PrefBlog

Canadian preferred shares appear to have been hit over the past few months by tax loss selling, but we’re not the only targets:

Investors pulled more money from U.S. mutual funds last week than they have in any seven-day period in the past two and a half years.

Net redemptions reached $28.6 billion in the week ended Dec. 16, according to a statement from the Investment Company Institute, a trade group. It was the biggest weekly outflow since June 2013, ICI data show.

Some of the redemptions might reflect year-end tax-loss selling, which are sales made for tax purposes, ICI Senior Economist Shelly Antoniewicz said in the statement.

Investors withdrew $11.1 billion from stock funds, $12 billion from bond funds and $5.6 billion from funds that buy a mix of stocks and bonds. Municipal bond funds attracted $647 million, the only category that saw inflows.

Mutual funds have experienced net redemptions every month since July, according to ICI data. In each of the first six months of the year, funds gathered money.

On September 21 I discussed the characterization of the Canadian dollar as a petrodollar. Now it turns out that, as far as one measure is concerned, we’re the petrodollariest in the world!

No other major currency is as closely tied to the value of its key commodity export as the loonie is to crude right now. The correlation between the Canadian dollar and the benchmark West Texas Intermediate oil price is about 0.56, meaning the two have a strong positive relationship. That’s the closest association among 16 of the world’s most-traded currencies including the Australian and New Zealand dollars, Norway’s krone and Brazil’s real.

With oil futures trading below $45 a barrel through 2016, the loonie may continue to struggle. The currency has declined 16 per cent over the past year, touching an 11-year low of $1.4001 per U.S. dollar last week. The drop comes as the price of WTI fell to the lowest since 2009 after the Organization of Petroleum Exporting Countries announced this month it was abandoning production limits, and with U.S. crude stockpiles forecast to climb to the highest since 1930.
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The 120-day correlation coefficient between 16 major currencies tracked by Bloomberg and their country’s main export commodity — based on 2014 World Bank data — show that the Mexican peso and oil had the second strongest correlation, at 0.41. The correlation between the Australian dollar and iron ore was 0.13, while the link between New Zealand’s currency and whole milk powder was 0.11. A reading of 1 means that gauges move in lockstep; minus 1 means they move in opposite directions.

Crude fell below $34 a barrel on Dec. 21. WTI futures for delivery in March are trading at about $37, compared to $39 for those settling in June.

The Canadian dollar has already fallen below Scotiabank’s 2016 target of $1.39 and there is “clear risk of an overshoot” toward $1.42-$1.43 through the first quarter, [chief foreign-exchange strategist for Bank of Nova Scotia] Mr. [Shaun] Osborne said.

There’s an interesting piece on the bond market, examined through the lens of the Litvak case:

Earlier this year, Sally Yates, the agency’s No. 2 official, ordered policy changes to push prosecutors to bring criminal charges against company executives suspected of financial wrongdoing. Her memo almost admitted that the U.S. Department of Justice had lapsed in its duty to put criminals behind bars. In a September speech, Yates said: “This memo is designed to ensure that all attorneys across the department are consistent in our best efforts to hold to account the individuals responsible for illegal corporate conduct. It’s the only way to truly deter corporate wrongdoing.”

The case against Litvak was supposed to be the opening salvo against dishonest conduct among bond traders. The Justice Department and U.S. Securities and Exchange Commission have built more than a dozen other cases using the one against Litvak as a model.

The cases won’t be easy victories for the government. Lying doesn’t necessarily violate securities law. It’s only fraud when that deception is considered important to a buyer. The question becomes: Is it important that the buyer knew how much Litvak paid for bonds he later sold? “The government may not like how these markets work, and it may look bad from the outside looking in, but it is how they do work,” says Charles Geisst, a Wall Street historian at Manhattan College in New York.
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As the SEC sees it, just because something is common practice on Wall Street doesn’t mean it conforms to securities laws. The agency has built its own algorithms to comb through trading data to look for red flags instead of waiting for complaints. The SEC has uncovered brokers charging buyers higher fees, traders hiding their positions, and dealers running deceptive auctions. “We’ve identified billions of dollars of potentially problematic trades,” says Michael Osnato Jr., head of the regulator’s Complex Financial Instruments unit. “We have opened promising investigations thus far based on these efforts and expect more to follow soon.”

The Litvak ruling will shape how the SEC pursues some of these violations. The intensive monitoring of debt backed by mortgages and other assets represents a first for the agency. Before the credit crisis, the SEC viewed the market participants as sophisticated investors who didn’t need close supervision. That assumption came undone when plummeting prices in the debt markets kicked off the crisis. “The government’s new interest is reflective of the fact that they’ve had very little interest in this market historically,” says James Cox, a professor at Duke University School of Law. “They just hadn’t looked at it.”

