstanding divided by total equity, excluding preferreds and minority interest) is treated as debt by DBRS. In 2014, CPC had $464 million of preferred shares outstanding, of which $67 million was treated as debt. As such, CPC’s unconsolidated debt-to-capital ratio was approximately 3% in 2014, which remains supportive of the current rating category. In addition, the unconsolidated fixed charge coverage ratio is expected to remain high at around five times.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 78bp, FixedResets up 10bp and DeemedRetractibles gaining 2bp. The Performance Highlights table has a good length, capped by winning PerpetualDiscounts. Volume was extremely high.

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:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.81 to be $1.31 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.37 cheap at its bid price of 24.92.

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Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.48 to be $0.72 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 26.05 to be $0.63 cheap.

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The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 21.53 to be $0.56 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.51 and appears to be $0.93 rich

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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.60, looks $1.28 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.70 and is $0.92 rich.

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Investment-grade pairs predict an average over the next five years of about 0.00% – except for one outlier, TRP.PR.A / TRP.PR.F, which has a break-even of -0.63%. The DC.PR.B / DC.PR.D pair has gone from the extreme to the ludicrous and now predicts an average bill rate over the next 4 3/4 years of -2.36%

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-3.1190 %	2,282.9
FixedFloater	0.00 %	0.00 %	0	0.00	0	-3.1190 %	3,991.5
Floater	3.32 %	3.21 %	63,097	19.21	3	-3.1190 %	2,426.9
OpRet	4.07 %	0.93 %	105,377	0.25	1	-0.0397 %	2,765.8
SplitShare	4.46 %	4.31 %	57,630	4.43	5	-0.1429 %	3,216.8
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0397 %	2,529.1
Perpetual-Premium	5.29 %	1.26 %	57,461	0.09	25	0.0516 %	2,522.3
Perpetual-Discount	4.96 %	5.02 %	172,159	15.24	9	0.7483 %	2,822.9
FixedReset	4.38 %	3.42 %	241,019	16.83	85	0.0976 %	2,432.4
Deemed-Retractible	4.90 %	-1.43 %	112,770	0.11	37	0.0171 %	2,659.5
FloatingReset	2.49 %	2.90 %	86,537	6.31	8	-0.0748 %	2,333.7

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.K	Floater	-9.54 %	A nonsensical closing bid, courtesy of those hard-working bank employees at the Toronto Stock Exchange. The issue traded 4,040 shares in a range of 15.41-72. As with the same issue on March 10, it is not clear whether this is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 14.03 Evaluated at bid price : 14.03 Bid-YTW : 3.55 %
ENB.PR.Y	FixedReset	-1.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 20.15 Evaluated at bid price : 20.15 Bid-YTW : 4.14 %
TRP.PR.F	FloatingReset	-1.31 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 18.80 Evaluated at bid price : 18.80 Bid-YTW : 3.25 %
SLF.PR.H	FixedReset	-1.28 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.36 Bid-YTW : 4.39 %
CGI.PR.D	SplitShare	-1.21 %	YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2023-06-14 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 3.60 %
BNS.PR.Z	FixedReset	1.03 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.55 Bid-YTW : 3.33 %
IAG.PR.G	FixedReset	1.10 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.69 Bid-YTW : 2.99 %
BAM.PR.R	FixedReset	1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 21.53 Evaluated at bid price : 21.53 Bid-YTW : 3.69 %
MFC.PR.L	FixedReset	1.16 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.48 Bid-YTW : 3.62 %
CIU.PR.C	FixedReset	1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 16.86 Evaluated at bid price : 16.86 Bid-YTW : 3.25 %
BAM.PR.N	Perpetual-Discount	1.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 22.70 Evaluated at bid price : 23.04 Bid-YTW : 5.15 %
BAM.PF.C	Perpetual-Discount	1.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 23.12 Evaluated at bid price : 23.45 Bid-YTW : 5.17 %
CU.PR.F	Perpetual-Discount	1.61 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 23.63 Evaluated at bid price : 24.00 Bid-YTW : 4.71 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.M	FixedReset	276,913	Recent inventory blow-out. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 22.99 Evaluated at bid price : 24.61 Bid-YTW : 3.36 %
POW.PR.D	Perpetual-Premium	230,738	Nesbitt crossed blocks of 50,000 shares, 110,600 and 60,000, all at 25.25. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-19 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 1.26 %
IAG.PR.G	FixedReset	167,264	Nesbitt crossed 160,600 at 25.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.69 Bid-YTW : 2.99 %
NA.PR.S	FixedReset	162,676	TD crossed 125,000 at 25.40. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 23.34 Evaluated at bid price : 25.32 Bid-YTW : 3.15 %
RY.PR.J	FixedReset	157,750	RBC crossed 69,800 at 24.99 and 16,000 at 25.00. RBC bought blocks of 17,700 and 19,900 from Nesbitt at 24.99. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 23.14 Evaluated at bid price : 24.97 Bid-YTW : 3.40 %
ENB.PR.N	FixedReset	146,462	RBC crossed 139,000 at 21.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 4.20 %
BMO.PR.S	FixedReset	142,232	Nesbitt crossed 48,300 at 25.06. RBC crossed 52,800 at 25.06 and 25,000 at 25.12. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 23.30 Evaluated at bid price : 25.20 Bid-YTW : 3.08 %
RY.PR.E	Deemed-Retractible	137,605	Nesbitt crossed blocks of 65,100 and 70,000, both at 25.55. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-19 Maturity Price : 25.25 Evaluated at bid price : 25.57 Bid-YTW : -7.21 %
ENB.PR.D	FixedReset	105,044	RBC crossed blocks of 35,000 and 51,400 at 19.54. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 19.40 Evaluated at bid price : 19.40 Bid-YTW : 4.21 %
CM.PR.Q	FixedReset	102,874	RBC crossed 35,500 at 24.87. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 23.09 Evaluated at bid price : 24.86 Bid-YTW : 3.45 %
ENB.PR.F	FixedReset	102,498	Nesbitt sold 18,500 to RBC at 20.00 and crossed 42,900 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 19.92 Evaluated at bid price : 19.92 Bid-YTW : 4.26 %
BMO.PR.T	FixedReset	101,392	TD crossed 50,000 and 45,000 at 24.95. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 23.10 Evaluated at bid price : 24.71 Bid-YTW : 3.09 %
There were 49 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PR.K	Floater	Quote: 14.03 – 15.89 Spot Rate : 1.8600 Average : 1.1308 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 14.03 Evaluated at bid price : 14.03 Bid-YTW : 3.55 %
CGI.PR.D	SplitShare	Quote: 25.30 – 25.80 Spot Rate : 0.5000 Average : 0.3579 YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2023-06-14 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 3.60 %
TD.PR.Z	FloatingReset	Quote: 23.85 – 24.26 Spot Rate : 0.4100 Average : 0.2781 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.85 Bid-YTW : 2.94 %
MFC.PR.K	FixedReset	Quote: 24.32 – 24.80 Spot Rate : 0.4800 Average : 0.3627 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.32 Bid-YTW : 3.62 %
BMO.PR.R	FloatingReset	Quote: 23.90 – 24.20 Spot Rate : 0.3000 Average : 0.2021 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.90 Bid-YTW : 2.87 %
ENB.PR.T	FixedReset	Quote: 20.48 – 20.79 Spot Rate : 0.3100 Average : 0.2233 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-20 Maturity Price : 20.48 Evaluated at bid price : 20.48 Bid-YTW : 4.18 %

Market Action

March 19, 2015

TIPS are in high demand:

The U.S. Treasury Department can thank the Federal Reserve for the surge in demand at Thursday’s auction of inflation-protected bonds.

