PrefBlog

It’s time for … Battling Robots!

Vanguard has an ally in Palo Alto, California–based Wealthfront. The company’s algorithms direct about 90 percent of the average portfolio to Vanguard funds. The firms don’t have a financial relationship, and they’re chasing different markets. Yet their CEOs praise each other’s strategies. “I’m a big fan of what’s happened in the robo-world,” Vanguard CEO Bill McNabb says.
…
Fidelity is embracing the robo-product route via the 3,200 independent advisory firms for which it clears trades and holds about $1.5 trillion in assets. Boston-based Fidelity teamed up with No. 2 robo-firm Betterment in October to steer those advisers toward Betterment’s software. The robo-programs pick portfolios, often based on Vanguard funds, and automatically rebalance them to cut time and costs. Fidelity gets a referral fee, which it won’t disclose, from its New York–based partner. “Financial firms can no longer wait for the emerging affluent to appear at their doorstep when they have enough assets,” says David Canter, who heads a Fidelity unit serving independent advisers. “You have to think about them now.”
…
In the rising robo-rivalry between Fidelity and Vanguard, the winner may be … Charles Schwab Corp. The largest independent U.S. brokerage by client assets started a robo-offering for retail investors on March 9. By the end of May, the new program had $2.4 billion in client money and about 33,000 accounts. “The pressure is on,” Aite’s Pirker says.

So far, at any rate, there doesn’t appear to be any big threat to human advisors; everything’s happening in the discount space and clients are those who were already willing to go it alone, but are willing to pay a few bucks for some reassurance. Eventually I’m quite certain that every comprehensive fund family – and who is more comprehensive than Vanguard? – will have one.

Bond ETF outflows are rising:

Investors in U.S. exchange-traded funds have sold the most bonds in June in 15 months. So far, it’s proving to be a winning bet.

They pulled $2.14 billion out of fixed-income funds since May 31, on course to be the biggest monthly withdrawal since March 2014, according to data compiled by Bloomberg.

With everyone getting ready for the Federal Reserve to raise interest rates, Treasuries have fallen almost 1 percent since the end of May, based on Bloomberg World Bond Indexes. It’s the biggest monthly decline since February.

Tim Kiladze of the Globe notes the current disaffection with FixedResets:

A sudden change of heart from retail investors is making financing decisions much tougher for Canada’s biggest companies.

Until recently, retail investors were happy to buy new issues of rate reset preferred shares from companies such as Royal Bank of Canada, TransCanada Corp. and Husky Energy Inc.

Such a heavy appetite for the product made it easy for these issuers to raise cash. In 2014, $14-billion worth of these securities were gobbled up.

But lately, retail investors are giving rate reset preferred shares the cold shoulder. Burned by poor performing issues, they are much less willing to buy new offerings of these securities.

My comments of June 16 regarding the Brondesbury Group report on Mutual Fund Fee Research commissioned by the OSC attracted some attention from a well-known activist … so I replied with an eMail:

At the risk of putting words in your mouth, I’ll suggest that you’re concerned with the 1-5% (?) of cases in which the salesman-client relationship goes badly wrong.

I am concerned about these cases, but in the same way I’m concerned about murder and burglary. When people clearly do wrong, catch ’em and punish ’em, I say – I do not advocate that we require people to prove that they have no intention of murdering or burglarizing anybody, and to prove that they have adequate supervision to ensure they don’t go astray. Nor do I advocate that police check everybody’s house annually to ensure the locks are up to the latest standards and the ‘safe-room’ is adequately secured against armed marauders, or that the citizen sign a release stating that he does not want these things and file it with the proper authorities.

I am more concerned with the effects on capital markets of a blanket fiduciary standard. Mainly, capital markets do not exist for the purpose of giving Granny a safe investment; giving Granny a good place to put her $50,000 is only a means to an end. Capital markets exist for the purpose of transmitting money from savers to direct investors – companies that need a few billion to build a pipeline, or a factory or whatever. All regulation must not only recognize this, but recognize that all other aspects of capital markets are subordinate to this purpose.

So my major problem with a blanket fiduciary standard is: who’s going to do the selling? Selling is hard work and it’s valuable to the entity whose goods are being sold. So we have new issue commissions, paid directly from the issuer to the salesman, just like happens with the friendly salesman at your local electronics store. So who are these people going to be?

Under a blanket fiduciary standard, it obviously cannot be the fiduciary, so Granny can’t buy a new issue bond and capture (to some extent) the new issue concession. Granny must buy whatever is available on the secondary market and pay a markup that is (proportionately) pretty big. Granny can’t buy a GIC either, because GICs have the profit margin and sales commission (or salary, if it’s a teller doing the work) built in to the offered yield (taken off the top!) and are therefore (according to some) inherently evil.

However, fiduciaries are a valuable part of capital markets. I should know – I’m a fiduciary myself. Fiduciaries allow for a certain amount of trust in a relationship between naive client and big-shot markets guy, thereby encouraging more direct participation by clients in the capital market’s purpose of turning cash under the mattress into new skyscrapers.

So we need fiduciaries and we need salesmen in our idealized capital markets – and guess what? We have that already! There are lots of fiduciaries around for those that want them; there are lots of salesmen around for those who want them, too. There will be lots of individuals who will want relationships with both types of professional; and, I suggest, there will be lots of investors who will maintain accounts with salesmen only when an objective evaluation will suggest a fiduciary. ‘Why should I pay this fiduciary?’ they will ask. ‘Last year he only did two trades and charged me $3,000!’

What we don’t have is strict separation of functions. Given the huge amount of money that’s made from new issue commissions (as I mentioned on June 16, this exceeds mutual fund commission revenue at the major brokerages), it should be clear that strict separation is necessary. Not only should any individual market professional be prohibited from being both a salesman and a fiduciary (even to different clients), but any given corporate group should be prohibited from assuming both roles. If X is a sales channel and Y is a fiduciary channel and Z owns both X and Y … there will be problems, conflicts of interest and leakages. Guaranteed. So all investment professionals and all their employers must be forced to make the choice. Sell Side or Buy Side? Choose!

It won’t happen. There are a lot of very large corporate interests that make very good money by being all things to all people and there are lots of regulators and politicians who want to work for these large corporations in their futures at double the paycheque. So we’ll keep muddling along, true to the ideal that we can all achieve moral perfection as long as there are enough rules and enough people to enforce them and enough money spent on compliance instead of laying bricks for the new factory.

Actually, this eMail turned out rather longer than I expected and I like it. So I’m going to publish it on my blog tonight (your name will not be mentioned).

By the way, I have a small and nascent sideline providing expert witness reports for negligence and misconduct cases involving preferred shares; it’s something I think can grow, since I have the belief that the guys in the big firms won’t work for plaintiffs. You might want to keep me in mind when one of the 1-5% (?) of relationships crosses your desk.

Sincerely,

Actually, I should have also pointed out that the typical problem I see when reviewing portfolios is not that investors have too much equity, but that they have too little. Not only are they grossly overweighted in fixed-income, but that fixed income is short term, and not only is it short term, but it’s federal debt. If anything, commissions on selling equities should be increased because people simply aren’t holding enough of them.

On cue, Rob Carrick writes a piece in the Globe about fee based accounts:

Fee-based advice is where the momentum is in the investment industry today. PriceMetrix says the percentage of fee-based assets rose to 35 per cent in 2014 from 31 per cent in 2013, while the percentage of total fee revenue from fee-based accounts rose to 53 per cent from 47 per cent. “More and more advisers are realizing that operating on a fee-for-service basis is simply a more productive way to grow your business,” said Patrick Kennedy, co-founder and chief customer officer at Toronto-based PriceMetrix.
…
The general unavailability of fee information is a problem, though. Try this: Google the name of an investment firm you know and see if there’s a “fees” or “pricing” tab on their website. Outside of some online robo-adviser firms, I couldn’t find a single example of a company doing this.
…
Fee secrecy is good for business. Clients are told what the costs are and they have no context to judge them. They can negotiate, but without the knowledge that there may be other firms doing the same kind of work for half a percentage point less. On a $500,000 portfolio, that difference amounts to $2,500 per year.

It’s not just fee information that is hard to get (I publish my fees!) but, more critically, it is performance information that is very difficult to get. I didn’t mention it in my long eMail, above, but I think anybody charging a fee for discretionary asset management should be required to publish a comprehensive performance report, going back to inception. Composites can be created either by asset type or account characteristics (or both!), I don’t care, but performance must be published! What’s more, returns should be reported using Time-Weighted returns, not the Dollar-Weighted returns so beloved of regulators and morons (see November 26, 2012 for the initial fluttering of eyelashes; the eventual decision to mandate dollar-weighted returns was discussed in greater detail in PrefLetter).

John Heinzl in the Globe gave a sensible response to a small investor wailing about preferred share prices:

A few years ago I started accounts worth $5,000 for each of two grandchildren, and invested all of the money in BCE preferred shares (BCE.PR.K). The value of these accounts has since fallen to about $3,900, but my adviser recommends we leave them as is. The funds will not be needed for the grandchildren until about 15 years from now. I have thought about dumping the shares but feel the capital loss at this point would be significant, and perhaps the shares will pick up in the years to come?
…
Two other factors to consider are the time horizon and diversification. If the money will not be needed for 15 years, you might wish to consider investing in something that provides more growth potential (preferred shares are usually purchased for income, not growth). Investing the entire account in a single stock is probably not a good idea, however, because it entails too much risk; a low-cost index exchange-traded fund or mutual fund – particularly one that allows full reinvestment of dividends to maximize compounding – will give you both growth potential and diversification.

Fifteen year time horizon? For the kids? There are only two legitimate choices:

• Canadian equity ETF
• One, maybe two, single stocks

I’ll also note that ‘selling things because they’ve gone down’ is as common as it is silly; it’s probably a factor in the current very long stretch of drip-drip-drip losses.

One of the best investments I ever made (well, it was made on my behalf, but never mind that) was 100 shares (or so) of Irwin Toy when I was about ten years old. Investment returns were no great shakes, and I’m not even sure if I got dividend cheques, but it was a company whose products I was familiar with AND I could watch the stock price AND I could read a little bit of the quarterly reports (although I found them pretty boring – I was only ten!) AND, best of all, Irwin Toy had a Junior Shareholders Club, and if we went to the annual meeting we got a present. I still wonder, from time to time, whether there were a few boys from Marketting in attendance, making notes about kids reactions to the game or toy they received.

Anyway, it was a superb introduction to the concept of stocks. So while the investor didn’t say anything about his personal circumstances, I suggest that those with a little bit of breathing room in their finances would be well advised to buy their kids a few shares (not necessarily a board lot, but worth enough that a ten year old will consider it a significant investment) in something like Walt Disney common. Or Apple. Or Loblaw. Or Cineplex. Or Hudson’s Bay Company. Or Restaurant Brands. Are these good investments, by the standards of my very astute Assiduous Readers? I don’t know. Who cares?

Getting back to economics for a moment, numbers released today were soft:

Canada’s consumer prices advanced 0.9 per cent in May from a year earlier while retail sales for April posted a surprise decline, signs the second-quarter recovery the central bank is counting on remains in doubt.

Core inflation, which excludes eight volatile products, slowed to 2.2 per cent from 2.3 per cent in April, Statistics Canada said Friday from Ottawa. April retail sales fell 0.1 per cent on declines in food and electronics. Economists had expected sales to rise 0.7 per cent, according to the median forecast in a Bloomberg News survey.

Total inflation, while exceeding April’s 0.8 per cent pace, is still outside the Bank of Canada’s 1 per cent to 3 per cent target range. The 0.1 per cent April decline in retail sales exceeded even the most bearish economist forecast, suggesting economic weakness in the first quarter from lower crude oil prices is lingering into the second.

