PrefBlog

Market Action

February 18, 2015

Oh, what joy there is amongst the anti-market crusaders:

Credit trading just isn’t paying like in the old days. That’s why Wall Street dealers are putting less money at risk to broker the debt, and instead are matching buyers and sellers as much as they can before making trades.

Dealers are only acting as middlemen for about 60 percent of high-yield bond transactions bigger than $2 million, moving securities between two sides they already have lined up, according to data compiled by financial-research company Tabb Group LLC. Before the 2008 financial crisis, such trades accounted for an estimated 25 percent of their business.

The downside of this movement is that it takes longer for investment firms to complete bigger trades, because banks used to just buy blocks of bonds with their own money and then opportunistically sell them into the market.

The upside? The trend sets the stage for a dramatic transformation of credit trading, where investors pay less to transact because dealers aren’t taking the same kind of risk.

What a great upside! Now it will be harder, for instance, to sell a new issue, because to make room in their portfolios investors will – as always – have to sell something, and that will take longer (and because it will take longer, yields will go up) and since it will take longer, there will have to be a longer selling period because of deal uncertainty, so yields will go up again! Hurray! And then it will become uneconomic at the margins for companies to issue debt, so they’ll issue less, with the twin results of giving the regulators less work to do and decreasing economic activity, thereby making the benefits of a government job even more beneficial. In addition, an even smaller proportion of the issue universe will be available to retail, because of inventory concerns if retail ever wants to sell, which will result in fewer complaints! It’s a brave new world, all right.

Meanwhile, the war on stockbrokers is yielding benefits to new players:

A growing crop of financial technology services companies have entered the Canadian market in recent months, providing alternatives to consumers looking for lower investment management and borrowing fees.

The country is becoming a hotbed for these “fintech” firms, threatening a dramatic shift in the financial services sector, driven by technology and a set of savvy entrepreneurs.

Last fall, former BMO Nesbitt Burns investment banker Nauvzer Babul launched Smart Money Capital Management, a computer-assisted financial management company. Smart Money invests in exchange-traded funds (ETFs) and charges clients an annual asset-based fee of 0.45 per cent on top of ETF fees, which together totals less than 1 per cent, Mr. Babul says.

Nova Scotia Power, proud issuer of NSI.PR.D, has been confirmed at Pfd-2(low) by DBRS:

DBRS Limited (DBRS) has confirmed the Issuer Rating and Unsecured Debentures & Medium-Term Notes rating of Nova Scotia Power Inc. (NSPI or the Company) at A (low) as well as its Cumulative Preferred Shares rating at Pfd-2 (low) and its Commercial Paper rating at R-1 (low). All trends are Stable. The rating confirmations reflect the Company’s relatively low business risk profile operating under a reasonable regulatory environment in Nova Scotia (the Province), albeit somewhat below average compared to other provinces that have privatized or deregulated their power sectors. The confirmations also reflect NSPI’s reasonable financial risk profile, with all key credit metrics expected to remain in line with the current rating category and within regulatory parameters.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 2bp, FixedResets down 11bp and DeemedRetractibles gaining 7bp. Volatility continued to be high, with Enbridge FixedResets prominent among the losers. Volume was average.

PerpetualDiscounts now yield 4.92%, equivalent to 6.40% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 3.8%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now 260bp, a narrowing from the 270bp reported February 11.

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 24.52 to be $1.03 rich, while TRP.PR.B, resetting 2015-6-30 at +128, is bid at 14.80 to be $0.66 cheap.

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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.L, resetting at +216 on 2019-6-19, bid at 24.45 to be $0.32 rich, while MFC.PR.G, resetting at +290 on 2016-12-19 and MFC.PR.H, resetting at +313bp on 2017-3-19, are bid at 25.86 and 26.27, respectively, to be $0.35 cheap.

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The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.X, resetting at +180bp on 2017-6-30, bid at 17.83 to be $0.61 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.75 and appears to be $1.05 rich.

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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.80, looks $1.08 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.65 and is $1.03 rich.

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All the break-even rates are scattered around negative 10bp – the market has started believing the deflation story again!

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	1.4357 %	2,272.3
FixedFloater	4.37 %	3.52 %	19,590	18.38	1	0.6475 %	4,048.4
Floater	3.17 %	3.39 %	67,225	18.74	4	1.4357 %	2,415.6
OpRet	4.05 %	2.22 %	97,628	0.33	1	-0.1970 %	2,752.0
SplitShare	4.28 %	3.50 %	28,108	3.57	5	0.5046 %	3,218.9
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1970 %	2,516.4
Perpetual-Premium	5.33 %	-2.66 %	57,016	0.08	24	-0.1370 %	2,513.6
Perpetual-Discount	4.96 %	4.92 %	120,992	15.66	10	-0.0209 %	2,791.7
FixedReset	4.39 %	3.40 %	202,865	17.08	79	-0.1118 %	2,438.9
Deemed-Retractible	4.90 %	0.10 %	105,520	0.10	39	0.0675 %	2,650.9
FloatingReset	2.44 %	2.94 %	83,763	6.40	7	0.2038 %	2,321.4