The SEC doesn’t understand any markets, really, other than bank accounts that accrue interest daily. But hey! Markets went down, therefore nefarious activity was behind it, therefore somebody’s got to go to jail – it doesn’t matter who, really. The persecution of Litvak has been discussed on PrefBlog many times before, most recently on December 8.

Speaking of the way the market operates, I see there’s a dust-up with Dominion Diamond Corp. I have no knowledge of this company, but one part of the article drew my attention as a possible winner of “2015 Statements Best Illustrating Intellectual Bankruptcy of Equities Markets”:

Dominion enjoys considerable financial flexibility, according to Edward Sterck, a London-based analyst with Bank of Montreal’s investment arm. The miner has amassed net cash of $284-million (U.S.), equal to about 40 per cent of its market capitalization, he wrote in a research note.

He said that while Dominion’s near-term mine plan has been subject to frequent changes, its longer-term outlook has remained consistently positive.

Mr. Sterck projects an attractive bump in free cash flow over the years to come as new production comes into play, but added that “the problem is that the increased cash flows do not really begin in earnest until mid-2016, so why should investors hold the stock now?”

Ummmm … because increased cash flows begin in earnest in mid-2016?

Meanwhile, there has been a sudden change in the living rooms of preferred share investors … they now look like this:

Click for Big

It was a strong day for the Canadian preferred share market, with PerpetualDiscounts gaining 30bp, FixedResets winning 166bp and DeemedRetractibles up 37bp … it appears that bargain hunters have decided not to wait until the precise end of tax-loss selling season after all! The performance highlights table is as lengthy as one might guess from the raw numbers. Volume continued to be enormously high … which leads to interesting speculation as to what might happen when tax-loss selling season ends.

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

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

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 18.73 to be $0.96 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $1.18 cheap at its bid price of 12.10.

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Most expensive is MFC.PR.M, resetting at +236bp on 2019-12-19, bid at 20.26 to be 0.48 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 21.50 to be 0.48 cheap.

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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.82 to be $1.53 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 19.58 and appears to be $0.81 rich.

Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 18.32, looks $0.59 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 17.51 and is $0.67 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.52%, with one outlier below -2.50%. There are four junk outliers above -0.50%.

Click for Big

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

Nothing much happened today.

Neil Irwin of the NYT makes a good point in his review of The Big Short (movie to be released Wednesday 23rd):

A lot of people thought a decade ago that there might be a housing bubble. Few of them understood the connections between housing prices and poor lending practices; the connection from poor lending practices to complex, highly rated securities; the connection between those securities to the balance sheets of major banks; and the peril to the economy if just a few of them faltered.

At each link in that chain, there were people aware that something was wrong, but who lacked the ability to put those pieces together and connect bad lending in Florida suburbs with the existential risk being taken by companies like Bear Stearns and Lehman Brothers.

The impossible job for the regulators (and journalists, and credit rating agencies) of the future is to better understand how the pieces within the infinitely complex economy and financial system connect with one another.

“The Big Short” is a powerful reminder of how hard that will be.

It was really just another example of the Law of Unintended Consequences, writ large.

Brookfield Investments Corporation, proud issuer of BRN.PR.A, was confirmed at Pfd-2(low) by DBRS:

DBRS Limited (DBRS) today confirms Brookfield Investments Corporation’s (BIC or the Company) Senior Preferred Shares rating at Pfd-2 (low) with a Stable trend. The confirmation follows the announcement that (1) Brookfield Asset Management (BAM or the Guarantor), BIC’s 100% shareholder, will provide a full and unconditional subordinated guarantee on BIC’s outstanding Senior Preferred Shares, and (2) BIC will rely on continuous disclosure exemption and no longer file its financial statements. DBRS understands that the guarantee will apply to all BIC’s Preferred Shares outstanding other than those held by BAM and its affiliates. Claims under the guarantee will be subordinated to all outstanding senior indebtedness of BAM and will effectively rank pari passu with Preferred Shares issued by BAM.
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The proposed change will result in BIC’s discontinuing any public disclosure of its financial performance and investment composition. DBRS understands that BAM and BIC intend to maintain similar asset size, composition and financing sources in the foreseeable future. In view of this and so long as BAM’s guarantee remains valid, DBRS will no longer issue separate rating reports on BAM and will report the rating of BIC’s Preferred Shares as a guaranteed issue in future BAM rating reports.

