Market Action

October 9, 2015

Margin debt in the US is declining:

NYSE margin debt surged from $182 billion to $505 billion in the six years ended in June 2015, roughly tracing the trajectory of the S&P 500, which tripled over the period. The biggest gains came in 2013, with credit rising 35 percent as U.S. stocks climbed 30 percent for the best returns in 16 years.

Since June, it’s been the other way around, with margin debt falling 6.3 percent to $473 billion at the NYSE’s last update, which covered August. The S&P 500 slid 4.4 percent at the end of that period as stocks entered a correction.

I’ll need to be convinced that this means anything as a market-timing indicator, as is often proclaimed but I’ll accept it as a rough measure of retail sentiment. It interested me due to a BIS working paper by Fernando Avalos, Ramon Moreno and Tania Romero titled Leverage on the buy side:

This paper investigates the microeconomic determinants of leverage decisions by asset managers. Investment funds (the “buy side”) have significantly increased their share of global capital flows in recent years. Unconventional monetary policies in advanced economies have squeezed returns while reducing borrowing costs, which in principle creates an incentive for asset managers to use more leverage. We start by studying the recent behaviour of fund leverage in different asset categories at an aggregate level. Leverage appears to have increased significantly in funds focused on the fixed income markets of emerging economies. Then we analyse the microeconomic factors that shape the leverage decision. In line with theory, we find that leverage rises with expected returns, and falls with market risk and borrowing costs. Transaction costs are also mentioned in the literature as another factor that should inhibit leverage. Lacking the requisite data, we introduce as proxies changes in capital controls and macroprudential policies, because they tend to affect expected returns in comparable ways. We find that tighter capital controls on inflows increase leverage rather than decrease it, but that macroprudential measures have no discernible effect. Finally, we discuss these results and their policy implications.
…
Funds dedicated to global markets or advanced economies had little debt in their capital structure, whereas debt in leveraged EME fixed income funds was close to 30 percent of AUM towards the end of our sample period. The leverage ratio of EME fixed income funds surged after 2009 before falling abruptly back in 2014, although current levels are still much higher than before the surge. The number of funds using leverage is relatively small in our sample, but their size is about three times that of their unleveraged peers. They control more than 30 percent of AUM in their sector (down from 50 percent around 2010), making them quite significant players in their target markets.

Meanwhile Fed officials seem anxious to emphasize that their hesitation in hiking rates in September due to concerns over global risks (discussed yesterday) should not be taken as an indication of what will happen in the year’s remaining two FOMC meetings:

Federal Reserve Bank of Richmond President Jeffrey Lacker said the U.S. is already at full employment and the central bank may risk overheating the economy as it attempts to drive additional job gains.

With the unemployment rate at 5.1 percent, the central bank has achieved its goal and “exhausted relevant slack in the labor market,” the Richmond Fed chief said.

“We’re there,” Lacker said in an interview in his office Thursday, referring to the central bank’s mandate to lower joblessness to the level consistent with stable price pressures. The median forecast of that rate among Fed officials is 4.9 percent, according to estimates released following last month’s meeting of the policy-making Federal Open Market Committee.

“Pushing on to wring more slack out — there is some risks associated with that,” said Lacker. Inflation pressures may emerge with a lag, but the “risks can be very real.”

The Richmond Fed chief dissented at the FOMC’s September meeting, preferring a 0.25 percentage point increase in the federal funds rate.

And Dudley of the NY Fed provided supporting fire:

Federal Reserve Bank of New York President William C. Dudley said he expects the U.S. central bank to raise interest rates by December, echoing comments by fellow regional Fed chief Dennis Lockart in Atlanta, while cautioning that this was not a pledge to action and will depend on the economy staying on track.

Dudley told CNBC television in an interview Friday that he was still in the 2015 liftoff camp.

“Based on my forecast, yes I am, but it’s a forecast. And we’re going to get a lot of data between now and December,” he said. “It’s not a commitment.”
…
Last month’s FOMC decision, and a disappointing September U.S. employment report, has sapped investors’ confidence the Fed will be able to raise rates this year, as Fed Chair Janet Yellen has said she expects will be warranted. The probability of a 2015 hike is now priced around 40 percent in federal funds futures markets, compared to above 60 percent ahead of last month’s Fed meeting, based on the assumption that the effective fed funds rate will be 0.375 percent after liftoff.

Dudley said the key to liftoff will be whether the labor market continues to improve, thereby putting more upward pressure on wages and inflation. Last month’s jobs report was “definitely weaker,” but even monthly gains of 120,000 or 150,000 are enough to continue to push the U.S. unemployment rate lower, he said.

Lockhart says the same:

Federal Reserve Bank of Atlanta President Dennis Lockhart said the first interest rate increase since 2006 will likely be warranted later this month or in December.

“The economy remains on a satisfactory track, and, speaking for myself, I see a liftoff decision later this year at the October or December FOMC meetings as likely appropriate,” Lockhart said in prepared remarks Friday in New York, referring to the Federal Open Market Committee.
…
“The ambiguity of the moment reinforces the need to closely watch the vital signs of the economy over the coming weeks to determine if the outlook has changed,” he said.

Lockhart, who has never dissented, said consumer activity will be a key signal that the U.S. economy can sustain its momentum despite the global slowdown.

“The consumer-based dimension of the economy has been robust for several months,” Lockhart said to the Society of American Business Editors and Writers, even as manufacturing and exports have been hurt by a stronger U.S. dollar.

The Atlanta Fed’s tracking estimate for the third quarter is a “relatively soft 1.1 percent,” though much of the weakness is due to a swing in inventories.

Alan Kreuger of Princeton wrote an op-ed in the NYT advocating a $12 minimum wage:

I am frequently asked, “How high can the minimum wage go without jeopardizing employment of low-wage workers? And at what level would further minimum wage increases result in more job losses than wage gains, lowering the earnings of low-wage workers as a whole?”

Although available research cannot precisely answer these questions, I am confident that a federal minimum wage that rises to around $12 an hour over the next five years or so would not have a meaningful negative effect on United States employment. One reason for this judgment is that around 140 research projects commissioned by Britain’s independent Low Pay Commission have found that the minimum wage “has led to higher than average wage increases for the lowest paid, with little evidence of adverse effects on employment or the economy.” A $12-per-hour minimum wage in the United States phased in over several years would be in the same ballpark as Britain’s minimum wage today.

But $15 an hour is beyond international experience, and could well be counterproductive. Although some high-wage cities and states could probably absorb a $15-an-hour minimum wage with little or no job loss, it is far from clear that the same could be said for every state, city and town in the United States.

I think the emphasis on the redistributive effects of the minimum wage are misguided; we should not be asking how to maximize the minimum wage subject to avoiding job losses; but rather, how to increase the minimum wage in order to force higher productivity at the low end of the job scale. I’m not suggesting that all productivity gains in the economy should be reflected in the minimum wage – that’s obviously a ridiculous argument – but some of the gains can be enforced.

Brookfield Renewable Energy Partners L.P., proud indirect issuer of BRF.PR.A, BRF.PR.B, BRF.PR.C, BRF.PR.E and BRF.PR.F, has announced:

an agreement to acquire a hydroelectric portfolio in Pennsylvania from Talen Energy for $860 million. Brookfield Renewable will acquire and fund the transaction with institutional partners and maintain an economic interest in the portfolio of approximately 40 percent. A portion of the purchase price will be funded with third party investment grade, non-recourse financing expected to close concurrently with the transaction.

The portfolio consists of two facilities, the 252 MW Holtwood station on the Susquehanna River and the 40 MW Wallenpaupack station on Lake Wallenpaupack in the Pocono Mountains, with a combined expected average annual generation of approximately 1.1 million megawatt hours. The acquisition provides a strong fit with Brookfield Renewable’s 417 MW Safe Harbor facility located eight miles upstream from Holtwood. All output is currently sold into PJM and the portfolio benefits from a diverse revenue stream including energy, capacity, renewable energy credits and ancillary services. Both Holtwood and Wallenpaupack have long-term FERC operating licenses through 2030 and 2045, respectively.

DBRS comments:

DBRS Limited (DBRS) today notes that Brookfield Renewable Energy Partners L.P. (BREP or the Company, rated BBB (high)) has announced its acquisition of a 292-megawatt (MW) hydroelectric portfolio in Pennsylvania (the Acquisition). The Acquisition is not expected to have a material impact on BREP’s rating. DBRS views the Acquisition as modestly negative to BREP’s business risk assessment (BRA), as the generation output from the acquired assets (representing approximately 4% of total pro-forma generation) is exposed to the merchant power market. However, DBRS expects BREP to prudently finance the Acquisition in order to be in line with DBRS’s 20% deconsolidated debt-to-capital threshold and to maintain a financial risk assessment (FRA) that remains supportive of the current rating.

TransCanada also announced an acquisition:

TransCanada Corporation (TSX:TRP)(NYSE:TRP) (TransCanada) today announced that it has reached an agreement to acquire the Ironwood natural gas fired, combined cycle power plant in Lebanon, Pennsylvania, with a nameplate capacity of 778 megawatts (MW), from Talen Energy Corporation (NYSE:TLN) for US$654 million. At closing, US$42 million in debt will be assumed and then repaid within 45 days of closing out of funds placed into escrow by the seller.

“This acquisition presents a unique opportunity in the current market environment and is a natural extension of our U.S. northeast power business, strengthening our overall portfolio of assets in the region,” said Russ Girling, TransCanada’s president and chief executive officer. “This relatively new and highly efficient gas-fired power plant provides us with a solid platform from which to continue to grow our already substantial wholesale, commercial and industrial customer base in this market area.”

Sure beats trying to promote Keystone! Jim Polson and Rebecca Penty of Bloomberg comment:

Companies from the Great White North are attracted by fast-growing power demand in parts of the U.S. and a regulatory model that allows bigger profits for utility monopolies. Their purchases are propping up sale values of U.S. independent producers amid a slowdown in the sector, according to UBS Securities LLC.
…
Canadian energy companies, pension funds and private equity firms are also more willing than U.S. utility owners to bank on the volatile earnings from power plants that sell into U.S. wholesale markets, said Kit Konolige, senior utility analyst for Bloomberg Intelligence. TransCanada and Brookfield bought so-called merchant plants that had been owned by PPL Corp. before it spun off Talen Energy Corp. in June to focus on more predictable utility businesses.

And it’s not just power that Canadians are after. They’re also buying up U.S. oil and natural gas properties. Canada Pension Plan Investment Board, the country’s largest pension fund, said Thursday it isn’t done shopping for energy assets after committing almost $2 billion to the industry in the last two weeks. That includes a purchase announced Thursday of oil and gas producing properties in Colorado from Encana Corp.

Talen extracted “top dollar” for its deals this week, UBS analysts led by Julien Dumoulin-Smith wrote in a note.

So there’s lots of capital leaving Canada to buy power plants in the States. One has to wonder whether a more business-friendly regulatory environment would allow further increases in electricity exports while keeping the bucks and jobs up here:

U.S. electricity trade with Canada is increasing, providing more economic and reliability benefits to both the United States and Canada. Although the amount of electricity imported over the Canadian border is a small part of the overall U.S. power supply, the transmission connections linking Canada and the United States are an important component of the electricity markets in northern states.

Overall, Canada is a net exporter of electricity to the United States, and most of its power needs are met by hydroelectricity. Large hydroelectric projects in British Columbia, Manitoba, Quebec, and Newfoundland and Labrador have significantly increased the country’s generation capacity. On a net basis, Canada exports electricity mainly to New England, New York, and the Midwest states, while the United States exports electricity primarily from the Pacific Northwest states to the Canadian province of British Columbia.

As everybody knows, my company uses proprietary software (HIMIPref™) to examine the market for trade opportunities. Recently, PrefBlog’s corporate espionage department obtained information regarding hardware used for a similar purpose by other preferred share investors:

sellDie
Click for Big

It was another hideous day for the Canadian preferred share market, with PerpetualDiscounts off 24bp, FixedResets losing 96bp and DeemedRetractibles down 29bp; the YTW on FixedResets is, incredibly, edging closer to the 5.00% mark. The Performance Highlights table is, of course, lengthy, with three MFC issues notable losers. Volume was well above average.

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

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

Here’s TRP:

impVol_TRP_151009
Click for Big

Implied Volatility remained ridiculous.

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 14.75 to be $0.65 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.59 cheap at its bid price of 11.81.

impVol_MFC_151009
Click for Big

The fit deteriorated today for MFC, with Implied Volatility plummeting; this isn’t really surprising, given the large losses experienced by the three MFC issues at the extreme bad end of the Performance Highlights table.

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 21.38 to be 0.71 rich, while MFC.PR.K resetting at +222bp on 2018-9-19, is bid at 16.55 to be 0.78 cheap.

impVol_BAM_151009
Click for Big

The fit on the BAM issues continues to be horrible!

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.00 to be $0.90 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 19.30 and appears to be $0.69 rich.

impVol_FTS_151009
Click for Big

Implied Volatility jumped today and is ridiculously high.

FTS.PR.K, with a spread of +205bp, and bid at 16.81, looks $0.36 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 16.49 and is $0.30 cheap.

pairs_FR_151009
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.99%, with two outliers above 0.00% and two below -2.00%. The distribution is bimodal, with bank NVCC non-compliant pairs averaging -1.51% and other issues averaging -0.26%. There are three junk outliers above 0.00%.

