Market Action

September 8, 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 4.48% 4.50% 38,660 16.49 1 -0.4898% 992.2
Fixed-Floater 4.93% 4.00% 330,454 11.48 6 0.3874% 1,005.7
Floater 4.63% -14.91% 82,516 8.03 4 0.1199% 1,009.0
Op. Retract 4.69% 2.24% 72,889 2.24 18 0.0229% 1,010.7
Split-Share 4.97% 3.49% 52,876 2.71 10 0.1676% 1,010.4
Interest Bearing 6.80% 4.79% 57,175 2.09 7 0.0146% 1,020.0
Perpetual-Premium 5.15% 4.16% 182,472 4.40 48 0.1142% 1,021.5
Perpetual-Discount 4.61% 4.62% 309,777 16.20 6 0.1154% 1,031.2
Major Price Changes
Issue Index Change Notes
BCE.PR.Z FixedFloater +1.1458% Can’t say I understand the enthusiasm for this issue … sure the coupon is good, at 5.319% … but its reset date is Dec. 1, 2007, and who knows what will happen then? It’s quoted today at 25.60-94. The YTW is 3.37% based on a call at $25 at reset-time. At reset time, these become exchangeable into BCE.PR.Y ratchet-rates, which are currently quoted at 24.41-69. The latter shares are currently paying $0.08125 monthly, or $0.975, which means that the carry on a long-Y/short-Z position is -$0.3548 annually (likely to improve for as long as the Ys trade below their ratchet-upwards price) … and a 1-for-1 conversion, one way or the other is guaranteed in 15 months … you have to consider frictional costs and all that jazz, but this is tempting!
BC.PR.B FixedFloater +1.0183% Closed at 24.80-90. This is the counterpart to BC.PR.E … but that reset/ratchet/exchange happened last May, so it’s less exciting than the pair above. BC.PR.E closed at 25.05-15. Boring!
Volume Highlights
Issue Index Volume Notes
GWO.PR.I PerpetualDiscount 135,575 Nesbitt crossed 120,100 @ 24.30
PWF.PR.A Scraps 133,065 I wouldn’t normally report this (“Scraps”!) but it was on the board yesterday, so why not? Desjardins crossed 60,000 at 25.35, then bought 39,800 from Nesbitt at 25.35, then crossed 30,000 at 25.35. Seems to me like Desjardins has a motivated buyer!
RY.PR.B PerpetualPremium 132,458 RBC crossed 100,000 timestamped after the close at 25.20. Nesbitt crossed 10,000 @ 25.20.
PWF.PR.G PerpetualPremium 125,400 Scotia crossed 125,000 @ 26.55 and they closed at 26.55-63. This is another one of those risky issues … the coupon’s $1.475 and it’s callable starting at $26 in July of next year, declining by $0.25 p.a. If it’s called next July, the yield will have been the YTW of 4.03% … but if PWF keeps the issue alive, netting their high coupon against their declining call premium for a net financing cost of $1.225, it could be called in 2011 with a realized yield of 4.66%. Place yer bets! I don’t like this kind of thing … there’s no upside!
WN.PR.E PerpetualDiscount 108,919  

There were thirteen other index-included issues trading over 10,000 shares today.

