PrefBlog

Inflation picked up a little in the US:

The U.S. cost of living excluding what households pay for food and fuel climbed more than forecast in April, indicating inflation is gravitating toward the Federal Reserve’s goal.

The core consumer-price index rose 0.3 percent, the biggest gain since January 2013 and reflecting broad-based increases, a Labor Department report showed Friday. In the last three months, core inflation advanced an annualized 2.6 percent, the most since August 2011. Including food and fuel, the gauge was up a more moderate 0.1 percent as prices fell at grocery stores and gas stations.
…
Inflation will need to keep rising in order for Fed officials to be “reasonably confident” that progress on their price stability mandate is sufficient to allow for an increase in the benchmark interest rate. The Fed’s preferred measure of price growth, the personal consumption expenditures gauge, rose 0.3 percent in the year ended March and hasn’t met the bank’s goal since April 2012.

And Yellen sees a gradual tightening commencing this year:

Federal Reserve Chair Janet Yellen said she still expects to raise interest rates this year if the economy meets her forecasts, with a gradual pace of tightening to follow.

While the labor market is nearing full strength, “we are not there yet,” she said Friday in a speech in Providence, Rhode Island.

“If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate,” she said.

Even after the first rate increase since 2006, “I anticipate that the pace of normalization is likely to be gradual,” Yellen, 68, said.
…
She also repeated the Fed’s two criteria for raising rates, which have been kept near zero since December 2008: “I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term.”

Assiduous Reader prefhound sent me a wonderful link in the Economist:

So-called contingent convertible bonds, or “cocos”, turn into equity when a bank is struggling, trimming its debts and interest payments. Coco issuance has soared since 2010, as banks have sought to keep regulators happy by bolstering their ability to withstand losses. These fancy bonds have the upsides of debt in good times, but provide a cushion in a crisis.

Or so the theory goes. Cocos usually convert when regulators decree that a bank’s capital has fallen below some threshold. In the height of a crisis, that puts regulators in a bind: announcing that a bank is weak can cause panic. A conversion also imposes sudden losses on bondholders, who find themselves holding shares worth much less than the bonds that spawned them. If the bondholders are themselves in distress, those losses can reverberate around the financial system.

Jeremy Bulow of Stanford University and Paul Klemperer of Oxford University see a way to overcome these problems with a new instrument called an equity recourse note, or ERN. Like a coco, an ERN functions as debt in normal times. But the trigger for the conversion is the bank’s share price, rather than a regulatory measure of capital. When the share price falls by enough—say, to 25% of its initial value—the bank can make repayments on the bond with new shares rather than with cash.
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This avoids several problems with cocos. There is no uncertainty about how regulators will behave. Abrupt losses are minimised: investors can see when the share price is nearing the trigger, and if it recovers, cash payments resume. Because the new shares are worth no more than the cash saved, ERN conversions should shore up a bank’s share price (by contrast, when cocos convert, enough new shares are created to push the price down).

The source paper is Equity Recourse Notes: Creating Counter-cyclical Bank Capital. I will try to give this its own dedicated post soon.

So the Dalhousie Dentistry Debacle has come to a conclusion:

“There was an immense amount of trying to find out what happened here and then the next stage was how did the facts matter, what was the impact,” said Jennifer Llewellyn, the law school professor who led the restorative justice process that began in December.

Twelve of the 13 male dentistry students in the group were involved in that process and participated in more than 150 hours each of seminars, workshops and discussions with their male and female classmates, faculty, staff and community members. The 12 have now met professionalism standards and are eligible to graduate if they complete their clinical work, the university said.
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Friday’s report is only the first of several to come. A separate, independent task force led by University of Ottawa law professor Constance Backhouse will release its own report at the end of June.

And this crap, boys and girls, is why university education is so expensive. The best part, however, comes from an Ontario regulator:

“I have always taken the position that just because a university gives out a dental degree does not mean I have to give out a licence,” said Irwin Fefergrad, registrar of the Royal College of Dental Surgeons of Ontario.