Faircourt Split Trust, proud issuer of FCS.PR.C, has been confirmed at Pfd-3(low) by DBRS:

Based on yields of underlying securities as of December 15, 2015, the Portfolio currently receives dividends to cover 14% of Preferred Security distributions. As of December 14, 2015, downside protection available to holders of the Preferred Securities was 30.2%.
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The asset coverage test does not permit any cash distributions to the [Capital] unitholders if, after giving effect to the proposed distribution, the total assets of the Portfolio would be less than 1.4 times the outstanding principal amount of the Preferred Securities.

The Preferred Share distributions will result in an average annual grind on the net asset value (NAV) of 4.4% in the next 3.5 years.
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According to the terms of the Trust’s Declaration of Trust, the Trust has the ability to borrow up to 10% of Total Assets (as defined in the Declaration of Trust) under a loan facility in order to meet its investment objectives. Under the terms of the Company’s Trust Indenture, the loan facility is considered Senior Indebtedness, and all amounts owing under the loan facility will be paid in priority to the 6.00% Preferred Securities. There is currently no loan facility in place and, therefore, there are currently no amounts owing under a loan facility; however, to the extent that the Trust borrows under a loan facility, the rating on the 6.00% Preferred Securities could be negatively affected. DBRS will continue to monitor the situation in connection with the ongoing surveillance of the rating on the 6.00% Preferred Securities, and will take appropriate ratings action as necessary.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 70bp, FixedResets up 67bp and DeemedRetractibles gaining 37bp. The Performance Highlights table continues to show a lot of churn. Volume remained extremely high.

Nothing much happened today in the financial world, although what with the solstice and all, a few preferred share new issue salesmen may have been sacrificed by their clients.

In the real world, though there was marvellous news regarding private space ventures:

Elon Musk’s SpaceX showcased his dream of reusable spacecraft by making a Falcon 9 booster the first piece of an orbital rocket to land back on Earth, minutes after lofting satellites toward orbit.

Space Exploration Technologies Corp. pulled off the soft, vertical touchdown after the two-stage rocket propelled its payload of 11 Orbcomm Inc. satellites aloft. It was the company’s first flight since a fiery blast destroyed a Falcon 9 rocket in June, minutes after lift off.

“Welcome back, baby!” Musk wrote in a Twitter post on his way to the landing zone.

Monday’s mission helped validate Musk’s vision for lower-cost spaceflight and provides SpaceX a boost in his race with fellow billionaire Jeff Bezos to develop craft that can survive fiery blasts and return to Earth to be reused. Instead of ditching the booster, SpaceX used thrusters and sophisticated navigation to steer it from space to Landing Zone 1, a former U.S. Air Force rocket and missile testing range.

Scotia announced the redemption of sub-debt on its pretend-maturity:

Scotiabank (TSX: BNS) (NYSE: BNS) today announced that the Bank intends to redeem all outstanding 6.65% debentures due January 22, 2021 for 100% of their principal amount plus accrued interest to the redemption date. The redemption will occur on January 22, 2016. Formal notice will be delivered to the debenture holders in accordance with the terms and conditions set forth in the related trust indenture.

The redemption has been approved by the Office of the Superintendent of Financial Institutions and will be financed out of the general funds of Scotiabank.

This will assist new issue salesmen to sell ten-year sub-debt as if it should have a spread off five-year Canadas, although from what I understand this doesn’t work as well as it used to:

Investors who leaped into Basel-compliant bonds issued by Canadian banks to great fanfare are likely regretting their haste. A year on, the reward for taking on the risk of bailing out a bank has become much richer.

Relative yields of the bonds have widened 25 basis points this year, the worst performance among Canadian five-year corporate bonds, according to RBC Dominion Securities research. The debt is designed to convert to equity if a bank gets into financial distress, in line with new Basel rules to prevent another financial crisis. The first issue of the debt, called contingent capital bonds, in Canada was by Royal Bank of Canada in July, 2014.

RioCan REIT, proud issuer of REI.PR.A and REI.PR.C, was confirmed at Pfd-3(high) by DBRS:

DBRS Limited (DBRS) has today confirmed RioCan Real Estate Investment Trust’s (RioCan or the Trust) Senior Unsecured Debentures rating and Senior Unsecured Debentures, Series I rating at BBB (high) and its Preferred Trust Units rating at Pfd-3 (high), all with Stable trends. The confirmations reflect RioCan’s near-term enhanced financial flexibility to fund its development pipeline and DBRS’s expectation that financial metrics will return to BBB (high) levels. The confirmations follow RioCan’s announcement to sell its U.S. portfolio of 49 retail properties located in the Northeastern United States and Texas for a total sale price of USD 1.9 billion or $2.7 billion to Blackstone Real Estate Partners VIII (Blackstone; the Transaction).
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DBRS notes that a positive rating action could occur should RioCan increase the size of its portfolio and reduce its geographic concentration while maintaining EBITDA interest coverage (including capitalized interest) above 3.0 times, such that it is more consistent with the A (low) rating category.