Performance Highlights
Issue	Index	Change	Notes
IFC.PR.A	FixedReset	-4.22 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.73 Bid-YTW : 5.96 %
ENB.PR.B	FixedReset	-2.74 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 19.20 Evaluated at bid price : 19.20 Bid-YTW : 4.22 %
ENB.PR.H	FixedReset	-2.73 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 18.55 Evaluated at bid price : 18.55 Bid-YTW : 4.13 %
ENB.PR.F	FixedReset	-2.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 20.01 Evaluated at bid price : 20.01 Bid-YTW : 4.22 %
ENB.PR.D	FixedReset	-2.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 19.32 Evaluated at bid price : 19.32 Bid-YTW : 4.21 %
ENB.PR.Y	FixedReset	-1.92 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 20.40 Evaluated at bid price : 20.40 Bid-YTW : 4.07 %
GWO.PR.N	FixedReset	-1.68 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.09 Bid-YTW : 5.98 %
TRP.PR.D	FixedReset	-1.55 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 22.62 Evaluated at bid price : 23.55 Bid-YTW : 3.44 %
PWF.PR.A	Floater	-1.32 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 18.75 Evaluated at bid price : 18.75 Bid-YTW : 2.67 %
ENB.PR.N	FixedReset	-1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 21.31 Evaluated at bid price : 21.60 Bid-YTW : 4.04 %
BAM.PF.E	FixedReset	1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 23.07 Evaluated at bid price : 24.75 Bid-YTW : 3.51 %
PVS.PR.D	SplitShare	1.02 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 24.58 Bid-YTW : 4.79 %
BAM.PR.C	Floater	1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 14.70 Evaluated at bid price : 14.70 Bid-YTW : 3.42 %
BAM.PR.R	FixedReset	1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 21.56 Evaluated at bid price : 21.94 Bid-YTW : 3.65 %
PVS.PR.C	SplitShare	1.14 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2015-12-10 Maturity Price : 25.50 Evaluated at bid price : 25.77 Bid-YTW : 3.14 %
MFC.PR.K	FixedReset	1.34 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.22 Bid-YTW : 3.75 %
VNR.PR.A	FixedReset	1.61 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 23.51 Evaluated at bid price : 25.20 Bid-YTW : 3.52 %
BAM.PR.B	Floater	1.78 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 14.86 Evaluated at bid price : 14.86 Bid-YTW : 3.39 %
MFC.PR.L	FixedReset	1.88 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.45 Bid-YTW : 3.72 %
HSE.PR.A	FixedReset	2.94 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 17.51 Evaluated at bid price : 17.51 Bid-YTW : 3.72 %
BAM.PR.K	Floater	5.27 %	Just a reversal of yesterday‘s collapse. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 14.57 Evaluated at bid price : 14.57 Bid-YTW : 3.45 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.B	Deemed-Retractible	127,371	RBC crossed 125,000 at 25.43. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-03-20 Maturity Price : 25.25 Evaluated at bid price : 25.42 Bid-YTW : -4.40 %
BMO.PR.S	FixedReset	63,489	RBC crossed 30,000 at 25.12. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 23.25 Evaluated at bid price : 25.10 Bid-YTW : 3.09 %
RY.PR.J	FixedReset	61,753	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 23.19 Evaluated at bid price : 25.15 Bid-YTW : 3.35 %
MFC.PR.M	FixedReset	45,940	Scotia crossed 40,000 at 24.92. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.83 Bid-YTW : 3.68 %
SLF.PR.G	FixedReset	44,158	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.73 Bid-YTW : 6.25 %
TD.PR.S	FixedReset	41,560	TD crossed 39,400 at 25.28. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.28 Bid-YTW : 2.73 %
There were 32 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
IFC.PR.A	FixedReset	Quote: 19.73 – 20.30 Spot Rate : 0.5700 Average : 0.3964 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.73 Bid-YTW : 5.96 %
TRP.PR.D	FixedReset	Quote: 23.55 – 24.10 Spot Rate : 0.5500 Average : 0.4059 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 22.62 Evaluated at bid price : 23.55 Bid-YTW : 3.44 %
BMO.PR.Q	FixedReset	Quote: 22.61 – 22.90 Spot Rate : 0.2900 Average : 0.1935 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.61 Bid-YTW : 3.92 %
ENB.PR.B	FixedReset	Quote: 19.20 – 19.59 Spot Rate : 0.3900 Average : 0.2942 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 19.20 Evaluated at bid price : 19.20 Bid-YTW : 4.22 %
PWF.PR.O	Perpetual-Premium	Quote: 26.35 – 26.62 Spot Rate : 0.2700 Average : 0.1808 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-03-20 Maturity Price : 26.00 Evaluated at bid price : 26.35 Bid-YTW : -7.43 %
BAM.PF.B	FixedReset	Quote: 24.06 – 24.39 Spot Rate : 0.3300 Average : 0.2426 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-18 Maturity Price : 22.87 Evaluated at bid price : 24.06 Bid-YTW : 3.62 %

Issue Comments

FFH: S&P Says Outlook Negative

On February 16 Fairfax Financial Holdings announced:

that it has reached an agreement with Brit PLC (“Brit” or the “company”) to acquire all of the outstanding shares of Brit (the “Brit Shares”). Brit is a market-leading global Lloyd’s of London specialty insurer and reinsurer. The full announcement (the “Announcement”) is available for viewing on Fairfax’s website at www.fairfax.ca/britoffer.
…
The aggregate purchase price payable by Fairfax for the Offer is approximately US$1.88 billion. On February 12, 2015, Fairfax announced 2014 earnings of approximately US$1.6 billion. Excluding the final dividend expected to be declared by the board of directors of Brit for the year ended December 31, 2014 in an amount of 25 pence per Brit Share , Fairfax’s purchase price of 280 pence per Brit Share is less than ten times the company’s earnings based on the company’s annualized net earnings for the six months ended June 30, 2014. The acquisition is accretive to Fairfax on several metrics including gross revenue per share and investments per share.

I love the bit about how the acquisition is accretive to Fairfax on several metrics including gross revenue per share and investments per share. The Public Relations team must have been scratching their heads for a while before coming up with that one! I can’t even tell you just exactly what “investments per share” means, since the phrase was not mentioned in FFH’s last quarterly statements or MD&A. The assertion was repeated by Prem Watsa in the conference call, but was left unchallenged – there were only softball questions from equity salesmen hoping to line up a financing deal for their firms.

In response to all this Standard & Poor’s has announced:

•Fairfax Financial Holdings Ltd. announced on Feb. 16 that it had reached an agreement to acquire Brit PLC for about $1.88 billion.
•We are affirming the issuer credit rating on Fairfax Financial Holdings Ltd. at ‘BBB-‘ and the issuer credit and financial strength ratings of its core insurance affiliates at ‘A-‘.
•We are revising the outlook to negative from stable, considering the potentially significant reduction in the group’s capital adequacy, as measured by our proprietary capital model.

…
The company has several options for restoring capital adequacy to a level that Standard & Poor’s views as more supportive of the existing ratings. However, the company is still finalizing the capital enhancement strategy, and there is execution risk with regard to any capital management plan that it adopts.
…
The negative outlook on Fairfax reflects the significant potential decline in the group’s capital adequacy following the completion of the Brit PLC acquisition. The time horizon for our outlook is six to 12 months.

Fairfax has several preferred share issues outstanding, FFH.PR.C, FFH.PR.D, FFH.PR.E, FFH.PR.G, FFH.PR.I and FFH.PR.K; FFH.PR.D is a FloatingReset paired with FFH.PR.C;, all the others are FixedResets.

Update, 2015-02-23: DBRS has confirmed Fairfax with a Stable Trend:

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt of Fairfax Financial Holdings Limited (Fairfax) at BBB and the Company’s Preferred Shares at Pfd-3. The trends on all ratings remain Stable. The Senior Unsecured Notes of Fairfax (US) Inc. are guaranteed by Fairfax Financial Holdings Limited. This rating action follows the announcement that Fairfax has agreed to purchase Brit PLC (Brit) for $1.88 billion, a premium of 11.2% per share. Fairfax has obtained a sales agreement with approximately 73% of the voting shares of Brit. The transaction is expected to close in Q2 2015, subject to customary conditions, including regulatory approvals. As a Lloyd’s of London (Lloyd’s) insurer, Brit focuses on global specialty insurance and reinsurance and is the eighth-largest Lloyd’s insurer with a written premium capacity of GBP 1.0 billion as of July 2014.

The rating action reflects DBRS’s view that the purchase is consistent with Fairfax’s strategy of extending its franchise globally through opportunistic investments whereby it acquires businesses with demonstrated underwriting discipline that add to its existing franchise. Fairfax engages in property and casualty insurance, reinsurance and investment management. Brit focuses on property casualty (62% of premium) combined with complex specialty insurance lines such as marine, energy and terrorism risks. DBRS anticipates that the acquisition will help both Fairfax and Brit to expand globally. Fairfax is expected to benefit from the significant expansion in the specialty insurance markets, an enhanced distribution network and Brit’s underwriting skills in specialty insurance. Brit is expected to benefit from the greater scale of the combined companies in the Lloyd’s market, Fairfax’s franchise network presence and Fairfax’s resources, including Fairfax’s strong investment record. Pro forma, the purchase would result in Fairfax strengthening its position in the Lloyd’s market as it is expected to become the fifth-largest insurer with a premium capacity exceeding GBP 1.3 billion as of 2015, which is likely to enhance Fairfax’s ability to manage pricing and to facilitate greater lead opportunities in arranging deal terms.