Market Action

September 7, 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 4.45% 4.47% 39,009 16.54 1 +0.6160% 997.1
Fixed-Floater 4.95% 4.18% 334,528 11.47 6 0.1863% 1,001.8
Floater 4.64% -14.27% 82,732 8.03 4 -0.2086% 1,007.8
Op. Retract 4.69% 2.19% 72,272 2.19 18 0.0086% 1,010.5
Split-Share 4.98% 3.51% 53,135 2.71 10 0.2507% 1,008.7
Interest Bearing 6.80% 4.95% 57,200 1.86 7 0.0308% 1,019.9
Perpetual-Premium 5.15% 4.22% 182,443 4.68 48 0.1050% 1,020.3
Perpetual-Discount 4.61% 4.63% 298,584 16.19 6 0.1157% 1,030.0
Major Price Changes
Issue Index Change Notes
FTN.PR.A SplitShare +1.3579% Volume of 1000 shares in a single trade at $10.50. Currently quoted at 10.45-53, 15×10
Volume Highlights
Issue Index Volume Notes
TD.PR.O PerpetualPremium 488,340 A big day as the market closed! RBC crossed 200,000 @ 25.80 at 3:30, Scotia bought 30,000 from RBC @ 25.80 at 3:36, Scotia bought another 50,000 @ 25.80 from RBC at 3:44, Nesbitt crossed 151,000 @ 25.80 at 3:55 and finally Nesbitt crossed another 49,000 @ 25.80 at 3:55. The issue has a YTW of 4.48% at the closing bid of 25.79.
GWO.PR.I PerpetualDiscount 128,990 Nesbitt crossed 100,000 @ 24.30. These are the lowest priced index-included perpetuals.
PWF.PR.A Scraps 122,800 This is a floater paying 70% of Canadian Prime, currently callable at $25.00. It’s not included in the indices due to volume considerations – today was a major exception! Desjardins bought 110,100 from Nesbit at 25.35 in four tranches, then crossed 10,000 at the same price.
GWO.PR.H PerpetualPremium 113,420 Nesbitt crossed 100,000 @ 25.25, which turned out to be the closing bid.
NA.PR.K PerpetualPremium 101,650 Nesbitt crossed 100,000 @ 26.85, which turned out to be the closing bid. This is kind of an interesting issue … coupon is $1.4625 and redemption options start 2008-5-15 @ $26.00, declining by $0.25 annually. The YTW scenario is for redemption as soon as allowed, with a yield of 3.93% … but given the declining redemption premium, the market appears to be betting that this will be put off until NA can redeem at $25.00, which results in a yield of 4.49%. It won’t really take an enormous move in rates to clarify the matter … place yer bets, gents, place yer bets!

There were eleven other index-included issues trading over 10,000 shares today.

Issue Comments

BCE.PR.S

Here’s an interesting issue.

 You can get quick overview of it at BCE’s website or go through all the detail in the prospectus (which BCE has published on their site! Good for them!).

There are a few major points:

  • BCE.PR.S is a “ratchet-rate” preferred, that is, its dividend is based on a variable proportion of Canadian prime.
  • This variable proportion will be increased upwards when the Calculated Trading Price (as defined in the prospectus) is less than $24.875, and downwards when the CTP is greater than $25.125.
  • They are about to become convertable into reset-rate preferreds. BCE has not yet announced the rate (applicable for five years) on the reset-rate issue, but they have issued a reminder notice to BCE.PR.S holders.
  • BCE.PR.S is currently paying monthly dividends of $0.08, which is $0.96 annually, which is 3.84% of face value, which is 64% of Canadian Prime.
  • The limits on the variable-proportion of Canadian Prime are 50% and 100%.
  • Bell can force conversion (from the less popular series) if voluntary holders of either series amount to less than 1,000,000 shares.
  • BCE.PR.S closed today at $24.35-61 5×5

Looking at all the above information, we can draw some interesting conclusions: like, f’rinstance, for people who actually want to own floating-rate prefs, this seems like a reasonable deal (PROVIDED, of course, that you can trade cheaply! Full-Service brokerage charges of $0.25/share bugger up ALL the calculations!).

Say we can buy this issue in the size we want at $24.50. There are two things that can happen:

  • The price remains below $24.875 … maybe even lower than our purchase price. In this case, the dividend rate will increase to 100% of Canadian Prime on Face Value … pretty good for a floater!
  • The price increases above $24.875. Then we can’t depend on the variable proportion of Prime increasing … but we make a pretty good capital gain … and can flip the thing for something else.

BCE Inc. was recently confirmed at Pfd-2(low) by DBRS. Short of default, the only* risk I can see to this strategy is that BCE might announce a really lousy rate on the Series T shares, but practically all holders of the Series S converts anyway.

It is interesting! I wonder who’s selling and forcing the price down? People may be comparing to BC.PR.C and assuming that there will be a forced-conversion into an issue with a 4.65% coupon that will trade below par … but BC.PR.C is holding its own, quoted at 25.05-23 today on heavy volume.

 

*I mean, “only risk” OTHER THAN that of actually holding a floater, of course. I don’t like floaters, not in this environment at these prices, I don’t. But they can make sense for people who are offsetting a specific liability.