The $13 billion in 10-year Treasury Inflation-Protected Securities, or TIPS, were sold at a yield of 0.2 percent, the lowest at an auction of the debt since May 2013. The Fed indicated Wednesday it isn’t in a rush to raise interest rates, leaving the door open for economic growth to stoke inflation.
…
Ten-year break-evens, the difference between yields on 10-year Treasury inflation protected securities and nominal equivalents, show investors expect U.S. consumer prices to rise 1.79 percent a year for the coming decade, up from a 2015 low of 1.49 percent on Jan. 14.

The gauge rose as much as 0.09 percentage point Thursday as rising prices for TIPS pulled their yields down and further away from yields on benchmark 10-year notes.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 11bp, FixedResets gaining 10bp and DeemedRetractibles off 2bp. There was no real pattern in the Performance Highlights table, other than that it was dominated by winners; Floaters did well. Volume was well above average.

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.68 to be $1.23 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.40 cheap at its bid price of 24.85.

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Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.20 to be $0.47 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.85 to be $0.82 cheap.

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The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 21.29 to be $0.71 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.45 and appears to be $0.90 rich

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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.70, looks $1.23 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.71 and is $0.91 rich.

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Investment-grade pairs predict an average over the next five years of about 0.00% – except for one outlier, TRP.PR.A / TRP.PR.F, which has a break-even of -0.40%. The DC.PR.B / DC.PR.D pair has gone from the extreme to the ludicrous and now predicts an average bill rate over the next 4 3/4 years of -2.78%

Click for Big

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	1.8624 %	2,356.4
FixedFloater	0.00 %	0.00 %	0	0.00	0	1.8624 %	4,120.0
Floater	3.22 %	3.21 %	63,980	19.22	3	1.8624 %	2,505.0
OpRet	4.07 %	0.76 %	106,654	0.25	1	0.1589 %	2,766.9
SplitShare	4.46 %	4.44 %	57,559	4.42	5	0.0159 %	3,221.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1589 %	2,530.1
Perpetual-Premium	5.29 %	0.08 %	56,492	0.09	25	0.1567 %	2,521.0
Perpetual-Discount	4.99 %	4.99 %	164,926	15.17	9	0.1124 %	2,801.9
FixedReset	4.38 %	3.52 %	241,768	16.69	85	0.1007 %	2,430.0
Deemed-Retractible	4.90 %	-1.42 %	110,252	0.12	37	-0.0224 %	2,659.1
FloatingReset	2.49 %	2.93 %	87,529	6.31	8	0.2894 %	2,335.5

Performance Highlights
Issue	Index	Change	Notes
HSE.PR.A	FixedReset	-1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 16.78 Evaluated at bid price : 16.78 Bid-YTW : 3.97 %
TRP.PR.C	FixedReset	-1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 16.69 Evaluated at bid price : 16.69 Bid-YTW : 3.74 %
MFC.PR.C	Deemed-Retractible	1.22 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.04 Bid-YTW : 5.02 %
BAM.PR.B	Floater	1.37 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 15.56 Evaluated at bid price : 15.56 Bid-YTW : 3.20 %
TRP.PR.D	FixedReset	1.46 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 22.99 Evaluated at bid price : 24.34 Bid-YTW : 3.40 %
BAM.PR.C	Floater	1.65 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 15.42 Evaluated at bid price : 15.42 Bid-YTW : 3.23 %
FTS.PR.H	FixedReset	1.71 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 16.70 Evaluated at bid price : 16.70 Bid-YTW : 3.45 %
ENB.PR.Y	FixedReset	1.74 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 20.42 Evaluated at bid price : 20.42 Bid-YTW : 4.19 %
TRP.PR.F	FloatingReset	1.87 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 19.05 Evaluated at bid price : 19.05 Bid-YTW : 3.21 %
BAM.PR.K	Floater	2.58 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 15.51 Evaluated at bid price : 15.51 Bid-YTW : 3.21 %
ELF.PR.H	Perpetual-Premium	2.87 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-17 Maturity Price : 25.00 Evaluated at bid price : 25.78 Bid-YTW : 5.11 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.M	FixedReset	483,371	Inventory blow-out sale. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 22.96 Evaluated at bid price : 24.53 Bid-YTW : 3.46 %
TD.PF.B	FixedReset	222,494	TD crossed blocks of 50,000 shares, 49,700 and 100,000, all at 24.88. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 23.16 Evaluated at bid price : 24.86 Bid-YTW : 3.17 %
RY.PR.H	FixedReset	184,144	RBC crossed 168,700 at 24.94 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 23.16 Evaluated at bid price : 24.86 Bid-YTW : 3.17 %
SLF.PR.I	FixedReset	135,882	Nesbitt crossed 118,700 at 25.30. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.24 Bid-YTW : 3.58 %
BAM.PF.A	FixedReset	73,320	Nesbitt crossed 64,600 at 25.25. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 23.37 Evaluated at bid price : 25.20 Bid-YTW : 3.72 %
GWO.PR.L	Deemed-Retractible	71,300	Scotia crossed 20,000 at 26.18; Nesbitt crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-18 Maturity Price : 26.00 Evaluated at bid price : 26.18 Bid-YTW : -5.25 %
There were 43 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
ENB.PF.E	FixedReset	Quote: 22.20 – 22.48 Spot Rate : 0.2800 Average : 0.1834 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 21.77 Evaluated at bid price : 22.20 Bid-YTW : 4.21 %
GWO.PR.P	Deemed-Retractible	Quote: 26.30 – 26.56 Spot Rate : 0.2600 Average : 0.1722 YTW SCENARIO Maturity Type : Call Maturity Date : 2020-03-31 Maturity Price : 25.25 Evaluated at bid price : 26.30 Bid-YTW : 4.40 %
MFC.PR.H	FixedReset	Quote: 25.85 – 26.15 Spot Rate : 0.3000 Average : 0.2163 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.85 Bid-YTW : 2.85 %
SLF.PR.I	FixedReset	Quote: 25.24 – 25.49 Spot Rate : 0.2500 Average : 0.1698 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.24 Bid-YTW : 3.58 %
PWF.PR.P	FixedReset	Quote: 18.60 – 18.93 Spot Rate : 0.3300 Average : 0.2503 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 18.60 Evaluated at bid price : 18.60 Bid-YTW : 3.43 %
PWF.PR.L	Perpetual-Premium	Quote: 25.35 – 25.65 Spot Rate : 0.3000 Average : 0.2225 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : 3.91 %

Market Action

March 18, 2015

Lucky Assiduous Readers! It’s time for me to get on my favourite hobby-horse again … one I’ve been riding for over twenty five years now … and will probably keep flogging even if it dies:

GICs also have a psychological benefit because, unlike bonds, GIC prices don’t change when interest rates rise or fall.