Valener Inc., proud issuer of VNR.PR.A, was confirmed at Pfd-2(low) by DBRS:

DBRS Limited (DBRS) has today confirmed Valener Inc.’s (Valener or the Company) Cumulative Rate Reset Preferred Shares, Series A rating at Pfd-2 (low) with a Stable trend. Valener’s preferred share rating is based on the credit quality of Gaz Métro Limited Partnership (the Partnership), which guarantees the First Mortgage Bonds and Senior Secured Notes (rated “A”) of Gaz Métro inc. The one-notch differential in the ratings of Valener and the Partnership reflects the structural subordination at Valener.
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As the Company has no bonds/debentures issued, and is not expected to issue any long-term debt in the foreseeable future, its leverage solely consists of its credit facility outstanding. As at September 30, 2015, Valener utilized approximately $120 million of the $200 million credit facility which matures on September 30, 2020. Valener’s debt-to-capital ratio was reasonable at approximately 14.3% as at September 30, 2015. Valener is expected to fund future growth investments in a prudent manner to maintain leverage within the 20% threshold. If Valener is unable to do so on a sustained basis, this could result in a negative rating action. Other key non-consolidated credit metrics have also remained supportive of the current rating category, including cash flow-to-interest at 38.8 times, cash-flow fixed coverage at 10.4 times and cash flow-to-debt at 49.7% in F2015.

It was a modestly negative day for the Canadian preferred share market, with PerpetualDiscounts off 7bp, FixedResets down 9bp and DeemedRetractibles losing 36bp. The Performance Highlights table is very long considering the placid overall numbers. Volume was very 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:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 18.60 to be $1.22 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $1.02 cheap at its bid price of 11.85.

Click for Big

Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 19.80 to be 0.68 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 18.28 to be 0.55 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.40 to be $1.30 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 20.78 and appears to be $1.09 rich.

Click for Big

FTS.PR.M, with a spread of +248bp, and bid at 19.48, looks $0.51 expensive and resets 2019-12-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 16.31 and is $1.05 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.44%, with one outlier above -0.50%. There are five junk outliers above -0.50%.

Click for Big

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

Amidst all the snivelling from old-stock Canadians unable to compete in the Vancouver housing market it’s nice to see a major move in the other direction:

President Barack Obama signed into law a measure easing a 35-year-old tax on foreign investment in U.S. real estate, potentially opening the door to greater purchases by overseas investors, a major source of capital since the financial crisis.

Contained in the $1.1 trillion spending measure that was passed to avoid a government shutdown is a provision that treats foreign pension funds the same as their U.S. counterparts for real estate investments. The provision waives the tax imposed on such investors under the 1980 Foreign Investment in Real Property Tax Act, known as FIRPTA.

“FIRPTA has historically made direct investment in U.S. property a non-starter for trillions of dollars worth of foreign pensions,” said James Corl, a managing director at private equity firm Siguler Guff & Co. “This tax-law modification is a game changer” that could result in hundreds of billions of new capital flows into U.S. real estate.

S&P has downgraded Alberta:

We are lowering our long-term issuer credit and senior unsecured debt ratings on the Province of Alberta to ‘AA+’ from ‘AAA’. We are also lowering our ‘AAA’ senior unsecured debt rating on Alberta Capital Finance Authority to ‘AA+’ from ‘AAA’.