Market Action

February 17, 2015

Jeffrey M. Lacker had some interesting things to say about Education, Innovation and Economic Growth:

Recent data on economic inequality and economic mobility show that inequality has increased in recent years, while mobility has either decreased or remained flat. In other words, the rich are increasingly likely to remain rich and the poor are increasingly likely to remain poor.
…
A growing share of those who do complete high school now go on to college. But far too many of these students fail to earn a degree: Nationally, the college dropout rate is around 40 percent.7 The benefits of attending college for a few semesters without graduating are relatively small. The unemployment rate for workers with some college education but no degree is comparable to the rate for workers with only a high school degree. And while students who have attended some college do earn on average about 15 percent more than high school graduates, this pales in comparison with the average earnings of those who have completed bachelor’s degrees.
…
The large increase in the college premium has led many policymakers and educators to advocate college for all. But as the high college dropout rate indicates, there is a big difference between enrolling in college and graduating. During focus group meetings held recently in Virginia by the Richmond Fed, representatives from four-year colleges and community colleges shared that many students are surprised to discover they lack the basic math skills necessary for college-level work. If students overestimate their readiness for college, they may be more likely to enroll in college but then drop out after they get there. That can be a costly lesson to learn; the average debt burden among college dropouts who took out loans is more than $14,000.10 The high college dropout rate thus suggests that many students could benefit from more information about what is required for college success.

This is interesting in view of student loan delinquencies:

Student-loan delinquencies increased at the end of 2014, a troubling sign that Americans are failing to keep up with payments as education debt climbs, according to the Federal Reserve Bank of New York.

Data from the New York Fed released Tuesday showed 11.3 percent of student loans were delinquent in the final three months of 2014, up from 11.1 percent in the prior quarter. The share of auto loans at least 90 days overdue also rose, climbing to 3.5 percent from 3.1 percent the prior period, even as fewer credit card and mortgage loan payments were late.
…
The nation’s student-loan balance climbed by $31 billion last quarter to $1.16 trillion. That makes it the largest source of debt after mortgages, which gained $39 billion to $8.2 trillion in the fourth quarter. Auto-loan debt increased by $21 billion to $955 billion.

Education loan balances have skyrocketed over the past decade. In the first quarter of 2005, outstanding student debt stood at $363 billion — about a third of the current level, based on a 2013 New York Fed report.

Delinquency rates for student loans probably understate the actual situation, according to today’s report. About half of the student loans are in deferment, in grace periods or in forbearance, temporarily removing them from the repayment cycle.

There’s an excellent article Jon Ronson in the New York Times magazine about the people who get hurt by the current fashion for vitriolic moral crusades. Dalhousie dentistry, anyone?

We have more micromanagement from the central planners in Ottawa:

Freight traffic on Canadian Pacific Railway Ltd. is halted after contract talks failed with the Teamsters and more than 3,000 locomotive engineers and conductors went on strike just after midnight.

The government will introduce back-to-work legislation when Parliament resumes sitting on Monday, and federal Labour Minister Kellie Leitch has told both sides she will send the dispute to binding arbitration.

Well, I got PrefLetter out the door yesterday. Now it’s time to clean up my desk.

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It was a poor day for the Canadian preferred share market with PerpetualDiscounts down 10bp, FixedResets losing 26bp and DeemedRetractibles off 1bp. The performance highlights table is its usual heightened-volatility self. Volume was high.

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.67 to be $1.03 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is bid at 16.63 to be $0.92 cheap.

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Most expensive is MFC.PR.N, resetting at +230 on 2020-3-9, bid at 24.85 to be $0.35 rich, while MFC.PR.K, resetting at +222 on 2018-9-19 is bid at 23.90 to be $0.36 cheap.

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The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.X, resetting at +180bp on 2017-6-30, bid at 18.01 to be $0.44 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.50 and appears to be $0.84 rich.

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This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.75, looks $1.14 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.57 and is $0.98 rich.

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All the break-even rates are scattered around negative 10bp – the market has started believing the deflation story again!

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	1.3405 %	2,240.1
FixedFloater	4.39 %	3.55 %	19,627	18.33	1	-0.6890 %	4,022.4
Floater	3.22 %	3.45 %	67,791	18.60	4	1.3405 %	2,381.4
OpRet	4.04 %	1.60 %	98,189	0.33	1	0.1183 %	2,757.5
SplitShare	4.27 %	4.05 %	27,797	3.54	5	-0.0649 %	3,202.8
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1183 %	2,521.4
Perpetual-Premium	5.32 %	-6.31 %	57,774	0.08	24	-0.0359 %	2,517.1
Perpetual-Discount	4.96 %	4.78 %	122,602	15.11	10	-0.1044 %	2,792.3
FixedReset	4.38 %	3.36 %	199,388	17.10	79	-0.2598 %	2,441.6
Deemed-Retractible	4.91 %	0.10 %	107,207	0.12	39	-0.0091 %	2,649.1
FloatingReset	2.45 %	2.94 %	83,849	6.40	7	0.0000 %	2,316.7