Market Action

September 6, 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 4.47% 4.49% 39,033 16.51 1 -0.8147% 991.0
Fixed-Floater 4.96% 4.21% 338,654 13.99 6 0.2265% 1,000.0
Floater 4.63% -15.64% 78,789 8.03 4 0.1404% 1,009.9
Op. Retract 4.69% 2.28% 72,104 2.28 18 0.0667% 1,010.4
Split-Share 4.99% 3.86% 53,350 2.75 10 -0.1068% 1,006.2
Interest Bearing 6.80% 4.96% 57,428 1.86 7 0.1029% 1,019.6
Perpetual-Premium 5.16% 4.20% 183,072 4.46 48 -0.0390% 1,019.3
Perpetual-Discount 4.62% 4.63% 293,447 16.18 6 0.0143% 1,028.8
Major Price Changes
Issue Index Change Notes
BC.PR.B FixedFloater +1.9167% Volume of 600 shares in a single trade at $24.79. Currently quoted at 24.46-80, 6×5
Volume Highlights
Issue Index Volume Notes
BC.PR.C FixedFloater 255,405 Boy, changing the terms on these things really helps out volume, eh?
SLF.PR.B PerpetualPremium 103,150 RBC crossed 100,000 shares at $25.30. These have a pre-tax Yield-to-Worst of 4.62% at the closing bid of $25.27
GWO.PR.I PerpetualDiscount 89,510 BMO crossed a lot of 39,500 @24.30 and another lot of 25,400 shares at the same price
RY.PR.B PerpetualPremium 88,348  
WN.PR.E PerpetualDiscount 85,003 RBC crossed 68,800 @ 24.70. This issue has a pre-tax YTW of 4.89% at the closing bid of 24.66.

There were six other index-included issues trading over 10,000 shares today.

Market Action

September 5, 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 4.43% 4.44% 39,444 16.59 1 1.1537% 999.1
Fixed-Floater 4.97% 4.13% 323,934 13.93 6 -0.1862% 997.7
Floater 4.64% -14.16% 75,883 8.05 4 -0.0100% 1,008.5
Op. Retract 4.69% 2.19% 71,741 2.55 18 0.1813% 1,009.7
Split-Share 4.99% 3.74% 53,766 2.75 10 0.1391% 1,007.3
Interest Bearing 6.81% 4.97% 57,318 1.86 7 0.1005% 1,018.5
Perpetual-Premium 5.16% 4.22% 184,712 4.44 48 0.0280% 1,019.7
Perpetual-Discount 4.62% 4.63% 282,685 16.18 6 0.0614% 1,028.6
Major Price Changes
Issue Index Change Notes
BC.PR.B FixedFloater -1.6393% Now bid at 24.00-89
BCE.PR.S Ratchet +1.1537 On 5,800 shares – a fairly active day for this issue. Now quoted at 24.55-69, 20×31
Volume Highlights
Issue Index Volume Notes
RY.PR.S PerpetualPremium 297,251 This issue has been called for value October 6. Nesbitt crossed 288,000 at $26.09
CM.PR.P PerpetualPremium 175,000 Nesbitt crossed the entire day’s volume at 26.65. The issue has a YTW of 4.46% at the closing bid of 26.58
CM.PR.D PerpetualPremium 105,674 Nesbitt crossed 100,000 @ 27.00. The YTW at this price is 3.59%
GWO.PR.I PerpetualDiscount 94,145 Nesbitt crossed 70,500 @24.30. This issue has the distinction of being the lowest-priced index-included perpetual and has a YTW of 4.63% at the closing bid of 24.25
BAM.PR.B Floater 74,170 Nesbitt crossed 71,000 @ 24.31

There were four other ‘normally priced’ ($25 par value) issues trading over 10,000 shares today.