pairs_FF_151009
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 0.5992 % 1,583.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.5992 % 2,768.9
Floater 4.69 % 4.72 % 62,933 16.04 3 0.5992 % 1,683.5
OpRet 0.00 % 0.00 % 0 0.00 0 0.0526 % 2,764.0
SplitShare 4.34 % 5.07 % 72,442 3.00 5 0.0526 % 3,239.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0526 % 2,527.4
Perpetual-Premium 5.95 % 5.90 % 59,045 14.00 5 -0.3955 % 2,448.5
Perpetual-Discount 5.76 % 5.84 % 78,228 14.16 33 -0.2373 % 2,472.5
FixedReset 5.36 % 4.95 % 196,608 14.88 76 -0.9550 % 1,903.2
Deemed-Retractible 5.34 % 5.38 % 101,730 5.47 33 -0.2883 % 2,494.3
FloatingReset 2.66 % 4.75 % 63,342 5.83 9 0.1447 % 2,046.3
Performance Highlights
Issue Index Change Notes
MFC.PR.K FixedReset -6.87 % Not entirely real, but the issue did indeed have a bad day! It traded 33,613 shares in a range of 16.81-17.83, but it appears that the bid simply vanished shortly before the close, with 100 shares trading at 17.02 at 3:40; the next trade was 100 shares, 16.83, 3:53; and the final trade 100 shares, 16.81, 3:53. This issue also made the volume highlights, with RBC buying 19,800 from Scotia at 17.75, timestamped 11:35.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.55
Bid-YTW : 8.82 %
MFC.PR.L FixedReset -6.51 % Real enough! The issue traded 20,593 shares in a range of 16.70-17.77 before closing at 16.65-00. The day ended with two trade bursts; one set, timestamped 3:33-3:34, totalled 2900 shares in nine trades, starting at 17.00 and ending at 16.97; but 1300 of these shares traded at 16.78. The second set, timestamped 3:53-3:54, totalled 1500 shares in seven trades, starting at 16.78 and ending at 16.70.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.65
Bid-YTW : 8.85 %
MFC.PR.M FixedReset -4.78 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.11
Bid-YTW : 7.87 %
RY.PR.J FixedReset -4.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 18.42
Evaluated at bid price : 18.42
Bid-YTW : 4.96 %
BAM.PR.T FixedReset -4.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 15.70
Evaluated at bid price : 15.70
Bid-YTW : 5.29 %
PWF.PR.T FixedReset -4.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 19.60
Evaluated at bid price : 19.60
Bid-YTW : 4.34 %
MFC.PR.N FixedReset -3.74 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.01
Bid-YTW : 7.87 %
BMO.PR.T FixedReset -3.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 17.52
Evaluated at bid price : 17.52
Bid-YTW : 4.73 %
TD.PF.D FixedReset -3.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 18.73
Evaluated at bid price : 18.73
Bid-YTW : 4.86 %
RY.PR.Z FixedReset -3.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 18.18
Evaluated at bid price : 18.18
Bid-YTW : 4.53 %
SLF.PR.H FixedReset -3.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.00
Bid-YTW : 8.96 %
RY.PR.H FixedReset -2.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 18.14
Evaluated at bid price : 18.14
Bid-YTW : 4.59 %
BMO.PR.W FixedReset -2.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 17.49
Evaluated at bid price : 17.49
Bid-YTW : 4.70 %
CM.PR.Q FixedReset -2.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 19.27
Evaluated at bid price : 19.27
Bid-YTW : 4.73 %
RY.PR.M FixedReset -2.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 18.25
Evaluated at bid price : 18.25
Bid-YTW : 4.88 %
CM.PR.O FixedReset -2.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 18.02
Evaluated at bid price : 18.02
Bid-YTW : 4.64 %
TD.PF.E FixedReset -2.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 19.52
Evaluated at bid price : 19.52
Bid-YTW : 4.78 %
PWF.PR.P FixedReset -2.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 13.68
Evaluated at bid price : 13.68
Bid-YTW : 4.51 %
NA.PR.S FixedReset -2.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 17.66
Evaluated at bid price : 17.66
Bid-YTW : 4.84 %
SLF.PR.G FixedReset -2.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.20
Bid-YTW : 9.36 %
TD.PF.B FixedReset -2.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 17.85
Evaluated at bid price : 17.85
Bid-YTW : 4.58 %
CU.PR.H Perpetual-Discount -1.96 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 22.19
Evaluated at bid price : 22.55
Bid-YTW : 5.91 %
TD.PF.A FixedReset -1.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 17.85
Evaluated at bid price : 17.85
Bid-YTW : 4.59 %
TD.PF.C FixedReset -1.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 17.51
Evaluated at bid price : 17.51
Bid-YTW : 4.66 %
RY.PR.N Perpetual-Discount -1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 22.04
Evaluated at bid price : 22.36
Bid-YTW : 5.63 %
BMO.PR.S FixedReset -1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 4.59 %
PWF.PR.K Perpetual-Discount -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 5.84 %
HSE.PR.G FixedReset -1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 21.83
Evaluated at bid price : 22.26
Bid-YTW : 4.99 %
FTS.PR.G FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 16.49
Evaluated at bid price : 16.49
Bid-YTW : 4.81 %
CM.PR.P FixedReset -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 4.66 %
TRP.PR.D FixedReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 15.63
Evaluated at bid price : 15.63
Bid-YTW : 5.44 %
BAM.PR.N Perpetual-Discount -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 19.88
Evaluated at bid price : 19.88
Bid-YTW : 6.03 %
BMO.PR.Y FixedReset -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 19.08
Evaluated at bid price : 19.08
Bid-YTW : 4.90 %
GWO.PR.R Deemed-Retractible -1.19 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.80
Bid-YTW : 7.39 %
RY.PR.W Perpetual-Discount -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 22.40
Evaluated at bid price : 22.66
Bid-YTW : 5.47 %
SLF.PR.J FloatingReset -1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.65
Bid-YTW : 10.14 %
IFC.PR.A FixedReset -1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.22
Bid-YTW : 9.62 %
BMO.PR.R FloatingReset -1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.50
Bid-YTW : 4.63 %
MFC.PR.B Deemed-Retractible -1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.18
Bid-YTW : 7.67 %
RY.PR.P Perpetual-Discount -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 23.40
Evaluated at bid price : 23.70
Bid-YTW : 5.57 %
RY.PR.O Perpetual-Discount -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 22.00
Evaluated at bid price : 22.30
Bid-YTW : 5.60 %
RY.PR.C Deemed-Retractible -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.55
Bid-YTW : 5.07 %
FTS.PR.H FixedReset 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 13.85
Evaluated at bid price : 13.85
Bid-YTW : 4.30 %
BAM.PF.G FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 19.30
Evaluated at bid price : 19.30
Bid-YTW : 5.10 %
TRP.PR.E FixedReset 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 16.25
Evaluated at bid price : 16.25
Bid-YTW : 5.32 %
MFC.PR.J FixedReset 1.31 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.53
Bid-YTW : 7.64 %
TRP.PR.A FixedReset 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 14.75
Evaluated at bid price : 14.75
Bid-YTW : 4.95 %
POW.PR.A Perpetual-Discount 1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 23.59
Evaluated at bid price : 23.86
Bid-YTW : 5.89 %
MFC.PR.H FixedReset 1.57 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.38
Bid-YTW : 6.24 %
BAM.PF.F FixedReset 1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 19.15
Evaluated at bid price : 19.15
Bid-YTW : 5.12 %
GWO.PR.N FixedReset 1.82 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.00
Bid-YTW : 9.48 %
BAM.PF.A FixedReset 2.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 18.79
Evaluated at bid price : 18.79
Bid-YTW : 5.21 %
BMO.PR.M FixedReset 2.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 3.73 %
TD.PR.T FloatingReset 2.59 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.40
Bid-YTW : 4.56 %
Volume Highlights
Issue Index Shares
Traded		 Notes
RY.PR.J FixedReset 63,708 TD bought 10,900 from RBC at 19.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 18.42
Evaluated at bid price : 18.42
Bid-YTW : 4.96 %
BAM.PF.H FixedReset 63,340 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 23.12
Evaluated at bid price : 24.92
Bid-YTW : 4.97 %
CM.PR.Q FixedReset 46,975 TD crossed 10,000 at 19.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 19.27
Evaluated at bid price : 19.27
Bid-YTW : 4.73 %
BAM.PF.A FixedReset 35,504 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 18.79
Evaluated at bid price : 18.79
Bid-YTW : 5.21 %
RY.PR.P Perpetual-Discount 34,438 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 23.40
Evaluated at bid price : 23.70
Bid-YTW : 5.57 %
MFC.PR.K FixedReset 33,613 RBC bought 19,800 from Scotia at 19,800.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.55
Bid-YTW : 8.82 %
There were 45 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.C Floater Quote: 10.00 – 11.49
Spot Rate : 1.4900
Average : 0.8503

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 10.00
Evaluated at bid price : 10.00
Bid-YTW : 4.76 %
RY.PR.J FixedReset Quote: 18.42 – 18.90
Spot Rate : 0.4800
Average : 0.2762

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 18.42
Evaluated at bid price : 18.42
Bid-YTW : 4.96 %
MFC.PR.H FixedReset Quote: 21.38 – 21.99
Spot Rate : 0.6100
Average : 0.4179

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.38
Bid-YTW : 6.24 %
RY.PR.H FixedReset Quote: 18.14 – 18.68
Spot Rate : 0.5400
Average : 0.3497

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 18.14
Evaluated at bid price : 18.14
Bid-YTW : 4.59 %
BNS.PR.C FloatingReset Quote: 21.26 – 21.84
Spot Rate : 0.5800
Average : 0.3931

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.26
Bid-YTW : 4.97 %
TRP.PR.E FixedReset Quote: 16.25 – 17.00
Spot Rate : 0.7500
Average : 0.5922

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-09
Maturity Price : 16.25
Evaluated at bid price : 16.25
Bid-YTW : 5.32 %
Market Action

October 8, 2015

The Fed didn’t hike rates in September largely due to global risks:

Federal Reserve officials put off an interest-rate increase in September because of growing risks, mainly from China, to their outlook for economic growth and inflation even as they continued to say they were on track to raise the target later this year.

Policy makers “agreed that developments over the inter-meeting period had not materially altered the committee’s economic outlook,” according to minutes of the Sept. 16-17 session of the Federal Open Market Committee, released Thursday in Washington. Nonetheless, “the committee decided that it was prudent to wait for additional information confirming that the economic outlook had not deteriorated.”

The FOMC noted that domestic economic conditions, including data on consumer spending and housing, had continued to improve, and the labor market had reached or was close to the committee’s long-run estimates for unemployment.

Still, concerns over China and its potential spillover to other economies “were likely to depress U.S. net exports” and cause further strengthening of the dollar, which could damp inflation in the U.S.

The torrent of global money into California real estate is slowing:

International buyers are accounting for the smallest share of California home sales in at least eight years as prices climb and investors from China, the biggest source of foreign purchases, slow buying, according to the state’s Realtors group.

The share of international buyers fell this year to less than 4 percent, compared with a peak of 8 percent in 2013, the California Association of Realtors said in a report Thursday. The findings are based on a survey conducted in June of about 1,000 real estate agents. Since 2008, the first year agents were surveyed on the subject, results have shown foreigners representing at least 5 percent of transactions.

An influx of foreign money has contributed to soaring real estate prices in the largest U.S. state, particularly in coastal areas where demand is high and new inventory is limited. Buyers from mainland China, Hong Kong and Taiwan made up 43 percent of international purchases in California this year, followed by 8 percent each from Mexico and South Korea, according to the survey.
…
The median price of a California home is expected to climb 6.5 percent this year to $476,300, making it harder to find deals, according to Appleton-Young. Chinese buyers have focused their purchasing on a few areas such as the San Gabriel Valley and Irvine, outside Los Angeles, and parts of the San Francisco Bay area with reputations for quality schools.

Across the U.S., buyers from China, Hong Kong and Taiwan spent an estimated $28.6 billion on homes in the 12 months through March, the National Association of Realtors reported in June, more than double the $11.2 billion spent by No. 2 Canada. The average price was $831,800 for Chinese purchasers, compared with $499,600 for all international buyers.

California accounted for 16 percent of U.S. sales to foreign buyers, behind Florida, which had 21 percent, the national association’s report said.

Let’s hope that some of that missing money finds its way into Canada!

Hillary Clinton wrote an op-ed outlining her attack on markets:

My plan would also give regulators the authority they need to reorganize, downsize or even break apart any financial institution that is too large and risky to be managed effectively. It is a comprehensive and flexible approach. It allows regulators to adapt to changing markets and help ensure that large financial firms never pose a danger to our entire economy.

Not because they’re in trouble – because they’re too large and risky! Coming up next … jail terms for those likely to commit an offence! Matt Levine of Bloomberg opines:

And yet you can see the populist appeal. Wall Street, to a lot of people, is Wall Street, and any attack on “Wall Street” sounds good. The political desire is to have a certain quantity of “tough on Wall Street,” but what actually goes into that toughness is arbitrary and unimportant. So Clinton also wants to “reinstate the ‘swaps push-out’ rule for banks’ derivatives trading, which was repealed at the behest of the banking lobby in last year’s budget deal.” I have long thought that swaps push-out is the purest piece of symbolic emotional identification in financial regulation, and I still think that, but for precisely that reason it resonates. No one knows what it does, and no one thinks that it matters, so it is useful as a pure abstract marker of what team you’re on.

But for those of us who are more interested in finance than in politics, this just seems weird. Wall Street is not a monolith, and being “tough on Wall Street” makes no sense. Regulating the parts of Wall Street that you don’t like can help out the parts of Wall Street that you do like. Lots of hedge fund managers will be thrilled by a crackdown on high-frequency trading.15 Cracking down on small automated competitors to banks might be good for banks. There are Wall Street winners and Wall Street losers to all sorts of Wall Street regulation, and a pure quantity theory of toughness elides those differences.

Canada’s wealth management industry is asking the Ontario government for tighter regulations to restrict competition in the wealth management industry:

Canada’s wealth management industry is asking the Ontario government for tighter regulations governing financial planners and advisers.

Earlier this year, the province launched an expert committee to review the regulations, and a number of financial industry groups have responded by asking the government to enact a general legislative framework for advisers and planners.

Currently, throughout most of Canada, no general legal framework exists to regulate the activities of individuals who offer financial planning, advice and services. That means that in every province (excluding Quebec) any individual can call himself a financial planner – regardless of certification, designation or educational background.

The absence of a legal framework has raised questions within the industry about proficiency, quality standards and potential conflicts of interest.

… and competition from outfits that are not banks. That’s a real problem. However, the banks have shown their willingness in the past to pay regulators to expand their hegemony over the financial system, so guess what’s going to happen next?

Here’s a feel-good story about Canadian service sector innovation:

Like everyone, Cris Jucan has had his share of frustrating restaurant experiences. He remembers one vividly, a few years ago, when he and his friends were sitting around on a patio waiting to order drinks.

They joked that one of them should call the restaurant – on the phone – and ask that a server be sent over. That’s when the veritable light bulb went off.

Mr. Jucan, with his background in IT, wasted no time in founding Tacit Innovations, a startup that would seek to improve the restaurant experience by allowing patrons to browse menus and order meals with their phones.
…
Toronto-based Tacit Innovations, now up to 15 employees, is one of a growing number of companies tapping into the increasing tech savviness of restaurant owners and their desire to improve efficiencies, profits and customer experiences.

Veritable light bulb? I believe the writer meant “proverbial”.

But how about that preferred share market, eh? It was a walk in the park!

burning-trees
Click for Big

The Canadian preferred share market was hammered today, with PerpetualDiscounts off 45bp, FixedResets losing 169bp and DeemedRetractibles down 78bp. I cannot find sufficient superlatives to describe the Performance Highlights table. Volume was very high.

It is possible that the market was reacting to the news of the new private placement from BMO, which pays 5.85% … if this is a dividend and the bank needs the money that much, then the drop is justified. If the payments are taxed as interest, not so much. I don’t know. Or it could be the market just going down because it felt like it. I don’t know about that, either.

On a cheerier note, the increases in observed Implied Volatility suggest to me that we’re seeing some bottom feeding in the market, with the speculators (and, perhaps, long term buyers) seeking out the lowest-spread, lowest-priced issues (because then they get more leverage to future increases in GOC-5) and supporting their price relative to that of their higher-spread, higher-priced cousins. If so, it implies heightened awareness … and it is also possible that the new BMO issue represents an institutional desire to get in on the action with some serious money. This is what will eventually turn the tide, of course. But not yet!

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:

impVol_TRP_151008
Click for Big

Implied Volatility rocketed upwards today and is now ridiculous.

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 14.55 to be $0.49 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.52 cheap at its bid price of 11.83.

impVol_MFC_151008
Click for Big

Another good fit today for MFC, with Implied Volatility jumping up.

Most expensive is MFC.PR.M, resetting at +236bp on 2019-12-19, bid at 19.02 to be 0.81 rich, while MFC.PR.J resetting at +261bp on 2018-3-19, is bid at 18.29 to be 0.89 cheap.

impVol_BAM_151008
Click for Big

The fit on the BAM issues continues to be horrible, and Implied Volatility actually declined! But the relationship between the BAM FixedResets is just a mess, so I’m not taking it too seriously.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.01 to be $0.87 cheap. BAM.PR.X, resetting at +180bp on 2017-6-30 is bid at 14.03 and appears to be $0.67 rich.

impVol_FTS_151008
Click for Big

Implied Volatility declined today but remains ridiculously high.