And, just to cap the week, Barrie McKenna wrote about one of our favourite off-topics:

At the moment, demand is growing for butter and cream, but it’s flat for fluid milk. The excess skim milk is turned into powder for baby formula, used as animal feed, or thrown away.

Trade is generally not an option. Canada is severally limited in what it can export because the World Trade Organization deems the fixed domestic milk prices a subsidy.
…
Imports have been growing rapidly, and will continue to rise when the free-trade deal with Europe is put in place. If Canada eventually joins the Trans-Pacific Partnership, experts say even more imported dairy products will pour into the country.

Canada’s trade deficit in dairy products has more than doubled since 2006. In 2014, dairy imports reached $900-million versus exports of $281-million, and the trend has accelerated in the first three months of this year. Exports were lower in 2014 than they were in 2006.

“Canada’s dairy sector is being seriously squeezed and faces a growing trade deficit,” according to a report slated to be released Monday by the Canadian Agri-Food Policy Institute. “This is hardly a growth formula for one of Canada’s largest agri-food sectors, but more importantly, a significant threat to the current system.”

The dairy industry is a great example of the long-term evils of trade protectionism.

It was another bad day for the Canadian preferred share market, with PerpetualDiscounts and FixedResets both down 30bp and DeemedRetractibles off 10bp. FixedResets dominated the bad part of the Performance Highlights table; the good part wasn’t big enough to be worth noticing. Volume was below 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:

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.20 to be $0.84 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.51 cheap at its bid price of 16.27.

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

Most expensive is MFC.PR.J, resetting at +261bp on 2018-3-19, bid at 24.69 to be $0.49 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.70 to be $0.23 cheap.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.50 to be $0.92 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 22.70 and appears to be $0.69 rich.

FTS.PR.H, with a spread of +145bp, and bid at 16.39, looks $0.32 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.15 and is $0.19 rich.

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.45%, including the outliers TRP.PR.A / TRP.PR.F at -0.34% and FTS.PR.H / FTS.PR.I at +1.17%. On the junk side there are two outliers: FFH.PR.E / FFH.PR.F at -0.87% and DC.PR.B / DC.PR.D at -0.46%.

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	-0.3746 %	2,202.4
FixedFloater	0.00 %	0.00 %	0	0.00	0	-0.3746 %	3,850.8
Floater	3.52 %	3.52 %	63,131	18.48	3	-0.3746 %	2,341.3
OpRet	4.78 %	-9.28 %	23,474	0.08	1	0.0395 %	2,781.3
SplitShare	4.60 %	4.92 %	68,816	3.28	3	-0.1608 %	3,244.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0395 %	2,543.2
Perpetual-Premium	5.47 %	4.76 %	58,985	4.98	19	-0.0069 %	2,518.1
Perpetual-Discount	5.20 %	5.15 %	115,336	15.21	15	-0.3036 %	2,708.1
FixedReset	4.54 %	3.88 %	241,764	16.21	88	-0.3001 %	2,337.4
Deemed-Retractible	5.01 %	3.34 %	112,089	0.76	34	-0.1038 %	2,621.0
FloatingReset	2.51 %	2.93 %	57,860	6.10	9	0.1524 %	2,341.1

Performance Highlights
Issue	Index	Change	Notes
HSE.PR.A	FixedReset	-2.75 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 15.56 Evaluated at bid price : 15.56 Bid-YTW : 4.54 %
TRP.PR.C	FixedReset	-2.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 16.27 Evaluated at bid price : 16.27 Bid-YTW : 4.04 %
IFC.PR.C	FixedReset	-2.37 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.70 Bid-YTW : 4.95 %
TRP.PR.E	FixedReset	-2.24 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 21.85 Evaluated at bid price : 22.26 Bid-YTW : 4.01 %
ENB.PR.N	FixedReset	-2.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 18.82 Evaluated at bid price : 18.82 Bid-YTW : 4.98 %
BAM.PR.K	Floater	-1.77 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 13.85 Evaluated at bid price : 13.85 Bid-YTW : 3.60 %
MFC.PR.L	FixedReset	-1.76 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.30 Bid-YTW : 4.94 %
FTS.PR.K	FixedReset	-1.63 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 21.15 Evaluated at bid price : 21.15 Bid-YTW : 3.84 %
CIU.PR.C	FixedReset	-1.59 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 16.14 Evaluated at bid price : 16.14 Bid-YTW : 3.78 %
ENB.PR.J	FixedReset	-1.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 19.21 Evaluated at bid price : 19.21 Bid-YTW : 4.91 %
FTS.PR.G	FixedReset	-1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 21.32 Evaluated at bid price : 21.62 Bid-YTW : 3.76 %
FTS.PR.H	FixedReset	-1.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 16.39 Evaluated at bid price : 16.39 Bid-YTW : 3.78 %
ENB.PF.A	FixedReset	-1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 19.61 Evaluated at bid price : 19.61 Bid-YTW : 4.94 %
TD.PF.A	FixedReset	-1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 22.37 Evaluated at bid price : 23.10 Bid-YTW : 3.66 %
ENB.PF.C	FixedReset	-1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 19.48 Evaluated at bid price : 19.48 Bid-YTW : 4.97 %
ENB.PF.E	FixedReset	-1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 19.64 Evaluated at bid price : 19.64 Bid-YTW : 4.96 %
FTS.PR.M	FixedReset	-1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 22.84 Evaluated at bid price : 24.05 Bid-YTW : 3.69 %
RY.PR.K	FloatingReset	1.15 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.73 Bid-YTW : 2.69 %
MFC.PR.H	FixedReset	1.18 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.70 Bid-YTW : 2.95 %
IFC.PR.A	FixedReset	1.44 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.75 Bid-YTW : 6.13 %

Volume Highlights
Issue	Index	Shares Traded	Notes
GWO.PR.F	Deemed-Retractible	344,965	Scotia crossed blocks of 155,000 and 187,600, both at 25.42. Nice tickets! YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-19 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : -12.77 %
MFC.PR.H	FixedReset	99,831	RBC bought blocks of 10,700 and 33,900 from National at 25.65, then another 30,800 at 25.70. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.70 Bid-YTW : 2.95 %
HSE.PR.G	FixedReset	90,627	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 23.01 Evaluated at bid price : 24.59 Bid-YTW : 4.54 %
FTS.PR.M	FixedReset	78,000	RBC crossed 75,000 at 24.45. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 22.84 Evaluated at bid price : 24.05 Bid-YTW : 3.69 %
RY.PR.I	FixedReset	73,233	TD crossed blocks of 34,200 and 25,000, both at 25.23. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.23 Bid-YTW : 3.16 %
TRP.PR.G	FixedReset	57,060	RBC crossed 39,400 at 24.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 23.10 Evaluated at bid price : 24.91 Bid-YTW : 3.83 %
There were 26 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
HSE.PR.C	FixedReset	Quote: 23.61 – 24.44 Spot Rate : 0.8300 Average : 0.5285 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 22.63 Evaluated at bid price : 23.61 Bid-YTW : 4.42 %
IFC.PR.C	FixedReset	Quote: 22.70 – 23.59 Spot Rate : 0.8900 Average : 0.6494 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.70 Bid-YTW : 4.95 %
CU.PR.G	Perpetual-Discount	Quote: 21.97 – 22.68 Spot Rate : 0.7100 Average : 0.4885 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 21.64 Evaluated at bid price : 21.97 Bid-YTW : 5.15 %
TRP.PR.E	FixedReset	Quote: 22.26 – 22.93 Spot Rate : 0.6700 Average : 0.5056 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 21.85 Evaluated at bid price : 22.26 Bid-YTW : 4.01 %
ELF.PR.H	Perpetual-Premium	Quote: 25.05 – 25.56 Spot Rate : 0.5100 Average : 0.3632 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-19 Maturity Price : 24.56 Evaluated at bid price : 25.05 Bid-YTW : 5.57 %
GWO.PR.S	Deemed-Retractible	Quote: 26.10 – 26.50 Spot Rate : 0.4000 Average : 0.2555 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 26.10 Bid-YTW : 4.69 %

The Greek tragedy is approaching a climax:

The European Central Bank plans to hold an emergency session of its Governing Council on Friday to discuss the deteriorating liquidity situation of Greek banks, three people familiar with the matter said.

The call is scheduled for noon Frankfurt time on Friday, and the officials will consider a Bank of Greece request for an increase of more than 3 billion euros in Emergency Liquidity Assistance, one of the people said. All three asked not to be identified as the plans aren’t public. An ECB spokesman declined to comment.

The request comes just a day after Greece received an increase in its liquidity line of 1.1. billion euros ($1.25 billion), which raised the limit to 84.1 billion euros.

The short interval may be a signal that deposit flight is accelerating as the latest bailout talks ended without progress on Thursday.

Frankly, I’m surprised that there’s any money left in the Greek banking system to take flight.

And it looks like there’s a lot of internal politicking in Athens:

Prime Minister Alexis Tsipras’s government said there was an effort under way to spur capital flight, with Finance Minister Yanis Varoufakis later accusing the central bank of stoking fears.

The scaremongering seeks to undermine the financial system and strengthen the position of the country’s creditors, a Greek government official said in an e-mail to reporters.

“These tactics facilitate creditors who want to further blackmail the Greek government,” the official said in the statement. “Greece won’t be blackmailed.”

Further to the discussion of the OSC’s Brondesbury Report on June 16, today saw the publication of the Kenmar Commentary on CSA Fund Fee Report. This polemic does not address the question of new issue commissions, proxy solicitation fees, the willingness of small investors to pay advisors directly or the effects on capital markets of a change in fee schedules; changes are advocated as a method of smuggling in the concept of fiduciary duty.

On a related note, Michael P Regan of Bloomberg passes on a very bullish prediction on robo-advice:

Their popularity is going to explode even more, if new projections from consulting firm A.T. Kearney are in the right ballpark. Assets under management by robo advisers are estimated to increase 68 percent annually to about $2.2 trillion in five years, according to a forecast from the firm. About half of that is expected to come from money that’s already invested and the rest from non-invested assets.

As far as I can tell, Bloomberg just got a review copy of the paper; while the A.T. Kearney website features a front page link to the Bloomberg piece, the paper itself does not appear to be on the site.

I can’t resist passing on another shot at supply management:

Faced with a stagnant domestic market, Montreal-based Saputo Inc. and other major Canadian dairy producers have been investing heavily outside the country, where growth opportunities are better. This has exacerbated the skim milk surplus because dairies aren’t expanding their Canadian production of butter, cream or milk powder.

Martha Hall Findlay, a former Liberal MP and fellow at the University of Calgary School of Public Policy, said the real victims of the wastage are low-income Canadians, who aren’t getting the benefit of lower prices.

In a free market, surpluses would typically lead to lower consumer prices, but that isn’t the case in Canada because prices are fixed, she pointed out. “The system can’t accommodate fluctuations in demand,” said Ms. Findlay, who has written a series of reports advocating the dismantling of the supply management system.

It was another negative day for the Canadian preferred share market, with PerpetualDiscounts losing 59bp, FixedResets off 5bp and DeemedRetractibles down 14bp. PerpetualDiscounts are, predictably, overweighted in the bad part of the Performance Highlights table, while FixedResets are conspicuous on both sides. Volume was slightly 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:

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.36 to be $0.73 rich, while TRP.PR.B, which will reset June 30 at 2.152% (+128), is $0.49 cheap at its bid price of 14.78

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule). Note that the lowest spread issue, MFC.PR.F, is again clearly off the line defined by the other issues.

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 22.70 to be $0.53 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.40 to be $0.44 cheap.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.53 to be $0.94 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.50 and appears to be $0.65 rich.

FTS.PR.H, with a spread of +145bp, and bid at 16.60, looks $0.40 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.50 and is $0.25 rich.