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.K	Floater	-3.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 13.84 Evaluated at bid price : 13.84 Bid-YTW : 3.64 %
BAM.PF.B	FixedReset	-2.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 22.85 Evaluated at bid price : 24.01 Bid-YTW : 3.63 %
MFC.PR.L	FixedReset	-2.24 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 3.95 %
GWO.PR.N	FixedReset	-2.23 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.40 Bid-YTW : 5.77 %
IFC.PR.A	FixedReset	-1.90 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.60 Bid-YTW : 5.42 %
VNR.PR.A	FixedReset	-1.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 23.37 Evaluated at bid price : 24.80 Bid-YTW : 3.60 %
HSE.PR.A	FixedReset	-1.39 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 17.01 Evaluated at bid price : 17.01 Bid-YTW : 3.83 %
CU.PR.D	Perpetual-Premium	-1.18 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2021-09-01 Maturity Price : 25.00 Evaluated at bid price : 25.05 Bid-YTW : 4.86 %
BNS.PR.B	FloatingReset	-1.13 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.61 Bid-YTW : 3.03 %
BAM.PF.E	FixedReset	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 22.97 Evaluated at bid price : 24.50 Bid-YTW : 3.56 %
BAM.PR.R	FixedReset	-1.00 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 21.39 Evaluated at bid price : 21.70 Bid-YTW : 3.70 %
BAM.PR.C	Floater	1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 14.55 Evaluated at bid price : 14.55 Bid-YTW : 3.46 %
MFC.PR.I	FixedReset	1.39 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-09-19 Maturity Price : 25.00 Evaluated at bid price : 26.22 Bid-YTW : 2.74 %
TRP.PR.F	FloatingReset	2.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 3.23 %
PWF.PR.A	Floater	5.56 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 2.63 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PF.C	FixedReset	92,950	National sold 10,000 to anonymous at 24.85. TD crossed blocks of 16,700 and 50,000, both at 24.85. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 23.12 Evaluated at bid price : 24.86 Bid-YTW : 3.08 %
GWO.PR.N	FixedReset	60,151	RBC crossed 49,800 at 18.98. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.40 Bid-YTW : 5.77 %
RY.PR.L	FixedReset	47,730	Nesbitt crossed blocks of 23,100 and 20,000, both at 26.15. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.11 Bid-YTW : 3.07 %
BMO.PR.S	FixedReset	47,190	Nesbitt crossed 10,000 at 25.06. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 23.24 Evaluated at bid price : 25.06 Bid-YTW : 3.10 %
ENB.PR.B	FixedReset	43,658	RBC crossed 20,000 at 19.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 19.74 Evaluated at bid price : 19.74 Bid-YTW : 4.10 %
ENB.PR.D	FixedReset	37,922	RBC crossed 21,600 at 19.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 19.75 Evaluated at bid price : 19.75 Bid-YTW : 4.11 %
There were 41 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PR.K	Floater	Quote: 13.84 – 14.91 Spot Rate : 1.0700 Average : 0.6062 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 13.84 Evaluated at bid price : 13.84 Bid-YTW : 3.64 %
BNS.PR.B	FloatingReset	Quote: 23.61 – 24.20 Spot Rate : 0.5900 Average : 0.3881 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.61 Bid-YTW : 3.03 %
TRP.PR.F	FloatingReset	Quote: 18.50 – 19.15 Spot Rate : 0.6500 Average : 0.4617 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 3.23 %
MFC.PR.F	FixedReset	Quote: 20.19 – 20.78 Spot Rate : 0.5900 Average : 0.4079 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.19 Bid-YTW : 5.02 %
MFC.PR.L	FixedReset	Quote: 24.00 – 24.60 Spot Rate : 0.6000 Average : 0.4351 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 3.95 %
ENB.PF.G	FixedReset	Quote: 23.25 – 23.70 Spot Rate : 0.4500 Average : 0.2891 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 22.39 Evaluated at bid price : 23.25 Bid-YTW : 3.90 %

PrefLetter

February PrefLetter Released!

The February, 2015, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

The regular appendices reporting on DeemedRetractibles and FixedResets are included.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “Previous Edition” will refer to the February, 2015, issue, while the “Next Edition” will be the March, 2015, issue, scheduled to be prepared as of the close March 13 and eMailed to subscribers prior to market-opening on March 16.

PrefLetter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

Market Action

February 13, 2015

Nothing happened today.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 5bp, FixedResets off 1bp and DeemedRetractibles down 6bp. The Performance Highlights table is shorter than it has been of late, but still much lengthier than prior norms. Volume was very low.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.90 to be $1.13 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is bid at 16.77 to be $0.75 cheap.

Click for Big

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.55 to be $0.49 rich, while MFC.PR.H, resetting at +313 on 2017-3-19 is bid at 26.16 to be $0.36 cheap.

Click for Big

The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.

The cheapest issue relative to its peers is BAM.PR.X, resetting at +180bp on 2017-6-30, bid at 18.02 to be $0.64 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.76 and appears to be $0.87 rich.

Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.70, looks $1.05 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.61 and is $1.08 rich.

Click for Big

All the break-even rates are scattered around negative 10bp – the market has started believing the deflation story again!

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

Click for Big

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	0.7079 %	2,210.5
FixedFloater	4.36 %	3.52 %	20,442	18.38	1	-0.5936 %	4,050.3
Floater	3.26 %	3.47 %	64,713	18.54	4	0.7079 %	2,349.9
OpRet	4.04 %	1.90 %	97,536	0.34	1	-0.1182 %	2,754.2
SplitShare	4.26 %	4.06 %	28,941	3.55	5	-0.0158 %	3,204.8
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1182 %	2,518.4
Perpetual-Premium	5.32 %	-6.28 %	56,673	0.08	24	0.0424 %	2,518.0
Perpetual-Discount	4.95 %	4.81 %	123,845	15.27	10	0.0543 %	2,795.2
FixedReset	4.37 %	3.35 %	199,563	17.12	79	-0.0135 %	2,448.0
Deemed-Retractible	4.91 %	-0.48 %	108,374	0.13	39	-0.0635 %	2,649.4
FloatingReset	2.45 %	2.87 %	82,658	6.42	7	0.2663 %	2,316.7

Performance Highlights
Issue	Index	Change	Notes
SLF.PR.G	FixedReset	-1.93 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.75 Bid-YTW : 6.23 %
TRP.PR.B	FixedReset	-1.66 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-13 Maturity Price : 14.85 Evaluated at bid price : 14.85 Bid-YTW : 3.47 %
TRP.PR.C	FixedReset	-1.35 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-13 Maturity Price : 16.77 Evaluated at bid price : 16.77 Bid-YTW : 3.53 %
MFC.PR.F	FixedReset	-1.22 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.25 Bid-YTW : 4.98 %
ENB.PR.F	FixedReset	-1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-13 Maturity Price : 20.50 Evaluated at bid price : 20.50 Bid-YTW : 4.12 %
FTS.PR.F	Perpetual-Discount	1.04 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2015-12-01 Maturity Price : 25.00 Evaluated at bid price : 25.19 Bid-YTW : 3.65 %
IFC.PR.A	FixedReset	1.11 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.00 Bid-YTW : 5.17 %
BAM.PR.R	FixedReset	1.15 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-13 Maturity Price : 21.55 Evaluated at bid price : 21.92 Bid-YTW : 3.65 %
MFC.PR.N	FixedReset	1.18 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.80 Bid-YTW : 3.65 %
PWF.PR.A	Floater	1.41 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-13 Maturity Price : 18.00 Evaluated at bid price : 18.00 Bid-YTW : 2.77 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PF.C	FixedReset	80,250	TD crossed 50,000 at 24.85. National bought 10,000 from Desjardins at 24.89. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-13 Maturity Price : 23.11 Evaluated at bid price : 24.85 Bid-YTW : 3.08 %
SLF.PR.G	FixedReset	78,673	TD crossed 40,000 at 17.82. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.75 Bid-YTW : 6.23 %
RY.PR.C	Deemed-Retractible	69,642	Desjardins crossed two blocks of 34,500 each, both at 25.45. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-03-15 Maturity Price : 25.25 Evaluated at bid price : 25.45 Bid-YTW : -6.61 %
MFC.PR.N	FixedReset	49,550	RBC crossed 46,700 at 24.83. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.80 Bid-YTW : 3.65 %
MFC.PR.F	FixedReset	38,140	TD crossed 10,400 at 20.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.25 Bid-YTW : 4.98 %
CM.PR.O	FixedReset	37,460	TD crossed 20,000 at 24.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-13 Maturity Price : 23.17 Evaluated at bid price : 24.91 Bid-YTW : 3.12 %
There were 19 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
PWF.PR.A	Floater	Quote: 18.00 – 18.99 Spot Rate : 0.9900 Average : 0.6168 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-13 Maturity Price : 18.00 Evaluated at bid price : 18.00 Bid-YTW : 2.77 %
PVS.PR.C	SplitShare	Quote: 25.76 – 26.50 Spot Rate : 0.7400 Average : 0.5096 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2017-12-10 Maturity Price : 25.00 Evaluated at bid price : 25.76 Bid-YTW : 4.06 %
GWO.PR.P	Deemed-Retractible	Quote: 26.45 – 26.90 Spot Rate : 0.4500 Average : 0.2725 YTW SCENARIO Maturity Type : Call Maturity Date : 2021-03-31 Maturity Price : 25.00 Evaluated at bid price : 26.45 Bid-YTW : 4.46 %
MFC.PR.I	FixedReset	Quote: 25.86 – 26.25 Spot Rate : 0.3900 Average : 0.2692 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-09-19 Maturity Price : 25.00 Evaluated at bid price : 25.86 Bid-YTW : 3.30 %
MFC.PR.K	FixedReset	Quote: 24.00 – 24.40 Spot Rate : 0.4000 Average : 0.2901 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 3.85 %
MFC.PR.F	FixedReset	Quote: 20.25 – 20.55 Spot Rate : 0.3000 Average : 0.2083 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.25 Bid-YTW : 4.98 %