FTS.PR.K, with a spread of +205bp, and bid at 16.70, looks $0.21 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 16.70 and is $0.14 cheap.

pairs_FR_151008
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.00%, with two outliers above 0.00% and two below -2.00%. The distribution is bimodal, with bank NVCC non-compliant pairs averaging -1.55% and other issues averaging -0.23%. There are three junk outliers above 0.00%.

pairs_FF_151008
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 0.1667 % 1,574.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.1667 % 2,752.4
Floater 4.72 % 4.73 % 63,976 16.01 3 0.1667 % 1,673.5
OpRet 0.00 % 0.00 % 0 0.00 0 -0.2496 % 2,762.6
SplitShare 4.34 % 5.06 % 71,512 4.47 5 -0.2496 % 3,237.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2496 % 2,526.1
Perpetual-Premium 5.92 % 5.87 % 57,953 14.00 5 -0.8087 % 2,458.2
Perpetual-Discount 5.75 % 5.80 % 78,691 14.19 33 -0.4507 % 2,478.4
FixedReset 5.31 % 4.85 % 196,358 14.95 76 -1.6946 % 1,921.5
Deemed-Retractible 5.32 % 5.42 % 101,858 5.47 33 -0.7806 % 2,501.5
FloatingReset 2.68 % 4.88 % 62,838 5.83 9 -0.7755 % 2,043.3
Performance Highlights
Issue Index Change Notes
MFC.PR.J FixedReset -5.53 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.29
Bid-YTW : 7.75 %
TD.PF.E FixedReset -4.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 20.01
Evaluated at bid price : 20.01
Bid-YTW : 4.59 %
MFC.PR.G FixedReset -4.82 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.57
Bid-YTW : 7.08 %
RY.PR.J FixedReset -4.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 19.29
Evaluated at bid price : 19.29
Bid-YTW : 4.66 %
TRP.PR.E FixedReset -4.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 16.04
Evaluated at bid price : 16.04
Bid-YTW : 5.30 %
TD.PF.D FixedReset -4.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 19.37
Evaluated at bid price : 19.37
Bid-YTW : 4.64 %
TRP.PR.D FixedReset -4.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 15.82
Evaluated at bid price : 15.82
Bid-YTW : 5.28 %
TRP.PR.G FixedReset -4.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 5.30 %
RY.PR.M FixedReset -3.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.75
Evaluated at bid price : 18.75
Bid-YTW : 4.68 %
NA.PR.W FixedReset -3.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 17.42
Evaluated at bid price : 17.42
Bid-YTW : 4.64 %
MFC.PR.I FixedReset -3.57 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.72
Bid-YTW : 7.03 %
IFC.PR.A FixedReset -3.45 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.40
Bid-YTW : 9.39 %
BMO.PR.Y FixedReset -3.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 19.31
Evaluated at bid price : 19.31
Bid-YTW : 4.77 %
HSE.PR.E FixedReset -3.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 21.66
Evaluated at bid price : 22.00
Bid-YTW : 5.01 %
TD.PR.T FloatingReset -3.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.86
Bid-YTW : 5.01 %
TD.PF.C FixedReset -3.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 17.85
Evaluated at bid price : 17.85
Bid-YTW : 4.49 %
TRP.PR.A FixedReset -3.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 4.93 %
IFC.PR.C FixedReset -2.98 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.54
Bid-YTW : 7.48 %
BAM.PR.X FixedReset -2.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 14.03
Evaluated at bid price : 14.03
Bid-YTW : 4.98 %
TD.PF.F Perpetual-Discount -2.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 22.18
Evaluated at bid price : 22.53
Bid-YTW : 5.43 %
TD.PF.A FixedReset -2.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.20
Evaluated at bid price : 18.20
Bid-YTW : 4.42 %
TD.PF.B FixedReset -2.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.22
Evaluated at bid price : 18.22
Bid-YTW : 4.41 %
NA.PR.S FixedReset -2.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.06
Evaluated at bid price : 18.06
Bid-YTW : 4.65 %
BMO.PR.W FixedReset -2.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 17.98
Evaluated at bid price : 17.98
Bid-YTW : 4.49 %
MFC.PR.H FixedReset -2.55 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.05
Bid-YTW : 6.38 %
SLF.PR.E Deemed-Retractible -2.54 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.60
Bid-YTW : 7.87 %
SLF.PR.C Deemed-Retractible -2.51 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.40
Bid-YTW : 7.96 %
POW.PR.A Perpetual-Discount -2.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 23.20
Evaluated at bid price : 23.50
Bid-YTW : 5.98 %
BAM.PF.G FixedReset -2.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 19.08
Evaluated at bid price : 19.08
Bid-YTW : 5.09 %
BMO.PR.T FixedReset -2.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.20
Evaluated at bid price : 18.20
Bid-YTW : 4.47 %
SLF.PR.G FixedReset -2.36 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.50
Bid-YTW : 9.04 %
RY.PR.Z FixedReset -2.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 4.30 %
SLF.PR.B Deemed-Retractible -2.32 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.66
Bid-YTW : 7.48 %
BNS.PR.C FloatingReset -2.29 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.31
Bid-YTW : 4.94 %
SLF.PR.D Deemed-Retractible -2.26 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.43
Bid-YTW : 7.94 %
SLF.PR.I FixedReset -2.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.98
Bid-YTW : 7.31 %
FTS.PR.H FixedReset -2.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 13.70
Evaluated at bid price : 13.70
Bid-YTW : 4.25 %
GWO.PR.I Deemed-Retractible -2.14 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.14
Bid-YTW : 7.49 %
SLF.PR.A Deemed-Retractible -2.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.60
Bid-YTW : 7.46 %
BAM.PR.R FixedReset -1.96 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 15.01
Evaluated at bid price : 15.01
Bid-YTW : 5.32 %
GWO.PR.G Deemed-Retractible -1.94 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.27
Bid-YTW : 6.87 %
RY.PR.O Perpetual-Discount -1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 22.18
Evaluated at bid price : 22.53
Bid-YTW : 5.53 %
CM.PR.P FixedReset -1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 17.72
Evaluated at bid price : 17.72
Bid-YTW : 4.52 %
BAM.PF.B FixedReset -1.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 5.22 %
BAM.PF.F FixedReset -1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.85
Evaluated at bid price : 18.85
Bid-YTW : 5.13 %
FTS.PR.K FixedReset -1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 4.63 %
MFC.PR.M FixedReset -1.76 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.02
Bid-YTW : 7.16 %
CM.PR.Q FixedReset -1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 4.54 %
PWF.PR.S Perpetual-Discount -1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 20.53
Evaluated at bid price : 20.53
Bid-YTW : 5.86 %
GWO.PR.H Deemed-Retractible -1.63 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.16
Bid-YTW : 7.20 %
CU.PR.C FixedReset -1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.40
Evaluated at bid price : 18.40
Bid-YTW : 4.48 %
MFC.PR.L FixedReset -1.60 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.81
Bid-YTW : 7.87 %
RY.PR.N Perpetual-Discount -1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 22.44
Evaluated at bid price : 22.74
Bid-YTW : 5.53 %
RY.PR.H FixedReset -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.70
Evaluated at bid price : 18.70
Bid-YTW : 4.37 %
BMO.PR.S FixedReset -1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 4.43 %
CM.PR.O FixedReset -1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.51
Evaluated at bid price : 18.51
Bid-YTW : 4.43 %
BAM.PF.A FixedReset -1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.42
Evaluated at bid price : 18.42
Bid-YTW : 5.23 %
GWO.PR.R Deemed-Retractible -1.41 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.05
Bid-YTW : 7.22 %
BNS.PR.B FloatingReset -1.40 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.15
Bid-YTW : 4.88 %
GWO.PR.L Deemed-Retractible -1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.26
Bid-YTW : 6.13 %
PWF.PR.T FixedReset -1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 20.43
Evaluated at bid price : 20.43
Bid-YTW : 4.08 %
MFC.PR.N FixedReset -1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.71
Bid-YTW : 7.31 %
GWO.PR.P Deemed-Retractible -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.36
Bid-YTW : 6.41 %
PWF.PR.G Perpetual-Premium -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 24.51
Evaluated at bid price : 24.74
Bid-YTW : 5.97 %
PWF.PR.H Perpetual-Premium -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 24.21
Evaluated at bid price : 24.50
Bid-YTW : 5.87 %
BSC.PR.C SplitShare -1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2020-09-22
Maturity Price : 19.71
Evaluated at bid price : 19.73
Bid-YTW : 4.04 %
BNS.PR.Q FixedReset -1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.51
Bid-YTW : 4.12 %
PWF.PR.O Perpetual-Premium -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 24.36
Evaluated at bid price : 24.66
Bid-YTW : 5.88 %
PWF.PR.L Perpetual-Discount -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 21.98
Evaluated at bid price : 22.21
Bid-YTW : 5.74 %
BAM.PF.E FixedReset -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 17.61
Evaluated at bid price : 17.61
Bid-YTW : 5.18 %
MFC.PR.B Deemed-Retractible -1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.40
Bid-YTW : 7.51 %
TD.PR.Y FixedReset -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.32
Bid-YTW : 4.23 %
BAM.PR.Z FixedReset -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.81
Evaluated at bid price : 18.81
Bid-YTW : 5.22 %
FTS.PR.J Perpetual-Discount -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 5.74 %
BNS.PR.Y FixedReset -1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.31
Bid-YTW : 6.22 %
W.PR.J Perpetual-Discount 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 22.90
Evaluated at bid price : 23.17
Bid-YTW : 6.06 %
W.PR.H Perpetual-Discount 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 22.77
Evaluated at bid price : 23.05
Bid-YTW : 5.99 %
TRP.PR.F FloatingReset 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 12.95
Evaluated at bid price : 12.95
Bid-YTW : 4.51 %
BNS.PR.D FloatingReset 1.57 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.81
Bid-YTW : 6.13 %
Volume Highlights
Issue Index Shares
Traded		 Notes
BAM.PF.H FixedReset 120,965 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 23.13
Evaluated at bid price : 24.95
Bid-YTW : 4.94 %
CU.PR.I FixedReset 100,754 Scotia crossed blocks of 35,000 and 20,000, both at 24.96.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 23.12
Evaluated at bid price : 24.91
Bid-YTW : 4.43 %
TD.PF.D FixedReset 80,593 RBC crossed 48,500 at 19.60.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 19.37
Evaluated at bid price : 19.37
Bid-YTW : 4.64 %
TRP.PR.D FixedReset 61,504 Nesbitt crossed 27,200 at 16.05.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 15.82
Evaluated at bid price : 15.82
Bid-YTW : 5.28 %
RY.PR.P Perpetual-Discount 50,315 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 23.63
Evaluated at bid price : 23.95
Bid-YTW : 5.51 %
RY.PR.J FixedReset 43,403 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 19.29
Evaluated at bid price : 19.29
Bid-YTW : 4.66 %
There were 54 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PR.T FloatingReset Quote: 20.86 – 21.68
Spot Rate : 0.8200
Average : 0.5423

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.86
Bid-YTW : 5.01 %
CU.PR.C FixedReset Quote: 18.40 – 19.30
Spot Rate : 0.9000
Average : 0.6277

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 18.40
Evaluated at bid price : 18.40
Bid-YTW : 4.48 %
TD.PF.C FixedReset Quote: 17.85 – 18.50
Spot Rate : 0.6500
Average : 0.4686

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 17.85
Evaluated at bid price : 17.85
Bid-YTW : 4.49 %
TD.PF.F Perpetual-Discount Quote: 22.53 – 22.95
Spot Rate : 0.4200
Average : 0.2636

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 22.18
Evaluated at bid price : 22.53
Bid-YTW : 5.43 %
TRP.PR.A FixedReset Quote: 14.55 – 15.27
Spot Rate : 0.7200
Average : 0.5715

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 4.93 %
W.PR.H Perpetual-Discount Quote: 23.05 – 23.70
Spot Rate : 0.6500
Average : 0.5042

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-08
Maturity Price : 22.77
Evaluated at bid price : 23.05
Bid-YTW : 5.99 %
New Issues

New Issue (Private): BMO FixedReset (?) 5.85%+???

Bank of Montreal has announced:

that it has entered into an agreement to privately place its Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 36 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 36”). BMO Capital Markets is acting as the sole agent on the transaction. Bank of Montreal will issue 600,000 Preferred Shares Series 36 at a price of $1,000 per share to raise gross proceeds of $600 million. The closing of the offering is scheduled to occur on October 16, 2015, subject to the satisfaction of certain closing conditions. The net proceeds will be used by the Bank for general corporate purposes.

Holders will be entitled to receive non-cumulative preferential fixed quarterly dividends as and when declared by the board of directors of the Bank, payable in the amount of $14.625 per share, to yield 5.85 per cent annually. Subject to regulatory approval, on or after November 25, 2020, the Bank may redeem the Preferred Shares in whole or in part for an amount equal to $1,000 per Preferred Share Series 36 together with declared and unpaid dividends to the date fixed for redemption.

So this is a strange one on a great many levels and we probably won’t really be able to understand this issue until we get the BMO 2015 Annual Report – and perhaps not even then!

So first off, it’s a private placement. The only private placement of preferred shares – from an investment-grade, major public issuer – that I can recall is BNS.PR.S, FixedReset, 6.25%+384, which closed December 12, 2008 after having been announced December 3, 2008; $250-million issued to Sun Life Financial as part payment for CI Financial Income Fund. In that case, details were later available on SEDAR, but there was a difference in that BNS.PR.S was the private placement of a public issue, while there is nothing in the current announcement to indicate that this issue will be – at least theoretically – tradable by the public. At $1,000 per share par value, my guess is “no”!

Second, there’s the size of the thing. $600-million, done without a whisper, so one can well presume that it was to an individual client or, possibly, a small consortium of clients. Now my question is: who’s got that kind of money? The size represents roughly 1% of the entire Canadian preferred share market; while there are a fee issues that are in that ballpark (RY.PR.J, $600-million; FTS.PR.M, $600-million; TRP.PR.D, $600-million; TRP.PR.A / TRP.PR.F weighs in at $550-million; BMO.PR.S, $500-million; RY.PR.H, $500-million; ) they were all issued at a time when the preferred share market was, shall we say, a little more robust than it is now.

Who’s got that kind of money? I suggest that there are two logical places to look for people who can throw down amounts like this: pension funds and foreigners. But the problem is … pension funds and foreigners don’t get the benefit of the Dividend Tax Credit and Gross-up (although foreigners could do it through a Canadian subsidiary). So why would they care about preferred share dividends. Which leads us to the next question …

Thirdly, does it pay dividends or interest? On the one hand the word “dividends” is used twice in the press release; on the other hand, so what? I don’t think anybody will go to jail if they refer to the payments as dividends in a press release, but then call it interest when preparing the tax slips – of course, I could be wrong on that! But 5.85% is a whacking great huge rate for a dividend; it will be recalled that BAM did a recent issue at 5% after CU did one at 4.50%. BMO is still Pfd-2 by DBRS although only P-3(high) from S&P. Do they really need to pay 5.85%? Are they really that short of capital?

I suspect they aren’t; and I note that when you divide 5.85% by the standard equivalency factor of 1.3, you get 4.5% (exactly!) which is at least in the ballpark of where they would be willing to do a public issue (whether they actually could do it in size in the present environment is another question!). So, from two perspectives (three, if you include the $1,000 par value) it makes sense that this 5.85% is an interest rate, not a dividend rate; but whether or not this is true will have to await confirmation.

And fourthly, what’s the Issue Reset Spread? We are told that this issue represents “(Non-Viability Contingent Capital (NVCC))” which suggests that OSFI has blessed the issue and OSFI won’t (quite rightly) allow step-ups, so the spread won’t be much more than +500bp over five-year Canadas; but it could, conceivably, be less. Another mystery! And we’re not even sure if the touted “Rate Reset” bears any relation to the standard terms of public FixedReset issues. The underlying rate could be just about anything and the reset frequency is equally obscure.

Hat tip to Assiduous Readers JB, GB and LM, who ensured I was informed of this issue!