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.35%, including the outliers TRP.PR.A / TRP.PR.F at -0.54% and FTS.PR.H / FTS.PR.I at +0.95%. On the junk side there’s only one outlier: FFH.PR.E / FFH.PR.F at -0.93%.

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	1.8845 %	2,210.7
FixedFloater	0.00 %	0.00 %	0	0.00	0	1.8845 %	3,865.2
Floater	3.50 %	3.52 %	63,308	18.49	3	1.8845 %	2,350.1
OpRet	4.45 %	-8.98 %	24,337	0.08	2	-0.0987 %	2,780.2
SplitShare	4.59 %	4.89 %	71,608	3.28	3	0.2956 %	3,249.3
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0987 %	2,542.2
Perpetual-Premium	5.45 %	4.77 %	59,653	4.92	19	0.1160 %	2,518.2
Perpetual-Discount	5.18 %	5.12 %	117,337	15.22	15	-0.5936 %	2,716.4
FixedReset	4.52 %	3.88 %	241,212	16.36	88	-0.0527 %	2,344.4
Deemed-Retractible	5.01 %	3.40 %	112,577	0.77	34	-0.1441 %	2,623.7
FloatingReset	2.52 %	2.93 %	58,555	6.11	9	0.0590 %	2,337.5

Performance Highlights
Issue	Index	Change	Notes
HSE.PR.A	FixedReset	-1.96 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 16.00 Evaluated at bid price : 16.00 Bid-YTW : 4.41 %
BAM.PF.C	Perpetual-Discount	-1.79 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 21.44 Evaluated at bid price : 21.44 Bid-YTW : 5.68 %
CU.PR.G	Perpetual-Discount	-1.78 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 21.82 Evaluated at bid price : 22.11 Bid-YTW : 5.12 %
SLF.PR.G	FixedReset	-1.72 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.03 Bid-YTW : 7.80 %
BAM.PF.D	Perpetual-Discount	-1.61 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 21.62 Evaluated at bid price : 21.94 Bid-YTW : 5.59 %
GWO.PR.G	Deemed-Retractible	-1.59 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.21 Bid-YTW : 5.64 %
ENB.PR.F	FixedReset	-1.37 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 18.00 Evaluated at bid price : 18.00 Bid-YTW : 5.03 %
RY.PR.H	FixedReset	-1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 22.36 Evaluated at bid price : 23.06 Bid-YTW : 3.65 %
BAM.PR.N	Perpetual-Discount	-1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 21.20 Evaluated at bid price : 21.20 Bid-YTW : 5.63 %
ENB.PR.H	FixedReset	-1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 17.05 Evaluated at bid price : 17.05 Bid-YTW : 4.84 %
PWF.PR.P	FixedReset	-1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 18.34 Evaluated at bid price : 18.34 Bid-YTW : 3.69 %
FTS.PR.J	Perpetual-Discount	-1.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 23.28 Evaluated at bid price : 23.65 Bid-YTW : 5.04 %
IFC.PR.A	FixedReset	-1.07 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.47 Bid-YTW : 6.32 %
IFC.PR.C	FixedReset	-1.06 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.25 Bid-YTW : 4.65 %
ENB.PF.E	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 19.85 Evaluated at bid price : 19.85 Bid-YTW : 4.90 %
TRP.PR.E	FixedReset	-1.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 22.18 Evaluated at bid price : 22.77 Bid-YTW : 3.90 %
BAM.PF.F	FixedReset	1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 23.04 Evaluated at bid price : 24.50 Bid-YTW : 3.99 %
TRP.PR.G	FixedReset	1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 23.11 Evaluated at bid price : 24.93 Bid-YTW : 3.83 %
BAM.PF.E	FixedReset	1.35 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 22.02 Evaluated at bid price : 22.55 Bid-YTW : 4.15 %
TRP.PR.D	FixedReset	1.36 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 21.91 Evaluated at bid price : 22.31 Bid-YTW : 3.94 %
TRP.PR.B	FixedReset	1.37 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 14.78 Evaluated at bid price : 14.78 Bid-YTW : 3.88 %
BAM.PR.K	Floater	1.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 14.10 Evaluated at bid price : 14.10 Bid-YTW : 3.53 %
FTS.PR.I	FloatingReset	1.54 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 16.50 Evaluated at bid price : 16.50 Bid-YTW : 3.14 %
BAM.PR.B	Floater	1.69 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 14.46 Evaluated at bid price : 14.46 Bid-YTW : 3.44 %
MFC.PR.L	FixedReset	1.79 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.70 Bid-YTW : 4.71 %
BAM.PR.C	Floater	2.54 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 14.15 Evaluated at bid price : 14.15 Bid-YTW : 3.52 %

Volume Highlights
Issue	Index	Shares Traded	Notes
HSE.PR.G	FixedReset	250,190	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 23.01 Evaluated at bid price : 24.59 Bid-YTW : 4.54 %
TD.PF.E	FixedReset	192,193	TD crossed blocks of 100,000 and 75,000, both at 25.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 23.15 Evaluated at bid price : 25.04 Bid-YTW : 3.73 %
GWO.PR.F	Deemed-Retractible	100,938	Scotia crossed 100,000 at 25.42. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-18 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : -15.19 %
BMO.PR.Y	FixedReset	100,072	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 23.03 Evaluated at bid price : 24.66 Bid-YTW : 3.69 %
BMO.PR.L	Deemed-Retractible	90,150	Nesbitt crossed 84,100 at 25.71. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-18 Maturity Price : 25.50 Evaluated at bid price : 25.70 Bid-YTW : 0.68 %
BMO.PR.R	FloatingReset	68,382	TD crossed 65,000 at 24.15. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.11 Bid-YTW : 2.83 %
There were 38 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.N	FixedReset	Quote: 22.60 – 23.60 Spot Rate : 1.0000 Average : 0.6362 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.60 Bid-YTW : 4.85 %
HSE.PR.A	FixedReset	Quote: 16.00 – 16.47 Spot Rate : 0.4700 Average : 0.3318 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 16.00 Evaluated at bid price : 16.00 Bid-YTW : 4.41 %
TD.PF.A	FixedReset	Quote: 23.38 – 23.78 Spot Rate : 0.4000 Average : 0.2729 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 22.52 Evaluated at bid price : 23.38 Bid-YTW : 3.60 %
MFC.PR.F	FixedReset	Quote: 17.39 – 17.83 Spot Rate : 0.4400 Average : 0.3207 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.39 Bid-YTW : 7.04 %
BAM.PF.C	Perpetual-Discount	Quote: 21.44 – 21.76 Spot Rate : 0.3200 Average : 0.2027 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-18 Maturity Price : 21.44 Evaluated at bid price : 21.44 Bid-YTW : 5.68 %
IFC.PR.C	FixedReset	Quote: 23.25 – 23.75 Spot Rate : 0.5000 Average : 0.3856 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.25 Bid-YTW : 4.65 %

The big news of the day was the FOMC statement:

Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.
…
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

There were no dissents. Other information released indicates that the committee is dovish:

For Federal Reserve officials, the U.S. economy is a glass house where aggressive moves could break something.

While the median forecast of policy makers still calls for two interest-rate increases by year-end, more officials say just one would be enough in 2015. Still more advocate a go-slow approach to further tightening in 2016.

Projections from the Federal Open Market Committee published Wednesday showed that five officials foresee one increase in the federal funds rate this year, up from just a single policy maker who said so in March. And while policy makers said the economy has picked up after a first-quarter slump, Fed Chair Janet Yellen said she still wants to see more “decisive” evidence of a lasting turnaround.
…
At her press conference following the FOMC meeting, Yellen cited signs of “cyclical weakness” in the labor market, and noted wage growth remains “subdued.”

“Although progress clearly has been achieved, room for further improvement remains,” Yellen said. “Economic conditions are currently anticipated to evolve in a manner that will warrant only gradual increases in the target federal funds rate.”

As a result:

Treasuries climbed and the dollar weakened against the euro after the Federal Reserve revised down its outlook for interest rates amid fragile economic conditions.
…
Yields on 10-year U.S. notes fell four basis points to 2.28 percent by 11:05 a.m. in Tokyo, with rates on Japanese and Australian debt also down. The greenback weakened to $1.1362 per euro and slipped 0.2 percent versus the yen.

Back in April, Natixis Global Asset Management (parent of NexGen Financial) released the results of a poll of Canadian investors:

The majority of those surveyed (54%) say they fear future oil price drops, 61 percent admit they are not willing to take more investment risk compared to a year ago and 59 percent said they feel vulnerable when it comes to protecting their portfolios from market shocks.
…
Besides oil prices, investors’ other concerns include a worldwide economic slowdown (cited by 54%), slower global growth (39%) and higher interest rates (37%).

Despite the economic challenges, 88 percent of Canadian investors believe their current approach will enable them to have a steady income when they retire. To get there, investors say their portfolio needs to gain an average of 9.3 percent annually, over and above inflation, the survey found. Eighty percent of investors think their target is realistic.
…
Retirement remains the top financial priority, and most investors (57%) say the responsibility of funding retirement is falling increasingly to individuals and away from government- and employer-sponsored schemes.

They anticipate 50 percent of their retirement income will come from their own efforts – saving, investing, selling their home or business or picking up a job after retiring. Of the rest of their retirement income, 26 percent would come from an employer pension, 18 percent from government support and 6 percent from other sources (including support from children).
…
Natixis surveyed 250 individual investors across Canada with a minimum of C$256,460 (US$205,230) in investable assets. The online survey was conducted in February 2015 and is part of a larger global study of 7,000 investors in 17 countries from Europe, the Americas and the Middle East. The findings are published in a new whitepaper, “Close enough isn’t good enough.” For more information, visit durableportfolios.com.

9.3% annual returns, over and above inflation? Good luck with that!

The global summary has an amusing section on retirement expectations:

When asked at what age they would like to retire, younger investors are clearly focused on early retirement: Millennials say age 58, while Generation X say 62. When asked when they think they will actually retire, their aspirations moderate only slightly at age 60 and age 63 respectively.

Asked the same questions, Baby Boomers say age 68 on both counts. Pre-Boomers respond with 73 on both counts. In reality, for members of those generations who are already retired, the day came much earlier at age 59 and 63 respectively.

… but respondents have a Plan B:

Should they fall short on their retirement savings, investors have clear plans on how they will make up the difference. The largest number (45%) say employment will be the answer, followed by support from their spouse or significant other (36%), government programs (35%), and family (23%).

And finally, there’s a little section on the value of advice:

Now, this study is hardly up to academic standards – it’s in Natixis’ best interests to convince everybody (particularly those with over $200,000 in investible assets) that they need an advisor and they need alternative investments. But I suspect that meticulously unbiased research would give similar results.

And it is, perhaps, these unrealistic expectations and the expectation of government support that is driving the trend towards enhanced public pension plans, both in Ontario (as discussed May 1, 2014; also see the official ORPP website) and in the States:

The U.S. retirement system is a failure, in at least one respect: Half of private-sector workers have no access to a 401(k) or a pension plan on the job, so millions of Americans have scant retirement savings or none at all. To retire, they’ll need to rely on programs such as Social Security and Medicaid.

The federal government has done little to get more Americans saving for retirement. In December the White House launched a pilot program called myRA (My Retirement Account), an individual retirement account (or IRA) set up through an employer’s payroll system and aimed at low-income workers. But participation is voluntary, and Congress has gotten nowhere with bills proposed to encourage workplace retirement plans.

So the states are stepping up. This month, an Illinois law went into effect that would give a state-run IRA to all employees of companies with at least 25 people on staff who don’t have their own retirement plan. Workers would automatically be signed up to contribute 3 percent of their salary to the IRA and could opt out or adjust their contribution. The system is scheduled to be up and running by June 2017.

California is working on a similar plan, and on Tuesday the Oregon State Senate sent the governor a bill requiring automatic IRAs at private employers by July 2017. By early next year, Connecticut officials must finish a study, mandated by the state legislature, of how feasible a state-run retirement plan would be there. There are advocates for similar plans in at least a dozen other state legislatures.