In January, the college changed the application form required for every applicant who wants to practise in the province to include a question about whether they have ever been the subject of an inquiry or investigation by a university. If the answer is yes, the College will collect information on that inquiry before issuing a licence, Mr. Fefergrad said.

So the useless parasite will trust a University to grant a dental degree, but not to come to acceptable conclusions following an inquiry or investigation; he intends to gather information and, presumably, weigh it carefully. Nice work if you can get it! Particularly since anybody who wants to be a dentist in Ontario had damn well better be very polite to wise Mr. Fefergrad.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 1bp, FixedResets off 2bp and DeemedRetractibles down 4bp. Volatility was higher than one might expect, given the calm overall figures, with ENB FixedResets prominent on the downside. 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:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.03 to be $0.87 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.82 cheap at its bid price of 24.98.

Click for Big

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.N, resetting at +230 on 2020-3-19, bid at 24.30 to be $0.63 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.10 to be $0.54 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.77 to be $0.51 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.96 and appears to be $0.53 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.07, looks $1.13 cheap and resets 2015-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 25.00 and is $0.69 rich.

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Investment-grade pairs predict an average over the next five-odd years of about 0.30%, including the TRP.PR.A / TRP.PR.F at -0.55%. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -1.18%.

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

So what’s the worst kind of person to have at the top of an important government agency? A micro-manager who is unfamiliar with the substance of the work:

Expectations were high for [Mary Jo] White, who came to the [Chair of the SEC] job with a reputation as a tough prosecutor. As U.S. Attorney for the Southern District of New York, she took on terrorists and mobsters. Later she became a highly sought-after defense attorney, representing banks and other defendants in government probes. In announcing her nomination in January 2013, President Obama warned the financial industry: “You don’t want to mess with Mary Jo.”

That reputation has been dented at the SEC. The pace of rulemaking has been so slow that some staff have labeled White’s office the cheese cellar: It’s where policy goes to age. The nickname has stuck as proposals and reports have piled up in her office, waiting for her careful, often line-by-line consideration. White’s circumspection has slowed the progress of high-profile rules governing executive pay, broker obligations, and swaps, the financial products that helped fuel the financial crisis.

White had never held a position for which she had to develop complex financial policy. That lack of experience, plus difficulty in developing a consensus on nettlesome issues, has contributed to the agency’s troubles, say critics inside and outside the agency. “You take a commission that faces the most challenging regulatory agenda since its creation and you appoint a nonpolicy person as chair,” says Barbara Roper, director of investor protection for the Consumer Federation of America. The SEC under White “has been as unproductive as I thought it would be.”

My favourite journalist, Matt Levine, takes a good look at the touted FX so-called rigging settlement:

Then there are three bullet points describing other naughtiness that does not rise to the level of antitrust conspiracy. Those bullet points begin:

“We added markup to price quotes using hand signals and/or other internal arrangements or communications.”

“We have, without informing clients, worked limit orders at levels (i.e., prices) better than the limit order price so that we would earn a spread or markup in connection with our execution of such orders.”

“We made decisions not to fill clients’ limit orders at all, or to fill them only in part, in order to profit from a spread or markup in connection with our execution of such orders.”

You might read these sentences as admissions of guilt, or disclosures of crimes, or even apologies. In context — in the context of a disclosure notice sent to clients as part of the bank’s probation for a felony conviction, one paragraph after the apology for the massive antitrust conspiracy — that’s kind of what they look like. And in the banks’ plea agreements, the practices described in those bullet points are listed as “other relevant conduct” for the criminal conspiracy. So I read the bullet points as confessions yesterday, and was puzzled because, while they seem like sharp practices, they don’t quite seem like crimes.

But those bullet points are actually introduced by the phrase, “The Firm has engaged in other practices on occasion, including:.” These are not crimes, just “practices.” And the disclosure notice just describes them. It stops after the bullet points. It never says “and those practices were wrong.” Or “and we’re sorry we did those things.” Or even: “and we’ll stop doing them.”