Market Action

October 7, 2015

Morgan Stanley’s got an interesting view on the next Fed move – more easing!

Morgan Stanley, one of the 22 primary dealers that trade directly with the Fed, says its clients began discussing the possibility that central bankers will resume bond purchases — or cut interest rates to below zero — after a weaker-than-forecast U.S. employment report last week. The firm recommends buying medium-term Treasuries.

Another set of bond purchases would be the fourth round of the Fed’s program known as quantitative easing, dubbed QE4 by traders.

“Almost immediately after September nonfarm payrolls figures flashed on the screen, the phones started ringing,” Matthew Hornbach, Morgan Stanley’s head of global interest rate strategy in New York, wrote in a report Oct. 6. “What’s more likely: QE4 or negative rates?”

Deutsche Bank is writing off $7-billion:

The firm said it expects to book a 5.8 billion-euro writedown as higher capital requirements reduce the value of its investment bank and it adjusts the estimate of what it will receive in the disposal of its Postbank unit. The Frankfurt-based lender also is adding about 1.2 billion euros to its litigation reserves.
…
[Deutsche Bank AG co-Chief Executive Officer John] Cryan is seeking to avoid tapping shareholders for funds while focusing on reorganizing the bank to meet growing demands for buffers from regulators.
…
Deutsche Bank had turned to Postbank to diversify its funding mix by boosting consumer deposits in the midst of the global financial crisis. With its disposal, Deutsche Bank will cut its workforce by about 15,000, and the lender is considering cutting 8,000 additional jobs, a person with knowledge of the matter said last month.

Hillary Clinton attacked the markets today:

Hillary Clinton will propose a tax aimed at penalizing “harmful” high-frequency trading strategies and offer ways to strengthen the Volcker Rule, among other measures, as she unveils another set of proposals Thursday aimed at what she has termed risky Wall Street behavior.

The Democratic presidential front-runner plans to call for a tax targeting trading strategies that rely heavily on order cancellations, a Clinton aide said Wednesday, previewing her announcements on the condition of anonymity.
…
She will also suggest adjusting the Volcker Rule, by eliminating a provision that allows banks to invest up to three percent of their capital in hedge funds and reinstating the “swaps push-out” rule of Dodd-Frank, which was removed last year.

Swaps push-out rule?

Specifically, certain un-cleared credit default swaps comprised most of the contracts that were included in the push-out rule, or Section 716 of the Dodd-Frank Act. The rule requires banks that wished engaged in this activity to place them in separate affiliates with higher capital requirements. As such, they would not be funded through the deposit gathering activities of banks, seen as an important lesson from the financial crisis.

“It is illogical to repeal the 716 push out requirement,” Federal Deposit Insurance Corporation vice chairman Thomas Hoenig, a former Federal Reserve Bank regional president, said last week. ”The main items that must be pushed out under 716 are uncleared credit default swaps (CDS), equity derivatives and commodities derivatives. These are, in relative terms, much smaller and where the greater risks and capital subsidy is most useful to these banking firms,” he said.

According to industry estimates, such contracts represent only 5 percent of the swaps universe. As Hoenig also noted, most firms have ”broker-dealer affiliates where they can place these activities, but these affiliates are not as richly subsidized, which helps explain these firms’ resistance to 716 push out.”

She also voiced discontent with the TPP:

Democratic presidential candidate Hillary Clinton voiced her opposition Wednesday to the Trans-Pacific Partnership trade deal, bucking her former boss and creating more distance between herself and possible primary rival Vice President Joe Biden.

“What I know about it, as of today, I am not in favor of what I have learned about it,” the former secretary of state said in an interview with PBS News Hour. “I don’t believe it’s going to meet the high bar I have set.”

Clinton was generally supportive of the deal during her four years working in President Barack Obama’s administration and allowed for some wiggle room to still support TPP or other future trade deals. In a written statement sent after the interview was released, she stipulated that she is “continuing to learn about the deals” of the agreement.
…
Vermont Senator Bernie Sanders, Clinton’s main challenger in the race, drew attention to the amount of time it took her to come to a verdict on an issue he has long opposed.

“I’m glad that she reached that conclusion,” he told reporters in Washington. “This is a conclusion that I reached on day one.”

But attacking the market is quite fashionable – even Blackrock is in on the action:

BlackRock Inc., the world’s biggest asset manager, has its own remedy for days of extraordinary volatility in the U.S. equity market: Shut it down.

Among the fund company’s suggestions: The entire $23 trillion market should automatically come to a halt if a certain number of shares stop trading, giving traders time to regroup on a wild day, according to BlackRock. Tweaking the rules on halts and making all stock openings electronic are among other ideas in a paper published Wednesday by the firm.
…
Among other concerns are the widespread use of stop orders by retail investors, which many on Wall Street believe contributed to the volatility. Two people familiar with the matter said there have been discussions with brokers that offer stop orders about educating their clients on how to use them.

While stop orders sound like they can protect an investor, they actually send an instruction to an exchange to execute a trade immediately at any price, commonly known as a market order. In volatile markets, that can mean orders to sell securities as prices are plunging. Data from NYSE show that it had nine times the number of market orders on Aug. 24 compared with an average day. Market orders as a percent of executed volume were four times higher than usual.

“Excessive use of market and stop-loss orders that seek ‘liquidity at any price’ inflamed the situation,” said the BlackRock paper, which recommended investors use limit orders instead.

As we all know by now, Canadians have a right to buy a house wherever they want at a price of their own choosing. This God-given right is attracting wider attention:

Despite British Columbia’s aversion to pipelines and affection for pot, housing affordability has pushed both aside as the number one issue raised by area residents in the run-up to Canada’s election this month. It’s not completely surprising given that Vancouver has become North America’s most expensive city.

Surging purchase prices have triggered protest movements like #donthave1million, started by a group of young professionals frustrated at being shut out of home ownership. They complain of having to delay starting families as they remain bunked in with roommates, often into their 30s and beyond.

The affordability issue speaks to broader campaign themes: the difficulty young people face getting established in the labor market, the economic anxieties of the middle class, growing concerns about income inequality, support for families with children. Residents also increasingly point fingers at wealthy Chinese immigrants and investors whose lavish embrace of the Pacific metropolis of 2.5 million has inspired reality TV shows with such gaudy names as “Ultra Rich Asian Girls in Vancouver.”

It’s happening in Japan, too:

Realty agencies in Beijing are organizing twice-monthly tours to Tokyo and Osaka, where 40 Chinese at a time come for three-day property-shopping trips, seeking safe places to invest their cash abroad. They’re being prompted by the yen’s decline to 22-year lows and excitement over the 2020 Tokyo Olympics driving up prices, as they did in Beijing in 2008. Property tours will soon start from Shanghai too.

Partly as a result of nascent Chinese buying, Tokyo apartment prices have reached the highest levels since the early 1990s, up 11 percent over two years, according to the Real Estate Economic Institute Co.
…
While the home price-to-income ratio — the cost of a home relative to a buyer’s average annual income — rose to more than 10 times in Tokyo last year, according to according to property appraisal company Tokyo Kantei Co., it’s still below the 18 times it reached during the bubble era in the late 1980s and early 1990s.

Yet another federal candidate has been dumped by his party:

A party spokeswoman said Tuesday night that Grewal’s comments “are not reflective of the views of the Conservative Party of Canada.”

We are getting to the point at which only three all-encompassing political stances, carefully vetted by the party leaders’ offices, will be permitted in the House of Commons. This will give us more opportunity to complain that MPs are nothing more than trained seals, so that’s good, right?

It was another poor day for the Canadian preferred share market, with PerpetualDiscounts down 18bp, FixedResets off 5bp and DeemedRetractibles losing 33bp. Insurance issues and TRP were again prominent on the bad side of the lengthy Performance Highlights table. Volume was high.

PerpetualDiscounts now yield 5.79%, equivalent to 7.53% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little over 4.2%, so the pre-tax interest-equivalent spread is now about 330bp, a slight (and perhaps spurious) widening from the 325bp reported September 30.

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:

impVol_TRP_151007
Click for Big

Implied Volatility remained at an unreasonable level today.

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 15.00 to be $0.61 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.69 cheap at its bid price of 11.80.

impVol_MFC_151007
Click for Big

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

Most expensive is MFC.PR.M, resetting at +236bp on 2019-12-19, bid at 19.36 to be 0.66 rich, while MFC.PR.J resetting at +261bp on 2018-3-19, is bid at 19.36 to be 0.38 cheap.

impVol_BAM_151007
Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 15.31 to be $0.82 cheap. BAM.PR.X, resetting at +180bp on 2017-6-30 is bid at 14.45 and appears to be $0.91 rich.

impVol_FTS_151007
Click for Big

Implied Volatility increased again today to an even more ridiculously high level.

FTS.PR.K, with a spread of +205bp, and bid at 17.00, looks $0.37 expensive and resets 2019-3-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 18.05 and is $0.18 cheap.

pairs_FR_151007A
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.01%, with one outlier above 0.00%. The distribution is bimodal, with bank NVCC non-compliant pairs averaging -1.32% and other issues averaging -0.57%. There are three junk outliers above 0.00%.

pairs_FF_151007
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 0.0334 % 1,571.6
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0334 % 2,747.8
Floater 4.73 % 4.74 % 63,225 16.00 3 0.0334 % 1,670.7
OpRet 0.00 % 0.00 % 0 0.00 0 0.2627 % 2,769.5
SplitShare 4.33 % 4.98 % 70,767 3.01 5 0.2627 % 3,245.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2627 % 2,532.4
Perpetual-Premium 5.88 % 5.80 % 56,812 2.80 5 0.3778 % 2,478.2
Perpetual-Discount 5.72 % 5.79 % 74,105 14.18 33 -0.1820 % 2,489.6
FixedReset 5.21 % 4.83 % 195,704 15.13 76 -0.0541 % 1,954.7
Deemed-Retractible 5.28 % 5.15 % 102,660 5.48 33 -0.3339 % 2,521.2
FloatingReset 2.66 % 4.53 % 63,560 5.84 9 0.0805 % 2,059.3
Performance Highlights
Issue Index Change Notes
SLF.PR.H FixedReset -4.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.50
Bid-YTW : 8.46 %
TRP.PR.B FixedReset -2.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 11.16
Evaluated at bid price : 11.16
Bid-YTW : 4.72 %
POW.PR.D Perpetual-Discount -2.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 5.85 %
CU.PR.C FixedReset -2.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 18.70
Evaluated at bid price : 18.70
Bid-YTW : 4.41 %
FTS.PR.M FixedReset -1.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 18.05
Evaluated at bid price : 18.05
Bid-YTW : 4.85 %
PWF.PR.K Perpetual-Discount -1.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 5.77 %
SLF.PR.A Deemed-Retractible -1.73 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.03
Bid-YTW : 7.17 %
SLF.PR.B Deemed-Retractible -1.63 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.15
Bid-YTW : 7.15 %
MFC.PR.F FixedReset -1.50 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.83
Bid-YTW : 9.86 %
SLF.PR.C Deemed-Retractible -1.49 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.90
Bid-YTW : 7.60 %
MFC.PR.J FixedReset -1.48 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.36
Bid-YTW : 6.98 %
ELF.PR.F Perpetual-Discount -1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 22.09
Evaluated at bid price : 22.37
Bid-YTW : 5.94 %
MFC.PR.C Deemed-Retractible -1.33 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.03
Bid-YTW : 7.59 %
TRP.PR.E FixedReset -1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 16.78
Evaluated at bid price : 16.78
Bid-YTW : 5.06 %
TRP.PR.G FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 18.76
Evaluated at bid price : 18.76
Bid-YTW : 5.08 %
PWF.PR.T FixedReset -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 20.70
Evaluated at bid price : 20.70
Bid-YTW : 4.03 %
BAM.PR.R FixedReset -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 15.31
Evaluated at bid price : 15.31
Bid-YTW : 5.21 %
MFC.PR.K FixedReset -1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.81
Bid-YTW : 7.76 %
GWO.PR.G Deemed-Retractible -1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.71
Bid-YTW : 6.59 %
POW.PR.B Perpetual-Discount -1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 22.56
Evaluated at bid price : 22.82
Bid-YTW : 5.88 %
TRP.PR.D FixedReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 5.06 %
GWO.PR.R Deemed-Retractible -1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.35
Bid-YTW : 7.02 %
MFC.PR.B Deemed-Retractible -1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.62
Bid-YTW : 7.36 %
ELF.PR.H Perpetual-Discount -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 22.85
Evaluated at bid price : 23.22
Bid-YTW : 5.93 %
SLF.PR.D Deemed-Retractible -1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.88
Bid-YTW : 7.61 %
TD.PF.E FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 21.05
Evaluated at bid price : 21.05
Bid-YTW : 4.37 %
GWO.PR.I Deemed-Retractible -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.58
Bid-YTW : 7.19 %
BAM.PF.G FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 19.56
Evaluated at bid price : 19.56
Bid-YTW : 4.96 %
FTS.PR.J Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 21.22
Evaluated at bid price : 21.22
Bid-YTW : 5.67 %
HSE.PR.A FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 13.30
Evaluated at bid price : 13.30
Bid-YTW : 4.89 %
BAM.PF.E FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 17.80
Evaluated at bid price : 17.80
Bid-YTW : 5.12 %
TD.PF.C FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 18.41
Evaluated at bid price : 18.41
Bid-YTW : 4.35 %
BSC.PR.C SplitShare 1.22 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-22
Maturity Price : 19.71
Evaluated at bid price : 19.95
Bid-YTW : 2.89 %
BAM.PF.A FixedReset 1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 18.70
Evaluated at bid price : 18.70
Bid-YTW : 5.15 %
BAM.PF.B FixedReset 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 17.62
Evaluated at bid price : 17.62
Bid-YTW : 5.12 %
TRP.PR.A FixedReset 1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 15.00
Evaluated at bid price : 15.00
Bid-YTW : 4.77 %
RY.PR.H FixedReset 1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 4.30 %
RY.PR.J FixedReset 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 20.25
Evaluated at bid price : 20.25
Bid-YTW : 4.43 %
RY.PR.Z FixedReset 2.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 19.25
Evaluated at bid price : 19.25
Bid-YTW : 4.20 %
BAM.PR.X FixedReset 3.96 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 14.45
Evaluated at bid price : 14.45
Bid-YTW : 4.83 %
Volume Highlights
Issue Index Shares
Traded		 Notes
BAM.PF.H FixedReset 170,510 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 23.16
Evaluated at bid price : 25.05
Bid-YTW : 4.91 %
CU.PR.I FixedReset 89,211 RBC crossed 25,000 at 25.05. Nesbitt crossed blocks of 25,000 and 20,000, both at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 23.15
Evaluated at bid price : 25.01
Bid-YTW : 4.41 %
RY.PR.P Perpetual-Discount 82,029 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 23.72
Evaluated at bid price : 24.05
Bid-YTW : 5.48 %
RY.PR.Z FixedReset 61,910 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 19.25
Evaluated at bid price : 19.25
Bid-YTW : 4.20 %
TRP.PR.G FixedReset 34,621 RBC crossed 24,200 at 18.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 18.76
Evaluated at bid price : 18.76
Bid-YTW : 5.08 %
TRP.PR.D FixedReset 34,264 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 5.06 %
There were 48 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PF.B FixedReset Quote: 18.71 – 21.40
Spot Rate : 2.6900
Average : 1.4675

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 18.71
Evaluated at bid price : 18.71
Bid-YTW : 4.29 %
POW.PR.D Perpetual-Discount Quote: 21.50 – 22.24
Spot Rate : 0.7400
Average : 0.4471

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 5.85 %
MFC.PR.C Deemed-Retractible Quote: 20.03 – 20.50
Spot Rate : 0.4700
Average : 0.3171

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.03
Bid-YTW : 7.59 %
TRP.PR.A FixedReset Quote: 15.00 – 15.56
Spot Rate : 0.5600
Average : 0.4087

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 15.00
Evaluated at bid price : 15.00
Bid-YTW : 4.77 %
PWF.PR.K Perpetual-Discount Quote: 21.50 – 21.88
Spot Rate : 0.3800
Average : 0.2317

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-07
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 5.77 %
BNS.PR.D FloatingReset Quote: 18.52 – 18.89
Spot Rate : 0.3700
Average : 0.2346

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.52
Bid-YTW : 6.40 %
Market Action

October 6, 2015

There are a lot of unsolved mysteries in life. How do they get the caramel into a Caramilk bar? Why did that hot chick in high school go out with jerks instead of me? Was Lehman insolvent or merely illiquid?:

At issue that September, six years ago, was whether the Fed could save a major investment bank whose failure might threaten the entire economy.