Market Action

September 1, 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 4.47% 4.50% 37,321 16.52 1 -0.0412% 987.8
Fixed-Floater 4.96% 4.03% 331,865 13.92 6 0.1966% 999.6
Floater 4.64% -14.16% 72,821 8.06 4 0.0000% 1,008.6
Op. Retract 4.70% 1.96% 71,926 2.55 18 0.1124% 1,007.9
Split-Share 4.99% 3.84% 54,189 2.76 10 0.0378% 1,005.9
Interest Bearing 6.82% 5.04% 57,697 1.87 7 0.0306% 1,017.5
Perpetual-Premium 5.16% 4.23% 186,825 4.47 48 0.1272% 1,019.4
Perpetual-Discount 4.62% 4.63% 279,491 16.19 6 -0.1404% 1,028.0
Major Price Changes
Issue Index Change Notes
 
Volume Highlights
Issue Index Volume Notes
BC.PR.C FixedFloater 296,596  
WN.PR.E PerpetualDiscount 80,296  
BNS.PR.K PerpetualPremium 41,861  
CM.PR.G PerpetualPremium 37,000  
TD.PR.N OpRet 34,760  

There were four other ‘normally priced’ ($25 par value) issues trading over 10,000 shares today.

Index Construction / Reporting

August 31, 2006 (After Rebalancing)

Index Current Yield (at bid) YTW Average Trading Value Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.46% 4.48% 37,598 16.54 1 N/A 988.2
Fixed-Floater 4.97% 4.14% 314,544 13.94 6 N/A 997.6
Floater 4.64% -17.11% 71,202 8.06 4 N/A 1,008.6
Op. Retract 4.71% 2.39% 73,364 2.55 18 N/A 1,006.7
SplitShare 4.99 3.74 54,846 2.76 10 N/A 1,005.5
Interest Bearing 6.82% 5.03% 58,842 1.88 7 N/A 1,017.2
Perpetual Premium 5.16% 4.33% 190,187 4.49 48 N/A 1,018.1
Perpetual Discount 4.61% 4.67% 278,857 15.99 6 N/A 1,029.5
Index Changes
Issue From To Because
BC.PR.E Ratchet Scraps Volume
AL.PR.F Floater Scraps Volume
SXT.PR.A SplitShare Scraps Volume
CL.PR.B PerpetualPremium Scraps Volume
CAC.PR.A Scraps SplitShare Volume
MFC.PR.B PerpetualDiscount PerpetualPremium Price
RY.PR.B PerpetualDiscount PerpetualPremium Price
SLF.PR.A PerpetualDiscount PerpetualPremium Price
GWO.PR.H PerpetualDiscount PerpetualPremium Price
SLF.PR.B PerpetualDiscount PerpetualPremium Price
CM.PR.H PerpetualDiscount PerpetualPremium Price
PWF.PR.K PerpetualDiscount PerpetualPremium Price

Market Action

August 31, 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 4.41% 4.37% 29,275 16.58 2 0.0406% 988.2
Fixed-Floater 4.97% 4.14% 314,554 13.94 6 0.2749% 997.6
Floater 4.59% -18.25% 60,762 6.44 5 0.0718% 1,008.6
Op. Retract 4.71% 2.39% 73,364 2.55 18 -0.0871% 1,006.7
Split-Share 5.01% 3.42% 54,290 2.73 10 -0.0563% 1,005.5
Interest Bearing 6.82% 5.03% 58,842 1.88 7 0.0612% 1,017.2
Perpetual-Premium 5.25% 4.27% 153,992 3.85 42 0.0663% 1,018.1
Perpetual-Discount 4.69% 4.67% 339,913 11.66 13 0.2667% 1,029.5
Major Price Changes
Issue Index Change Notes
GWO.PR.E OpRet -1.6886%  
BAM.PR.G FixedFloater (but not in index) +2.5437% A busy day for this issue, with 12,600 shares trading. Some traded as high as $26.80! I can’t imagine what all the fuss is about: these are “Fixed-Floater-to-Become-Ratchet-Rate” prefs, which will have their coupon adjusted (down, I bet!) on 2006-11-01; the alternative is to convert to ratchets. I don’t see any news releases, particularly not any that would indicate they’re going to increase the dividend! I think somebody just got suckered, that’s what I think. Holders can exchange into BAM.PR.E if they like, on 2006-11-01
BAM.PR.E Ratchet (but not in index) +1.0342% The bid’s way up on zero volume! Holders can exchange into BAM.PR.G on 2006-11-01, if they like. It’s all very mysterious.
Volume Highlights
Issue Index Volume Notes
BC.PR.C FixedFloater 329,826  
WN.PR.E PerpetualDiscount 23,110  
SLF.PR.B PerpetualDiscount 20,680  
GWO.PR.I PerpetualDiscount 14,620  
BNS.PR.J PerpetualPremium 14,054 Nesbitt crossed 10,000 @ $27.00. The issue has a YTW of 4.10% at the closing bid price of $26.95

There were four other ‘normally priced’ ($25 par value) issues trading over 10,000 shares today.