Separately, we are told that employees are idiots:

Canadians are missing out on billions of dollars of potential retirement savings every year by not taking full advantage of matching contributions by their employers in group RRSP and defined contribution retirement plans.

Tom Reid of Sun Life Financial estimates more than $3-billion a year of potential company contributions go unmade because employees don’t make the required matching contributions to obtain them.
…
A survey by Great-West Life found significant numbers of respondents weren’t taking advantage of voluntary plans. It found a 79 per cent participation rate for voluntary DC plans and just 51 per cent for voluntary group RRSPs in 2014.

Meanwhile there is a call to eliminate Canada Savings Bonds:

The private sector already offers various savings products, backed by deposit insurance, according to a report prepared by KPMG LLP for the Canadian Finance Department. Canadian households appear to like those options better, as the stock of retail debt outstanding in the Canada Savings Bond program plummeted to just under 8 billion Canadian dollars ($6.5 billion) in 2013 from a 1987 level of C$55 billion. That’s an average decline of C$1.8 billion a year.
…
“There is currently no valid economic rationale for the retail debt program,” KPMG said. “Outstanding stock is expected to reach a level where, despite all the recent accomplishments in cost reduction, it will be difficult to justify the existence of the program either on economic grounds, on participation levels, or as a share of retail debt outstanding to market debt.”

A spokeswoman for Canada’s Finance Department said the Canada Savings Bonds Program would be maintained in its current format, while officials would look at potential ways to reduce the scheme’s costs. The spokeswoman said more than a million Canadians still purchase securities from the program, “demonstrating their continuing interest” in the program.

The U.S. and Germany have essentially terminated their retail debt programs, which like the Canadian one were created to provide citizens with a guaranteed savings instrument in an era when the retail banking sector was underdeveloped, and there was no such mechanism as deposit insurance. In Germany’s case, it concluded it could no longer issue a cost-effective rate that would attract retail investor interest.

I love the official response. It must be nice to be in government and never have to show any intellectual integrity at all!

The actual report includes a fascinating graph:

In terms of spread:

We notice that the CPB rate is tracking closely the 3-year benchmark Government of Canada bond since 2008 with a spread ranging between minus 20 to plus 60 basis points (bps) leaving little or no margin to offset unit administration and option costs (see Chart 6). Likewise, the CSB rate, even with spreads ranging from 10 to 70 bps compared to the 1 year treasury bill rate since 2009 does not leave enough margin to cover unit administration and option costs.

In terms of cost:

Today, the operating costs of the Retail Debt Program at $58 million are equivalent to the yearly interest costs (approx. $58 million) on the outstanding stock of retail debt (see Chart 7). Of course this relation may change in the future, based on the evolution of interest rates and changes in the cost structure. It is nevertheless an interesting snapshot putting the overall costs of the Retail Debt Program in perspective.

The largest component of the operating costs for the Retail Debt Program is the HP back-office operations which stand at $36 million or 62% of the expenses.

Given all the recent fuss, one wonders whether some aspects of the programme will be changed …

Introduced in 1997 by Canada Investment and Savings Agency (CI&S), trailer fees were discontinued in the fall of 2010 and replaced by an up-front 35 bps commission. This proved a significant cost reduction measure. Beforehand, financial institutions benefitted from annual trailer fees of 23 bps until maturity. In 2009 trailer fees accounted for 93% of total commissions to financial institutions.

Based on the pre-2000 issues still outstanding and on the estimated pace of redemptions, trailer fees are expected to end in 2019-2020. We estimate that in 2012-2013 they still represent approximately 92% of the commission expense as this would be consistent with $3.5 billion of outstanding debt still being subject to the 23 bps trailer fee (see Table 4).

KPMG makes one recommendation I really like … but it comes with a warning label!

Consider making the Retail Debt Program totally internet-based, with no intermediaries: This is the current US model, and the phase-in would likely be very expensive. With respect to the US example, it should be noted that the infrastructure they built behind their Treasury Direct website is mostly used for individuals purchasing retail sizes of wholesale US Treasury securities.

It’s surprisingly difficult to find information on the size of the Treasury Direct retail programme; if anybody knows where I can get this information, let me know!

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 21bp, FixedResets off 8bp and DeemedRetractibles gaining 6bp. FixedResets continue to dominate the Performance Highlights table at both ends. 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:

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.00 to be $0.87 rich, while TRP.PR.B, which will reset June 30 at 2.152% (+128), is $0.63 cheap at its bid price of 14.58

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

Most expensive is MFC.PR.J, resetting at +261bp on 2018-3-19, bid at 24.60 to be $0.44 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.50 to be $0.41 cheap.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.41 to be $0.94 cheap. BAM.PR.X, resetting at +180bp 2017-6-30 is bid at 17.82 and appears to be $0.61 rich.

FTS.PR.H, with a spread of +145bp, and bid at 16.52, looks $0.43 cheap and resets 2020-6-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 21.95 and is $0.16 rich.

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.40%, including the outlier TRP.PR.A / TRP.PR.F at -0.37%. On the junk side, three of the six currently extant pairs are outside the range of the graph: DC.PR.B / DC.PR.D at -0.22%; AZP.PR.B / AZP.PR.C at +1.01%; and FFH.PR.E / FFH.PR.F at -0.86%.

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	-1.4111 %	2,169.8
FixedFloater	0.00 %	0.00 %	0	0.00	0	-1.4111 %	3,793.8
Floater	3.57 %	3.58 %	63,853	18.35	3	-1.4111 %	2,306.6
OpRet	4.44 %	-11.38 %	23,529	0.08	2	0.1979 %	2,782.9
SplitShare	4.60 %	4.91 %	69,262	3.28	3	0.0538 %	3,239.7
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1979 %	2,544.7
Perpetual-Premium	5.46 %	4.92 %	58,688	4.92	19	0.0477 %	2,515.3
Perpetual-Discount	5.14 %	5.11 %	118,950	15.24	15	-0.2108 %	2,732.6
FixedReset	4.52 %	3.85 %	243,492	16.30	88	-0.0803 %	2,345.7
Deemed-Retractible	5.00 %	3.26 %	111,233	0.68	34	0.0572 %	2,627.5
FloatingReset	2.52 %	2.91 %	56,090	6.11	9	-0.0590 %	2,336.1

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.C	Floater	-1.78 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 13.80 Evaluated at bid price : 13.80 Bid-YTW : 3.61 %
BAM.PR.K	Floater	-1.70 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 13.90 Evaluated at bid price : 13.90 Bid-YTW : 3.58 %
MFC.PR.F	FixedReset	-1.48 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.35 Bid-YTW : 7.07 %
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 : 22.67 Bid-YTW : 4.81 %
PWF.PR.T	FixedReset	-1.33 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 23.35 Evaluated at bid price : 25.16 Bid-YTW : 3.40 %
TD.PF.A	FixedReset	-1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 22.43 Evaluated at bid price : 23.20 Bid-YTW : 3.63 %
BMO.PR.S	FixedReset	-1.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 22.63 Evaluated at bid price : 23.52 Bid-YTW : 3.63 %
BAM.PR.R	FixedReset	-1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 19.41 Evaluated at bid price : 19.41 Bid-YTW : 4.39 %
SLF.PR.G	FixedReset	1.05 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.31 Bid-YTW : 7.58 %
TRP.PR.E	FixedReset	1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 22.31 Evaluated at bid price : 23.00 Bid-YTW : 3.85 %
HSE.PR.E	FixedReset	1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 23.11 Evaluated at bid price : 24.81 Bid-YTW : 4.49 %
FTS.PR.K	FixedReset	1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 21.35 Evaluated at bid price : 21.35 Bid-YTW : 3.80 %
FTS.PR.G	FixedReset	1.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 21.70 Evaluated at bid price : 21.95 Bid-YTW : 3.70 %
HSE.PR.A	FixedReset	1.37 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 16.32 Evaluated at bid price : 16.32 Bid-YTW : 4.32 %
MFC.PR.K	FixedReset	1.65 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.75 Bid-YTW : 4.62 %

Volume Highlights
Issue	Index	Shares Traded	Notes
HSE.PR.G	FixedReset	966,420	New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 23.01 Evaluated at bid price : 24.59 Bid-YTW : 4.54 %
ENB.PR.P	FixedReset	129,554	RBC crossed 111,800 at 18.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 18.51 Evaluated at bid price : 18.51 Bid-YTW : 4.91 %
MFC.PR.L	FixedReset	93,106	TD crossed 50,000 at 22.70. RBC crossed 40,000 at the same price. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.30 Bid-YTW : 4.94 %
BMO.PR.R	FloatingReset	92,925	TD crossed blocks of 27,500 and 60,000, both at 24.15. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.15 Bid-YTW : 2.80 %
NA.PR.Q	FixedReset	59,010	TD crossed 58,500 at 25.25. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.20 Bid-YTW : 3.51 %
MFC.PR.J	FixedReset	52,700	RBC crossed 50,000 at 24.75. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.60 Bid-YTW : 3.95 %
There were 33 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.M	FixedReset	Quote: 23.07 – 24.00 Spot Rate : 0.9300 Average : 0.5832 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.07 Bid-YTW : 4.65 %
TRP.PR.F	FloatingReset	Quote: 18.55 – 19.28 Spot Rate : 0.7300 Average : 0.4375 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 18.55 Evaluated at bid price : 18.55 Bid-YTW : 3.40 %
RY.PR.K	FloatingReset	Quote: 24.51 – 24.98 Spot Rate : 0.4700 Average : 0.3561 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.51 Bid-YTW : 2.84 %
BAM.PF.G	FixedReset	Quote: 24.27 – 24.57 Spot Rate : 0.3000 Average : 0.2017 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 22.89 Evaluated at bid price : 24.27 Bid-YTW : 4.04 %
MFC.PR.N	FixedReset	Quote: 22.67 – 23.00 Spot Rate : 0.3300 Average : 0.2374 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.67 Bid-YTW : 4.81 %
BAM.PR.R	FixedReset	Quote: 19.41 – 19.73 Spot Rate : 0.3200 Average : 0.2276 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-17 Maturity Price : 19.41 Evaluated at bid price : 19.41 Bid-YTW : 4.39 %

After a very brief review of the recently released OSC-commissioned report Mutual Fund Fee Research, I have seen the future and it is Spanish:

First, credit institutions heavily dominate the Spanish mutual fund industry: banks and savings banks6. In fact, 91% of mutual funds are distributed through banks (63%) and savings banks (28%), and 91% of mutual fund assets are managed by companies belonging to banks (66%) and savings banks (25%). The reason for this predominance is perhaps the traditional universal banking model, which has provided credit institutions with a vast base of clients for their mutual funds. In fact, the business of mutual fund management accounts for a non-negligible part of Spanish banks’ revenues. If we take only the three most important management companies (belonging to credit institutions) that manage 52% of all assets (as of December 2001), we find that their sales revenues contribute to 1.71% (the largest company), 2.15% (the second largest), and 3.22% (the smallest) of their respective group’s total ordinary revenues. Clearly, this situation gives rise to a number of potential conflicts of interest. For instance, bank customers are more vulnerable to marketing or advice from their bank and therefore more likely to invest in bank-managed mutual funds than to shop for better quality or cheaper funds. Also, fund managers could be biased towards investing in financial assets issued by companies belonging to their own financial group. Finally, the fact that only credit institutions can become custodial institutions of the assets held by the mutual funds gives banks and savings banks an advantage over independent management companies. The extent to which such potential conflicts of interest translate into agency costs in delegated portfolio management remains an open empirical question.

As far as total returns go (according to the OSC’s report):

Where regulation has been changed to ban or limit commission,there is evidence that this change impacted investor outcomes.

