Market Action

August 24, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Current Yield (at bid) YTW Average Trading Value Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.39% 4.37% 28,053 16.56 2 -0.1206% 985.0
Fixed-Floater 4.94% 4.07% 284,333 11.45 6 0.0407% 1,002.6
Floater 4.58% -19.92% 61,906 6.44 5 0.0239% 1,009.9
Op. Retract 4.71% 2.85% 75,039 2.56 18 -0.0039% 1,004.6
Split-Share 5.00% 3.46% 55,606 2.75 10 0.2173% 1,005.3
Interest Bearing 6.83% 5.14% 60,101 2.12 7 -0.0460% 1,013.2
Perpetual-Premium 5.26% 4.08% 162,555 3.78 42 0.0400% 1,014.1
Perpetual-Discount 4.71% 4.71% 333,755 12.35 13 0.1246% 1,021.9
Major Price Changes
Issue Index Change Notes
FTN.PR.A SplitShare +1.3579%  
Volume Highlights
Issue Index Volume Notes
BC.PR.C FixedFloater 635,544 Scotia crossed 100,000 @25.03; Desjardins crossed 12,000 at the same price.
BC.PR.E Ratchet 200,000 Scotia crossed 200,000 @ 25.12 in the only trade of this issue for the day.
WN.PR.A PerpetualPremium 109,580  
BNS.PR.K PerpetualPremium 55,880  
TOC.PR.B Floater 40,692  

There were nine other index-included issues with volumes of more than 10,000 shares.

Market Action

August 23, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Current Yield (at bid) YTW Average Trading Value Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.38% 4.36% 27,056 16.57 2 -0.2016% 986.2
Fixed-Floater 4.95% 4.15% 268,331 11.47 6 0.7703% 1,002.2
Floater 4.59% -19.64% 60,165 6.44 5 -0.2679% 1,009.7
Op. Retract 4.71% 2.85% 75,881 2.57 18 0.0732% 1,004.6
Split-Share 5.01% 3.60% 56,016 2.75 10 0.0061% 1,003.1
Interest Bearing 6.83% 5.09% 59,939 2.12 7 0.1704% 1,013.7
Perpetual-Premium 5.27% 4.14% 164,138 3.79 42 0.0063% 1,013.7
Perpetual-Discount 4.72% 4.73% 338,076 12.35 13 0.0688% 1,020.6
Major Price Changes
Issue Index Change Notes
BCE.PR.A FixedFloater +4.0875% Recovering from yesterday’s swoon. Scotia crossed 25,000 @25.25, an impressively repetetive trade. Closed at $25.21-29, so things are back to normal … for now!
CM.PR.D PerpetualPremium +1.1654% The pre-tax YTW is only 3.72 at the closing bid of $26.91
Volume Highlights
Issue Index Volume Notes
BC.PR.C FixedFloater 166,809  
TD.PR.O PerpetualPremium 136,800  
POW.PR.D PerpetualPremium 62,780 Nesbitt crossed 50,000 @25.60
TOC.PR.B Floater 50,741 CIBC sold a whack @25.50: 24,400 to Nesbitt; 25,000 to Desjardins and 500 (sic) to Royal – must have been a retail bid that was in the way.
BMO.PR.I OpRet 38,600 Scotia crossed 37,300 @ 25.50; YTW of this issue is a niggardly 2.61% at the closing bid of 25.42, based on a call as soon as the redemption price goes down to $25.25 at the end of November. It’s more likely, however, that BMO will keep the issue alive for another year, paying $1.1875 dividend but saving $0.25 on the redemption price. This scenario implies a pre-tax YTM of 3.97%, not bad at all … if you can rely on BMO not calling the issue!

There were seven other index-included issues with volumes of more than 10,000 shares.

Market Action

August 22, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Current Yield (at bid) YTW Average Trading Value Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.37% 4.35% 27,146 16.60 2 0.1214% 988.1
Fixed-Floater 4.98% 4.27% 258,200 13.97 6 -0.6151% 994.6
Floater 4.57% -22.39% 59,999 6.42 5 0.2253% 1,012.4
Op. Retract 4.71% 2.88% 76,317 2.57 18 0.0821% 1,003.9
Split-Share 5.01% 3.53% 55,913 2.75 10 -0.1889% 1,003.0
Interest Bearing 6.84% 5.19% 60,185 2.12 7 0.0172% 1,012.0
Perpetual-Premium 5.27% 4.13% 164,875 3.77 42 0.0849% 1,013.6
Perpetual-Discount 4.72% 4.73% 341,736 13.09 13 -0.0179% 1,019.9
Major Price Changes
Issue Index Change Notes
BCE.PR.A FixedFloater -3.89% Bid disappeared after about 1,100 shares traded at 25.19 at the close. Closing bid was $24.22
FTN.PR.A SplitShare -1.34% 15,180 shares traded, a relatively heavy day for this issue
AL.PR.F Floater +1.29% On average volume
Volume Highlights
Issue Index Volume Notes
SLF.PR.A PerpetualDiscount 204,300  
PWF.PR.L PerpetualPremium 121,822  
RY.PR.A PerpetualDiscount 76,600 BMO bought 71,400 from Scotia at $24.40
IGM.PR.A OperatingRetractible 46,393 Scotia crossed 40,000 @ 28.00. This the highest priced issue in the OperatingRetractible index, with a coupon of $1.4375 and a pre-tax YTW of 3.08% @$28.00
WN.PR.E PerpetualDiscount 21,628  