The firm was Lehman Brothers. And the answer for some inside the Fed was yes, the government could bail out Lehman, according to new accounts by Fed officials who were there at the time.
…
Ben S. Bernanke, the Fed chairman at the time, Henry M. Paulson Jr., the former Treasury Secretary, and Timothy F. Geithner, who was then president of the New York Fed, have all argued that Lehman Brothers was in such a deep hole from its risky real estate investments that Fed did not have the legal authority to rescue it.
…
Whether to save Lehman came down to a crucial question: Did Lehman have enough solid assets to back a loan from the Fed? Finding the answer fell to two teams of financial experts at the New York Fed. Those teams had provisionally concluded that Lehman might, in fact, be a candidate for rescue, but members of those teams said they never briefed Mr. Geithner, who said he did not know of the results.
…
Mr. Bernanke and Mr. Paulson said in recent interviews with The Times that they did not know about the Fed analysis or its conclusions.

Interviews with half a dozen Fed officials, who spoke on the condition they not be named, so as not to breach the Fed’s unofficial vow of silence, suggest some Fed insiders believed that the government had the authority to throw Lehman Brothers a lifeline, even if the bank was nearly broke. The Fed earlier came to the rescue of Bear Stearns, after doing little analysis, and only days later saved the American International Group. The government subsequently saved the likes of Bank of America, Citigroup, Goldman Sachs and Morgan Stanley. Ultimately, whether Lehman should have gotten Fed support was a judgment call, not a matter of strict statute, these people said.
…
A group of bankers summoned to the Fed by Mr. Paulson, who was hoping they would mount a private rescue, did not accept Lehman’s $50 billion valuation for its real estate and could not decide whether Lehman was solvent. But potential private rescuers had a motive to lowball Lehman’s value. Fed officials involved in the valuation stressed that the Fed could hold distressed assets for much longer than private parties, allowing time for those assets to recover in value. Also, because the Fed sets monetary policy, it exerts enormous influence over the assets’ ultimate value.

“There can’t be any reasonable doubt that had the Fed rescued Lehman, that very act would have pushed up the value of its assets,” [economics professor at Princeton and former vice chairman of the Fed] Mr. [Alan S.] Blinder said.

While the Fed team did not come up with a precise value for Lehman’s illiquid assets, it provided a range that was far more generous in its valuations than the private sector had been.
…
Argument continues today over the value of Lehman’s assets. A report compiled by Anton R. Valukas, a Chicago lawyer, at the behest of the bankruptcy court overseeing Lehman concluded in 2010 that nearly all of the firm’s real estate valuations were reasonable. It also suggested that Lehman’s chaotic bankruptcy caused many of the losses later borne by the firm’s creditors. Other analysts have argued that Lehman was deeply insolvent.

Ultimately, the appraisals of the New York Fed teams did not matter. Their preliminary finding was that Lehman was solvent and that what it faced was essentially a bank run, according to members of the group. Researchers working on the value of Lehman’s collateral said they thought they would be delivering those findings to Mr. Geithner that September weekend.

But Mr. Geithner had already been diverted to A.I.G., which was facing its own crisis.
…
Those at the Fed who have contended that Lehman was insolvent have never provided any basis for that conclusion, other than references to the estimates of Wall Street firms and other anecdotal evidence. The Financial Crisis Inquiry Commission asked for such evidence several times, but the Fed never provided it. The members of the New York Fed teams said that they did not prepare a formal, written report, and that no one asked them for any notes or work papers or asked them to elaborate on their findings. Scott G. Alvarez, the Fed’s general counsel, told the commission that there was “no time” that weekend for a written analysis.

All this has become news again because Bernanke used ‘Fed-Speak’ in congressional testimony:

“In congressional testimony immediately after Lehman’s collapse, Paulson and I were deliberately quite vague when discussing whether we could have saved Lehman,” Mr. Bernanke writes [in his new memoir, “The Courage to Act: A Memoir of a Crisis and Its Aftermath.”]. “But we had agreed in advance to be vague because we were intensely concerned that acknowledging our inability to save Lehman would hurt market confidence and increase pressure on other vulnerable firms.”
…
Of course, there will always be those who believe that the decision was a political one. “I understand why some have concluded that Lehman’s failure was a choice,” Mr. Bernanke writes. “In a way, it is a backhanded compliment: We had shown such resourcefulness to that point, it is hard to imagine that we could not have come up with some solution to Lehman.”

He writes that it was simply impossible to save Lehman, pointing to the nearly $200 billion of losses that Lehman’s creditors have since suffered. No one has come forward on the record, nor has any contemporaneous document been produced in the past seven years that said the government had found a way to save the company and specifically chose not to do so for political reasons, a point Mr. Bernanke alludes to in his book. “I do not want the notion that Lehman’s failure could have been avoided, and that its failure was consequently a policy choice, to become the received wisdom, for the simple reason that it is not true,” he writes. “We did everything we could think of to avoid it.”

I certainly hope that the entire episode has become a very high-powered case study at the Fed, other central banks and in business schools on the topic of ‘How decisions get made. I mean, really get made, in high-stakes conditions of total chaos and conflicting opinion.’

After all, emerging economies want to know!

As part of the Trans-Pacific Partnership deal, emerging markets want to know what Federal Reserve Chair Janet Yellen is thinking.

As a sidebar to the largest trade pact in two decades, the U.S. and 11 other Pacific Rim countries agreed not to manipulate foreign-exchange rates and to consult on monetary policies.

Economies like Vietnam and Malaysia, which rely heavily on exports, promised not to devalue their currencies in order to gain a competitive advantage. In exchange, they want to get more insights into U.S. monetary policy.
…
During the negotiations, some of the smaller economies highlighted the far-reaching impact monetary policies in larger developed countries — read the U.S. — have on them, according to a person familiar with the negotiations, who asked not to be named because the details of the talks aren’t public.

Participants have agreed that consultations will take place among senior-government officials, although the precise framework has yet to be determined, the person said. And of course, such talks don’t mean the U.S. central bank will need to follow other countries’ wishes.

“Questions about Fed policy will be filtered through the Treasury, and in no way will the Fed be committed or compromised.” said Hufbauer.

DBRS has released a report titled Effect of the Oil Price Shock on Canada, with one line so important I’m going to give it its own blockquote:

Therefore, we view the near term outlook for Canada to be mainly dependent on the external environment.

This should not be news to the meanest intelligence, but turns into a long, boring useless debate every election time. Sure, the governments of the days can do things at the margins, and the things they do at the margins can be good or bad and are important enough to become election issues. I have no problems with that. I do have problems with the idea that Canadian government policy is a significant driver of the Canadian economy.

Anyway, the report states:

There are two areas of concern: the risk that higher U.S. interest rates will lead to sharply higher Canadian mortgage rates, and given the high level of household leverage in an unstable macro environment, this could pose a risk to financial stability. A second and larger concern is how the economy will adjust to a moderate recovery in the United States and to the weaker exchange rate.

So far, the policy response in Canada has averted a Japan- or Eurozone-style crisis, in which jumpstarting domestic demand is proving to be a major challenge. Nevertheless, monetary easing and fiscal tightening have not avoided a shallow recession in Canada. The emphasis in Canada on whether the Federal budget is in surplus or in deficit suggests that the policy choices are limited: the issue is weak growth; not whether the budget is in surplus. Significant fiscal expansion appears to be ruled out, in spite of the recession; and when the economy does return to growth it will almost certainly be a weak recovery. This is the big challenge for the next administration following the elections on October 19.

The flexibility of the economy is associated with labor productivity, and productivity has taken a turn for the worse. This is being driven by a fall in manufacturing, construction, agriculture, and other sectors, and only somewhat offset by services. We suspect that reforms to raise worker productivity and greater investment in infrastructure, could help close the output gap and raise potential GDP.

It would be interesting to learn just what “reforms to raise worker productivity” DBRS has in mind; the TPP will help a little, but only a little. As briefly mentioned on September 21, I don’t see how anybody could spend a lot of capital on productivity equipment when you know it will just get dusty every time the index goes above 110:

effectiveExchangeRate
Click for Big

But “greater investment in infrastructure”? That should be a no-brainer, especially since Canada’s infrastructure is crumbling. But instead we are blessed with morons who believe balancing the budget each and every year is a sign of fiscal responsibility and nobody ever talks about the more important ‘through-the-cycle’ figure; preferring instead to discuss a modern version of sumptuary laws.

Meanwhile:

The International Monetary Fund cast a pessimistic view on Canada’s economic prospects for next year, warning that the depressed commodity prices that have slowed the Canadian and global economies in 2015 will remain a major threat to growth in 2016.

In its quarterly World Economic Outlook, entitled Adjusting to Lower Commodity Prices, the IMF once again reduced its gross domestic product forecasts for both Canada and the world as a whole, extending and deepening this year’s trend of falling expectations. The global finance agency’s forecast for Canadian GDP growth in 2015 is now just 1 per cent – down a half a percentage point from the previous forecast in July, and down 1.3 percentage points from a year ago.

On a cheerier note, the US is finding that spying costs money:

Safe Harbor was adopted by the European Commission in 2000 and recognizes a set of privacy principles by the U.S. Department of Commerce “as providing adequate protection for the purposes of personal data transfers from the EU,” according to the EU executive body. It has become a key trans-Atlantic data transfer mechanism, with more than 4,000 U.S. companies self-certified under it.
…
The ECJ struck down the Safe Harbor decision without providing companies with the option of a transition period. It will affect “countless organizations, who are now considering whether to turn to other data transfer mechanisms, including standard contractual clauses or consent, instead of relying on the current Safe Harbor,” said Bridget Treacy, a lawyer and privacy specialist at law firm Hunton & Williams. EU-U.S. data transfers now have to be blocked by national data protection authorities if they’re asked to investigate.

While two trends combine in an interesting way: small-scale equity crowdfunding for a drone manufacturer!

UAS Drone Corp., a developer of unmanned aerial vehicles for the law enforcement and first responder market (the “Company”), announced that it has commenced its Initial Public Offering of its common stock. The offering is being conducted directly by officers and directors of the Company through the Fundable.com equity crowdfunding platform.

It was back to normal for the Canadian preferred share market today, with PerpetualDiscounts off 13bp, FixedResets losing 52bp and DeemedRetractibles down 32bp. There is yet another lengthy Performance Highlights table, with insurance issues and TRP notable in the bad part. Volume was above average.

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

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

Here’s TRP:

impVol_TRP_151006
Click for Big

Implied Volatility remained at an unreasonable level today.

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 17.00 to be $0.41 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.71 cheap at its bid price of 11.84.

impVol_MFC_151006
Click for Big

Another good fit today for MFC, with Implied Volatility climbing substantially.

Most expensive is MFC.PR.M, resetting at +236bp on 2019-12-19, bid at 19.51 to be 0.71 rich, while MFC.PR.F resetting at +141bp on 2016-6-19, is bid at 14.04 to be 0.28 cheap.

impVol_BAM_151006
Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PF.A, resetting at +290bp on 2018-9-30, bid at 18.47 to be $0.61 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 19.36 and appears to be $0.59 rich.

impVol_FTS_151006
Click for Big

Implied Volatility increased again today to an even more ridiculously high level.

FTS.PR.K, with a spread of +205bp, and bid at 17.12, looks $0.32 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 17.00 and is $0.15 cheap.

pairs_FR_151006
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.02%, with one outlier above 0.00%. The distribution is bimodal, with bank NVCC non-compliant pairs averaging -1.36% and other issues averaging -0.55%. There are three junk outliers above 0.00%.

pairs_FF_151006
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 -0.6956 % 1,571.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.6956 % 2,746.9
Floater 4.73 % 4.76 % 63,766 15.97 3 -0.6956 % 1,670.1
OpRet 0.00 % 0.00 % 0 0.00 0 0.0215 % 2,762.3
SplitShare 4.34 % 4.91 % 69,457 4.47 5 0.0215 % 3,237.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0215 % 2,525.8
Perpetual-Premium 5.83 % 5.84 % 56,523 13.87 5 -0.1586 % 2,468.9
Perpetual-Discount 5.70 % 5.78 % 73,751 14.21 33 -0.1346 % 2,494.2
FixedReset 5.21 % 4.84 % 195,388 15.10 76 -0.5192 % 1,955.7
Deemed-Retractible 5.26 % 5.20 % 102,429 5.48 33 -0.3225 % 2,529.6
FloatingReset 2.66 % 4.62 % 63,931 5.84 9 -0.0239 % 2,057.7
Performance Highlights
Issue Index Change Notes
TRP.PR.B FixedReset -3.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 11.45
Evaluated at bid price : 11.45
Bid-YTW : 4.59 %
MFC.PR.J FixedReset -2.82 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.65
Bid-YTW : 6.77 %
MFC.PR.K FixedReset -2.80 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.03
Bid-YTW : 7.59 %
MFC.PR.L FixedReset -2.70 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.00
Bid-YTW : 7.72 %
MFC.PR.H FixedReset -2.65 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.64
Bid-YTW : 6.00 %
SLF.PR.I FixedReset -2.25 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.55
Bid-YTW : 6.90 %
MFC.PR.I FixedReset -2.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.45
Bid-YTW : 6.53 %
FTS.PR.M FixedReset -1.87 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 18.40
Evaluated at bid price : 18.40
Bid-YTW : 4.76 %
BAM.PF.G FixedReset -1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 19.36
Evaluated at bid price : 19.36
Bid-YTW : 5.01 %
MFC.PR.G FixedReset -1.58 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.58
Bid-YTW : 6.40 %
RY.PR.Z FixedReset -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 18.73
Evaluated at bid price : 18.73
Bid-YTW : 4.32 %
RY.PR.H FixedReset -1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 18.73
Evaluated at bid price : 18.73
Bid-YTW : 4.36 %
TRP.PR.D FixedReset -1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 5.00 %
TRP.PR.A FixedReset -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 14.80
Evaluated at bid price : 14.80
Bid-YTW : 4.84 %
BMO.PR.T FixedReset -1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 18.53
Evaluated at bid price : 18.53
Bid-YTW : 4.38 %
MFC.PR.N FixedReset -1.35 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.01
Bid-YTW : 7.09 %
TRP.PR.C FixedReset -1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 11.84
Evaluated at bid price : 11.84
Bid-YTW : 4.94 %
TRP.PR.E FixedReset -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 17.00
Evaluated at bid price : 17.00
Bid-YTW : 4.99 %
RY.PR.M FixedReset -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 4.49 %
SLF.PR.D Deemed-Retractible -1.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.10
Bid-YTW : 7.46 %
SLF.PR.E Deemed-Retractible -1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.25
Bid-YTW : 7.41 %
MFC.PR.M FixedReset -1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.51
Bid-YTW : 6.81 %
GWO.PR.Q Deemed-Retractible -1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.81
Bid-YTW : 6.47 %
FTS.PR.K FixedReset -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 17.12
Evaluated at bid price : 17.12
Bid-YTW : 4.51 %
IFC.PR.C FixedReset -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.19
Bid-YTW : 7.01 %
RY.PR.P Perpetual-Discount -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 23.80
Evaluated at bid price : 24.14
Bid-YTW : 5.46 %
TD.PR.T FloatingReset -1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.50
Bid-YTW : 4.48 %
CU.PR.H Perpetual-Discount -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 22.65
Evaluated at bid price : 23.00
Bid-YTW : 5.79 %
FTS.PR.H FixedReset -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 13.90
Evaluated at bid price : 13.90
Bid-YTW : 4.19 %
SLF.PR.B Deemed-Retractible -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.50
Bid-YTW : 6.92 %
TRP.PR.G FixedReset -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 5.01 %
POW.PR.G Perpetual-Discount -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 23.54
Evaluated at bid price : 24.00
Bid-YTW : 5.84 %
RY.PR.L FixedReset 1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 4.01 %
W.PR.J Perpetual-Discount 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 22.60
Evaluated at bid price : 22.85
Bid-YTW : 6.15 %
TD.PF.D FixedReset 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 20.44
Evaluated at bid price : 20.44
Bid-YTW : 4.39 %
PWF.PR.T FixedReset 2.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 21.23
Evaluated at bid price : 21.23
Bid-YTW : 4.00 %
CM.PR.Q FixedReset 2.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 20.15
Evaluated at bid price : 20.15
Bid-YTW : 4.45 %
Volume Highlights
Issue Index Shares
Traded		 Notes
RY.PR.P Perpetual-Discount 449,729 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 23.80
Evaluated at bid price : 24.14
Bid-YTW : 5.46 %
BAM.PF.H FixedReset 363,175 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 23.15
Evaluated at bid price : 25.02
Bid-YTW : 4.92 %
MFC.PR.G FixedReset 108,946 Desjardins crossed 100,000 at 20.90.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.58
Bid-YTW : 6.40 %
RY.PR.D Deemed-Retractible 68,286 RBC crossed 23,800 at 24.85, bought 16,000 from TD at 24.80 and crossed another 19,700 at 24.81.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.79
Bid-YTW : 4.78 %
BMO.PR.W FixedReset 38,320 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 18.35
Evaluated at bid price : 18.35
Bid-YTW : 4.39 %
RY.PR.B Deemed-Retractible 37,701 RBC crossed 27,700 at 24.85.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.84
Bid-YTW : 4.95 %
There were 40 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
VNR.PR.A FixedReset Quote: 18.30 – 20.99
Spot Rate : 2.6900
Average : 1.5067