• In the absence of embedded compensation, advisors recommend lower cost products. These typically have better returns because of lower expenses.
• While removing commission lowers product cost, advisory fees may rise as a means of paying for the cost of service. There may also be new or increased administrative fees, higher costs on margin accounts and lower payments on cash balances.
• It is not yet clear whether moving from commission-based to asset-based compensation will result in a net improvement in the overall return to the investor.

…
Based on the research cited, we can formulate some high level conclusions that are backed by substantial evidence. In addition to compensation, we identify some related issues that affect investor outcomes.

• …
• In jurisdictions that have moved to fee-based compensation, people with less wealth and less income find it harder to get advisory service than others. We do not know whether it is more difficult with fee-based compensation than it was before the change in compensation regime. Alternative advisor methods (e.g., robo-advisors) are developing to fill the advisory gap.

So we all know how this movie is going to turn out, assuming the regulators get their way. Regulators were created for the purpose of insulating politicians from public opprobrium following scandals. The fewer scandals, the better they’ve done their job and the sooner they can start working in the compliance department of a bank. So the ideal is a plain vanilla portfolio for everybody, preferably provided by one of the regulators’ future employers. If a hundred people get put into ridiculously risky portfolios by a some commission driven salesmen … that’s a scandal. If a hundred thousand people retire with significantly less money than they should have, due to a long-term emphasis on short-term (bank issued) fixed income (including GICs) … that’s a statistic.

As I have come to expect, there is nothing in the OSC report that covers new issue commission and proxy solicitation fees; the former form of compensation has been alleged to have played a role in some preferred share complaints I have seen. Admittedly, these forms of compensation were not in the report’s mandate; golly, I wonder why. According to the IIAC, the “Firms that are national in scope and have extensive retail and institutional operations; includes dealers of the six major chartered banks” had investment banking revenue that exceeded their mutual fund commission revenue.

Central GoldTrust is fighting an exchange offer from Sprott Asset Management Gold Bid LP to exchange units of Central GoldTrust for units of Sprott Physical Gold Trust, and its Trustee’s Circular contains an entertaining attack on Sprott’s competence:

A large number of Sprott Inc. actively managed funds also suffer from chronic underperformance, while Sprott Inc. continues to generate very significant management fees from these funds. The table below shows that over the past three years the selected group of poorly performing Sprott funds underperformed by approximately 13% on average against their respective Sprott-selected benchmark indices, while Sprott Inc. and SAM have collected over approximately $110 million in management fees from these funds over the same three year period.
…
When looking at the broader group of Sprott funds where information is publicly available, similarly poor returns were observed relative to their respective benchmarks. As shown below, these funds over the past three years have underperformed, on average, 11% below their respective benchmarks.

I don’t see a response from Sprott Physical Bullion; Sprott’s response did not address the charges.

I keep reading a lot about how entrepreneurial millennials are:

Call it entitlement, call it independence: Millennials want to be a generation of entrepreneurs.

Roughly two in every three Gen Y-ers have aspirations of going into business for themselves. About 18% of them are actually doing it, according to a new report from Babson College that found entrepreneurship across all ages is on the incline. (Meanwhile, just 13% of millennials are interested in climbing the corporate ladder.)

Millennials fit into the role of a self-starter easily for a number of reasons; we’re digital natives, with heady career dreams and a job market that has taught us to think outside the box — because we might not be hired within it very quickly.

… which always makes me wonder why there aren’t more plumbers, electricians and computer repair shops. And I wonder how many entrepreneurs get driven to work by their moms. And I wonder how many of them are entrepreneurial and how many just dream of being a big-shot. I wonder why virtually every stranger who knocks on my door is begging for a hand-out (for charity, or to participate in sports tournament, or whatever) and why so few of them are trying to sell me a product or service (and why those that do try to sell me something are always so careful to emphasize that it’s ‘for school’). I wonder a lot of things, and wasn’t too surprised at this rebuttal:

When she started her research, “I thought that I was doing a next-generation-of-leadership focus; I thought that the criteria was age specific,” [author of The Creator’s Code: The Six Essential Skills of Extraordinary Entrepreneurs, Amy] Wilkinson said. But her research led her to a different place—it turns out that fewer millennials are starting businesses than the generations preceding them. “The most interesting and problematic thing I learned is that millennials aren’t starting companies the way previous generations did—all the research confirms this,” she said, pointing to research by the Kansas City-based Kauffman Foundation and the Brookings Institute, among others. And research that just came out this week from Kauffman only helps confirm this: for example, new entrepreneurs ages 20 to 34 fell to 24.7% last year, compared to the 34.3% of people who were in the same age demographic in 1996 when they started businesses.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 24bp, FixedResets gaining 1bp and DeemedRetractibles up 2bp. FixedResets dominated both sides of the Performance Highlights table, with a notable preponderance of winners. Volume was extremely high.

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

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

Here’s TRP:

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.26 to be $0.71 rich, while TRP.PR.B, which will reset June 30 at 2.152% (+128), is $0.51 cheap at its bid price of 14.67

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

Most expensive is MFC.PR.J, resetting at +261bp on 2018-3-19, bid at 24.60 to be $0.45 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.50 to be $0.30 cheap.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.63 to be $0.81 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.16 and appears to be $0.41 rich.

FTS.PR.H, with a spread of +145bp, and bid at 16.40, looks $0.36 cheap and resets 2020-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 24.18 and is $0.17 rich.

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.40%, including the outliers TRP.PR.A / TRP.PR.F at -0.33% and FTS.PR.H / FTS.PR.I at +1.00%. On the junk side, only one of the six currently extant pairs is within the range of the graph.

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	0.2594 %	2,200.8
FixedFloater	0.00 %	0.00 %	0	0.00	0	0.2594 %	3,848.1
Floater	3.52 %	3.52 %	62,681	18.49	3	0.2594 %	2,339.6
OpRet	4.45 %	-7.00 %	24,394	0.08	2	-0.1975 %	2,777.5
SplitShare	4.60 %	4.91 %	70,121	3.28	3	-0.1343 %	3,238.0
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1975 %	2,539.7
Perpetual-Premium	5.46 %	4.93 %	59,619	4.92	19	0.0145 %	2,514.1
Perpetual-Discount	5.13 %	5.08 %	111,527	15.28	15	-0.2443 %	2,738.3
FixedReset	4.52 %	3.84 %	246,064	16.31	87	0.0145 %	2,347.6
Deemed-Retractible	5.00 %	3.08 %	110,615	0.53	34	0.0191 %	2,626.0
FloatingReset	2.52 %	2.91 %	51,939	6.11	9	-0.0688 %	2,337.5

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.M	FixedReset	-1.48 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.28 Bid-YTW : 4.54 %
IFC.PR.A	FixedReset	-1.45 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.74 Bid-YTW : 6.13 %
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 : 17.61 Bid-YTW : 6.88 %
ENB.PR.P	FixedReset	-1.24 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 18.33 Evaluated at bid price : 18.33 Bid-YTW : 4.96 %
FTS.PR.M	FixedReset	-1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 22.89 Evaluated at bid price : 24.18 Bid-YTW : 3.66 %
BNS.PR.D	FloatingReset	-1.05 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.52 Bid-YTW : 3.27 %
HSE.PR.C	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 22.65 Evaluated at bid price : 23.65 Bid-YTW : 4.41 %
BAM.PF.F	FixedReset	1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 22.92 Evaluated at bid price : 24.22 Bid-YTW : 4.04 %
BAM.PF.B	FixedReset	1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 21.85 Evaluated at bid price : 22.21 Bid-YTW : 4.20 %
GWO.PR.N	FixedReset	1.74 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.56 Bid-YTW : 6.64 %
TRP.PR.A	FixedReset	1.81 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 20.26 Evaluated at bid price : 20.26 Bid-YTW : 3.71 %
SLF.PR.G	FixedReset	1.83 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.14 Bid-YTW : 7.71 %
FTS.PR.I	FloatingReset	1.87 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 16.35 Evaluated at bid price : 16.35 Bid-YTW : 3.17 %
TRP.PR.E	FixedReset	1.93 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 22.17 Evaluated at bid price : 22.75 Bid-YTW : 3.90 %
CIU.PR.C	FixedReset	2.52 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 16.30 Evaluated at bid price : 16.30 Bid-YTW : 3.74 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BNS.PR.M	Deemed-Retractible	114,240	Nesbitt crossed blocks of 49,900 and 50,000, both at 25.51. TD crossed 11,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-27 Maturity Price : 25.25 Evaluated at bid price : 25.50 Bid-YTW : 0.74 %
BAM.PF.C	Perpetual-Discount	83,558	Nesbitt crossed blocks of 40,000 and 17,800, both at 22.05. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 21.65 Evaluated at bid price : 21.97 Bid-YTW : 5.52 %
BMO.PR.L	Deemed-Retractible	83,162	Nesbitt crossed 80,600 at 25.71. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-16 Maturity Price : 25.50 Evaluated at bid price : 25.70 Bid-YTW : 0.30 %
NA.PR.Q	FixedReset	77,858	TD crossed two blocks of 30,000 each, both at 25.25, and bought 10,700 at the same price from RBC. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.22 Bid-YTW : 3.49 %
PWF.PR.L	Perpetual-Premium	75,020	Scotia crossed blocks of 33,000 and 40,000, both at 25.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 24.86 Evaluated at bid price : 25.08 Bid-YTW : 5.15 %
BNS.PR.L	Deemed-Retractible	57,544	Nesbitt crossed 50,000 at 25.49. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-16 Maturity Price : 25.25 Evaluated at bid price : 25.50 Bid-YTW : -0.61 %
There were 56 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.L	FixedReset	Quote: 22.44 – 23.30 Spot Rate : 0.8600 Average : 0.6155 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.44 Bid-YTW : 4.86 %
FTS.PR.H	FixedReset	Quote: 16.40 – 16.95 Spot Rate : 0.5500 Average : 0.3566 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 16.40 Evaluated at bid price : 16.40 Bid-YTW : 3.78 %
ENB.PR.H	FixedReset	Quote: 17.21 – 17.68 Spot Rate : 0.4700 Average : 0.3106 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 17.21 Evaluated at bid price : 17.21 Bid-YTW : 4.80 %
FTS.PR.M	FixedReset	Quote: 24.18 – 24.55 Spot Rate : 0.3700 Average : 0.2379 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 22.89 Evaluated at bid price : 24.18 Bid-YTW : 3.66 %
CIU.PR.C	FixedReset	Quote: 16.30 – 16.95 Spot Rate : 0.6500 Average : 0.5467 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 16.30 Evaluated at bid price : 16.30 Bid-YTW : 3.74 %
CU.PR.F	Perpetual-Discount	Quote: 22.34 – 22.69 Spot Rate : 0.3500 Average : 0.2471 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-16 Maturity Price : 22.00 Evaluated at bid price : 22.34 Bid-YTW : 5.06 %

There is grave concern that some young adults are paying off their student loans:

In a growing refinancing boom, a new generation of private lenders — backed by hedge-fund billionaires and Silicon Valley royalty — is targeting successful graduates with professional degrees and student loans. For the borrowers, “it’s an uncashed lottery ticket,” said Brendan Coughlin, head of education finance for Citizens Financial Group Inc.

There’s a catch. Their good fortune could cost taxpayers billions and damage the credit quality of the government’s $1.2 trillion student-loan portfolio, the biggest pool of U.S. debt, except for mortgages. That’s because professional-school graduates and other borrowers with successful careers subsidize the less fortunate, who are more likely to default.

“Cream-skimming by private lenders will remove these profitable loans and leave mainly — or only — the more risky loans,” said James McAndrews, executive vice president and director of research at the Federal Reserve Bank of New York.