Issue Comments

DBRS Downgrades Bombardier

DBRS has announced that it:

has today downgraded the Issuer Rating of Bombardier Inc. (Bombardier or the Company) to B (high) and the Trend has been changed to Negative. DBRS’s downgrade incorporates the Company’s progressively weaker financial profile due to debt and liquidity burdens, as well as the erosion of its business profile. The Company’s substantial negative net free cash flow and sizeable financing needs to support its aircraft developments programs have led to increasing indebtedness and weakening of all credit metrics in 2014. Substantial cost pressures have led to the erosion of margins at the aerospace and transportation businesses due to competitive and operational reasons. DBRS could take further negative rating action should the Company announce additional operating challenges, encounter difficulties in executing its ambitious financing, incur material indebtedness or see additional deterioration in profitability.
…
DBRS’s rating action reflects the Company’s rapidly weakening financial and business risk profiles at its aerospace and transportation businesses. The Negative Trend reflects uncertainty surrounding the financial and business profiles of the Company, noting that both are subject to deterioration and potential rating action in the near-mid-term.

In November, 2013, DBRS announced that it:

downgraded the Issuer Rating and Senior Unsecured Debentures of Bombardier Inc. (BBD or the Company) to BB (low) and the Preferred Shares were downgraded to Pfd-4 (low). The trend on the Issuer Rating is Stable and DBRS has removed all ratings from Under Review with Negative Implications. Additionally, DBRS has discontinued the Company’s Senior Unsecured Debentures and Preferred Shares ratings effective immediately.

Earlier this year, PrefBlog reported that BBD.PR.B, BBD.PR.C & BBD.PR.D Downgraded to P-5(high) by S&P.

BBD.PR.B, BBD.PR.C and BBD.PR.D are all tracked by HIMIPref™ but are relegated to the Scraps index on credit concerns.

Market Action

February 12, 2015

There is now a negative policy rate in Sweden:

Sweden’s central bank cut its main interest rate below zero and unveiled additional measures designed to jolt the largest Nordic economy out of a deflationary spiral.

The Riksbank lowered its repo rate to minus 0.10 percent from zero. A cut had been predicted by six of the 18 economists surveyed by Bloomberg, while the remainder forecast no change.

The bank said it will also make policy “more expansionary” by “soon” buying 10 billion kronor ($1.2 billion) in government bonds with maturities of one to five years. The rate will remain at minus 0.10 percent until underlying inflation is close to 2 percent, which the bank predicts will happen in the second half of 2016, the bank said.
…
The bank, led by Governor Stefan Ingves, last year reversed course and scrapped a policy of keeping rates up to guard against a build-up in household debt. The reluctance to ease in the face of slowing inflation and high unemployment was characterized as “sadomonetarist” by Nobel laureate Paul Krugman.
…
The bank said it sees its repo rate at minus 0.11 percent in the second quarter and minus 0.12 percent in the first quarter next year, signaling the chance for more cuts.

While inflation and unemployment, currently at about 7 percent, exceeded the central bank’s forecast at its December meeting, waning expectations for price growth combined with monetary easing elsewhere in the world have added to pressure on Sweden to cut rates.

The central bank in neighboring Denmark has lowered its main rate four times this year to minus 0.75 percent. That’s the same level as the Swiss National Bank, which is trying to fight capital flows after abandoning its euro cap. Adding to pressure to ease is the ECB’s decision to start an unprecedented bond-purchase program.

Swedish two-year inflation expectations fell to 1.1 percent in December from 1.4 percent in September, according to a survey by TNS Sifo Prospera of labor market participants, purchasing managers and money market players. Consumer prices fell an annual 0.3 percent in December. The Riksbank targets 2 percent.

There is still hope on the Greek tragedy:

Greece and Germany are pursuing a deal on the conditions required to continue the Greek bailout as each side signals a willingness to compromise, according to government officials taking part in the talks.

Germany won’t insist that all elements of Greece’s current aid program continue, said two officials in Berlin. As long as the program is prolonged, they said, Germany would be open to talking about the size of Greece’s budget surplus requirement and conditions to sell off government assets.

For its part, Greece is prepared to commit to a primary budget surplus, as long as it’s lower than the current 4 percent of gross domestic product, according to Greek government officials. Prime Minister Alexis Tsipras’s coalition also might be willing to compromise on privatizations, one of the officials said. All the officials asked not to be named because the deliberations are private and ongoing.

You know what this country needs? More economic stimulus, that’s what this country needs:

Building an opera house to stimulate an economy may be an odd idea — though not necessarily a bad one. In fact, more than 200 years after they were built, opera houses in Germany may still be helping their local economies.

That’s the conclusion of a new study by economists in Germany and the U.K. that found that cultural amenities such as a place to enjoy Wagner’s Ring Cycle are an important component in decisions by high-skilled workers about where to live.

Clusters of skilled workers also have positive knock-on effects on the local economy because their productivity tends to increase the output of companies, boosting the efficiency and wages of less-skilled local employees, the authors said.

Sounds better than kids at school sucking arse:

It can start with a visit to a secluded island off Colombia, like the sojourn that more than half of Stanford’s incoming MBAs spent last August. Or a weekslong trek in Australia and New Zealand, another in Dubai and Abu Dhabi, a foray to Thailand’s bays, and a stop in Munich for Oktoberfest—excursions taken this academic year by students at the University of Pennsylvania’s Wharton School. Plus countless ski trips—to resorts in Park City, Utah, Aspen, Colorado, and Lake Tahoe—that draw students for a weekend off, or more, from their studies at elite MBA programs across the country.

Travel to far-flung destinations and to swanky enclaves closer to home has become a hallmark of elite U.S. business schools, where the point of two years on campus can seem to be to spend as much time away from campus as possible. The better the school, apparently, the higher the premium on travel and fun: Students at top-tier business schools spend thousands of dollars each year on discretionary expenses and tend to spend considerably more than their peers at lower-ranked schools, according to Bloomberg Businessweek data.