There were six other index-included issues with volumes of more than 10,000 shares.
The YTW on RY.PR.K (an operating retractible) moved back into positive territory today, pre-tax YTW of 3.48% based on a closing bid of $25.27

Issue Comments

RY.PR.K

The Yield-to-Worst on this issue went negative on 2006-08-21, joining BMO.PR.G to be the second member of the “Operating Retractibles” index with negative YTW.

The option schedule on the RY.PR.Ks is:

  • Redemption      2004-08-24      2005-08-23  25.750000
  • Redemption      2005-08-24      2006-08-23  25.500000
  • Redemption      2006-08-24      2007-08-23  25.250000
  • Redemption      2007-08-24   INFINITE DATE  25.000000
  • Redemption      2003-08-24      2004-08-23  26.000000
  • Retraction      2008-08-24   INFINITE DATE  25.000000

And the (pre-tax) YTW Scenario analysis is:

  • Call  2006-09-20 YTM: 9.13 % [Restricted: 0.75 %] (Prob: 13.55 %)
  • Call  2006-09-23 YTM: -2.32 % [Restricted: -0.21 %] (Prob: 8.85 %)
  • Call  2006-12-19 YTM: 2.70 % [Restricted: 0.89 %] (Prob: 5.21 %)
  • Soft Maturity  2008-08-23 YTM: 3.87 % [Restricted: 3.87 %] (Prob: 72.39 %)

This is another one of those situations which may ultimately force me to define yet another yield measure: “Yield-to-Best-For-Issuer”. The YTW is based on an immediate call at $25.25, which would lead to an absolute loss of money from yesterday’s closing bid of $25.40 (never mind the closing offer of $25.59!). If Royal waits a year prior to calling, however, they will save themselves $0.25 on the call price and only pay $1.1750 in extra dividends for that period. They can calculate their net cost of funds for the next twelve months, then as less than $1.00 on a $25.00 loan, which is considerably below what they would have to pay on a new perpetual issue (although another retractible might possibly be competitive: CGI.PR.C pays $0.975 and is quoted at $25.45-74).

No matter how it’s sliced, it’s very unlikely that you’ll see HIMIPref™ recommending this issue in the near future … too short-term, for one thing.

Market Action

August 21, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Current Yield (at bid) YTW Average Trading Value Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.37% 4.35% 27,491 16.59 2 -0.6225% 987.0
Fixed-Floater 4.95% 4.23% 260,148 16.56 6 -0.0794% 1,000.7
Floater 4.58% -20.16% 58,479 6.43 5 0.1990% 1,010.1
Op. Retract 4.71% 2.56% 75,564 2.62 18 0.1002% 1,003.1
Split-Share 5.00% 3.45% 55,827 2.75 10 0.0657% 1,004.9
Interest Bearing 6.84% 5.29% 60,479 2.13 7 0.0094% 1,011.8
Perpetual-Premium 5.27% 4.19% 165,201 3.92 42 -0.0314% 1,012.7
Perpetual-Discount 4.72% 4.72% 342,788 13.08 13 -0.0014% 1,020.1
Major Price Changes
Issue Index Change Notes
There were no major price changes in index-listed issues on the day
Volume Highlights
Issue Index Volume Notes
BMO.PR.I OpRet 37,300 Scotia bought 35,000 in three tranches, 2×10,000 from CIBC and 15,000 from Desjardins, all at $25.50. The YTW at 25.45 is 2.23%
BNS.PR.K PerpetualPremium 32,460 BMO bought 27,600 from HSBC in two tranches at 25.50.
TOC.PR.B Floater 24,277 Anonymous bought 23,700 in two tranches (and therefore not necessarily the same anonymous!) from CIBC at 25.50
PWF.PR.L PerpetualPremium 15,108  
GWO.PR.I PerpetualDiscount 14,610  

There were six other index-included issues with volumes of more than 10,000 shares.

 The YTW on RY.PR.K (an operating retractible) went negative today, based on its closing bid of 25.40.

Programme Changes

New HIMIPref™ Release : 2006-08-21

A new version of HIMIPref-2005 has been released via the usual route.

This release allows dividends for one or more accounts to be booked for a specified period automatically – it also allows for immediate cash reversals of these entries for those interested in both performance measurement and keeping the system as strictly a swap-analyzer.

Note that these entries are booked with the ex-date as the trade date of the dividend entry and the pay-date as the value date of the dividend entry.

 

Publications

Research : Yield Ahead

The new (September) issue of Canadian Moneysaver has been released, so now I am releasing the column that was in the old (July/August) one: Yield Ahead.