” GIC prices don’t change when interest rates rise or fall.”

This is not correct. Reported GIC prices generally don’t change, but the actual price you can get for it (if transferable) does – and so does the actual value of the cash flows.

The brokerage industry’s obfuscation of value with respect to GICs is going to be yet another competitive advantage for the banks when CRM2 and mandatory performance reporting come into force.

For a longer rant, see my essay Preferred Shares and GICs; those who are more interested in cheap entertainment can just look at the comments to the Globe story.

But the big news of the day was FOMC press release:

Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.
…
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. 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.

There was no dissent.

And the markets went wild!

The Federal Reserve dropped an assurance it will be “patient” in raising interest rates, ending an era in its communications policy and opening the door for higher borrowing costs as early as June.

“An increase in the target range for the federal funds rate remains unlikely at the April” meeting, the Federal Open Market Committee said in a statement Wednesday in Washington. Fed officials also lowered their median estimate for the federal funds rate at the end of 2015 to 0.625 percent, compared with 1.125 percent in December forecasts.
…
Stocks rose, erasing earlier losses, after the FOMC announcement. The Standard & Poor’s 500 Index was up 0.6 percent at 2,087.04 as of 2:11 p.m. in New York. Ten-year Treasury notes yielded 1.99 percent, down 6 basis points.
…
In December, the FOMC dropped a clause from its statement that it would hold rates low for a “considerable time” and instead said it would be “patient” in weighing an increase.

In fact, the market took the release as a whole to be a dovish indicator:

Money-market futures traders cut the odds of a Federal Reserve interest-rate increase below 50 percent until December after Chair Janet Yellen lowered her outlook for growth and the pace of policy tightening.

The likelihood that policy makers will lift their benchmark rate from near zero in September fell to 39 percent from 55 percent on Tuesday, according to calculations by Bloomberg using federal fund futures contracts. Futures traders have wiped out the chance of an increase in June, assigning it an 11 percent probability.

While the policy-setting Federal Open Market Committee dropped a commitment to be “patient” when raising rates, a key shift was policy makers’ lowering of their median estimate for benchmark borrowing costs during the next two years, according to Brian Smedley, an interest-rate strategist at Bank of America Corp. in New York. The fresh set of estimates reduced the median for the federal funds rate at the end of 2015 to 0.625 percent, compared with a December forecast of 1.125 percent.

The OECD is not impressed by Canada’s prospects:

Smacked by the oil crash, Canada has taken a big hit in a new OECD economic forecast.

In its updated projections released Wednesday, the Organization for Economic Co-operation and Development cut its outlook for growth in Canada this year to 2.2 per cent, down from 2.6 per cent in its November forecast.

For 2016, the group now sees growth of 2.1 per cent, down from 2.4 per cent.

“Oil and commodity exporters are facing weaker growth prospects as the result of lower prices,” the OECD said.
…
Like Canada, the forecast for Brazil has been cut.

“The main class of countries for which near-term growth prospects have worsened since the November 2014 economic outlook is the commodity exporters,” the OECD said.

“The interim projections are significantly lower for oil-exporters Canada and Brazil, with short-term growth prospects in Brazil also being restrained by monetary and fiscal tightening and increasing political uncertainty,” it added.

“Growth has already slowed in many other oil-exporting countries, and with the fall in commodity prices going well beyond oil, exporters of metals, coal and some agricultural commodities also face less favourable growth prospects this year.”

It was a mildly positive day for the Canadian preferred share market, with PerpetualDiscounts gaining 3bp, FixedResets flat, and DeemedRetractibles up 6bp. The overall calmness masked a lot of volatility, with a fairly lengthy Performance Highlights table dominated by losing FixedResets. Volume was very high.

PerpetualDiscounts now yield 4.99%, equivalent to 6.49% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.7%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 280bp, a widening from the 270bp reported March 11.

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.55 to be $1.15 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.32 cheap at its bid price of 24.90.

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Most expensive is MFC.PR.M, resetting at +236 on 2019-12-19, bid at 24.95 to be $0.40 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.99 to be $0.67 cheap.

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The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 21.33 to be $0.61 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.41 and appears to be $0.91 rich.

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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.42, looks $1.45 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.82 and is $1.09 rich.

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Investment-grade pairs predict an average over the next five years of about 0.00% – except for one outlier, TRP.PR.A / TRP.PR.F, which has a break-even of -0.75%. The DC.PR.B / DC.PR.D pair has gone from the extreme to the ludicrous and now predicts an average bill rate over the next 4 3/4 years of -2.06%

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-1.2762 %	2,313.3
FixedFloater	0.00 %	0.00 %	0	0.00	0	-1.2762 %	4,044.7
Floater	3.28 %	3.28 %	64,441	19.05	3	-1.2762 %	2,459.2
OpRet	4.07 %	1.38 %	108,246	0.25	1	-0.0397 %	2,762.6
SplitShare	4.46 %	4.42 %	57,844	4.43	5	-0.0040 %	3,220.9
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0397 %	2,526.1
Perpetual-Premium	5.30 %	1.28 %	56,233	0.08	25	-0.1768 %	2,517.1
Perpetual-Discount	5.00 %	4.99 %	164,286	15.43	9	0.0281 %	2,798.8
FixedReset	4.39 %	3.51 %	244,388	16.67	85	-0.0036 %	2,427.6
Deemed-Retractible	4.90 %	-1.61 %	106,628	0.12	37	0.0587 %	2,659.6
FloatingReset	2.50 %	2.93 %	90,485	6.31	8	-0.0214 %	2,328.8