The downgrade reflects our view of Alberta’s projected oil price-driven weak budgetary performances in the next two years; moderate, but rapidly rising, tax-supported debt burden; and now-average economic prospects. The stable outlook reflects our expectations that the province’s liquidity will continue to be exceptional in the next two years, real GDP growth will be positive in 2016 and 2017, and that the debt burden will remain moderate despite large deficit-driven increases in fiscal years 2016-2018.
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We assess the provincial economy as strong despite the plunge in oil prices and declining real GDP that we expect for 2015. The concentration in the oil and gas industry tempers our assessment of the provincial economy. In 2014, the industry, which includes supporting activities, represented about 27% of real GDP and about 6% of employment. This exposure brings economic and fiscal volatility as oil and gas prices move, as the decline in oil prices indicates. Furthermore, the prospects for energy prices have caused us to reassess Alberta’s growth prospects as average, from above-average previously. We estimate the provincial GDP per capita to be about US$80,800 (2012-2014), which we consider to be high compared with that of peers. Real and nominal GDP growth in 2014 was what we consider very strong despite the fall in oil prices in the second half of the year. Real GDP rose 4.5% (5.1% in 2014): nominal GDP increased 9.1%, compared with 10.2%. Labor force results were also strong, in our opinion. Employment grew 2.2% (2.5% in 2013) and the unemployment rate was 4.7%, up only slightly from 2013. For 2015, the province expects real and nominal GDP to decline 1.0% and 9.4%, respectively. In 2016, we believe real and nominal GDP should rebound, with about 1.0% and 4.0% growth, respectively.

Alberta’s financial management is very strong, in our view. Budget information is comprehensive and detailed. The province produces a five-year capital plan annually. The level of transparency and disclosure in financial statements is high. The independent auditor-general, who reports to the legislature, audits financial statements. Debt and liquidity management and related policies and practices are prudent and risk-averse. A capable and experienced administration supports the recently elected governing party.

I mentioned the Capital Power debt reorganization on November 19 and November 20; now it has come to fruition:

Capital Power Corporation (“Capital Power”) (TSX: CPX) and Capital Power L.P. (“CPLP”) announced today the completion of a previously announced transaction to exchange all outstanding CPLP medium term notes (“CPLP Notes”) for newly issued Capital Power medium term notes (“Capital Power Notes”) that have the same financial and other terms as the CPLP Notes and that are unconditionally guaranteed by CPLP (“Note Exchange”).

The Note Exchange transaction received strong support and was approved by more than 87% of the votes cast at the December 17, 2015 meeting of holders of CPLP Notes, voting as a single class.

As a result of the Note Exchange, the CPLP Notes have been cancelled and the following Capital Power Notes were issued in exchange for them:
◦4.85% Medium Term Notes of Capital Power due February 21, 2019, Series 1
◦5.276% Medium Term Notes of Capital Power due November 16, 2020, Series 2

The Note Exchange and additional steps to reorganize CPLP’s capital structure were undertaken to simplify the organizational structure and reduce reporting obligations. The cessation of CPLP as a reporting issuer and transition of long-term credit ratings to only Capital Power will result in efficiencies for Capital Power while providing noteholders with better liquidity over time and structural enhancement. The timing of the Note Exchange follows the exchange of all remaining Exchangeable Common Limited Partnership Units of CPLP for shares of Capital Power by EPCOR Power Development Corporation on April 2, 2015.

RBC Capital Markets acted as the Solicitation Agent for the Note Exchange transaction

So, what’s done is done. RBC got paid and their counsel got paid:

The Solicitation Agent will be entitled to receive a fee for its services and be reimbursed for certain reasonable out-of-pocket expenses, including fees of legal counsel, and will be indemnified against certain liabilities and expenses in connection with the solicitation of votes in favour of the Note Exchange Resolution.

… and Kingsdale got paid:

CPLP has retained Kingsdale Shareholder Services to act as information agent in connection with the Note Exchange Transaction. The Information Agent will receive reasonable and customary compensation from CPLP for its services in connection with the Note Exchange Transaction, will be reimbursed for certain out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection with the Note Exchange Transaction.

… and I’m sure lots of other people got paid, but the Noteholders didn’t get paid, not a penny. And they voted in favour anyway! Like I always say, there’s one born every minute!

It was a modestly negative day for the Canadian preferred share market, with PerpetualDiscounts losing 26bp, FixedResets down 25bp and DeemedRetractibles off 8bp. The Performance Highlights table continues to be enormous, though, indicating a lot of churn under the placid surface. 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:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 18.50 to be $1.26 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.84 cheap at its bid price of 11.91.

Click for Big

Most expensive is MFC.PR.G, resetting at +290bp on 2016-12-19, bid at 21.30 to be 0.37 cheap, while MFC.PR.N, resetting at +230bp on 2020-3-19, is bid at 19.75 to be 0.57 rich.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.41 to be $1.35 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 19.50 and appears to be $1.36 rich.

Click for Big

FTS.PR.M, with a spread of +248bp, and bid at 20.39, looks $0.33 expensive and resets 2019-12-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 16.89 and is $0.98 cheap.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.03%, with one outlier below -2.00%. There is one junk outlier below -2.00% and four above 0.00%.

Click for Big

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