Because they won’t! Here’s another letter that JPMorgan is sending to its clients along with the disclosure notice.2 This one is not a condition of its probation. Here’s how it starts:

The purpose of this letter is to clarify the nature of the trading relationship between you and the Corporate & Investment Bank at JPMorgan Chase & Co. and its affiliates (together, “JPMorgan” or the “Firm”) and to disclose relevant practices of JPMorgan when acting as a dealer, on a principal basis, in the wholesale spot foreign exchange (“FX”) markets. We want to ensure that there are no ambiguities or misunderstandings regarding those practices.

So: That does not sound like an apology. That sounds downright feisty. The disclosure notice, which JPMorgan has to send, starts with an apology and then goes on to list some things that JPMorgan did in the past. The client letter, which JPMorgan wants to send, starts with a defiant “no ambiguities or misunderstandings” and then goes on to list some things that JPMorgan will keep doing in the future.

So guess what? JPMorgan acts a principal on FX transactions, to the bewildered astonishment of pseudo-portfolio managers and ignorant regulatory lawyers. And they intend to continue acting as principal! How about that, eh? And their job as principal is to make money for their firm, not yours! Isn’t that astonishing? Golly, it sure is different from kindergarten, where teacher told us to work together.

Levine adds a good point, which has me weeping that it is considered necessary to emphasize:

Of course salespeople and traders talk to each other! The salesperson’s job is to help the trader understand how to price a trade for a particular client. If the salesperson thinks it’s in the bank’s interest to add a markup — that is, if the salesperson thinks that the client is not particularly price-sensitive and will not trade away if the price is too high — then the salesperson’s job is to inform the trader.

The regulatory weenies get a much more sympathetic hearing in another article:

The manipulation didn’t stop at putting in low fixes, the traders quoted by the FCA also were attempting to trigger client stops for their own ends.

In the example the FCA gives, a client had placed to stop loss order to buy GBP77 million at the rate of 95 against another currency. The Barclays trader attempts to get the currency to trade at 97 so he could sell the full GBP77 million to the client at 96.5. Barclays would profit from this stop loss order if the average rate they bought GBP in the market was lower than this stop stop loss order.

Good for the Barclays guys! As principals, they had absolutely zero duty to their counterparty, who was a complete moron for placing a stop order in the first place. Let’s just hope that the twerp who placed that order has gone bankrupt and is now spending his days naked and hungry in a London alleyway.

It may be that the US 10-Year Break Even Inflation Rate has found a new level:

Demand at Thursday’s $13 billion auction of U.S. Treasury Inflation-Protected Securities, or TIPS, declined from the previous sale in March. The offering attracted the lowest demand since September 2014, when oil prices were collapsing, bringing down a key measure of bond-market inflation forecasts along with them.

“We’re just simply not too wrought up about inflation expectations at the moment,” said Jim Vogel, interest-rate strategist with FTN Financial in Memphis, Tennessee.

The U.S. 10-year break-even rate, a gauge of the inflation outlook derived from the yield difference between Treasuries and index-linked securities, was at 1.87 percentage points, up from a low this year of 1.53 percent on Jan. 13. That made TIPS less attractive on Thursday.

The CPPIB has reported annual returns to March 31, 2015:

CPPIB measures its performance against a market-based benchmark, the Reference Portfolio, representing a passive portfolio of public market investments that can reasonably be expected to generate the long-term returns needed to help sustain the CPP at the current contribution rate.

In fiscal 2015, the CPP Fund’s gross return of 18.7% outperformed the Reference Portfolio delivering $3.6 billion in gross dollar value-added (DVA) above the Reference Portfolio’s return, after external management fees and transaction costs. Net of all CPPIB costs, the investment portfolio exceeded the benchmark’s return by 1.3%, producing $2.8 billion in net DVA.