Building friendships with the next generation of executives may be a worthy investment, but it’s not cheap.

You’d think more of them would have learned from stories about the ‘fast set’ in English university novels, but think again! The closest a millennial gets to literature is a video about a cat named Tom Jones, intensive research convincing them that it was named after a singer.

It was a positive day for the Canadian preferred share market, with PerpetualDiscounts winning 18bp, FixedResets up 11bp and DeemedRetractibles gaining 2bp. The performance highlights table is short, by recent standards. Volume was below average.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.70 to be $0.87 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is bid at 17.00 to be $0.50 cheap.

Click for Big

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.70 to be $0.60 rich, while MFC.PR.H, resetting at +313 on 2017-3-19 is bid at 26.08 to be $0.37 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 21.67 to be $0.50 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.71 and appears to be $0.84 rich.

Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.72, looks $0.96 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.54 and is $1.03 rich.

Click for Big

All the break-even rates are scattered around negative 10bp – the market has started believing the deflation story again!

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

Click for Big

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.3445 %	2,195.0
FixedFloater	4.34 %	3.49 %	20,238	18.43	1	0.3666 %	4,074.4
Floater	3.28 %	3.48 %	63,088	18.54	4	-0.3445 %	2,333.4
OpRet	4.04 %	1.54 %	98,905	0.34	1	0.0000 %	2,757.5
SplitShare	4.26 %	3.67 %	29,185	3.55	5	0.1230 %	3,205.3
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,521.4
Perpetual-Premium	5.32 %	-7.16 %	57,391	0.08	24	0.0767 %	2,516.9
Perpetual-Discount	4.95 %	4.91 %	140,715	15.29	10	0.1766 %	2,793.7
FixedReset	4.37 %	3.36 %	199,804	17.12	79	0.1118 %	2,448.3
Deemed-Retractible	4.90 %	-0.49 %	107,333	0.12	39	0.0232 %	2,651.0
FloatingReset	2.49 %	2.94 %	83,200	6.41	7	0.2297 %	2,310.5

Performance Highlights
Issue	Index	Change	Notes
SLF.PR.G	FixedReset	-3.10 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.10 Bid-YTW : 6.01 %
GWO.PR.N	FixedReset	-1.76 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.01 Bid-YTW : 5.39 %
SLF.PR.A	Deemed-Retractible	-1.42 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.95 Bid-YTW : 4.88 %
SLF.PR.B	Deemed-Retractible	-1.18 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.05 Bid-YTW : 4.87 %
BAM.PR.B	Floater	-1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-12 Maturity Price : 14.35 Evaluated at bid price : 14.35 Bid-YTW : 3.51 %
MFC.PR.N	FixedReset	-1.17 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.51 Bid-YTW : 3.80 %
IFC.PR.A	FixedReset	1.37 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.77 Bid-YTW : 5.31 %
TRP.PR.A	FixedReset	2.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-12 Maturity Price : 20.23 Evaluated at bid price : 20.23 Bid-YTW : 3.50 %
MFC.PR.L	FixedReset	2.92 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.70 Bid-YTW : 3.59 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BAM.PR.K	Floater	71,586	RBC bought 56,600 from National at 14.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-12 Maturity Price : 14.17 Evaluated at bid price : 14.17 Bid-YTW : 3.55 %
BNS.PR.O	Deemed-Retractible	40,975	RBC crossed 15,100 at 26.15. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-03-14 Maturity Price : 25.75 Evaluated at bid price : 26.10 Bid-YTW : -8.83 %
TD.PF.C	FixedReset	39,140	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-12 Maturity Price : 23.08 Evaluated at bid price : 24.77 Bid-YTW : 3.10 %
FTS.PR.M	FixedReset	26,880	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-12 Maturity Price : 23.14 Evaluated at bid price : 24.91 Bid-YTW : 3.29 %
ENB.PR.F	FixedReset	25,239	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-12 Maturity Price : 20.75 Evaluated at bid price : 20.75 Bid-YTW : 4.07 %
BNS.PR.P	FixedReset	22,800	TD crossed 20,000 at 25.32. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 2.90 %
There were 24 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
GWO.PR.S	Deemed-Retractible	Quote: 26.15 – 27.32 Spot Rate : 1.1700 Average : 0.6996 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 26.15 Bid-YTW : 4.77 %
MFC.PR.N	FixedReset	Quote: 24.51 – 24.99 Spot Rate : 0.4800 Average : 0.3448 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.51 Bid-YTW : 3.80 %
CU.PR.D	Perpetual-Premium	Quote: 25.35 – 25.67 Spot Rate : 0.3200 Average : 0.2081 YTW SCENARIO Maturity Type : Call Maturity Date : 2021-09-01 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : 4.64 %
SLF.PR.A	Deemed-Retractible	Quote: 24.95 – 25.25 Spot Rate : 0.3000 Average : 0.2022 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.95 Bid-YTW : 4.88 %
SLF.PR.D	Deemed-Retractible	Quote: 24.04 – 24.31 Spot Rate : 0.2700 Average : 0.1967 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.04 Bid-YTW : 5.04 %
SLF.PR.B	Deemed-Retractible	Quote: 25.05 – 25.30 Spot Rate : 0.2500 Average : 0.1770 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.05 Bid-YTW : 4.87 %

Market Action

February 11, 2015

Assiduous Reader B let me know that the Financial Post breathlessly informs us that FixedResets went down in January.

The Greek tragedy is headed for a showdown:

Euro region finance ministers failed to reach an agreement on how to keep bailout funds flowing to Greece and will resume talks next week.

“We covered a lot of ground but didn’t actually reach a joint conclusion on how to take the next steps,” Eurogroup Chairman Jeroen Dijsselbloem said at a press conference in Brussels. “There has to be a political agreement on the way forward.”

Earlier, four euro region officials said that ministers were moving toward an agreement on a bailout extension. A Greek official then said that no agreement had been made and the government won’t accept an extension of the existing bailout program.

Canadian Western Bank, proud issuer of CWB.PR.B, has sold its insurance subsidiary to Intact Financial, proud issuer of IFC.PR.A and IFC.PR.C:

Canadian Western Bank Group (TSX: CWB) today announced a refinement to its long-term growth strategy with a definitive agreement to sell its property and casualty insurance subsidiary, Canadian Direct Insurance (CDI), to Intact Financial Corporation (Intact) for $197 million in cash. The purchase price is approximately 2.5 times the net book value of CDI as at October 31, 2014. The transaction is subject to customary closing conditions, including regulatory approvals. The closing date is expected in mid-2015.

“This transaction is the result of a purposeful strategic assessment that we started over a year ago,” said Chris Fowler, CWB’s president and chief executive officer. “Our strategic direction is to increase the depth and breadth of client relationships through a focus on our core business banking platform with complementary financial services in personal banking, equipment finance and leasing, alternative mortgages, wealth management and trust services. These core areas provide the best opportunities to drive meaningful future growth and build long-term value for CWB shareholders, while the insurance business is much less strategically aligned. We believe this opportunity to monetize and redeploy the significant value created by CDI into our identified core areas will generate superior returns for CWB shareholders moving forward.”