Precisely, Mr. McAndrews, and that’s just the way it should be. If the government decides that it is good policy to write loans to borderline students taking degrees in – shall we say – relatively impractical subjects because they’re easy … fine. That’s a political decision, made for (in theory) the greater good of society and elected representatives will (in theory) be accountable for the decision. But since it’s for the greater good of society, society as a whole should pay for it … it should not be paid by excessive, disproportionate taxation on young, smart STEM graduates.

Fixed income volatility is causing some scratching of heads:

The gyrations gripping the world’s fixed-income market are so great that it’s almost impossible to make sense of them on a historical basis. In Germany, for example, yields on 10-year securities have surged from almost nothing in late April to about 1 percent last week — a move so swift that some strategists are likening it to a once-in-a-generation event.
…
Across Europe, investors are ripping up their old models to analyze the $100 trillion global bond market that dictates how much consumers and companies pay to borrow. Volatility is soaring as central-bank policies diverge, whiffs of inflation emerge and new regulations cause big banks to back away from their traditional role facilitating buying and selling.
…
BlackRock is testing how risky its holdings are by running them through new worst-case scenarios that assume more volatility and varying correlation among asset classes. And strategists at JPMorgan Chase & Co., the world’s biggest debt underwriter, now see the need to calculate a “liquidity premium” for top-rated, longer-maturity government bonds in Europe, a new wrinkle for benchmark securities that are considered the safest assets available because of their deep markets.
…
Yield volatility on 10-year bunds has climbed to nine-times its average during the past 15 years, giving traders a taste of the turbulence European Central Bank President Mario Draghi said June 3 they should get used to as the byproduct of record monetary stimulus.

A measure of 30-day volatility on bunds surged to 300 percent in May. It hadn’t gone above 100 before this year, in data compiled by Bloomberg going back to the middle of 2005. The market’s gyrations are being magnified by record-low yields: In the week of Draghi’s remarks, yields soared 0.36 percentage point, the biggest jump since 1998. The yield was at 0.82 percent on Monday at 6:19 a.m. in New York, up from a record of 0.049 percent on April 17.

Hank Greenberg won on principle, but lost on cash:

Hank Greenberg won his fight to hold the U.S. responsible for the bitter pill it forced down the throat of American International Group Inc. shareholders. But that’s about it.

The judge who called the terms of the $85 billion bailout illegally onerous also ruled that without it investors would have gotten nothing. As a result, he awarded Greenberg no money.

The split-decision sets up the possibility that both sides will appeal, and that a battle over a key element of the government response to the 2008 financial crisis will continue for months or years to come.

“In the end, the Achilles’ heel of Starr’s case is that, if not for the government’s intervention, AIG would have filed for bankruptcy,” U.S. Court of Claims Judge Thomas Wheeler said. “AIG’s shareholders would most likely have lost 100 percent of their stock value.”

In response, the Fed issued a press release:

The Federal Reserve strongly believes that its actions in the AIG rescue during the height of the financial crisis in 2008 were legal, proper and effective. The court’s decision today in Starr International Company, Inc. v. the United States recognizes that AIG’s shareholders are not entitled to compensation for that decision, and that the Federal Reserve’s extension of credit to AIG prevented losses to millions of policyholders, small businesses, and American workers who would have been harmed by AIG’s collapse during the financial crisis. The terms of the credit were appropriately tough to protect taxpayers from the risks the rescue loan presented when it was made.

I take issue with that. In the first place, it is not the business of a central bank to make risky loans. Central banks must restrict themselves to loans made to solvent institutions, where the loans are secured by sound collateral, and the interest rate is punitive. Otherwise you wind up with the danger of a politicized institution determining who goes into selective bankruptcy. This is classical central banking that dates back to Bagehot.

If the “authorities” feel that bankruptcy will lead to horrible knock-on effects and the path of least evil is a bail-out … fine. But that’s a political decision; if AIG was to have been bailed out, it should have been by the Treasury Department.

In the second place, it is not entirely clear to me why the bankruptcy of the holding company should have led to such horrid knock-on effects. The company with the biggest exposure to AIG – which was Goldman Sachs – proved itself to be the only institution on Wall Street that had the brains it was born with when it showed that all the exposure to bankruptcy had been laid off to third parties. All the bail-out money left the country; some of it helped out CIBC.

Jamie Dimon had some good things to say about proxy advisors:

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon chided shareholders as “lazy” for casting votes at annual meetings based on the advice of proxy advisers.

“God knows how any of you can place your vote based on ISS or Glass Lewis,” Dimon, 59, said Wednesday at an investor conference in New York. “If you do that, you are just irresponsible, I’m sorry. And you probably aren’t a very good investor, either.”

JPMorgan’s board is reviewing how it pays top executives including Dimon after a record low percentage of shareholders voted this month to approve their latest packages. Investors are seeking that a greater portion of executives’ incentive pay be based on performance, Lee Raymond, the board’s lead director and chairman of the compensation committee, said at the firm’s annual meeting May 19.

Proxy advisers Institutional Shareholder Services and Glass Lewis & Co. had recommended investors reject the pay resolution, saying the bank lacks preset goals to determine compensation and didn’t give a good reason for giving Dimon his first cash bonus in three years.

It may have been inspired by a fit of pique over his pay, but he’s right anyway … well, mostly. It does not reflect well on the industry – but Portfolio Managers just don’t have time to examine a routine proxy vote carefully. Quick – how many issues are there in the S&P 500? Did you say 500? Award yourself a kewpie doll! Now do some quick arithmetic … that’s two companies per day. And how big a team is going to make the decisions? I mean, really? Four, tops, maybe? At most shops, one? Being generous? And this is after having to plough through such trivia as, you know, investment qualities? Give me a break. Proxy votes will only be examined carefully when they are meaningful; routine director elections will be rubber-stamped … except that rubber-stamping is illegal nowadays. OK, fine, hire an advisory company and pay them whatever it takes to keep the business legal. Stick the charge onto the MER. No problem. Granny’s got lots of money.

Who remembers Cracked magazine? It was the a defining symbol of twelve year old hipsters in the 1970s who found it more authentic than Mad magazine. Anyway, it’s been through several incarnations and is now a website attempting to appeal to young men; it’s a men’s magazine without the boobs, which means that their stock in trade is they look at actual issues or experiences from a first person perspective and report it in the ever-popular list format with a large dollop of (often rather predictable) sardonic humour. Much of it is quite good; they recently published 5 Nightmare Realities When Your Money Is Suddenly Worthless, giving a personal perspective of what it was like in Zimbabwe during their period of hyperinflation.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 4bp, FixedResets off 31bp and DeemedRetractibles up 16bp. Floaters got hammered; BAM FixedResets were prominent losers on the Performance Highlights table. 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:

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 19.90 to be $0.53 rich, while TRP.PR.B, which will reset June 30 at 2.152% (+128), is $0.44 cheap at its bid price of 14.65

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

Most expensive is MFC.PR.M, resetting at +236bp on 2019-12-19, bid at 23.63 to be $0.44 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.36 to be $0.47 cheap.

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.80 to be $0.62 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.15 and appears to be $0.53 rich.

FTS.PR.H, with a spread of +145bp, and bid at 16.41, looks $0.47 cheap and resets 2020-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 24.45 and is $0.36 rich.

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.45%, with no ridiculous outliers. On the junk side, three out of the six pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -1.23%; AIM.PR.A / AIM.PR.B at -0.37%; and DC.PR.B / DC.PR.D at -1.32%.

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	-2.7740 %	2,195.1
FixedFloater	0.00 %	0.00 %	0	0.00	0	-2.7740 %	3,838.1
Floater	3.53 %	3.54 %	62,756	18.44	3	-2.7740 %	2,333.6
OpRet	4.44 %	-11.69 %	25,402	0.08	2	0.0000 %	2,782.9
SplitShare	4.60 %	4.92 %	69,997	3.29	3	-0.2010 %	3,242.3
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,544.7
Perpetual-Premium	5.46 %	4.92 %	59,945	4.92	19	0.0311 %	2,513.7
Perpetual-Discount	5.12 %	5.08 %	105,224	15.22	15	0.0369 %	2,745.1
FixedReset	4.52 %	3.87 %	242,259	16.40	87	-0.3114 %	2,347.2
Deemed-Retractible	5.00 %	3.24 %	109,877	0.68	34	0.1576 %	2,625.5
FloatingReset	2.51 %	2.90 %	52,751	6.12	9	0.1624 %	2,339.1

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.K	Floater	-3.91 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 14.01 Evaluated at bid price : 14.01 Bid-YTW : 3.55 %
BAM.PR.B	Floater	-2.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 14.34 Evaluated at bid price : 14.34 Bid-YTW : 3.47 %
BAM.PF.A	FixedReset	-2.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 22.64 Evaluated at bid price : 23.41 Bid-YTW : 4.23 %
IFC.PR.A	FixedReset	-2.05 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.03 Bid-YTW : 5.94 %
BAM.PR.C	Floater	-2.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 14.06 Evaluated at bid price : 14.06 Bid-YTW : 3.54 %
BAM.PR.R	FixedReset	-1.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 19.80 Evaluated at bid price : 19.80 Bid-YTW : 4.30 %
BAM.PF.E	FixedReset	-1.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 21.80 Evaluated at bid price : 22.22 Bid-YTW : 4.22 %
NA.PR.S	FixedReset	-1.60 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 23.13 Evaluated at bid price : 24.65 Bid-YTW : 3.50 %
ENB.PR.B	FixedReset	-1.50 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 17.75 Evaluated at bid price : 17.75 Bid-YTW : 4.92 %
MFC.PR.N	FixedReset	-1.33 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.00 Bid-YTW : 4.62 %
BAM.PF.F	FixedReset	-1.28 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 22.80 Evaluated at bid price : 23.94 Bid-YTW : 4.11 %
BIP.PR.A	FixedReset	-1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 22.80 Evaluated at bid price : 24.06 Bid-YTW : 4.65 %
FTS.PR.G	FixedReset	-1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 21.30 Evaluated at bid price : 21.60 Bid-YTW : 3.76 %
ENB.PR.T	FixedReset	-1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 4.92 %
BAM.PF.G	FixedReset	-1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 22.84 Evaluated at bid price : 24.15 Bid-YTW : 4.06 %
RY.PR.M	FixedReset	-1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 22.90 Evaluated at bid price : 24.35 Bid-YTW : 3.67 %
SLF.PR.A	Deemed-Retractible	1.07 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.55 Bid-YTW : 5.54 %
BMO.PR.Q	FixedReset	1.11 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.58 Bid-YTW : 3.48 %
HSE.PR.A	FixedReset	1.76 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 16.20 Evaluated at bid price : 16.20 Bid-YTW : 4.35 %
GWO.PR.R	Deemed-Retractible	2.38 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.50 Bid-YTW : 5.07 %
FTS.PR.I	FloatingReset	2.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 16.05 Evaluated at bid price : 16.05 Bid-YTW : 3.23 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BNS.PR.N	Deemed-Retractible	83,560	YTW SCENARIO Maturity Type : Call Maturity Date : 2016-01-27 Maturity Price : 25.25 Evaluated at bid price : 25.70 Bid-YTW : 3.35 %
SLF.PR.G	FixedReset	74,736	Reset imminent, last day to tender for exchange. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.85 Bid-YTW : 7.94 %
MFC.PR.G	FixedReset	71,323	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 3.99 %
FTS.PR.M	FixedReset	63,826	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 23.00 Evaluated at bid price : 24.45 Bid-YTW : 3.61 %
MFC.PR.M	FixedReset	53,801	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.63 Bid-YTW : 4.35 %
TD.PR.T	FloatingReset	51,710	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.24 Bid-YTW : 2.77 %
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.PF.A	FixedReset	Quote: 23.41 – 23.93 Spot Rate : 0.5200 Average : 0.3142 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 22.64 Evaluated at bid price : 23.41 Bid-YTW : 4.23 %
TD.PF.A	FixedReset	Quote: 23.30 – 23.80 Spot Rate : 0.5000 Average : 0.3130 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 22.48 Evaluated at bid price : 23.30 Bid-YTW : 3.61 %
TRP.PR.A	FixedReset	Quote: 19.90 – 20.29 Spot Rate : 0.3900 Average : 0.2632 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 19.90 Evaluated at bid price : 19.90 Bid-YTW : 3.78 %
BAM.PF.E	FixedReset	Quote: 22.22 – 22.60 Spot Rate : 0.3800 Average : 0.2609 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 21.80 Evaluated at bid price : 22.22 Bid-YTW : 4.22 %
FTS.PR.I	FloatingReset	Quote: 16.05 – 16.70 Spot Rate : 0.6500 Average : 0.5497 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-15 Maturity Price : 16.05 Evaluated at bid price : 16.05 Bid-YTW : 3.23 %
MFC.PR.C	Deemed-Retractible	Quote: 22.43 – 22.80 Spot Rate : 0.3700 Average : 0.2703 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.43 Bid-YTW : 5.94 %

The June 2015 Financial System Review released by the Bank of Canada had a few interesting nuggets.