“Dollar value-added is an important measure as it shows the difference between active investments made relative to their benchmarks in dollar terms. We will maintain a greater focus on total Fund – absolute as well as relative – returns, by continuing to develop and apply our capabilities more widely to portfolio management,” said Mr. Wiseman. “Our attention to both measures helps maximize returns, CPPIB’s objective, in the best interests of current and future beneficiaries, since the source of pension benefits is the total Fund. To reduce volatility, DVA is particularly valuable when it is generated as loss reduction in negative market conditions. Both total returns and DVA can vary widely from year-to-year depending on market conditions. Accordingly, both measures must be looked at over longer periods of at least one market cycle, such as five years or more.”

Given our long-term view and risk-return accountability framework, we track cumulative value-added returns since the April 1, 2006, inception of the Reference Portfolio. Cumulative value-added over the past nine years totals $5.8 billion, after all costs.

They also talked a lot about nominal and real returns, which I think is a mistake – they’re just setting themselves up for criticism in a bad year. I confess I am a little troubled by the asset mix:

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18.7% private equity! That’s a lot! And I continue to be convinced that at some point we’re going to see a big wave of scandals resulting from too many people playing too many games for too long with private equity valuations…

And it’s about time for me to complain again about pricing trends in education:

The college building boom is coming to New York City’s elite private schools.

With interest rates poised to rise, the Ivy League stepping stones are selling tax-exempt debt at the fastest pace in over a decade to keep their edge. Riverdale Country School in the Bronx, Saint Ann’s School in Brooklyn and La Scuola d’Italia Guglielmo Marconi near Central Park plan to sell almost $150 million of bonds to pay for projects, including a new six-lane pool and musical ensemble rooms.

The borrowing reflects the competitive pressure to replace decades-old buildings and dangle the latest amenities to draw the children of New York’s wealthiest. Tuition runs as high as $45,600 a year, in a city where half the households earn less than $52,000.
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To lure students, U.S. universities have borrowed more than $250 billion in the municipal market over the past decade for labs, dormitories and gyms with features like rock-climbing walls. For public colleges, it’s a way to attract higher-paying out-of-state students. For private ones, to best the competition.

The approach has caught on in New York, where some 234,000 pupils, almost one-fifth of the total, attend private schools.
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The New York schools are borrowing through Build NYC Resource Corp., a city agency that allows non-profits to raise money in the municipal-bond market. The schools repay investors, who are willing to accept lower interest rates because the income isn’t taxed. Build NYC receives fees for arranging the sales. It isn’t on the hook if they default.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 22bp, FixedResets off 16bp and DeemedRetractibles gaining 4bp. Enbridge FixedResets dominated the “return challenged” section of the Performance Highlights table. 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:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.90 to be $0.84 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.66 cheap at its bid price of 24.98.

Click for Big

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 +236 on 2019-12-19, bid at 24.55 to be $0.62 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.10 to be $0.61 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.76 to be $0.61 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 25.00 and appears to be $0.55 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 15.92, looks $1.14 cheap and resets 2015-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 24.80 and is $0.63 rich.

Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.30%, including the TRP.PR.A / TRP.PR.F at -0.45%. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -1.24%, while DC.PR.B / DC.PR.D has leapt upwards to +1.26%. It’s a far cry from, for instance, March 30 when the latter pair had a break-even rate of -2.87% … since then, the price spread has narrowed from $4.00 to $0.28, while the total returns are -11.68% and +3.81%, respectively.

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

Six banks have agreed to pay extra taxes as a regulatory extortion payment:

Six of the world’s biggest banks will pay $5.8 billion and five of them agreed to plead guilty to charges tied to a currency-rigging probe as they seek to wind down almost half a decade of enforcement actions.

Citicorp, JPMorgan Chase & Co., Barclays Plc and Royal Bank of Scotland Plc agreed to plead guilty to conspiring to manipulate the price of U.S. dollars and euros in settlements with the Justice Department announced in Washington Wednesday. The main banking unit of UBS Group AG agreed to plead guilty to charges related to interest-rate manipulation. The Swiss bank, the first to cooperate with antitrust investigators, was granted immunity in the currency probe.