“Upon closing, we estimate the capital generated from the expected gain on sale from this transaction will increase CWB’s common equity Tier 1 ratio by approximately 60 basis points. The gain will also drive considerable outperformance relative to our published 2015 key profitability targets and growth in earnings per common share. However, the resulting elevated capital level is expected to constrain our 2015 return on common shareholders’ equity from continuing operations. As stated, it is our intention to redeploy this capital in due course for strategic and accretive opportunities that are consistent with our risk appetite. This capital level will position us to move quickly on investment opportunities as they materialize. Our primary areas of interest for potential strategic acquisitions are centred on opportunities in equipment finance and leasing, and wealth management.”

DBRS regards the transaction as credit-neutral for CWB.

There was a pullback for the Canadian preferred share market today, with PerpetualDiscounts down 19bp, FixedResets losing 22bp and DeemedRetractibles off 7bp. There is yet another lengthy Performance Highlights table, dominated by losing FixedResets. Volume was average.

PerpetualDiscounts now yield 4.96%, equivalent to 6.45% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.75%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 270bp, a narrowing from the 280bp reported February 4.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.90 to be $1.20 rich, while TRP.PR.A, resetting 2019-12-31 at +192, is bid at 19.75 to be $0.66 cheap.

Click for Big

Most expensive is MFC.PR.N, resetting at +230 on 2020-3-19, bid at 24.80 to be $0.34 rich, while MFC.PR.H, resetting at +313 on 2017-3-19 is bid at 25.91 to be $0.50 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.X, resetting at +180bp on 2017-6-30, bid at 18.06 to be $0.53 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.95 and appears to be $1.07 rich.

Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 17.00, looks $0.97 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.97 and is $1.16 rich.

Click for Big

All the break-even rates are scattered around negative 10bp – the market has started believing the deflation story again!

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

Click for Big

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	0.5278 %	2,202.5
FixedFloater	4.35 %	3.51 %	19,937	18.39	1	-0.0458 %	4,059.6
Floater	3.27 %	3.46 %	62,249	18.57	4	0.5278 %	2,341.5
OpRet	4.04 %	1.52 %	98,709	0.35	1	0.0000 %	2,757.5
SplitShare	4.27 %	3.66 %	30,302	3.55	5	0.0791 %	3,201.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,521.4
Perpetual-Premium	5.33 %	-4.20 %	58,161	0.08	24	-0.0434 %	2,515.0
Perpetual-Discount	4.95 %	4.96 %	125,184	15.25	10	-0.1875 %	2,788.7
FixedReset	4.38 %	3.37 %	200,866	17.11	79	-0.2225 %	2,445.6
Deemed-Retractible	4.90 %	0.34 %	107,959	0.12	39	-0.0725 %	2,650.4
FloatingReset	2.49 %	2.96 %	84,101	6.41	7	-0.3094 %	2,305.2

Performance Highlights
Issue	Index	Change	Notes
HSE.PR.A	FixedReset	-2.82 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 17.25 Evaluated at bid price : 17.25 Bid-YTW : 3.78 %
SLF.PR.G	FixedReset	-2.76 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.68 Bid-YTW : 5.63 %
ENB.PR.B	FixedReset	-2.70 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 19.91 Evaluated at bid price : 19.91 Bid-YTW : 4.07 %
BAM.PR.T	FixedReset	-2.67 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 22.28 Evaluated at bid price : 22.60 Bid-YTW : 3.56 %
ENB.PR.D	FixedReset	-2.65 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 19.95 Evaluated at bid price : 19.95 Bid-YTW : 4.08 %
BAM.PR.X	FixedReset	-2.64 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 18.06 Evaluated at bid price : 18.06 Bid-YTW : 3.91 %
BMO.PR.Q	FixedReset	-1.51 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.90 Bid-YTW : 3.71 %
PWF.PR.P	FixedReset	-1.42 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 18.75 Evaluated at bid price : 18.75 Bid-YTW : 3.25 %
FTS.PR.F	Perpetual-Discount	-1.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 24.79 Evaluated at bid price : 25.08 Bid-YTW : 4.96 %
ENB.PR.H	FixedReset	-1.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 18.90 Evaluated at bid price : 18.90 Bid-YTW : 4.06 %
ENB.PR.F	FixedReset	-1.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 20.75 Evaluated at bid price : 20.75 Bid-YTW : 4.07 %
TRP.PR.A	FixedReset	-1.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 19.75 Evaluated at bid price : 19.75 Bid-YTW : 3.59 %
BAM.PR.R	FixedReset	-1.23 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 21.41 Evaluated at bid price : 21.73 Bid-YTW : 3.70 %
GWO.PR.N	FixedReset	-1.23 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.35 Bid-YTW : 5.18 %
TRP.PR.B	FixedReset	-1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 15.02 Evaluated at bid price : 15.02 Bid-YTW : 3.45 %
ENB.PR.J	FixedReset	-1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 21.80 Evaluated at bid price : 22.16 Bid-YTW : 3.96 %
TD.PR.Z	FloatingReset	-1.13 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.70 Bid-YTW : 2.97 %
BNS.PR.Y	FixedReset	-1.07 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.15 Bid-YTW : 3.69 %
BNS.PR.Z	FixedReset	-1.07 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.14 Bid-YTW : 3.56 %
NA.PR.S	FixedReset	-1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 23.27 Evaluated at bid price : 25.15 Bid-YTW : 3.17 %
MFC.PR.L	FixedReset	1.05 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 3.94 %
MFC.PR.K	FixedReset	1.17 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.19 Bid-YTW : 3.76 %
TRP.PR.E	FixedReset	1.30 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 23.15 Evaluated at bid price : 24.90 Bid-YTW : 3.23 %
FTS.PR.K	FixedReset	1.35 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 22.84 Evaluated at bid price : 23.97 Bid-YTW : 3.10 %
HSE.PR.C	FixedReset	1.36 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 23.25 Evaluated at bid price : 25.25 Bid-YTW : 3.90 %
IFC.PR.A	FixedReset	1.89 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.49 Bid-YTW : 5.48 %