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 18.30
Evaluated at bid price : 18.30
Bid-YTW : 5.06 %
MFC.PR.F FixedReset Quote: 14.04 – 15.75
Spot Rate : 1.7100
Average : 1.0198

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.04
Bid-YTW : 9.66 %
GWO.PR.N FixedReset Quote: 13.70 – 14.50
Spot Rate : 0.8000
Average : 0.5412

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.70
Bid-YTW : 9.66 %
GWO.PR.P Deemed-Retractible Quote: 23.80 – 24.50
Spot Rate : 0.7000
Average : 0.4559

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.80
Bid-YTW : 6.14 %
TRP.PR.D FixedReset Quote: 16.70 – 17.34
Spot Rate : 0.6400
Average : 0.4508

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 5.00 %
TD.PF.C FixedReset Quote: 18.20 – 18.70
Spot Rate : 0.5000
Average : 0.3132

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-06
Maturity Price : 18.20
Evaluated at bid price : 18.20
Bid-YTW : 4.40 %
Market Action

October 5, 2015

Here’s another reason why bubbles are bad:

When the housing market was hot, from the late 1990s to 2006, there were many good jobs that didn’t require a college education. For a certain kind of high school grad, paying tuition started looking like a dodgy proposition.

Then the boom went bust.

For one reason or another, the young construction workers and sales agents who skipped college to enter the workforce never went back, opening a schism between the boom-time workers and the college-going generation that came of age after the economy went splat.

That’s the story sketched out in a new working paper, published by National Bureau of Economic Research, from professors Kerwin Kofi Charles and Erik Hurst at the University of Chicago and Matthew Notowidigdo of Northwestern University. The three used Census Bureau, Department of Education, and Labor Department data to track what they call “college attainment” through the housing cycle.

The NBER wants five bucks for the paper. Good luck with that.

The best economic news all year is the agreement on the TPP:

A free-trade deal that opens a small part of the Canadian dairy market to cheaper foreign imports could spell the beginning of the end for the country’s dairy supply management system, and push inefficient farmers out of business, observers say.

The Trans-Pacific Partnership (TPP) deal, a trade pact among 12 countries including Japan, Vietnam and Australia that was reached in Atlanta on Monday, will give foreign dairy producers access to 3.25 per cent of the Canadian market while increasing duty-free access for Canada’s agricultural exports.

The deal was welcomed by large swaths of the agriculture sector, including pork and beef producers and grain farmers, who expect to see new demand for their goods overseas. But the negative effects are expected to be disproportionately felt by Canada’s dairy farmers, who face the prospect of cheaper foreign competition and the gradual erosion of prices paid by the large food companies that make cheese, butter and milk.

Now to get it ratified…

It was a decent day for the Canadian preferred share market, with PerpetualDiscounts gaining 28bp, FixedResets off 2bp and DeemedRetractibles down 4bp. The Performance Highlights table is skewed towards winners. Volume was average.

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

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

Here’s TRP:

impVol_TRP_151005
Click for Big

Implied Volatility remained at an unreasonable level today.

TRP.PR.B, which resets 2020-6-30 at +128, is bid at 11.85 to be $0.44 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.81 cheap at its bid price of 12.00.

impVol_MFC_151005
Click for Big

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

Most expensive is MFC.PR.M, resetting at +236bp on 2019-12-19, bid at 19.75 to be 0.56 rich, while MFC.PR.G resetting at +280bp on 2016-12-19, is bid at 20.91 to be 0.44 cheap.

impVol_BAM_151005
Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PF.A, resetting at +290bp on 2018-9-30, bid at 18.56 to be $0.65 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 19.70 and appears to be $0.80 rich.

impVol_FTS_151005
Click for Big

Implied Volatility leaped upwards again today, from an unreasonably high level to a ridiculously high level.

FTS.PR.K, with a spread of +205bp, and bid at 17.32, looks $0.35 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 17.04 and is $0.30 cheap.

pairs_FR_151005
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.10%, with no outliers. The distribution is bimodal, with bank NVCC non-compliant pairs averaging -1.37% and other issues averaging -0.72%. There are three junk outliers above 0.00%.

pairs_FF_151005
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 -1.3399 % 1,582.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 -1.3399 % 2,766.2
Floater 4.70 % 4.74 % 63,423 16.00 3 -1.3399 % 1,681.8
OpRet 0.00 % 0.00 % 0 0.00 0 0.3012 % 2,761.7
SplitShare 4.34 % 4.96 % 67,257 3.01 5 0.3012 % 3,236.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3012 % 2,525.3
Perpetual-Premium 5.82 % 5.82 % 55,817 13.87 5 0.2704 % 2,472.8
Perpetual-Discount 5.69 % 5.78 % 74,297 14.21 33 0.2760 % 2,497.5
FixedReset 5.18 % 4.77 % 185,711 15.18 76 -0.0179 % 1,965.9
Deemed-Retractible 5.25 % 5.16 % 98,237 5.49 33 -0.0398 % 2,537.8
FloatingReset 2.65 % 4.65 % 63,206 5.84 9 0.2415 % 2,058.1
Performance Highlights
Issue Index Change Notes
PWF.PR.T FixedReset -5.64 % Not real. The issue traded 4,613 shares today in a range of 22.00-32 before closing at 20.76-22.09, 2×2. I have not checked whether this lamentable state of affairs 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 : 2045-10-05
Maturity Price : 20.76
Evaluated at bid price : 20.76
Bid-YTW : 4.09 %
MFC.PR.H FixedReset -2.50 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.23
Bid-YTW : 5.64 %
SLF.PR.J FloatingReset -2.20 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.91
Bid-YTW : 9.88 %
SLF.PR.H FixedReset -1.92 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.35
Bid-YTW : 7.78 %
BAM.PR.B Floater -1.86 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 10.01
Evaluated at bid price : 10.01
Bid-YTW : 4.75 %
BNS.PR.P FixedReset -1.77 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.85
Bid-YTW : 3.86 %
BIP.PR.A FixedReset -1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 20.10
Evaluated at bid price : 20.10
Bid-YTW : 5.50 %
BAM.PR.K Floater -1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 10.15
Evaluated at bid price : 10.15
Bid-YTW : 4.69 %
CM.PR.Q FixedReset -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 4.56 %
CU.PR.C FixedReset -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 4.34 %
PWF.PR.P FixedReset -1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 14.30
Evaluated at bid price : 14.30
Bid-YTW : 4.31 %
FTS.PR.M FixedReset -1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 18.75
Evaluated at bid price : 18.75
Bid-YTW : 4.66 %
MFC.PR.F FixedReset -1.34 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.02
Bid-YTW : 9.67 %
RY.PR.L FixedReset -1.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 4.22 %
GWO.PR.G Deemed-Retractible -1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.89
Bid-YTW : 6.47 %
GWO.PR.I Deemed-Retractible -1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.80
Bid-YTW : 7.04 %
BMO.PR.M FixedReset -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.51
Bid-YTW : 4.05 %
BAM.PF.G FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 4.92 %
CU.PR.H Perpetual-Discount 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 22.87
Evaluated at bid price : 23.25
Bid-YTW : 5.73 %
BAM.PF.A FixedReset 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 18.56
Evaluated at bid price : 18.56
Bid-YTW : 5.19 %
RY.PR.N Perpetual-Discount 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 22.69
Evaluated at bid price : 23.04
Bid-YTW : 5.28 %
ELF.PR.F Perpetual-Discount 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 22.60
Evaluated at bid price : 22.85
Bid-YTW : 5.81 %
BMO.PR.Y FixedReset 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 20.15
Evaluated at bid price : 20.15
Bid-YTW : 4.42 %
FTS.PR.K FixedReset 1.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 17.32
Evaluated at bid price : 17.32
Bid-YTW : 4.46 %
W.PR.H Perpetual-Discount 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 22.22
Evaluated at bid price : 22.50
Bid-YTW : 6.13 %
GWO.PR.Q Deemed-Retractible 1.32 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.08
Bid-YTW : 6.30 %
BAM.PF.E FixedReset 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 17.71
Evaluated at bid price : 17.71
Bid-YTW : 5.14 %
RY.PR.O Perpetual-Discount 1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 22.73
Evaluated at bid price : 23.08
Bid-YTW : 5.27 %
ELF.PR.H Perpetual-Discount 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 23.25
Evaluated at bid price : 23.65
Bid-YTW : 5.82 %
BMO.PR.T FixedReset 1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 18.79
Evaluated at bid price : 18.79
Bid-YTW : 4.32 %
TRP.PR.B FixedReset 1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 11.85
Evaluated at bid price : 11.85
Bid-YTW : 4.44 %
TD.PF.D FixedReset 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 20.33
Evaluated at bid price : 20.33
Bid-YTW : 4.48 %
TD.PR.T FloatingReset 1.81 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.90
Bid-YTW : 4.26 %
TRP.PR.F FloatingReset 2.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 12.85
Evaluated at bid price : 12.85
Bid-YTW : 4.54 %
BAM.PF.B FixedReset 2.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 17.38
Evaluated at bid price : 17.38
Bid-YTW : 5.19 %
IFC.PR.A FixedReset 2.55 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.10
Bid-YTW : 8.77 %
FTS.PR.H FixedReset 3.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 14.05
Evaluated at bid price : 14.05
Bid-YTW : 4.14 %
HSE.PR.E FixedReset 4.87 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 22.07
Evaluated at bid price : 22.60
Bid-YTW : 4.86 %
TRP.PR.D FixedReset 5.61 % Simply a reversal of Friday‘s nonsense.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 16.94
Evaluated at bid price : 16.94
Bid-YTW : 4.92 %
Volume Highlights
Issue Index Shares
Traded		 Notes
BAM.PF.H FixedReset 189,650 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 23.14
Evaluated at bid price : 24.97
Bid-YTW : 4.93 %
BAM.PR.B Floater 152,937 Desjardins crossed 125,500 at 10.11.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 10.01
Evaluated at bid price : 10.01
Bid-YTW : 4.75 %
BAM.PR.K Floater 130,304 Desjardins crossed 123,400 at 10.32.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 10.15
Evaluated at bid price : 10.15
Bid-YTW : 4.69 %
RY.PR.P Perpetual-Discount 42,185 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 24.05
Evaluated at bid price : 24.41
Bid-YTW : 5.40 %
BMO.PR.W FixedReset 35,340 TD crossed 18,000 at 18.42.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 18.26
Evaluated at bid price : 18.26
Bid-YTW : 4.41 %
TRP.PR.D FixedReset 30,544 Scotia crossed 13,800 at 16.65.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 16.94
Evaluated at bid price : 16.94
Bid-YTW : 4.92 %
There were 35 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.T FixedReset Quote: 20.76 – 22.09
Spot Rate : 1.3300
Average : 0.8123

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-05
Maturity Price : 20.76
Evaluated at bid price : 20.76
Bid-YTW : 4.09 %
SLF.PR.H FixedReset Quote: 17.35 – 17.84
Spot Rate : 0.4900
Average : 0.3403

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.35
Bid-YTW : 7.78 %
MFC.PR.H FixedReset Quote: 22.23 – 22.69
Spot Rate : 0.4600
Average : 0.3320

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.23
Bid-YTW : 5.64 %
MFC.PR.F FixedReset Quote: 14.02 – 14.41
Spot Rate : 0.3900
Average : 0.2631

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.02
Bid-YTW : 9.67 %
GWO.PR.G Deemed-Retractible Quote: 22.89 – 23.35
Spot Rate : 0.4600
Average : 0.3424

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.89
Bid-YTW : 6.47 %
BMO.PR.M FixedReset Quote: 23.51 – 23.95
Spot Rate : 0.4400
Average : 0.3281

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.51
Bid-YTW : 4.05 %
Market Action

October 2, 2015

Jobs, jobs …. whoopsy!

Silver linings were tough to come by in the September jobs data. Payrolls came in at a much-weaker-than-forecast 142,000, while August and July figures were revised down. Wage growth was nonexistent for the month, with average hourly earnings actually falling by a penny on average.

The softness in manufacturing endured, with factory payrolls falling by 9,000 when they were expected to show no change. With dollar appreciation and sluggish overseas growth providing headwinds, it was the biggest back-to-back decline since 2010.

Even service industries, which make up the lion’s share of the economy and are more shielded from global weakness, seem to have shifted into a lower gear. Payroll growth there has slowed for four straight months, the longest such streak since 2001.

Dan Gallagher, whose comments on Dodd-Frank were reported on August 4, has reached the end of the line:

Today is my final day as a Commissioner of the U.S. Securities and Exchange Commission. It has been a privilege and an honor to serve the public during such an important time. I thank my fellow Commissioners and the staff for the time spent working together on critical issues facing investors, issuers, and the markets. After having spent so many years at the SEC in various capacities, departing is certainly bittersweet. As a former SEC staffer, I have particularly enjoyed working so closely again with the Commission’s excellent staff.