The four banks that agreed to plead guilty to currency charges are among the world’s biggest foreign-exchange traders. They were accused of colluding to influence benchmark rates by aligning positions and pushing transactions through at the same time. Traders who described themselves as members of “The Cartel” used online chat rooms to discuss their positions in the minutes before the rates were set, the Justice Department said.

As discussed on June 12, 2013, I don’t understand the fuss about this. The dealers were simply positioning themselves to meet the forward obligations they had incurred in writing the clients a very short-term forward contract. Big deal. The only people who could possibly be hurt by any amount of manipulation of the fix are moronic portfolio managers who seek to “avoid risk” by entering a Market-On-Close order and the idiots who hire them. No sympathy here!

Cloud computing is getting some serious attention:

It sounds like the mother of all spreadsheets: 1 million rows, 1 million columns — 1 trillion entries in all.

Fortunately, Braxton McKee isn’t using Excel. Instead, he’s tapping into the cloud to crunch all that market data on the cheap with software he built that learns as it goes.

The cost of that cosmic power: $10.
…
Five years ago, the sort of programming involved in McKee’s 1-trillion-point dense matrix would have taken months of coding and $1 million-plus of hardware. Now McKee simply logs onto Amazon Web Services to name his price for computing capacity and sets his code loose. Out of a loft in the Flatiron District in Manhattan, he works on what he calls “coffee time.” His goal is to make every model — no matter how much data are involved – – compute in the time it takes him to putter to his office kitchen, brew a Nespresso Caramelito, and walk back to his desk.

There’s a slim chance that the banks’ hegemony on Canadian finance will be eroded:

Earlier in May, reports came out that stock-market operator Chi-X Global Holdings, which operates a trading venue in Canada, is exploring a sale. At the time, numerous prospective bidders were mentioned, so it’s hard to tell who would eventually win any auction, but the mere mention of Nasdaq as a potential suitor is catching Canadians’ attention.

To be clear, Nasdaq would acquire Chi-X globally, so this wouldn’t be a Canada-only deal. But the acquisition would have particularly serious implications here. Chi-X’s Canadian trading platforms have roughly a 17-per-cent market share – the official figure pegs that share closer to 20 per cent, but this volume is arguably inflated – and its venues are widely viewed as being competitive with the much bigger TMX.

What Chi-X lacks, though, is a listing business. That’s something TMX still has a near monopoly on, although Aequitas is trying to erode it. Not only does Aequitas offer a trading platform, it also features a new listing option for Canadian companies. Still, pretty much everyone agrees that building this business will take time.

It would be nice to see a big global outfit come in to undo some of the damage done by the unholy Canadian regulatory alliance, as discussed on July 4, 2012.

It would be very cool to have my 4am pizza delivered by quadropter. It would be even cooler, not to mention faster, to have it delivered by a ten engine tiltrotor:

Imagine a battery-powered plane that has 10 engines and can take off like a helicopter and fly efficiently like an aircraft. That is a concept being developed by NASA researchers called Greased Lightning or GL-10.

The team, at NASA’s Langley Research Center in Hampton, Virginia, is looking at the idea initially as a potential unmanned aerial vehicle (UAV). “We have a couple of options that this concept could be good for,” said Bill Fredericks, aerospace engineer. “It could be used for small package delivery or vertical take off and landing, long endurance surveillance for agriculture, mapping and other applications. A scaled up version — much larger than what we are testing now — would make also a great one to four person size personal air vehicle.””
…
During a recent spring day the engineers took the GL-10 to test its wings at a military base about two hours away from NASA Langley. The remotely piloted plane has a 10-foot wingspan (3.05 meters), eight electric motors on the wings, two electric motors on the tail and weighs a maximum of 62 pounds (28.1 kilograms) at take off.

It had already passed hover tests — flying like a helicopter — with flying colors. But now was the big hurdle — the transition from vertical to forward “wing-borne” flight. As engineers who have designed full-scale vertical take off and landing tiltrotors such as the V-22 Osprey will tell you — that is no easy task because of the challenging flight aerodynamics.