Performance Highlights
Issue	Index	Change	Notes
ELF.PR.H	Perpetual-Premium	-2.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 24.58 Evaluated at bid price : 25.06 Bid-YTW : 5.56 %
MFC.PR.F	FixedReset	-2.22 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.90 Bid-YTW : 5.82 %
SLF.PR.G	FixedReset	-2.21 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.66 Bid-YTW : 6.31 %
TRP.PR.C	FixedReset	-2.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 16.86 Evaluated at bid price : 16.86 Bid-YTW : 3.70 %
HSE.PR.A	FixedReset	-2.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 16.98 Evaluated at bid price : 16.98 Bid-YTW : 3.92 %
BAM.PR.C	Floater	-1.49 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 15.17 Evaluated at bid price : 15.17 Bid-YTW : 3.28 %
BMO.PR.Q	FixedReset	-1.27 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.25 Bid-YTW : 3.61 %
MFC.PR.L	FixedReset	-1.19 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.06 Bid-YTW : 3.89 %
BAM.PR.K	Floater	-1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 15.12 Evaluated at bid price : 15.12 Bid-YTW : 3.29 %
BAM.PR.B	Floater	-1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 15.35 Evaluated at bid price : 15.35 Bid-YTW : 3.24 %
ENB.PR.T	FixedReset	-1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 20.39 Evaluated at bid price : 20.39 Bid-YTW : 4.31 %
GWO.PR.N	FixedReset	-1.08 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.35 Bid-YTW : 5.83 %
PWF.PR.P	FixedReset	-1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 18.71 Evaluated at bid price : 18.71 Bid-YTW : 3.41 %
FTS.PR.M	FixedReset	1.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 23.23 Evaluated at bid price : 25.15 Bid-YTW : 3.34 %
MFC.PR.N	FixedReset	1.44 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.66 Bid-YTW : 3.67 %
CIU.PR.C	FixedReset	1.83 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 16.65 Evaluated at bid price : 16.65 Bid-YTW : 3.45 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.G	Perpetual-Premium	322,060	Called for redemption April 30. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-17 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : -0.26 %
RY.PR.M	FixedReset	315,655	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 22.91 Evaluated at bid price : 24.40 Bid-YTW : 3.48 %
FTS.PR.H	FixedReset	230,857	TD crossed blocks of 41,900 and 70,000 at 16.94, then crossed 110,900 at 16.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 16.42 Evaluated at bid price : 16.42 Bid-YTW : 3.51 %
W.PR.H	Perpetual-Premium	194,892	Desjardins crossed blocks of 96,300 and 96,800 at 25.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 24.87 Evaluated at bid price : 25.18 Bid-YTW : 5.55 %
CU.PR.C	FixedReset	165,965	Desjardins crossed 159,200 at 24.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 23.16 Evaluated at bid price : 24.11 Bid-YTW : 3.39 %
BNS.PR.R	FixedReset	145,300	Nesbitt crossed 62,700 and 75,000 at 25.67. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.64 Bid-YTW : 3.05 %
BMO.PR.T	FixedReset	144,975	Nesbitt crossed 46,900 and 75,000 at 24.79. TD sold 19,900 to anonymous at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 23.10 Evaluated at bid price : 24.70 Bid-YTW : 3.18 %
RY.PR.B	Deemed-Retractible	114,122	Nesbitt crossed 111,200 at 25.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-17 Maturity Price : 25.25 Evaluated at bid price : 25.62 Bid-YTW : -9.44 %
There were 56 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
ELF.PR.H	Perpetual-Premium	Quote: 25.06 – 26.00 Spot Rate : 0.9400 Average : 0.5411 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 24.58 Evaluated at bid price : 25.06 Bid-YTW : 5.56 %
BAM.PR.K	Floater	Quote: 15.12 – 15.89 Spot Rate : 0.7700 Average : 0.5081 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 15.12 Evaluated at bid price : 15.12 Bid-YTW : 3.29 %
MFC.PR.L	FixedReset	Quote: 24.06 – 24.54 Spot Rate : 0.4800 Average : 0.3081 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.06 Bid-YTW : 3.89 %
FTS.PR.J	Perpetual-Premium	Quote: 24.60 – 25.25 Spot Rate : 0.6500 Average : 0.4875 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 24.18 Evaluated at bid price : 24.60 Bid-YTW : 4.84 %
MFC.PR.C	Deemed-Retractible	Quote: 23.75 – 24.23 Spot Rate : 0.4800 Average : 0.3527 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.75 Bid-YTW : 5.18 %
FTS.PR.H	FixedReset	Quote: 16.42 – 16.83 Spot Rate : 0.4100 Average : 0.2940 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-18 Maturity Price : 16.42 Evaluated at bid price : 16.42 Bid-YTW : 3.51 %

Market Action

March 17, 2015

The Bank of Canada rate cut is making a difference where it counts:

Bank of Montreal has renewed the mortgage war among Canada’s banks, slashing the posted rate on its five-year fixed mortgage to 2.79 per cent from 2.99 per cent, even as Ottawa and the International Monetary Fund fret over the state of Canada’s overheating housing market.

Toronto-Dominion Bank quickly rushed to match BMO’s rate special, saying it will drop its five-year fixed mortgage rate from 3.09 per cent to 2.79 starting Wednesday.

It hadn’t occurred to me that deferred prosecution settlements for criminal charges were actually bureaucratic job creation schemes, but that’s the way it is!

Deferred prosecution and non-prosecution agreements, as they are called, have been widely used by the Justice Department in recent years in investigations ranging from sanctions violations to market manipulation. A decision to revoke such a deal with a bank would be unprecedented.

Such settlements require the banks to admit responsibility and cooperate with ongoing investigations. Critics including Securities and Exchange Commission Chair Mary Jo White, who pioneered such agreements, argue the deals have been overused and don’t curb misconduct. The Justice Department defends the settlements, saying they force banks to correct wrongdoing and allow oversight.

There’s a fascinating article on Bloomberg about the mystic quality of private equity valuations:

For the most mature startups, investors agree to grant higher valuations, which help the companies with recruitment and building credibility, in exchange for guarantees that they’ll get their money back first if the company goes public or sells. They can also negotiate to receive additional free shares if a subsequent round’s valuation is less favorable. Interviews with more than a dozen founders, venture capitalists, and the attorneys who draw up investment contracts reveal the most common financial provisions used in private-market technology deals today.

The backroom agreements are becoming more common as tech companies stay private longer, according to the interviews and financial documents obtained by Bloomberg Business. The practice obfuscates the meaning of a valuation, which can become dangerous down the road because private investors aren’t taking the same risks a public-market shareholder would. By the time a company does go public, the valuation it got from VCs may not align with its balance sheet.
…
Each provision covers different ways to make sure new investors get paid back, even if disaster strikes, if an initial public offering gives the company a market cap far less than its private number, or, more commonly, if the startup has to raise money again at a lower valuation. One stipulation, called senior liquidation preference, ensures that a certain group gets its money back before anyone else, including employees. Another class, called downside protection or ratchets, automatically grants additional shares in the event of a declining valuation, removing a great deal of risk that the stake will ever lose value.

The Obama administration is proposing to impose a fiduciary standard on brokers handling retirement accounts:

The plan to be issued by the Labor Department would require brokers to act in a customer’s best interest, a change that could limit the earnings of financial advisers in the handling of Americans’ $11 trillion of retirement savings.
…
At the heart of the proposal is an effort to tighten the legal standard for brokers handling retirement funds in individual retirement accounts and 401(k)s, which now hold more than $11 trillion. Under current rules, brokers can sell any product that is “suitable” for an investor, meaning it fits the client’s needs and tolerance for risk.

Brokers typically earn money from upfront sales commissions or fees paid by investors who purchase mutual funds. White House officials said that kind of compensation arrangement provides an incentive to recommend products that net higher fees or commissions without yielding better returns for investors. Clients lose as much as $17 billion a year from such conflicted advice, according to the Obama administration.
…
Subjecting brokers to a fiduciary duty, a standard that now applies to professional money managers, will lead to more lawsuits against the industry and add burdensome compliance requirements, industry groups argue.

The added costs will probably prompt brokers to drop client accounts with less than $50,000 of assets, leaving those investors to manage their own savings, according to the Securities Industry and Financial Markets Association.

So naturally every office-seeker in town is jumping on the bandwagon:

The SEC should “implement a uniform fiduciary duty for broker-dealers and investment advisers where the standard is to act in the best interest of the investor,” White said Tuesday at a conference sponsored by the Securities Industry and Financial Markets Association in Phoenix.