I must confess that the more I think about the VW diesel emissions scandal, the less I understand it. A piece in the Globe notes:

Volkswagen’s cheating on emissions tests has soured the European car industry’s heavy bet on diesel, with Renault, Peugeot and Fiat Chrysler potentially facing bigger long-term setbacks than the company that sparked the crisis.

In the face of that perceived injustice, tensions are mounting behind the united facade that European manufacturers present to regulators, some of their representatives say.

It will be recalled that the whistle-blower was an independent environmental agency that tested the VWs in the expectation that everything would be peachy keen; the VWs had been selling really well because they got great fuel economy AND low emissions AND good performance.

I’m not an automotive engineer, but to me that sounds like a ‘Pick Two’ problem. But the implication is that not once, at any of VWs three competitors, did a senior vice president pound the table and scream ‘Dammit, Hans, they’re killing us on sales volume! Why can’t we do that?’ And not once did the senior project engineer confess ‘Honestly, Gunther, I just can’t figure it out. Mind if I buy one and take it apart?’

It just doesn’t make sense to me.

It was a moderately good day for the Canadian preferred share market, with PerpetualDiscounts up 31bp, FixedResets gaining 14bp and DeemedRetractibles off 7bp. These figures mask an awful lot of violent churning with respect to individual issues though, as illustrated by the lengthy Performance Highlights table. Volume was average.

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

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

Here’s TRP:

impVol_TRP_151002
Click for Big

Implied Volatility rocketed today, reaching an unreasonable level.

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 17.30 to be $0.69 rich, while TRP.PR.D (target of a sell programme today; see the Performance Highlights table), resetting 2019-4-30 at +238, is $0.74 cheap at its bid price of 16.04.

impVol_MFC_151002
Click for Big

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

Most expensive is MFC.PR.H, resetting at +313bp on 2017-3-19, bid at 22.80 to be 0.54 rich, while MFC.PR.G resetting at +280bp on 2016-12-19, is bid at 20.82 to be 0.70 cheap.

impVol_BAM_151002
Click for Big

The fit on the BAM issues continues to be horrible.

The cheapest issue relative to its peers is BAM.PF.A, resetting at +290bp on 2018-9-30, bid at 18.36 to be $0.71 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 19.50 and appears to be $0.74 rich.

impVol_FTS_151002
Click for Big

Implied Volatility leaped upwards today, from an unreasonably low to an unreasonably high level, as three of the four issues were featured in the Performance Highlights table – two winners, one loser.

FTS.PR.K, with a spread of +205bp, and bid at 17.10, looks $0.20 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 17.10 and is $0.21 cheap.

pairs_FR_151002
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.20%, with one outlier below -2.00%. The distribution is bimodal, with bank NVCC non-compliant pairs averaging -1.65% and other issues averaging -0.57%. There are three junk outliers above 0.00%.

pairs_FF_151002
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 0.4266 % 1,603.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.4266 % 2,803.7
Floater 4.63 % 4.66 % 63,259 16.16 3 0.4266 % 1,704.7
OpRet 0.00 % 0.00 % 0 0.00 0 -0.3078 % 2,753.4
SplitShare 4.36 % 5.00 % 66,506 4.49 5 -0.3078 % 3,226.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.3078 % 2,517.7
Perpetual-Premium 5.84 % 5.85 % 54,429 13.86 5 -0.0159 % 2,466.2
Perpetual-Discount 5.70 % 5.77 % 74,723 14.24 33 0.3076 % 2,490.7
FixedReset 5.18 % 4.76 % 186,416 15.07 76 0.1436 % 1,966.3
Deemed-Retractible 5.24 % 5.24 % 97,799 5.50 33 -0.0730 % 2,538.8
FloatingReset 2.66 % 4.64 % 62,565 5.84 9 0.2205 % 2,053.2
Performance Highlights
Issue Index Change Notes
TRP.PR.D FixedReset -5.26 % Not real. The issue traded 47,944 shares today (consolidated exchanges) in a range of 16.43-95 before closing at 16.04-50, 9×2. It looks like there was aggressive selling by a programme run via RBC: twenty-five trades in the last twelve minutes, totalling 7,800 shares – we can’t really blame the market maker for suddenly remembering he had a dentist’s appointment.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 16.04
Evaluated at bid price : 16.04
Bid-YTW : 5.19 %
PWF.PR.P FixedReset -3.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 14.50
Evaluated at bid price : 14.50
Bid-YTW : 4.23 %
TD.PF.D FixedReset -2.91 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.54 %
TRP.PR.E FixedReset -2.43 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 4.88 %
FTS.PR.F Perpetual-Discount -2.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 21.10
Evaluated at bid price : 21.10
Bid-YTW : 5.88 %
BAM.PR.X FixedReset -2.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 14.02
Evaluated at bid price : 14.02
Bid-YTW : 4.96 %
FTS.PR.M FixedReset -2.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 4.58 %
MFC.PR.N FixedReset -1.64 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.18
Bid-YTW : 6.95 %
MFC.PR.G FixedReset -1.56 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.82
Bid-YTW : 6.22 %
MFC.PR.C Deemed-Retractible -1.53 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.55
Bid-YTW : 7.22 %
BAM.PF.B FixedReset -1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 17.00
Evaluated at bid price : 17.00
Bid-YTW : 5.30 %
BMO.PR.T FixedReset -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 18.51
Evaluated at bid price : 18.51
Bid-YTW : 4.38 %
RY.PR.I FixedReset -1.26 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.50
Bid-YTW : 4.34 %
BMO.PR.Q FixedReset -1.25 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.81
Bid-YTW : 6.34 %
PVS.PR.B SplitShare -1.21 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.45
Bid-YTW : 5.22 %
SLF.PR.C Deemed-Retractible -1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.30
Bid-YTW : 7.31 %
MFC.PR.M FixedReset -1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.78
Bid-YTW : 6.61 %
TD.PR.Y FixedReset -1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.85
Bid-YTW : 3.98 %
SLF.PR.A Deemed-Retractible -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.54
Bid-YTW : 6.82 %
BAM.PF.E FixedReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 17.47
Evaluated at bid price : 17.47
Bid-YTW : 5.20 %
BAM.PF.G FixedReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 4.96 %
GWO.PR.G Deemed-Retractible 1.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.16
Bid-YTW : 6.30 %
HSE.PR.E FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 21.28
Evaluated at bid price : 21.55
Bid-YTW : 5.11 %
TD.PF.F Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 22.66
Evaluated at bid price : 23.00
Bid-YTW : 5.41 %
RY.PR.N Perpetual-Discount 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 22.48
Evaluated at bid price : 22.79
Bid-YTW : 5.51 %
BAM.PF.D Perpetual-Discount 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 20.49
Evaluated at bid price : 20.49
Bid-YTW : 6.03 %
RY.PR.H FixedReset 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 18.99
Evaluated at bid price : 18.99
Bid-YTW : 4.28 %
MFC.PR.F FixedReset 1.14 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.21
Bid-YTW : 9.47 %
BMO.PR.W FixedReset 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 18.32
Evaluated at bid price : 18.32
Bid-YTW : 4.38 %
BNS.PR.Y FixedReset 1.31 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.49
Bid-YTW : 6.03 %
HSE.PR.G FixedReset 1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 21.99
Evaluated at bid price : 22.50
Bid-YTW : 4.86 %
BAM.PR.K Floater 1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 10.30
Evaluated at bid price : 10.30
Bid-YTW : 4.61 %
FTS.PR.G FixedReset 1.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 17.10
Evaluated at bid price : 17.10
Bid-YTW : 4.53 %
TD.PF.C FixedReset 1.64 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 18.55
Evaluated at bid price : 18.55
Bid-YTW : 4.38 %
NA.PR.Q FixedReset 1.69 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 4.25 %
RY.PR.W Perpetual-Discount 1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 23.20
Evaluated at bid price : 23.50
Bid-YTW : 5.27 %
TRP.PR.F FloatingReset 1.78 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 12.57
Evaluated at bid price : 12.57
Bid-YTW : 4.64 %
W.PR.J Perpetual-Discount 1.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 22.06
Evaluated at bid price : 22.35
Bid-YTW : 6.28 %
W.PR.H Perpetual-Discount 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 21.98
Evaluated at bid price : 22.21
Bid-YTW : 6.21 %
SLF.PR.H FixedReset 1.90 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.69
Bid-YTW : 7.50 %
SLF.PR.J FloatingReset 1.93 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.20
Bid-YTW : 9.59 %
FTS.PR.K FixedReset 1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 17.10
Evaluated at bid price : 17.10
Bid-YTW : 4.50 %
SLF.PR.I FixedReset 2.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.20
Bid-YTW : 6.44 %
TD.PF.E FixedReset 2.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 21.33
Evaluated at bid price : 21.61
Bid-YTW : 4.28 %
TD.PF.B FixedReset 2.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 18.90
Evaluated at bid price : 18.90
Bid-YTW : 4.31 %
CU.PR.H Perpetual-Discount 2.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 22.65
Evaluated at bid price : 23.00
Bid-YTW : 5.79 %
RY.PR.M FixedReset 2.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 19.85
Evaluated at bid price : 19.85
Bid-YTW : 4.40 %
BAM.PR.T FixedReset 3.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 16.50
Evaluated at bid price : 16.50
Bid-YTW : 4.91 %
TRP.PR.A FixedReset 3.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 15.00
Evaluated at bid price : 15.00
Bid-YTW : 4.76 %
IFC.PR.C FixedReset 5.59 % Yes, there were trades at the 19.45 level – and above! However, only 1,350 shares were traded and the VWAP was a mere 19.17. Numbers can get unreliable in a thin market!
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.45
Bid-YTW : 6.81 %
TRP.PR.B FixedReset 5.90 % Just a recovery from yesterday‘s shenanigans.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 11.66
Evaluated at bid price : 11.66
Bid-YTW : 4.49 %
Volume Highlights
Issue Index Shares
Traded		 Notes
BAM.PF.H FixedReset 1,304,995 New issue settled today.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 23.13
Evaluated at bid price : 24.96
Bid-YTW : 4.93 %
BMO.PR.R FloatingReset 100,200 Scotia bought 100,000 from RBC at 21.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.40
Bid-YTW : 4.70 %
RY.PR.P Perpetual-Discount 73,494 New issue settled today.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 24.04
Evaluated at bid price : 24.40
Bid-YTW : 5.39 %
TRP.PR.D FixedReset 47,944 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 16.04
Evaluated at bid price : 16.04
Bid-YTW : 5.19 %
RY.PR.Z FixedReset 32,530 TD crossed 15,700 at 19.12.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 18.96
Evaluated at bid price : 18.96
Bid-YTW : 4.25 %
TRP.PR.E FixedReset 29,350 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 4.88 %
There were 33 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PF.D FixedReset Quote: 20.00 – 21.00
Spot Rate : 1.0000
Average : 0.6204

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 4.54 %
FTS.PR.G FixedReset Quote: 17.10 – 17.85
Spot Rate : 0.7500
Average : 0.5031

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 17.10
Evaluated at bid price : 17.10
Bid-YTW : 4.53 %
TRP.PR.C FixedReset Quote: 12.00 – 12.57
Spot Rate : 0.5700
Average : 0.3515

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 12.00
Evaluated at bid price : 12.00
Bid-YTW : 4.85 %
IFC.PR.A FixedReset Quote: 15.70 – 16.30
Spot Rate : 0.6000
Average : 0.3884

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.70
Bid-YTW : 9.09 %
FTS.PR.J Perpetual-Discount Quote: 21.10 – 21.61
Spot Rate : 0.5100
Average : 0.3031

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 21.10
Evaluated at bid price : 21.10
Bid-YTW : 5.70 %
MFC.PR.K FixedReset Quote: 18.56 – 19.13
Spot Rate : 0.5700
Average : 0.3647

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.56
Bid-YTW : 7.18 %
Issue Comments

RY.PR.P Smacked On Tiny Volume

Royal Bank of Canada has announced:

it has closed its domestic public offering of Non-Cumulative, Preferred Shares Series BJ. Royal Bank of Canada issued 6 million Preferred Shares Series BJ at a price of $25 per share to raise gross proceeds of $150 million.

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

The Preferred Shares Series BJ were issued under a prospectus supplement dated September 28, 2015 to the bank’s short form base shelf prospectus dated December 20, 2013.

RY.PR.P is a PerpetualDiscount, 5.25%, announced September 24. The issue will be tracked by HIMIPref™ and has been assigned to the PerpetualDiscount subindex.

The issue traded a miserable 73,494 shares today (consolidated exchanges) in a range of 24.40-80 before closing at 24.40-44, 15×29. Vital statistics are:

RY.PR.P Perpetual-Discount YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 24.04
Evaluated at bid price : 24.40
Bid-YTW : 5.39 %

When only the NVCC-compliant issues are used for fitting the Implied Volatility curve, it appears that Implied Volatility is very low (which suggests that the relationship will steepen somewhat in the future) implying that higher-coupon issues are relatively expensive. However, there are only four data points to support this conclusion and the variety of coupon rates is minimal, so don’t mortgage the farm!

impVol_RY_151002
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On the other hand, the lower-coupon, explicitly NVCC-compliant issues (RY.PR.N and RY.PR.O) are trading at the same Current Yield at the new issue, which is crazy; they should be trading to yield a little less (with the 9% Implied Volatility shown, which is calculated including the NVCC-compliance-eligible RY.PR.W), the difference in Current Yield should be about 6bp.

Issue Comments

BAM.PF.H Firm On Good Volume

Brookfield Asset Management Inc. has announced:

the completion of its previously announced Class A Preference Shares, Series 44 issue in the amount of C$250,000,000. The offering was underwritten by a syndicate led by Scotiabank, CIBC, RBC Capital Markets, and TD Securities Inc.

Brookfield issued 10,000,000 Series 44 Shares at a price of C$25.00 per share, for total gross proceeds of C$250,000,000. Holders of the Series 44 Shares will be entitled to receive a cumulative quarterly fixed dividend yielding 5.00% annually for the initial period ending December 31, 2020. Thereafter, the dividend rate will be reset every five years at a rate equal to the greater of: (i) the 5-year Government of Canada bond yield plus 4.17%, and (ii) 5.00%. The Series 44 Shares will commence trading on the Toronto Stock Exchange this morning under the ticker symbol BAM.PF.H.

BAM.PF.H is a FixedReset, 5.00%+417M500, announced September 24. It will be tracked by HIMIPref™ and has been assigned to the FixedResets subindex.

The issue traded 1,304,995 shares today (consolidated exchanges) in a range of 24.95-03 before closing at 24.96-99, 14×57. Vital statistics are:

BAM.PF.H FixedReset YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-02
Maturity Price : 23.13
Evaluated at bid price : 24.96
Bid-YTW : 4.93 %

Implied Volatility analysis for the BAM FixedResets is difficult to take seriously, since the fit is so poor – but it is interesting to compare the following chart with the chart published on the announcement day. The issue’s siblings have been very weak in the intervening time, with the low Expected Future Current Yield moving from about 4.40% to 4.60% and several issues moving to have an EFCY of about 5%, on a level with the new issue. I will point out that this equivalence makes no sense – lower-spread issues should trade with a lower yield as compensation for their lower risk of call. Mind you, all this ignores the rate floor on the new issue!

impVol_BAM_151002
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Market Action

October 1, 2015

There is official concern about a sharp rise in buy-to-let investments in the UK:

Buy-to-let lending could pose a risk to financial stability.
The actions of buy-to-let investors affect the broader housing and mortgage markets as individuals compete to buy the same pool of properties. Looser lending standards in the buy-to-let sector could contribute to general house price increases and a broader increase in household indebtedness. And in a downswing, investors selling buy-to-let properties into an illiquid market could amplify falls in house prices, potentially raising losses given default for all mortgages. This could be a particular concern in a rising interest rate environment, if properties become unprofitable given higher debt-servicing costs. Buy-to-let borrowers are potentially more vulnerable to rising interest rates because loans are more likely to be interest only and extended on floating-rate terms, and affordability tends to be tested at lower stressed interest rates
than owner-occupied lending.