“During the flight tests we successfully transitioned from hover to wing-borne flight like a conventional airplane then back to hover again. So far we have done this on five flights,” said Fredericks. “We were ecstatic. Now we’re working on our second goal — to demonstrate that this concept is four times more aerodynamically efficient in cruise than a helicopter.”

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It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 10bp, FixedResets down 16bp and DeemedRetractibles gaining 6bp. The performance highlights table is long compared to the overall move, with ENB FixedResets prominent on the bad side. Volume was below average.

PerpetualDiscounts now yield 5.07%, equivalent to 6.59% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.95%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 265bp, a widening from the 255bp reported May 14.

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

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

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.00 to be $0.98 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.72 cheap at its bid price of 24.97.

Click for Big

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 +236 on 2019-12-19, bid at 24.55 to be $0.59 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.10 to be $0.63 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.77 to be $0.56 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.95 and appears to be $0.54 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.05, looks $0.96 cheap and resets 2015-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 24.75 and is $0.77 rich.

Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.30%, including the TRP.PR.A / TRP.PR.F at -0.50% and the BNS.PR.Y / BNS.PR.D pair at +0.63%. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -1.21%, while BRF.PR.A / BRF.PR.B is at -1.17%.

Click for Big

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

Nothing happened today.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 11bp, FixedResets gaining 6bp and DeemedRetractibles down 35bp. The Performance Highlights table is lengthy relative to the overall move. 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:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.13 to be $1.03 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.89 cheap at its bid price of 24.95.

Click for Big

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.N, resetting at +230 on 2020-3-19, bid at 24.35 to be $0.71 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.06 to be $0.60 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.66 to be $0.74 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 25.00 and appears to be $0.54 rich.

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FTS.PR.H, with a spread of +145bp, and bid at 16.05, looks $1.16 cheap and resets 2015-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 24.88 and is $0.69 rich.

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Investment-grade pairs predict an average over the next five-odd years of about 0.30%, including the TRP.PR.A / TRP.PR.F at -0.29% and the BNS.PR.Y / BNS.PR.D pair at +0.62%. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -1.03%, while BRF.PR.A / BRF.PR.B is at -0.82%.

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

FFN.PR.A was confirmed at Pfd-4(high) by DBRS:

DBRS Limited (DBRS) has today confirmed the rating of the Preferred Shares issued by North American Financial 15 Split Corp. (the Company) at Pfd-4 (high).

In October 2004, the Company issued 6.4 million Preferred Shares (at $10 each) and an equal number of Class A Shares (at $15 each). Although these shares were offered separately, together they form a Unit. The redemption date was originally December 1, 2014, but shareholders have approved an extension of the redemption date for both classes of shares to December 1, 2019.
…
Since the last rating confirmation in May 2014, the NAV of the Company has been generally stable, with downside protection fluctuating from 37% to 41% over the past year. The Preferred Share dividend coverage ratio is below 1.0 times and the monthly Class A Share distribution is expected to result in an average grind on the portfolio of 5.3% annually for the remaining term until maturity. As a result, the rating of the Preferred Shares has been confirmed at Pfd-4 (high).

It was a poor day for the Canadian preferred share market, with PerpetualDiscounts down 19bp, FixedResets losing 20bp and DeemedRetractibles off 3bp. The Performance Highlights table is of more-or-less average length, dominated by FixedReset losers. Volume was low.

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:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.05 to be $0.91 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.80 cheap at its bid price of 25.00.

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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.N, resetting at +230 on 2020-3-19, bid at 23.92 to be $0.38 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.00 to be $0.55 cheap.

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The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.61 to be $0.81 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.87 and appears to be $0.48 rich.

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FTS.PR.H, with a spread of +145bp, and bid at 16.10, looks $1.01 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.91 and is $0.61 rich.

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Investment-grade pairs predict an average over the next five-odd years of about 0.30%, including the TRP.PR.A / TRP.PR.F at -0.29% and the BNS.PR.Y / BNS.PR.D pair at +0.71. On the junk side, the FFH.PR.E / FFH.PR.F pair is at -0.99%, while BRF.PR.A / BRF.PR.B is at -0.81%.

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