The SEC, which oversees the brokerage industry as a whole, has studied the issue for years without taking any regulatory action. The agency now finds itself in the middle of what promises to be one of the most bruising Wall Street lobbying battles in years.

The financial industry has been watching closely for White to reveal her position, which would break a standoff between the two Democrat and two Republican commissioners. White said she will begin talking with other commissioners about the outlines of new rules.
…
Some investor groups say the current rules don’t go far enough to limit conflicts of interests for brokers, who are paid by mutual funds and other companies for selling their products.
…
White’s support for the measures aligns her with the Obama administration and congressional Democrats. It pits her against many Republicans, who have said a fiduciary standard will be costly for brokers and could make them drop less wealthy clients.

So who’s going to sell anything? And what will happen to new issue commissions, which are formally paid by the issuer? Proxy solicitation fees?

The only way fiduciary duty can work is if it exists in isolation. Perfect isolation. That means that one guy can’t be a fiduciary to somebody and a broker to somebody else; and it means that one firm can’t have both fiduciaries and brokers, and it means that one firm can’t have subsidiaries – or even significant stock holdings – in both fiduciary firms and broking firms. And guess what? That ain’t gonna happen.

Perhaps you will say that Chinese Walls will work just as well. Perhaps you will insist that proper oversight and regulation will regulate a distinction between the buy side and the sell side. Perhaps you are a fool. Follow the money. Regulation will produce nothing more than a few cushy jobs for regulators, reams of ultimately unread paperwork generated by guys who have better things to do and a total lack of service to Granny with her $50,000 account but – on the bright side – lots of new business for banks, who will stick their clients into GOOD SAFE GICS and ZERO-RISK Principal Protected Notes!

“>

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Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.41 to be $1.12 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.23 cheap at its bid price of 24.78.

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Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.35 to be $0.63 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.86 to be $0.69 cheap.

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The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 21.44 to be $0.44 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.44 and appears to be $0.98 rich.

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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.50, looks $1.46 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.72 and is $1.07 rich.

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The cancellation of the previously announced deflationary environment had an immediate effect on the implied three month bill rate, with investment-grade pairs predicting an average over the next five years of about 0.00% – except for one outlier, TRP.PR.A / TRP.PR.F, which has a break-even of -0.83%. The DC.PR.B / DC.PR.D pair has gone from the extreme to the ludicrous and now predicts an average bill rate over the next 4 3/4 years of -2.09%

Click for Big

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

It was a rough day for the Canadian preferred share market, with PerpetualDiscounts losing 31bp, FixedResets down 29bp and DeemedRetractibles off 7bp. Floater and FixedReset losers dominated the Performance Highlights table. 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	-1.5126 %	2,343.2
FixedFloater	0.00 %	0.00 %	0	0.00	0	-1.5126 %	4,097.0
Floater	3.24 %	3.23 %	65,483	19.17	3	-1.5126 %	2,491.0
OpRet	4.07 %	1.21 %	100,236	0.26	1	0.0000 %	2,763.7
SplitShare	4.46 %	4.42 %	55,440	4.43	5	0.5269 %	3,221.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,527.1
Perpetual-Premium	5.29 %	0.40 %	57,945	0.08	25	-0.1250 %	2,521.5
Perpetual-Discount	5.00 %	4.99 %	152,053	15.14	9	-0.3082 %	2,798.0
FixedReset	4.39 %	3.51 %	245,770	16.68	85	-0.2937 %	2,427.6
Deemed-Retractible	4.90 %	-0.14 %	107,334	0.12	37	-0.0661 %	2,658.1
FloatingReset	2.50 %	2.93 %	83,830	6.32	8	-0.0643 %	2,329.3

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.F	FixedReset	-2.42 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.33 Bid-YTW : 5.54 %
IAG.PR.G	FixedReset	-2.21 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.70 Bid-YTW : 2.96 %
TRP.PR.C	FixedReset	-2.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 17.23 Evaluated at bid price : 17.23 Bid-YTW : 3.62 %
SLF.PR.G	FixedReset	-2.06 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.06 Bid-YTW : 6.04 %
BAM.PR.B	Floater	-1.96 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 15.53 Evaluated at bid price : 15.53 Bid-YTW : 3.20 %
BAM.PR.T	FixedReset	-1.67 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 21.46 Evaluated at bid price : 21.81 Bid-YTW : 3.74 %
BAM.PR.X	FixedReset	-1.65 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 3.87 %
BAM.PR.K	Floater	-1.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 15.30 Evaluated at bid price : 15.30 Bid-YTW : 3.25 %
BAM.PR.C	Floater	-1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 15.40 Evaluated at bid price : 15.40 Bid-YTW : 3.23 %
FTS.PR.H	FixedReset	-1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 16.50 Evaluated at bid price : 16.50 Bid-YTW : 3.50 %
CU.PR.C	FixedReset	-1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 23.07 Evaluated at bid price : 23.92 Bid-YTW : 3.42 %
IFC.PR.A	FixedReset	-1.13 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.06 Bid-YTW : 5.12 %
ENB.PR.H	FixedReset	-1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 18.45 Evaluated at bid price : 18.45 Bid-YTW : 4.30 %
MFC.PR.N	FixedReset	-1.06 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.31 Bid-YTW : 3.85 %
ENB.PR.Y	FixedReset	-1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 19.94 Evaluated at bid price : 19.94 Bid-YTW : 4.30 %
CIU.PR.C	FixedReset	7.21 %	Notoriously volatile. Rarely means anything. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 16.35 Evaluated at bid price : 16.35 Bid-YTW : 3.52 %

Volume Highlights
Issue	Index	Shares Traded	Notes
SLF.PR.G	FixedReset	95,348	Desjardins sold blocks of 10,800 shares, 26,100 and 13,100 to anonymous at 18.20. Desjardins then went to the well again, selling blocks of 12,500 and 12,400 to anonymous at 18.10. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.06 Bid-YTW : 6.04 %
GWO.PR.N	FixedReset	71,710	Desjardins sold 46,700 to anonymous at 18.65, then sold 13,700 to RBC at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.55 Bid-YTW : 5.70 %
HSE.PR.E	FixedReset	56,820	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 23.16 Evaluated at bid price : 25.00 Bid-YTW : 4.34 %
FTS.PR.M	FixedReset	53,290	RBC crossed 50,000 at 24.98. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 23.15 Evaluated at bid price : 24.90 Bid-YTW : 3.39 %
RY.PR.M	FixedReset	42,770	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 22.85 Evaluated at bid price : 24.25 Bid-YTW : 3.51 %
RY.PR.I	FixedReset	41,200	Scotia crossed 40,000 at 25.41. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.42 Bid-YTW : 2.98 %
There were 34 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.F	FixedReset	Quote: 19.33 – 20.00 Spot Rate : 0.6700 Average : 0.4716 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.33 Bid-YTW : 5.54 %
BAM.PF.E	FixedReset	Quote: 24.44 – 24.80 Spot Rate : 0.3600 Average : 0.2335 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 22.96 Evaluated at bid price : 24.44 Bid-YTW : 3.61 %
TRP.PR.F	FloatingReset	Quote: 18.66 – 19.30 Spot Rate : 0.6400 Average : 0.5216 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 18.66 Evaluated at bid price : 18.66 Bid-YTW : 3.28 %
BMO.PR.L	Deemed-Retractible	Quote: 25.86 – 26.10 Spot Rate : 0.2400 Average : 0.1511 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-05-25 Maturity Price : 25.50 Evaluated at bid price : 25.86 Bid-YTW : -0.14 %
CU.PR.C	FixedReset	Quote: 23.92 – 24.50 Spot Rate : 0.5800 Average : 0.4962 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-17 Maturity Price : 23.07 Evaluated at bid price : 23.92 Bid-YTW : 3.42 %
MFC.PR.N	FixedReset	Quote: 24.31 – 24.65 Spot Rate : 0.3400 Average : 0.2576 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.31 Bid-YTW : 3.85 %

Market Action

March 16, 2015

Nothing happened today.