The FPC continues to monitor closely conditions in UK property markets given high household indebtedness. Aggregate UK household debt to income, while falling gradually since 2010, remains high compared to historical and international norms (Chart F). The distribution of debt has improved marginally, with the tail of households with debt to income ratios greater than 4.0 falling in early 2015. House prices and activity in the housing market have increased again recently, and mortgage rates on many mortgage products are historically low. House prices grew at an annual rate of 5.6% in the three months to May 2015, compared with 3% in 2014 Q4; and 68,000 mortgages were approved in April, compared with 60,000 per month in 2014 Q4. Given this, the FPC judges that the policies it introduced in June 2014 to insure against the risk of a marked loosening in underwriting standards and a further significant rise in the number of highly indebted households remain warranted. In the buy-to-let mortgage market, lending has continued to grow, with buy-to-let mortgage lending now accounting for 15% of the stock of outstanding mortgages and nearly 20% of the flow in 2015 Q1 (Chart G). As it set out in October 2014, HM Treasury will consult later this year on giving to the FPC the power of Direction to limit residential mortgage lending at high loan to value or high debt to income ratios, including interest coverage ratios, for buy-to-let lending. Parliament provided the equivalent powers to the FPC for owner-occupied lending in April this year.

This has already attracted the interest of the Central Planners:

Landlords are being offered the largest number of buy-to-let mortgage deals since the financial crisis as banks try to profit from older savers cashing in their pensions to buy property.

There are now more than 1,000 buy-to-let products on the market for the first time since April 2008, according to data analyst Moneyfacts.

The rise was attributed to the new pension freedoms introduced in April. Under the rules savers have unlimited access to their funds from age 55, and many older investors have said they will spend the cash on properties to let to students or City workers. Banks are spotting the opportunity to attract wealthy customers and have offered attractive new deals.
…
But experts now believe the entire market could begin to collapse following changes to tax laws which were announced by George Osborne in July.

The Chancellor said that by 2020 higher-rate taxpayers will no longer be able to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax. Only basic-rate relief will be available.

BCE Inc., proud issuer of a huge number of preferred shares, has been confirmed at Pfd-3(high) by DBRS:

DBRS Limited (DBRS) has today confirmed the long- and short-term ratings of Bell Canada (Bell Canada or the Company) and its parent company BCE Inc. (BCE) at A (low)/R-1 (low) and BBB (high)/R-1 (low), respectively. DBRS has also confirmed the ratings of Bell Canada’s Subordinated Debentures at BBB. All trends remain Stable. It should be noted that BCE’s ratings are linked to the ratings of Bell Canada and reflect the structural subordination of debt (currently none outstanding) and its preferred share obligations relative to Bell Canada. The ratings acknowledge the increase in financial leverage resulting from the acquisition of Astral Media and privatization of Bell Aliant (which DBRS believes enhanced the Company’s scale and diversification), but also reflect the expectation for deleveraging over the medium term. The ratings continue to be supported by the Company’s large and established subscriber base and quad-play offerings, and also consider intensifying competition and the risks associated with regulatory change.

The fourth quarter began with a return to normal in the Canadian preferred share market, by which I mean it was a lousy day, with PerpetualDiscounts losing 74bp, FixedResets down 49bp and DeemedRetractibles off 3bp. It looks like a sell programme kicked in at about 3:40pm – until then, the market was off a little, but nothing too serious:

TXPR_151001
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One really has to wonder how the decision to execute this sell programme was rationalized. On the one hand, it seems very strange to start executing mass sales late in the day in a little backwater market like Canadian preferred shares. On the other hand … for the past nine months, executors of aggressive sell programmes have been patting themselves on the back a little while later, regretting only that they didn’t execute a few days earlier.

The Performance Highlights table is its usually lengthy self, highlighted by four issues that got caught by the late day sales and lost more than 5% (bid/bid). Volume was average.

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

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

Here’s TRP:

impVol_TRP_151001
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Implied Volatility dropped significantly today.

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 17.73 to be $0.96 rich, while TRP.PR.C, resetting 2016-1-30 at +164, is $0.48 cheap at its bid price of 12.10.

impVol_MFC_151001
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Another good fit today for MFC, with Implied Volatility unchanged.

Most expensive is MFC.PR.M, resetting at +236bp on 2019-12-19, bid at 20.00 to be 0.64 rich, while MFC.PR.I, resetting at +286bp on 2017-9-19, is bid at 20.92 to be 0.57 cheap.

impVol_BAM_151001
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The fit on the BAM issues continues to be horrible. Note that the pending new issue has been added with a price of 25.00; the valuation effects of the rate floor have been ignored.

The cheapest issue relative to its peers is BAM.PF.A, resetting at +290bp on 2018-9-30, bid at 18.48 to be $0.63 cheap. BAM.PF.G, resetting at +284bp on 2020-6-30 is bid at 19.70 and appears to be $0.90 rich.

impVol_FTS_151001
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FTS.PR.H, with a spread of +145bp, and bid at 13.65, looks $0.41 expensive and resets 2020-6-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 16.85 and is $0.39 cheap.

pairs_FR_151001
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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -1.19%, with one outlier above 0.00%. The distribution is bimodal, with bank NVCC non-compliant pairs averaging -1.74% and other issues averaging -0.42%. There are four junk outliers above 0.00%.

pairs_FF_151001
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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 -2.7450 % 1,596.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 -2.7450 % 2,791.8
Floater 4.65 % 4.68 % 62,296 16.13 3 -2.7450 % 1,697.4
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0324 % 2,761.9
SplitShare 4.34 % 4.81 % 67,083 4.49 5 -0.0324 % 3,236.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0324 % 2,525.4
Perpetual-Premium 5.83 % 5.88 % 55,000 14.00 5 0.1274 % 2,466.5
Perpetual-Discount 5.74 % 5.74 % 73,874 14.24 32 -0.7444 % 2,483.0
FixedReset 5.18 % 4.76 % 189,226 15.17 75 -0.4902 % 1,963.5
Deemed-Retractible 5.23 % 5.26 % 98,669 5.46 33 -0.0307 % 2,540.7
FloatingReset 2.65 % 4.59 % 61,278 5.83 9 -0.8710 % 2,048.7
Performance Highlights
Issue Index Change Notes
TRP.PR.B FixedReset -5.66 % Reasonably real, in that yes, there was a trade at the closing bid of 11.01. However, this is timestamped 3:59pm; there is an oddlot trade also timestamped 3:59bp at the price of 11.67. It looks like algorithmic selling, since all but three of the last 25 trades were for 100 shares and the earliest of these 25 trades was at 3:49.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 11.01
Evaluated at bid price : 11.01
Bid-YTW : 4.76 %
W.PR.J Perpetual-Discount -5.63 % This one is strange and illustrates the kind of things that can happen in a thin market. The last trade, for 100 shares, was at 21.95 so, as above, we can call the quote technically real. But there were three trades timestamped 3:43pm, each of which was for 100 shares, all executed at 22.98. So the thing dropped over a buck in the last 17 minutes! The volume in this time was 1,300 shares! So the market maker – assuming he was awake – got scared, for either good reasons or bad; there’s no way of telling according to the data available to me.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 21.70
Evaluated at bid price : 21.95
Bid-YTW : 6.40 %
W.PR.H Perpetual-Discount -5.50 % Another Thin Market Special! The closing bid is technically real, since there were two actual trade at 21.91 – both for 100 shares in the closing two minutes. On the other hand, there were trades timestamped 3:43 at 22.84! So again, the market-maker got scared. YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 21.55
Evaluated at bid price : 21.81
Bid-YTW : 6.32 %
TRP.PR.F FloatingReset -5.00 % This looks like another victim of the sell programme, as all but one of the last 25 trades was for 100 shares, taking the trade price from 12.80 at 3:40 to 12.35 at 3:59.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 12.35
Evaluated at bid price : 12.35
Bid-YTW : 4.72 %
BMO.PR.Y FixedReset -3.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 19.73
Evaluated at bid price : 19.73
Bid-YTW : 4.65 %
HSE.PR.E FixedReset -3.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 21.33
Evaluated at bid price : 21.33
Bid-YTW : 5.18 %
BAM.PR.B Floater -2.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 10.23
Evaluated at bid price : 10.23
Bid-YTW : 4.65 %
BAM.PR.C Floater -2.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 10.08
Evaluated at bid price : 10.08
Bid-YTW : 4.72 %
TRP.PR.A FixedReset -2.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 14.50
Evaluated at bid price : 14.50
Bid-YTW : 4.92 %
BMO.PR.Z Perpetual-Discount -2.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 22.41
Evaluated at bid price : 22.71
Bid-YTW : 5.59 %
FTS.PR.J Perpetual-Discount -2.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 21.02
Evaluated at bid price : 21.02
Bid-YTW : 5.72 %
BAM.PR.K Floater -2.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 10.16
Evaluated at bid price : 10.16
Bid-YTW : 4.68 %
CM.PR.Q FixedReset -2.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 19.94
Evaluated at bid price : 19.94
Bid-YTW : 4.49 %
RY.PR.M FixedReset -2.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 19.40
Evaluated at bid price : 19.40
Bid-YTW : 4.50 %
TD.PF.B FixedReset -2.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 18.52
Evaluated at bid price : 18.52
Bid-YTW : 4.40 %
FTS.PR.F Perpetual-Discount -1.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 21.33
Evaluated at bid price : 21.60
Bid-YTW : 5.73 %
GWO.PR.H Deemed-Retractible -1.81 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.69
Bid-YTW : 6.83 %
CU.PR.H Perpetual-Discount -1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 22.15
Evaluated at bid price : 22.50
Bid-YTW : 5.92 %
RY.PR.N Perpetual-Discount -1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 22.20
Evaluated at bid price : 22.55
Bid-YTW : 5.57 %
BAM.PR.X FixedReset -1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 14.31
Evaluated at bid price : 14.31
Bid-YTW : 4.86 %
TRP.PR.D FixedReset -1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 16.93
Evaluated at bid price : 16.93
Bid-YTW : 4.91 %
BNS.PR.Y FixedReset -1.53 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.35
Bid-YTW : 6.26 %
BMO.PR.R FloatingReset -1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.40
Bid-YTW : 4.70 %
BAM.PF.G FixedReset -1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 4.91 %
BAM.PF.B FixedReset -1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 17.23
Evaluated at bid price : 17.23
Bid-YTW : 5.22 %
IFC.PR.C FixedReset -1.29 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.42
Bid-YTW : 7.54 %
RY.PR.W Perpetual-Discount -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 22.82
Evaluated at bid price : 23.10
Bid-YTW : 5.36 %
BAM.PF.A FixedReset -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 18.48
Evaluated at bid price : 18.48
Bid-YTW : 5.20 %
GWO.PR.Q Deemed-Retractible -1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.61
Bid-YTW : 6.58 %
RY.PR.J FixedReset -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 20.01
Evaluated at bid price : 20.01
Bid-YTW : 4.47 %
BNS.PR.D FloatingReset -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.47
Bid-YTW : 6.51 %
HSB.PR.C Deemed-Retractible -1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.51
Bid-YTW : 5.51 %
BMO.PR.W FixedReset -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 18.09
Evaluated at bid price : 18.09
Bid-YTW : 4.44 %
NA.PR.W FixedReset -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 18.11
Evaluated at bid price : 18.11
Bid-YTW : 4.53 %
NA.PR.S FixedReset -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 19.28
Evaluated at bid price : 19.28
Bid-YTW : 4.41 %
BAM.PF.F FixedReset -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 19.33
Evaluated at bid price : 19.33
Bid-YTW : 4.98 %
BNS.PR.Z FixedReset -1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.65
Bid-YTW : 6.60 %
TD.PF.C FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 18.25
Evaluated at bid price : 18.25
Bid-YTW : 4.45 %
SLF.PR.G FixedReset -1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.92
Bid-YTW : 8.65 %
CU.PR.D Perpetual-Discount -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 21.52
Evaluated at bid price : 21.52
Bid-YTW : 5.77 %
BAM.PR.N Perpetual-Discount -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 19.85
Evaluated at bid price : 19.85
Bid-YTW : 6.03 %
GWO.PR.N FixedReset -1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.75
Bid-YTW : 9.58 %
PVS.PR.B SplitShare 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.75
Bid-YTW : 4.81 %
TRP.PR.E FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 17.73
Evaluated at bid price : 17.73
Bid-YTW : 4.76 %
SLF.PR.J FloatingReset 1.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.95
Bid-YTW : 9.83 %
FTS.PR.K FixedReset 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 16.77
Evaluated at bid price : 16.77
Bid-YTW : 4.59 %
BMO.PR.T FixedReset 1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 18.75
Evaluated at bid price : 18.75
Bid-YTW : 4.32 %
IFC.PR.A FixedReset 1.96 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.60
Bid-YTW : 9.18 %
PWF.PR.P FixedReset 2.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 15.00
Evaluated at bid price : 15.00
Bid-YTW : 4.08 %
FTS.PR.H FixedReset 2.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 13.65
Evaluated at bid price : 13.65
Bid-YTW : 4.25 %
Volume Highlights
Issue Index Shares
Traded		 Notes
RY.PR.M FixedReset 107,934 Scotia crossed 100,000 at 19.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 19.40
Evaluated at bid price : 19.40
Bid-YTW : 4.50 %
BMO.PR.Y FixedReset 61,975 RBC crossed 48,600 at 20.65.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 19.73
Evaluated at bid price : 19.73
Bid-YTW : 4.65 %
MFC.PR.J FixedReset 56,748 Scotia crossed 55,300 at 20.35.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.32
Bid-YTW : 6.30 %
FTS.PR.K FixedReset 44,635 TD crossed 16,700 at 16.94.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 16.77
Evaluated at bid price : 16.77
Bid-YTW : 4.59 %
GWO.PR.N FixedReset 39,049 Nesbitt crossed 19,400 at 13.85.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.75
Bid-YTW : 9.58 %
PWF.PR.P FixedReset 34,115 TD crossed 24,800 at 15.05.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 15.00
Evaluated at bid price : 15.00
Bid-YTW : 4.08 %
There were 34 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
W.PR.J Perpetual-Discount Quote: 21.95 – 23.60
Spot Rate : 1.6500
Average : 1.0335

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 21.70
Evaluated at bid price : 21.95
Bid-YTW : 6.40 %
W.PR.H Perpetual-Discount Quote: 21.81 – 23.20
Spot Rate : 1.3900
Average : 0.8409

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 21.55
Evaluated at bid price : 21.81
Bid-YTW : 6.32 %
BMO.PR.R FloatingReset Quote: 21.40 – 21.99
Spot Rate : 0.5900
Average : 0.3948

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.40
Bid-YTW : 4.70 %
TRP.PR.A FixedReset Quote: 14.50 – 15.20
Spot Rate : 0.7000
Average : 0.5122

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 14.50
Evaluated at bid price : 14.50
Bid-YTW : 4.92 %
IFC.PR.C FixedReset Quote: 18.42 – 18.98
Spot Rate : 0.5600
Average : 0.4087

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.42
Bid-YTW : 7.54 %
HSE.PR.E FixedReset Quote: 21.33 – 21.90
Spot Rate : 0.5700
Average : 0.4227

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-10-01
Maturity Price : 21.33
Evaluated at bid price : 21.33
Bid-YTW : 5.18 %