For instance, a chart showing where the negative yields are in Europe:

And there has been some concern expressed regarding the potential for negative yields on FixedResets, should five-year Canadas be greatly negative at the time of reset. This type of thing is being addressed in Europe:

Nevertheless, crossing the boundary marked by a zero interest rate creates distinct challenges, given the institutional, regulatory and accounting features of markets and contracts. For example, issuing bonds with a negative yield appears inconsistent with setting the issuing price at par value—a common convention—because these bonds would have to offer negative coupons. Collecting coupon payments from investors is probably too costly to be implemented and is unlikely to be accepted by investors. Instead, bonds can be issued at negative market yields if their price is above par. For example, current 1- and 2-year German bunds bear no coupons, but they are sold at a premium above par, implying negative yields to maturity. Similar adjustments may be needed in other markets, including modifications to pricing models for interest rate derivatives and to floating rate notes. For example, European investors are now seeking contractual guarantees that they are not liable to borrowers when floating rates become negative.

There are three things we have to worry about:

Key Vulnerabilities in the Canadian Financial System
The Bank continues to highlight three key areas of vulnerability:

• the elevated level of household indebtedness,
• imbalances in the housing market, and
• illiquidity and investor risk taking in financial markets.

Indebted Alberta households have relatively low levels of liquid financial assets, carry more debt and have a higher debt-service ratio than indebted households in other areas of the country (Table 2). Moreover, the proportion of highly indebted households in Alberta—those with a ratio of debt to gross income above 250 per cent—is among the highest in the country. In addition, unlike other provinces in Canada, a sizable proportion of mortgages in Alberta (and Saskatchewan) permit no recourse against individual borrowers in the event of default.[Footnote]

Footnote reads: Creditors holding non-recourse mortgage loans are prevented from seizing other assets or incomes from borrowers in the event of a default if the proceeds from the sale of the house are not sufficient to pay off the loan and associated legal costs. Generally, mortgages to individuals that have a low loan-to-value ratio in Alberta and all mortgages in Saskatchewan are non-recourse loans while, in the rest of Canada, all mortgages are full-recourse loans. In Alberta, for example, about 35 per cent of mortgage loans held by federally regulated lenders are uninsured and non-recourse.

I hadn’t know that! Well, who knows … maybe the American custom of “jingle-mail” will make it to the Prairies!

Meanwhile fears of increasing policy yields have Canadians shortening term on their borrowing. Look, I know this makes no sense. Don’t blame me.

And finally we get to my favourite topic:

Liquidity in fixed-income markets has become less reliable

Market liquidity has become less consistent in Canadian fixed-income markets, in both the government and corporate sectors, and could deteriorate rapidly during a financial stress event. While volatility may be gradually returning to more normal levels as a result of fundamental factors, a deterioration in market liquidity could amplify volatility if a large number of investors tried to unwind their positions in the same manner at the same time. This could lead to large investor losses and reduce investor confidence.

Certain trends observed in Canadian fixed-income markets are likely reducing market liquidity. First, the investor base in these markets has shifted. In particular, investment funds such as exchange-traded funds and mutual funds are now more important participants in the Canadian corporate bond market.[Footnote 17] In normal times, these funds hold sufficient cash buffers to cover investor redemptions. However, large redemptions may force funds to sell their assets, and the lack of market liquidity could intensify price movements. Bank of Canada analysis suggests that Canadian open-end mutual funds hold adequate amounts of cash buffers, which, coupled with low leverage, pose a limited risk of large sell-offs.[Footnote 18]

Similarly, foreign investors now hold a larger share of the Canadian federal government bond market. As such, a domestic shock could be the catalyst for a rapid sell-off of these bonds. If a sell-off were accompanied by a decline in market liquidity, it could cause discontinuous price movements.

However, many of the investors are foreign central banks and sovereign wealth funds, which tend to be patient, buy-and-hold investors aiming to diversify their portfolios. Their holdings therefore tend to be more stable. Second, market-making activity is evolving, owing to regulations and other changes in market structure, such as the growth in electronic trading in bond markets. Internationally and in Canada, the Basel III requirements compel institutions to hold more high-quality liquid assets. While these requirements should make banks more resilient to liquidity stress, they have reduced the willingness of banks to commit capital to make markets in fixed-income instruments.

[Footnote 17]: For example, mutual fund holdings of non-government bonds have increased from 7 per cent of outstanding bonds at the end of 2004 to 11 per cent at the end of 2014.

[Footnote 18]: For more details, see S. Ramirez, J. Sierra Jimenez and J. Witmer, “Canadian Open-End Mutual Funds: An Assessment of Potential Vulnerabilities,” in this report.

The report referenced in Footnote 18 is summarized as:

• ƒƒMutual funds provide retail investors with access to a broad range of investment opportunities. Globally, mutual funds have grown considerably in recent years and have become important players in many securities markets, prompting regulatory interest in vulnerabilities that could emanate from the sector.
• This report finds that vulnerabilities arising from Canadian mutual funds are currently limited:
  • (i) Funds hold an adequate amount of cash, given the underlying liquidity of their investments, and have a stable investor base, limiting risks from liquidity and maturity transformation.
  • (ii) Since the degree of leverage held by a fund is restricted by securities regulation, funds have low leverage ratios and limited derivatives exposures.
  • (iii) Even the largest funds are not dominant players in the securities markets in which they invest.

I think fund investors should be upset about the high proportion of cash in fixed income funds. Ten percent cash holdings is a bloody expensive liquidity buffer!

The average fixed-income fund keeps enough cash and equivalents to cover unusually large redemptions.[Footnote 10] In addition, Canadian mutual funds have a predominantly retail investor base that is focused mostly on long-term investing.[Footnote 11] Although it is theoretically possible, for example, for all investors in Canadian fixed income funds to redeem their shares en masse, Canadian fixed-income flows have been stable during past periods of stress (Chart 4).[Footnote 12]

[Footnote 10]: In 2013, the average fixed-income fund held about 10 per cent of its assets in cash equivalents, while only 5 per cent of fixed-income funds experienced monthly outflows greater than 6 per cent of their assets, on average, during this period.

[Footnote 11: During the financial crisis, institutional U.S. money market funds experienced more outflows than retail funds did during the run on the Reserve Primary Fund in September 2008 (McCabe 2010; Schmidt, Timmermann and Wermers 2014).

[Footnote 12: Chart 4 shows measures at the 5th and 95th percentiles of net flows across fixed-income funds for each month, together with industry total flows. For example, in December 2012 the 5th percentile of net flows was -4.2 per cent, indicating that 5 per cent of fixed-income funds had net flows less than -4.2 per cent (i.e., net outflows greater than 4.2 per cent) in that month.

Part of their conclusion reads:

Since fixed-income mutual funds represent a non-negligible proportion of Canadian corporate and government fixed-income markets, a sell-off triggered by outflows could, at least in principle, cause significant price volatility in these markets. Nevertheless, redemption behaviour during past periods of stress was contained, suggesting that this potential vulnerability is limited. Finally, although many Canadian fund management firms are affiliated with a major bank, these banks are unlikely to suffer losses from stress in any of the management firm’s funds, since funds and their management firms are separate legal entities and there is no implicit expectation that a long-term mutual fund’s price would be supported to maintain a certain value.

While that conclusion is mostly true, I suggest a reference to the disgusting precedent set by the regulatory response to the Asset-Backed Commercial Paper blow-up in the summer of 2007 would have been in order.

Meanwhile, a lot of US homeowners are still underwater:

It’s the one chart that keeps Stan Humphries up at night.

A decade after U.S. home sales peaked, 15.4 percent of owners in the first quarter owed more on their mortgages than their properties were worth, according to a report Friday by Zillow Inc. While that’s down from a high of 31.4 percent in 2012, it’s still alarmingly above the 1 or 2 percent that marks a healthy market, said Humphries, the chief economist at the Seattle-based real-estate data provider. Worse yet: The pace of healing is losing steam.

The blotch stains the economy by restraining the housing recovery and by preventing the job market from becoming even more vigorous. It also will probably exacerbate wealth inequality for years to come as homes valued in the bottom third of the market are more likely to be underwater.

Some more figures would be interesting; if I was underwater on my home, I’d consider any money spent paying down the mortgage to be so much money wasted; I’d want to know how my minimum required mortgage payment compared to rent.

A highly technical Fed research note by Andrew Figura and David Ratner titled The Labor Share of Income and Equilibrium Unemployment makes a very interesting point:

We argue that the recent secular decline in the labor share (shown in Figure 3) has been driven by structural factors that also tend to raise the vacancy-unemployment (V-U) ratio, and that this has, in turn, served to reduce the equilibrium unemployment rate. As shown in Figure 3, the labor share of income has moved noticeably below levels that prevailed until the early 2000s (see Elsby, Hobijn, and Şahin (2013) and Karabarbounis and Nieman (2014) for recent work on the labor share).2 Smoothing through some of the volatility in the data, the labor share has declined by roughly 6.5 percentage points since the early 2000s and now hovers around 63 percent. Through the lens of a standard labor market model, we argue that if the decline in the labor share has been driven by a reduction in worker bargaining power, the incentive for firms to post vacancies has increased and equilibrium unemployment will be lower as a result.
…
Going back to Figure 4, our results suggest that as the labor share has declined, the JC has rotated counterclockwise. Mapping this estimate into an effect on the unemployment rate, however, requires an estimate of the slope of the Beveridge curve. To derive an estimate, we regress log vacancies on log unemployment, allowing for a break in the intercept beginning in 2009. Our estimated coefficient suggests that a one percent increase in the V-U ratio along a BC will lead to about a one-half percent decrease in the unemployment rate. Thus, when combined with the 30% increase in the V-U ratio estimated above, we find the lower labor share would reduce the equilibrium unemployment rate by 15%, or by around two-thirds of a percentage point from an initial equilibrium unemployment rate of 5%.

Their argument is not just out of my field but, as I said, highly technical … so I’ll leave commentary on the matter up to the economists out there! Journalists Craig Torres and Jordan Yadoo of Bloomberg comment:

Next week, Federal Reserve officials publish new quarterly forecasts, and all eyes are going to be on where they set the job market’s Goldilocks rate.

That’s the estimated unemployment level officials figure is neither too high nor so low that it starts to drive wages and prices higher. To quote Goldilocks, it’s “just right.”

Fed officials in March estimated this “natural rate” of unemployment at 5 percent to 5.2 percent. Unemployment stood at 5.5 percent in May. A new paper by Fed board staff shakes up this view by suggesting the number could be as low as 4.3 percent.

That has implications for next week’s Fed policy meeting. If Fed Board economists Andrew Figura and David Ratner are right, the labor market has room to run. So there may be no need to raise interest rates soon, or fast.
…
Even if Fed officials do raise the benchmark lending rate in September, as about half the economists in a Bloomberg News survey this month expect, the research suggests the pace of tightening will be slow.