The Canadian preferred share market was on fire today, with PerpetualDiscounts winning 88bp, FixedResets up 28bp and DeemedRetractibles gaining 15bp. There’s a good list of winners in the Performance Highlights table. Volume was below average.

Here’s TRP:

click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.32 to be $1.03 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.21 cheap at its bid price of 24.80.

click for Big

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.35 to be $0.43 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 26.00 to be $0.58 cheap.

click for Big

The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 21.59 to be $0.59 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.67 and appears to be $0.99 rich.

click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.71, looks $1.36 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.79 and is $1.00 rich.

click for Big

click for Big

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.1277 %	2,379.2
FixedFloater	0.00 %	0.00 %	0	0.00	0	-0.1277 %	4,159.9
Floater	3.19 %	3.19 %	65,776	19.27	3	-0.1277 %	2,529.2
OpRet	4.07 %	1.20 %	101,525	0.26	1	0.0397 %	2,763.7
SplitShare	4.48 %	4.56 %	51,332	4.46	5	-0.0917 %	3,204.2
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0397 %	2,527.1
Perpetual-Premium	5.28 %	-0.62 %	58,962	0.08	25	0.2035 %	2,524.7
Perpetual-Discount	4.98 %	4.98 %	152,763	15.16	9	0.8808 %	2,806.6
FixedReset	4.38 %	3.51 %	249,495	16.75	85	0.2787 %	2,434.8
Deemed-Retractible	4.90 %	-1.07 %	108,726	0.12	37	0.1548 %	2,659.8
FloatingReset	2.50 %	2.87 %	86,719	6.32	8	-0.1230 %	2,330.8

Performance Highlights
Issue	Index	Change	Notes
CIU.PR.C	FixedReset	-7.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 15.25 Evaluated at bid price : 15.25 Bid-YTW : 3.78 %
TRP.PR.F	FloatingReset	-2.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 3.30 %
SLF.PR.H	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.51 Bid-YTW : 4.40 %
BAM.PF.E	FixedReset	1.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 23.04 Evaluated at bid price : 24.67 Bid-YTW : 3.56 %
CU.PR.C	FixedReset	1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 23.21 Evaluated at bid price : 24.20 Bid-YTW : 3.37 %
BAM.PF.C	Perpetual-Discount	1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 22.91 Evaluated at bid price : 23.22 Bid-YTW : 5.22 %
TRP.PR.A	FixedReset	1.37 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 20.74 Evaluated at bid price : 20.74 Bid-YTW : 3.47 %
MFC.PR.C	Deemed-Retractible	1.40 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.95 Bid-YTW : 5.07 %
MFC.PR.M	FixedReset	1.42 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.93 Bid-YTW : 3.60 %
MFC.PR.N	FixedReset	1.53 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.57 Bid-YTW : 3.71 %
FTS.PR.J	Perpetual-Premium	1.54 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 24.60 Evaluated at bid price : 25.03 Bid-YTW : 4.76 %
BAM.PR.M	Perpetual-Discount	1.65 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 22.49 Evaluated at bid price : 22.78 Bid-YTW : 5.21 %
MFC.PR.F	FixedReset	1.85 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.81 Bid-YTW : 5.25 %
BAM.PR.N	Perpetual-Discount	1.97 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 22.51 Evaluated at bid price : 22.77 Bid-YTW : 5.22 %
HSE.PR.A	FixedReset	2.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 17.34 Evaluated at bid price : 17.34 Bid-YTW : 3.84 %
TRP.PR.C	FixedReset	2.33 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 17.60 Evaluated at bid price : 17.60 Bid-YTW : 3.54 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.G	Perpetual-Premium	229,837	Called for redemption April 30. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-15 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : -0.62 %
CM.PR.Q	FixedReset	85,660	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 23.02 Evaluated at bid price : 24.66 Bid-YTW : 3.57 %
BNS.PR.Y	FixedReset	84,421	Scotia bought 10,000 from TD at 22.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.45 Bid-YTW : 3.64 %
RY.PR.M	FixedReset	65,251	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 22.84 Evaluated at bid price : 24.23 Bid-YTW : 3.52 %
HSE.PR.E	FixedReset	63,080	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 23.13 Evaluated at bid price : 24.92 Bid-YTW : 4.36 %
TD.PF.D	FixedReset	55,955	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 23.13 Evaluated at bid price : 24.97 Bid-YTW : 3.50 %
There were 24 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: 15.25 – 16.80 Spot Rate : 1.5500 Average : 0.9596 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 15.25 Evaluated at bid price : 15.25 Bid-YTW : 3.78 %
CU.PR.D	Perpetual-Premium	Quote: 25.25 – 25.64 Spot Rate : 0.3900 Average : 0.2779 YTW SCENARIO Maturity Type : Call Maturity Date : 2021-09-01 Maturity Price : 25.00 Evaluated at bid price : 25.25 Bid-YTW : 4.78 %
TRP.PR.E	FixedReset	Quote: 24.32 – 24.65 Spot Rate : 0.3300 Average : 0.2247 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 22.94 Evaluated at bid price : 24.32 Bid-YTW : 3.45 %
BAM.PR.K	Floater	Quote: 15.50 – 15.89 Spot Rate : 0.3900 Average : 0.3095 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 15.50 Evaluated at bid price : 15.50 Bid-YTW : 3.21 %
GWO.PR.F	Deemed-Retractible	Quote: 25.69 – 25.99 Spot Rate : 0.3000 Average : 0.2211 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-15 Maturity Price : 25.00 Evaluated at bid price : 25.69 Bid-YTW : -28.20 %
RY.PR.H	FixedReset	Quote: 24.70 – 24.95 Spot Rate : 0.2500 Average : 0.1745 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-16 Maturity Price : 23.10 Evaluated at bid price : 24.70 Bid-YTW : 3.20 %

PrefLetter

March PrefLetter Released!

The March, 2015, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

The regular appendices reporting on DeemedRetractibles and FixedResets are included.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the March, 2015, issue, while the “Next Edition” will be the April, 2015, issue, scheduled to be prepared as of the close April 10 and eMailed to subscribers prior to market-opening on April 13.