This article looks at yield calculation and provides a link to an accurate spreadsheet. As all of us know, you can’t use bond calculators to calculate preferred share yields due to the difference in treatment of accrued income on settlement … so, I hope, this article will help small investors be a little more accurate in their pricing.

 Look for the “Research” Link!

Update, 2007-6-10: I sometimes use a reference to this article when talking about Yield-to-Worst, but this calculation is not explicitly described in the article. To find the Yield-to-Worst of a preferred share:

  1. Calculate the Yield-to-Maturity for each call option available to the issuer.
  2. If necessary, adjust this list to reflect the potential for the holder to exercise retraction options to influence the scenario.
  3. The yield-to-worst is the lowest yield in the resultant list.
Market Action

August 18, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Current Yield (at bid) YTW Average Trading Value Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.35% 4.31% 25,733 16.66 2 -0.1003% 993.1
Fixed-Floater 4.95% 4.22% 263,671 16.58 6 -0.1777% 1,001.5
Floater 4.59% -18.52% 58,033 6.44 5 0.0878% 1,008.1
Op. Retract 4.72% 2.95% 75,582 2.62 18 0.0632% 1,002.1
Split-Share 5.01% 3.39% 56,001 2.76 10 0.2879% 1,004.3
Interest Bearing 6.84% 5.16% 60,163 2.14 7 0.0592% 1,011.7
Perpetual-Premium 5.27% 4.22% 167,084 3.83 42 0.1044% 1,013.1
Perpetual-Discount 4.71% 4.73% 348,333 12.34 13 0.2677% 1,020.1
Major Price Changes
Issue Index Change Notes
WFS.PR.A SplitShare +1.4151%  
Volume Highlights
Issue Index Volume Notes
STW.PR.A InterestBearing 380,000 $10 p.v., so not as much as it sounds … but still respectable!
SLF.PR.B PerpetualDiscount 32,570  
PWF.PR.L PerpetualPremium 23,920  
BC.PR.C FixedFloater 22,766  
WN.PR.E PerpetualDiscount 14,053  

There were five other index-included issues with volumes of more than 10,000 shares

HIMIPref News

HIMIPref™ Update : 2006-08-18

7:30 pm EDT The bug on the TSX site is still around … I can only hope that they succeed in their ambition of fixing it on the 21st. In the meantime, I’ll check just after midnight and see if I can download the prices.

2:00 am EDT, 2006-08-19 Prices have been updated. I really hope this gets fixed soon. This is killing me.

Issue Comments

BMO.PR.G

This issue became the only “Operating Retractible” to have a negative bid-Yield-to-Worst (YTW) on August 17, with a bid price of 25.36.

 It was issued in the spring of 1998 and has an annual coupon of $1.20. The option schedule is:

  • Redemption      2005-08-25      2006-08-24  25.500000
  • Redemption      2006-08-25      2007-08-24  25.250000
  • Redemption      2007-08-25   INFINITE DATE  25.000000
  • Retraction      2008-05-25   INFINITE DATE  26.040000

And the calculation of YTW is:

  • Call  2006-09-16 YTM: 10.41 % [Restricted: 0.86 %] (Prob: 12.31 %)
  • Call  2006-09-24 YTM: -0.43 % [Restricted: -0.05 %] (Prob: 9.32 %)
  • Soft Maturity  2008-05-24 YTM: 3.90 % [Restricted: 3.90 %] (Prob: 78.38 %)

And the cash flow for YTW is:

  • 2006-09-24  FINAL DIVIDEND   0.10   1.000451   0.10
  • 2006-09-24        MATURITY  25.25   1.000451  25.26

Which at least has the advantage of being simple!

HIMIPref™ does not consider the investment merits (or lack thereof!) of this issue when evaluating trades – the eligibleForPurchase function returns code “14” :

pseudoModifiedDuration (Worst) of buy side less than minimum setting

In other words, the issue is simple too short-term to be worth bothering with.

With an annual coupon of only $1.20 and with the bank having the chance to save $0.25 by waiting until the end of August, 2007 to redeem these shares, they will probably be around for another year, no matter what the term until the YTW scenario. From an investor’s perspective, however … Who’s putting a bid on these things???? The most likely scenario has the pre-tax cash flow analysis:

  • 2006-11-25        DIVIDEND   0.30   0.989474   0.30
  • 2007-02-25        DIVIDEND   0.30   0.979888   0.29
  • 2007-05-25        DIVIDEND   0.30   0.970703   0.29
  • 2007-08-25        DIVIDEND   0.30   0.961299   0.29
  • 2007-11-25        DIVIDEND   0.30   0.951985   0.29
  • 2008-02-25        DIVIDEND   0.30   0.942762   0.28
  • 2008-05-24  FINAL DIVIDEND   0.29   0.933925   0.27
  • 2008-05-24        MATURITY  25.00   0.933925  23.35
  • Total Cash Flows    27.0924
  • Total Present Value    25.3601
  • Discounting Rate 3.9026 % (Annual rate compounded semi-annually)

which doesn’t look all that great to me!

Update, 2008-9-9: And, as a matter of fact, the issue was called for redemption at par, effective 2007-8-27.