“It could mean that one percentage point of tightening per year is too steep in a world where” the rate of full employment is 4.25 percent, [chief U.S. economist at Barclays in New York Michael] Gapen said.

On the other hand consumers have lots of sentiment:

Bigger paychecks are giving American consumers reason to believe again.

The University of Michigan’s preliminary consumer sentiment index for June rose to 94.6, topping all estimates in a Bloomberg survey of economists, from a reading of 90.7 last month, figures showed Friday. Households were the most upbeat about their wage prospects in seven years.

As the ranks of the unemployed shrink, the competition for skilled workers is heating up and forcing employers to boost wages to attract and retain staff. Firming confidence makes it likely the recent pickup in consumer spending, which accounts for almost 70 percent of the economy, will be sustained.

Meanwhile, the Dimon – Warren pissing match continues:

U.S. Senator Elizabeth Warren shot back at criticism from JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, saying bankers don’t dislike her because she knows too little but because she knows too much.

“The problem for these guys is that I fully understand the system and I understand how they make their money, and that’s what they don’t like about me,” Warren told the Huffington Post in a podcast interview released Friday.

I reported on Round 1 of the battle on June 10.

I mentioned whispers of a decline in junk bond credit quality yesterday. Here’s another tidbit for the legions of doom:

U.S. junk-bond defaults rose to the highest level since October 2009 as depressed prices plague energy, metal and mining issuers that represent the largest contingent of debt from the riskiest companies.

There were nine defaults in May, including iron processor Magnetation LLC and Patriot Coal Corp., according to Fitch Ratings, with energy and metals and mining companies accounting for all of them. The two industries comprised 93 percent of defaults in the second quarter.

The Bloomberg Commodity Index of 22 raw materials has lost 25 percent in the past year, with the price of a barrel of oil plummeting by nearly half and iron falling by as much as a third.

Calgary housing is looking interesting, if not chaotic. On the one hand the high-end is tumbling:

Nationally, home prices rose 0.9 per cent from April, and 4.6 per cent from a year earlier.

Notable in that annual measure were a 7.6-per cent surge in Toronto, a 6.2-per-cent jump in Vancouver, and a similar rise in Hamilton.

“The 0.9-per-cent rise was slightly below the May average of 1.1 per cent over the last 14 years,” senior economist Marc Pinsonneault said in releasing the numbers.

“This was because Calgary prices fell 3.3 per cent from April, the largest monthly drop recorded for that region, subtracting 0.3 percentage points from the gain of the composite index,” he added.

On the other hand, condominiums are getting built:

As the population of Calgary continues its steep incline, the city’s downtown core is bracing itself for an influx of high-rise condominium developments to house its ever-increasing number of professionals.

In the city’s Beltline neighbourhood, the population has risen consistently by about 4 per cent a year between 2010 and 2014 according to the official city of Calgary census.
…
With a population increase of over 130,000 in five years, the Beltline and other downtown residential districts are prime candidates for large-scale condominiums, and the city’s continual growth, as well as its economic and socio-economic atmosphere, have attracted the eye of many Toronto-based developers.

In the past few years, firms such as Tribute Communities, Lamb Development Corp., and Great Gulf have been exploring the Calgary market for investment and development opportunities.

A Globe story on community mailboxes has brought to the fore my puzzlement over the issue:

Once Canada Post phases out door-to-door service across the country in favour of a new generation of CMBs, every neighbourhood, no matter how dense, will face the same problem: How many of these boxes will be needed – and where will they be installed?

Toronto residents will get their first look at that process next week, when city council’s planning and transportation committee considers an initial report on mailbox-location guidelines.
…
But when those estimates are extrapolated to the scale of the city as a whole, the numbers become formidable, indeed. The estimates to date vary widely. Canada Post estimates that it will have to deploy 2,500 to 11,000 CMBs across Toronto, as the Crown corporation ends door-to-door delivery by 2019. But according to the city’s staff report, Canada Post between 2017 and 2019 expects 565,784 “points of call” (i.e. individual delivery addresses) to be converted to community mailboxes – a figure that would require more than 35,000 new boxes. Residents who live in basement apartments, duplexes or laneway homes will also have their own slots in the boxes. Just over 22,000 downtown residential addresses will continue to get door-to-door delivery.

I don’t understand the issue, frankly. Look, if a postman cannot physically deliver enough mail to make it worth paying him, something has to change – I get it! Let’s say an individual postie has to deliver X pieces of mail every hour to make it worthwhile; for the sake of an argument, let’s say X = 1000.

So fine, out in the suburbs where he has to walk at least fifty feet between houses, he can only deliver 400 pieces per hour on the average day. To me, the obvious solution is to cut back to twice-weekly delivery. Then, on the two days delivery, he’ll hit the 1,000 piece threshold and we’re all happy. What comes in the mail, anyway? Bills and magazines. Nothing that can’t wait a day or two.

Eventually, once you’ve cut back to once a week delivery and you’re still below the 1,000 piece/hour threshold, that’s when you bring in a community box. But the way it stands, we’re all losing all service, regardless of whether we’re on a rural route or in the older sections of town where lot sizes are 20-feet frontage and there’s lots of businesses getting lots of mail. It makes no sense to me.

And, by the way, when Canada Post surveys you asking which of a few locations you think are good for your box, I have it on good authority that you should pick the spot furthest away. Apparently the area turns into a zoo when people come home from work at the same time and stop at the box on their way home. Lots of traffic, lots of mess, lots of aggravation.

It was, as usual, another poor day for the Canadian preferred share market, with PerpetualDiscounts down 37bp, FixedResets off 21bp and DeemedRetractibles flat. This is getting depressing. The Performance Highlights table is notable for its complement of FixedReset losers. Volume was very low; I assume everybody’s waiting for PrefLetter.

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:

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 22.52 after horrible, worst-on-the-board performance today, to be $0.52 rich, while TRP.PR.B, which will reset June 30 at 2.152% (+128), is $0.49 cheap at its bid price of 14.61

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

Most expensive is MFC.PR.M, resetting at +236bp on 2019-12-19, bid at 23.63 to be $0.40 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.36 to be $0.49 cheap.

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.00 to be $0.66 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.40 and appears to be $0.53 rich.

FTS.PR.H, with a spread of +145bp, and bid at 16.25, looks $0.72 cheap and resets 2020-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 24.40 and is $0.30 rich.

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.50%, with no ridiculous outliers. On the junk side, three out of the six pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -1.16%; AIM.PR.A / AIM.PR.B at -0.38%; and DC.PR.B / DC.PR.D at -1.14%.

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	0.5533 %	2,257.8
FixedFloater	0.00 %	0.00 %	0	0.00	0	0.5533 %	3,947.6
Floater	3.43 %	3.41 %	62,008	18.74	3	0.5533 %	2,400.2
OpRet	4.44 %	-12.14 %	26,450	0.08	2	0.0000 %	2,782.9
SplitShare	4.59 %	4.83 %	71,089	3.30	3	-0.0268 %	3,248.8
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,544.7
Perpetual-Premium	5.46 %	4.91 %	59,798	4.93	19	-0.0166 %	2,513.0
Perpetual-Discount	5.12 %	5.12 %	105,361	15.24	15	-0.3681 %	2,744.0
FixedReset	4.50 %	3.89 %	244,128	16.46	87	-0.2134 %	2,354.6
Deemed-Retractible	5.01 %	3.30 %	107,705	0.69	34	0.0000 %	2,621.3
FloatingReset	2.52 %	2.89 %	54,524	6.12	9	0.0591 %	2,335.3

Performance Highlights
Issue	Index	Change	Notes
TRP.PR.E	FixedReset	-3.76 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 22.02 Evaluated at bid price : 22.52 Bid-YTW : 3.95 %
MFC.PR.L	FixedReset	-3.17 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.30 Bid-YTW : 4.93 %
BAM.PF.D	Perpetual-Discount	-2.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 21.98 Evaluated at bid price : 22.32 Bid-YTW : 5.49 %
TRP.PR.D	FixedReset	-2.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 21.70 Evaluated at bid price : 22.01 Bid-YTW : 4.00 %
IFC.PR.C	FixedReset	-2.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.50 Bid-YTW : 4.50 %
BAM.PR.N	Perpetual-Discount	-1.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 21.62 Evaluated at bid price : 21.62 Bid-YTW : 5.51 %
BAM.PR.M	Perpetual-Discount	-1.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 21.35 Evaluated at bid price : 21.63 Bid-YTW : 5.49 %
ENB.PR.H	FixedReset	-1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 17.23 Evaluated at bid price : 17.23 Bid-YTW : 4.79 %
BAM.PF.C	Perpetual-Discount	-1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 21.87 Evaluated at bid price : 22.15 Bid-YTW : 5.48 %
BNS.PR.Y	FixedReset	-1.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.94 Bid-YTW : 3.30 %
HSE.PR.A	FixedReset	-1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 15.92 Evaluated at bid price : 15.92 Bid-YTW : 4.43 %
ENB.PR.P	FixedReset	-1.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 18.62 Evaluated at bid price : 18.62 Bid-YTW : 4.87 %
FTS.PR.K	FixedReset	1.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 21.20 Evaluated at bid price : 21.20 Bid-YTW : 3.83 %
RY.PR.M	FixedReset	1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 22.99 Evaluated at bid price : 24.60 Bid-YTW : 3.62 %
BAM.PR.K	Floater	1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 14.58 Evaluated at bid price : 14.58 Bid-YTW : 3.41 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BMO.PR.Y	FixedReset	133,295	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 23.04 Evaluated at bid price : 24.69 Bid-YTW : 3.68 %
MFC.PR.I	FixedReset	58,700	RBC crossed 50,000 at 25.02. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.05 Bid-YTW : 3.98 %
TRP.PR.G	FixedReset	57,150	RBC crossed 50,000 at 24.88. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 23.08 Evaluated at bid price : 24.85 Bid-YTW : 3.84 %
PWF.PR.R	Perpetual-Premium	37,064	Nesbitt crossed 25,000 at 26.05. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-30 Maturity Price : 25.00 Evaluated at bid price : 26.05 Bid-YTW : 4.83 %
PWF.PR.P	FixedReset	32,000	RBC crossed 25,000 at 18.55. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 18.35 Evaluated at bid price : 18.35 Bid-YTW : 3.69 %
RY.PR.N	Perpetual-Discount	31,200	Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2024-11-24 Maturity Price : 25.00 Evaluated at bid price : 25.11 Bid-YTW : 4.88 %
There were 14 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.L	FixedReset	Quote: 22.30 – 23.25 Spot Rate : 0.9500 Average : 0.6185 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.30 Bid-YTW : 4.93 %
TRP.PR.E	FixedReset	Quote: 22.52 – 23.30 Spot Rate : 0.7800 Average : 0.5132 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 22.02 Evaluated at bid price : 22.52 Bid-YTW : 3.95 %
TRP.PR.D	FixedReset	Quote: 22.01 – 22.66 Spot Rate : 0.6500 Average : 0.4235 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 21.70 Evaluated at bid price : 22.01 Bid-YTW : 4.00 %
MFC.PR.M	FixedReset	Quote: 23.63 – 24.10 Spot Rate : 0.4700 Average : 0.3401 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.63 Bid-YTW : 4.34 %
BMO.PR.T	FixedReset	Quote: 23.41 – 23.85 Spot Rate : 0.4400 Average : 0.3147 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 22.55 Evaluated at bid price : 23.41 Bid-YTW : 3.56 %
BAM.PR.T	FixedReset	Quote: 20.83 – 21.20 Spot Rate : 0.3700 Average : 0.2490 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-12 Maturity Price : 20.83 Evaluated at bid price : 20.83 Bid-YTW : 4.13 %