PrefLetter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

Issue Comments

BSD.PR.A Hypothetical Preferred Special Retraction Right: 44% Tender

Brookfield Soundvest Capital Management Ltd. has announced (although not yet on their website):

that holders of 1,779,807 Preferred Securities have given notice to the Trust that they wish to exercise the Preferred Special Retraction Right in the event that the extraordinary resolution to extend the term of the Preferred Securities for additional five year renewal terms following the scheduled maturity date of March 31, 2015 is approved at the upcoming meeting of holders of Preferred Securities and holders of trust units on March 27, 2015. Holders of trust units (the “Units”) have until 5:00pm (Toronto time) on March 20, 2015 to give notice to the Trust if they wish to exercise the Unit Special Retraction Right in order to provide the Trust with the ability to maintain an equal number of Units and Preferred Securities outstanding (if the extraordinary resolutions are approved). To vote at the meeting, securityholders must ensure that their voting instruction forms are received no later than 5:00pm (Toronto time) on March 25, 2015.

In addition, the Trust also announced today that the annual redemption right available to holders of Units (whether alone or together with an equal number of Preferred Securities) in November of each year will no longer be suspended in circumstances where the asset coverage on the Preferred Securities is less than 1.4 times. Although quarterly distributions on the Capital Units will remain suspended if the asset coverage continues to be below 1.4 times, recent changes in applicable securities laws have resulted in the Trust terminating the suspension of the annual redemption right in these circumstances (for the upcoming November redemption).

According to TMXMoney there are currently 4,030,225 shares outstanding, so 1,779,807 is a little over 44%.

The directors of the manager, Kevin Charlebois, George Myhal, Gail Cecil, Audrey Charlebois and Gabrielle Lenz, approved a term extension proposal for the fund that was pretty sleazy. It’s a pleasure to note that 44% of the preferred shareholders have managed to jump through their ridiculous hoops and tender to an offer that does not yet exist.

And perhaps there will be another whack of retraction attempts submitted to the company by Friday, in connection with the equally hypothetical Unit Special Retraction Right.

And with a bit of luck the term extension proposal will fail and the trust dissolved. We can hope. This manager should lose all its business.

BSD.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Issue Comments

FTN.PR.A: Annual Report 2014

Financial 15 Split Inc. has released its Annual Report to November 30, 2014.

FTN / FTN.PR.A Performance
Instrument	One Year	Three Years	Five Years	Ten Years
Whole Unit	+16.59%	+21.49%	+10.66%	+4.30%
FTN.PR.A	+5.38%	+5.38%	+5.38%	+5.37%
FTN	+33.94%	+58.33%	+18.79%	+4.53%
S&P/TSX Financial Index	+18.77%	+20.54%	+13.45%	+9.99%
S&P 500 Financial Index	+24.64%	+31.12%	+14.36%	-0.05%

Figures of interest are:

MER: 1.48% of the whole unit value, excluding one time initial offering expenses.

Average Net Assets: We need this to calculate portfolio yield. MER of 1.48% Total Expenses of 3,284,849 implies $222-million net assets. Preferred Share distributions of 6,781,917 @ 0.525 / share implies 12.9-million shares out on average. Average Unit Value (beginning & end of year) = (17.76 + 17.14) / 2 = 17.45. Therefore 12.9-million @ 17.45 = 225-million average net assets. Good agreement between these two methods! Call it 224-million average.

Underlying Portfolio Yield: Dividends received (net of withholding) of 5,526,373 divided by average net assets of 224-million is 2.47%

Income Coverage: Net Investment Income of 2,242,511 divided by Preferred Share Distributions of 6,781,917 is 33%.

Market Action

March 13, 2015

Jobs, jobs, … oopsy!:

Canadian employment was little changed in February and the unemployment rate jumped to a five-month high as an oil shock ripples through the economy.

Nationwide employment fell by 1,000 positions, and the jobless rate rose to 6.8 percent, the highest since September, from 6.6 percent in January, Statistics Canada said Friday in Ottawa.
…
Today’s report also showed wage growth weakening and even deeper losses in the private sector.
…
Canada’s currency extended losses after the report and was down 0.7 percent to C$1.2779 against its U.S. counterpart at 9:56 a.m. in Toronto. The currency has lost 5.2 percent since the Bank of Canada cut interest rates on Jan. 21 to provide an economic buffer for the oil price shock.

Jobs in the natural resource sector were down 16,900 last month. Alberta, home to the bulk of Canada’s oil production, posted a 14,000 decline in employment and its highest jobless rate since 2011, rising 0.8 percentage points to 5.3 percent. Wages in the province have stagnated since June, when crude prices began a seven-month drop to less than $50 a barrel, from more than $100.

Nationally, gains in public sector employment, which were up 24,300 in February, offset a 29,000 decline in private sector jobs.
…
By industry, the biggest decline nationally was the 19,900 positions lost in manufacturing, followed by the natural resource sector. Construction and education were the biggest gainers during the month. Average hourly wages rose 1.8 percent in February from a year earlier.

So it looks like the Conservatives won’t aim for re-election on their Economic Action Plan; it seems much wiser to stir up suspicion against and disdain for a domestic minority. I do not believe that the public sector hirings have been for secret policemen, since Bill C-51 has not yet become law and we can count on our wise masters in Ottawa to show scrupulous regard for the law.

Meanwhile, US authorities are licking their chops over another episode of regulatory extortion:

The U.S. Justice Department is seeking about $1 billion each from global banks being investigated for manipulation of currency markets, according to two people familiar with the talks.

The figure is a starting point in settlement discussions, with some banks being asked for more and some less than $1 billion. One bank that has cooperated from the beginning is expected to pay far less, one of the people said. Penalties of about $4 billion are on the table, according to one of the people, though the number could change markedly.

Banks are pushing back harder than in some previous negotiations, including those for mortgage-backed securities, and the final penalties could be lower, people close to the talks said.
…
As talks to resolve the U.S. cases advance, the Justice Department and New York’s state banking regulator have opened up a new investigation into whether banks abused a longstanding practice in the currency spot markets known as “last look.” The practice allows banks to back out of unfavorable trades at the last moment.

Last look?

“Last look” refers to the feature on many platforms in which the party that is making markets gets a chance to reject a trade if it doesn’t want to complete.

It dates back to the practice in phone-to-phone trading of checking the price was still in line with the market at the end of a conversation between a dealer and client or broker, aiming to get as close to the prevailing rate as possible.

But industry figures worry that it has been used by some trading systems in recent years to systematically reject unfavourable orders or to float false orders that would never be executed to flush out the positions of other players.

Oh, OK. It’s the cool way to say “subject”.

Overall, it was another quiet, mixed day for the Canadian preferred share market, with PerpetualDiscounts off 8bp, FixedResets gaining 1bp and DeemedRetractibles up 4bp. The calm is deceptive, though, as the Performance Highlights table continues to show a lot of churn. Volume was slightly below average.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.82 to be $0.82 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.01 cheap at its bid price of 24.78.

Click for Big

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.25 to be $0.58 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 26.01 to be $0.49 cheap.

Click for Big

The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 21.50 to be $0.60 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.39 and appears to be $0.80 rich.

Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.60, looks $1.45 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.71 and is $1.03 rich.