Market Action

August 30, 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 4.41% 4.37% 29,755 16.59 2 0.0203% 987.8
Fixed-Floater 4.99% 4.22% 295,464 13.93 6 0.2351% 994.9
Floater 4.59% -18.06% 61,890 6.44 5 -0.0157% 1,007.9
Op. Retract 4.70% 2.47% 73,737 2.56 18 0.1755% 1,007.6
Split-Share 5.01% 3.46% 54,504 2.74 10 -0.0905% 1,006.1
Interest Bearing 6.82% 5.13% 59,583 1.88 7 0.0838% 1,016.6
Perpetual-Premium 5.25% 4.25% 155,939 4.09 42 0.1016% 1,017.4
Perpetual-Discount 4.70% 4.68% 342,629 12.39 13 0.0884% 1,026.7
Major Price Changes
Issue Index Change Notes
BC.PR.B FixedFloater +2.1268% A bid came back to offset yesterday’s swoon … partially! No shares were traded. The quote is now 24.01-85, 5×5.
GWO.PR.E OpRet +1.2542% On light volume of 991 shares, with only 100 shares bid at $26.65
Volume Highlights
Issue Index Volume Notes
RY.PR.B PerpetualDiscount 230,995 Increased volume of late may mean that new-issue buyers see an opportunity to exit … or that unsold inventory is being cleared out … or nothing at all. Take your pick. Since the first day of trading, July 20, the PerpetualDiscount index is up a shade over 2.5%
GWO.PR.H PerpetualDiscount 50,035  
BC.PR.C FixedFloater 42,419  
MFC.PR.B PerpetualDiscount 38,150 Nesbitt bought a total of 25,000 from various dealers at $25.00 shortly before the close.
PWF.PR.L PerpetualPremium 34,300 RBC crossed 27,000 @ 25.80

There were seven other ‘normally priced’ ($25 par value) issues trading over 10,000 shares today.

Issue Comments

RY.PR.O

This issue drifted into negative-YTW territory today, with a closing quotation of $25.70-78.

The redemption schedule is:

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

The redemption scenarios have been calculated by HIMIPref™ as:

 

  • Call  2006-09-28 YTM: -3.21 % [Restricted: -0.26 %] (Prob: 25.13 %)
  • Call  2006-11-27 YTM: 2.46 % [Restricted: 0.61 %] (Prob: 7.18 %)
  • Call  2007-05-26 YTM: 4.45 % [Restricted: 3.29 %] (Prob: 5.22 %)
  • Call  2007-09-23 YTM: 3.83 % [Restricted: 3.83 %] (Prob: 6.35 %)
  • Call  2008-09-23 YTM: 4.14 % [Restricted: 4.14 %] (Prob: 5.29 %)
  • Limit Maturity  2036-08-29 YTM: 5.38 % [Restricted: 5.38 %] (Prob: 50.82 %)

One interesting thing about this analysis is the inclusion of the scenario with the end-date of 2007-05-26. The HIMIPref™ constant OPTION_EXERCISE_CALCULATION_INCREMENT_PROBABILITY is currently set to 5% – therefore, since the Option calculation probability has crept up that much higher by 2007-05-26 than it was on the date of the previous entry in the optionCalculationList dated 2006-11-27 (which in turn was sufficiently higher than the previous threshold dated 2006-09-28), the redemption scenario is included in the calculation of portfolioYield

This issue pays $1.375 and given the $0.25 decline in call price annually, the net annual cost to Royal of the money is $1.125 – a tad more expensive than their RY.PR.A issue, but cheaper to them than RY.PR.B! I can’t say I’d bet much on it being around for more than two more years … but who knows? Maybe comparable new issues will be paying more than 5.5% dividends at that time.

Which, of course, is what makes this business fun!