Click for Big

Click for Big

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,382.2
FixedFloater	0.00 %	0.00 %	0	0.00	0	0.0000 %	4,165.2
Floater	3.18 %	3.18 %	68,450	19.31	3	0.0000 %	2,532.5
OpRet	4.07 %	1.31 %	100,250	0.27	1	0.0000 %	2,762.6
SplitShare	4.48 %	4.57 %	53,461	4.44	5	-0.0717 %	3,207.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,526.1
Perpetual-Premium	5.29 %	0.83 %	56,717	0.08	25	0.0642 %	2,519.5
Perpetual-Discount	5.03 %	5.01 %	153,307	15.40	9	-0.0800 %	2,782.1
FixedReset	4.39 %	3.51 %	248,913	16.79	85	0.0057 %	2,428.0
Deemed-Retractible	4.91 %	-0.77 %	107,878	0.13	37	0.0427 %	2,655.7
FloatingReset	2.49 %	2.93 %	80,342	6.33	8	-0.0107 %	2,333.6

Performance Highlights
Issue	Index	Change	Notes
HSE.PR.A	FixedReset	-2.69 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 17.00 Evaluated at bid price : 17.00 Bid-YTW : 3.91 %
CIU.PR.C	FixedReset	-2.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 16.49 Evaluated at bid price : 16.49 Bid-YTW : 3.49 %
MFC.PR.F	FixedReset	-1.52 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.45 Bid-YTW : 5.46 %
GWO.PR.N	FixedReset	-1.08 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.30 Bid-YTW : 5.86 %
MFC.PR.C	Deemed-Retractible	-1.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.62 Bid-YTW : 5.24 %
TRP.PR.F	FloatingReset	1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 18.90 Evaluated at bid price : 18.90 Bid-YTW : 3.23 %
BAM.PR.T	FixedReset	1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 21.73 Evaluated at bid price : 22.20 Bid-YTW : 3.66 %
SLF.PR.G	FixedReset	1.49 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.40 Bid-YTW : 5.81 %
MFC.PR.B	Deemed-Retractible	1.58 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.40 Bid-YTW : 4.98 %
BAM.PF.E	FixedReset	2.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 22.94 Evaluated at bid price : 24.39 Bid-YTW : 3.62 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.M	FixedReset	196,652	New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 22.85 Evaluated at bid price : 24.25 Bid-YTW : 3.51 %
CM.PR.Q	FixedReset	140,573	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 23.00 Evaluated at bid price : 24.61 Bid-YTW : 3.57 %
TD.PR.R	Deemed-Retractible	136,308	Called for redemption effective April 30. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-30 Maturity Price : 25.50 Evaluated at bid price : 25.80 Bid-YTW : 1.10 %
HSE.PR.E	FixedReset	86,715	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 23.13 Evaluated at bid price : 24.92 Bid-YTW : 4.36 %
SLF.PR.G	FixedReset	71,530	RBC crossed 57,800 at 18.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.40 Bid-YTW : 5.81 %
BIP.PR.A	FixedReset	55,400	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 22.96 Evaluated at bid price : 24.50 Bid-YTW : 4.44 %
There were 27 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.C	Deemed-Retractible	Quote: 23.62 – 24.27 Spot Rate : 0.6500 Average : 0.4416 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.62 Bid-YTW : 5.24 %
CU.PR.C	FixedReset	Quote: 23.92 – 24.60 Spot Rate : 0.6800 Average : 0.5189 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 23.07 Evaluated at bid price : 23.92 Bid-YTW : 3.42 %
ENB.PR.T	FixedReset	Quote: 20.49 – 20.81 Spot Rate : 0.3200 Average : 0.2024 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 20.49 Evaluated at bid price : 20.49 Bid-YTW : 4.28 %
CIU.PR.C	FixedReset	Quote: 16.49 – 16.90 Spot Rate : 0.4100 Average : 0.3123 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 16.49 Evaluated at bid price : 16.49 Bid-YTW : 3.49 %
BAM.PR.N	Perpetual-Discount	Quote: 22.33 – 22.64 Spot Rate : 0.3100 Average : 0.2416 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-13 Maturity Price : 21.91 Evaluated at bid price : 22.33 Bid-YTW : 5.31 %
NA.PR.Q	FixedReset	Quote: 25.30 – 25.50 Spot Rate : 0.2000 Average : 0.1371 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 3.35 %

Issue Comments

RY.PR.M Hammered On Low Volume

Royal Bank of Canada has announced:

it has closed its domestic public offering of Non-Cumulative, 5-Year Rate Reset Preferred Shares Series BF. Royal Bank of Canada issued 12 million Preferred Shares Series BF at a price of $25 per share to raise gross proceeds of $300 million.

The offering was underwritten by a syndicate led by RBC Capital Markets. The Preferred Shares Series BF will commence trading on the Toronto Stock Exchange today under the ticker symbol RY.PR.M.

The Preferred Shares Series BF were issued under a prospectus supplement dated March 9, 2015 to the bank’s short form base shelf prospectus dated December 20, 2013.

RY.PR.M is a FixedReset, 3.60%+262, NVCC-compliant, announced March 5. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 223,152 shares today (consolidated exchanges) in a range of 23.75-67 (which would be rather breathtaking even if the issuer was not a major bank or Canada’s largest company) before closing at 24.25-49 (which is an equally breathtaking spread). Vital statistics are:

RY.PR.M

FixedReset

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-03-13
Maturity Price : 22.85
Evaluated at bid price : 24.25
Bid-YTW : 3.51 %

The Implied Volatility calculation is not particularly informative:

Click for Big

According to the calculation, the two NVCC non-compliant issues, RY.PR.I and RY.PR.L, resetting at +193 and +267, respectively, are quite expensive: this is as it should be, due to the greater certainty that these issues have of being called at the next opportunity.

However, it seems clear that the NVCC-compliant issues, RY.PR.Z, RY.PR.H, RY.PR.J and RY.PR.M are reasonably well aligned with an implied volatility of greater than 40%, which shows continued market confidence that anything issued by a bank will always be worth somewhere close to par value.

Update, 2015-3-19: They had to have an inventory blow-out sale:

Yet RBC’s most recent $300-million deal struggled to find buyers, according to people familiar with the offering, prompting the bank to re-price it. Preferred shares are always sold for $25 each, but RBC’s deal had to be ‘cleaned up,’ or re-priced, at $24.35.

Investors apparently balked because of the coupon RBC tried to offer them. A week before the offering was announced, Toronto-Dominion Bank launched its own preferred share sale, and promised to pay a 3.6 per cent annual coupon. RBC told investors it would pay the same rate – the problem is that underlying bond yields moved between the dates when the deals were offered.

Preferred shares are priced off the five-year Government of Canada bond yield, and this yield climbed roughly 15 basis points higher between the RBC and TD deals. Instead of boosting its preferred share coupon by the same amount, RBC apparently hoped investors wouldn’t notice the shift.

PrefBlog

March 20, 2015

March 19, 2015

March 18, 2015

March 17, 2015

March 16, 2015

March PrefLetter Released!

BSD.PR.A Hypothetical Preferred Special Retraction Right: 44% Tender

FTN.PR.A: Annual Report 2014

March 13, 2015

RY.PR.M Hammered On Low Volume

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