Volume Highlights
Issue	Index	Shares Traded	Notes
ENB.PR.Y	FixedReset	60,241	Desjardins crossed blocks of 29,200 and 10,000, both at 20.87. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 3.96 %
RY.PR.J	FixedReset	52,350	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 23.20 Evaluated at bid price : 25.18 Bid-YTW : 3.35 %
BNS.PR.L	Deemed-Retractible	51,820	TD crossed 50,000 at 25.49. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-28 Maturity Price : 25.25 Evaluated at bid price : 25.49 Bid-YTW : 0.47 %
RY.PR.I	FixedReset	45,700	TD crossed 35,000 at 25.35. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.35 Bid-YTW : 2.94 %
SLF.PR.G	FixedReset	28,241	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.68 Bid-YTW : 5.63 %
BAM.PR.K	Floater	24,350	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 14.15 Evaluated at bid price : 14.15 Bid-YTW : 3.56 %
There were 30 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BNS.PR.B	FloatingReset	Quote: 23.74 – 24.20 Spot Rate : 0.4600 Average : 0.2872 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.74 Bid-YTW : 2.96 %
BAM.PR.T	FixedReset	Quote: 22.60 – 23.10 Spot Rate : 0.5000 Average : 0.3295 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 22.28 Evaluated at bid price : 22.60 Bid-YTW : 3.56 %
BAM.PR.X	FixedReset	Quote: 18.06 – 18.50 Spot Rate : 0.4400 Average : 0.2705 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 18.06 Evaluated at bid price : 18.06 Bid-YTW : 3.91 %
PWF.PR.P	FixedReset	Quote: 18.75 – 19.34 Spot Rate : 0.5900 Average : 0.4487 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 18.75 Evaluated at bid price : 18.75 Bid-YTW : 3.25 %
TD.PR.Z	FloatingReset	Quote: 23.70 – 24.16 Spot Rate : 0.4600 Average : 0.3277 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.70 Bid-YTW : 2.97 %
FTS.PR.F	Perpetual-Discount	Quote: 25.08 – 25.49 Spot Rate : 0.4100 Average : 0.2780 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-11 Maturity Price : 24.79 Evaluated at bid price : 25.08 Bid-YTW : 4.96 %

Issue Comments

ALB.PR.B: Partial Call For Redemption

Scotia Managed Companies has announced:

Allbanc Split Corp. II (the “Company”) announced today that it has called 110,799 Preferred Shares for cash redemption on February 27, 2015 (in accordance with the Company’s Articles) representing approximately 12.045% of the outstanding Preferred Shares as a result of the special annual retraction of 221,598 Capital Shares by the holders thereof. The Preferred Shares shall be redeemed on a pro rata basis, so that each holder of Preferred Shares of record on February 25, 2015 will have approximately 12.045% of their Preferred Shares redeemed. The redemption price for the Preferred Shares will be $21.80 per share.

Holders of Preferred Shares that are on record for dividends but have been called for redemption will be entitled to receive dividends thereon which have been declared but remain unpaid up to but not including February 27, 2015.

Payment of the amount due to holders of Preferred Shares will be made by the Company on February 27, 2015. From and after February 27, 2015 the holders of Preferred Shares that have been called for redemption will not be entitled to dividends or to exercise any right in respect of such shares except to receive the amount due on redemption.

Allbanc Split Corp. II is a mutual fund corporation created to hold a portfolio of publicly listed common shares of selected Canadian chartered banks. Capital Shares and Preferred Shares of Allbanc Split Corp. II are listed for trading on The Toronto Stock Exchange under the symbols ALB and ALB.PR.B respectively.

ALB.PR.B was last mentioned on PrefBlog when it was upgraded to Pfd-2 by DBRS. ALB.PR.B is tracked by HIMIPref™, but relegated to the Scraps index on volume concerns.

Market Action

February 10, 2015

In Soviet Russia, television watches you! Also Japan:

Samsung Electronics Co. said its televisions can transmit user data to third-parties, becoming the latest technology company to face a backlash for how data is collected from users.

The world’s biggest maker of TVs said its Web-connected sets can collect private conversations when users activate its voice-recognition function. Consumers can turn the function on or off at any time, the Suwon, South Korea-based company said in an e-mailed statement.

It’s nice to see a bit more solar-energy-to-fuel proof of concept:

Photovoltaic cells have considerable potential to satisfy future renewable-energy needs, but efficient and scalable methods of storing the intermittent electricity they produce are required for the large-scale implementation of solar energy. Current solar-to-fuels storage cycles based on water splitting produce hydrogen and oxygen, which are attractive fuels in principle but confront practical limitations from the current energy infrastructure that is based on liquid fuels. In this work, we report the development of a scalable, integrated bioelectrochemical system in which the bacterium Ralstonia eutropha is used to efficiently convert CO2, along with H2 and O2 produced from water splitting, into biomass and fusel alcohols. Water-splitting catalysis was performed using catalysts that are made of earth-abundant metals and enable low overpotential water splitting. In this integrated setup, equivalent solar-to-biomass yields of up to 3.2% of the thermodynamic maximum exceed that of most terrestrial plants. Moreover, engineering of R. eutropha enabled production of the fusel alcohol isopropanol at up to 216 mg/L, the highest bioelectrochemical fuel yield yet reported by >300%. This work demonstrates that catalysts of biotic and abiotic origin can be interfaced to achieve challenging chemical energy-to-fuels transformations.

The US might be getting tough on other countries’ ‘Strong Dollar’ policies:

“I honestly reject the notion that I’m talking down the dollar,” Mr. Poloz said. “I reject the notion that we’re being purposeful about that.”

His comments came as the United States went on the offensive against countries slashing interest rates to make their exports more price-competitive, which it sees as a threat to U.S. growth as investors pile into the greenback amid the tide of monetary policy cuts in numerous major economies. U.S. Treasury Secretary Jack Lew issued a stern warning at the G20 meeting against using rates to drive currencies down at the expense of the United States, while Washington unveiled legislation that would treat “currency manipulation” as a form of trade subsidy that would face retaliatory U.S. import taxes. It suggested the emerging currency war could escalate into a trade war, which would pose a serious threat to the faltering global recovery.

There’s little doubt that currency devaluation was the goal of some of the recent rate cuts. When Australia lowered its key rate last week, central bank Governor Glenn Stevens said that the Australian dollar was overvalued and that “a lower exchange rate is likely to be needed to achieve balanced growth in the economy.” Rate cuts in Denmark and Switzerland were explicitly intended to cool their currencies.

Currency manipulation would be naughty:

Group of 20 finance chiefs stood by a two-year pledge not to resort to currency devaluations to spur economic expansion, signaling ease with the dollar’s recent surge and declines in the euro and the yen.

“We will stick to our previous exchange rate commitments and will resist protectionism,” the G-20s finance ministers and central bankers said in a statement after the talks ended.

The rationale for the bill is mercantilist. Consumers be damned!

Fred Bergsten, former U.S. Treasury assistant secretary for international affairs, said the bill would probably not have a huge effect on trade flows, but it was important to send a signal that currency manipulation would not be tolerated.

“Currency manipulation is the number one protectionist issue of the 21st century,” he said.

Bergsten and colleagues at the Peterson Institute for International Economics say trading partners’ currency manipulations have driven up the U.S. current account deficit by $200 billion to $500 billion per year, leading to the loss of 1 million to 5 million jobs.

But it’s clear that currency manipulation will draw attention from idiots, with unforeseen and uncared about consquences:

Some of the world’s biggest currency dealers are preparing to charge clients for trades at benchmark rates, according to people with knowledge of the matter.

Barclays Plc, Deutsche Bank AG, and JPMorgan Chase & Co. have told customers in recent weeks they may start charging fees for trades executed at the WM/Reuters rates, including the 4 p.m. London fix, said the people who asked not to be identified because the discussions are private. Citigroup Inc. is weighing similar plans, one of the people said.

The move follows a September report from the Financial Stability Board, a body made up of global regulators, which recommended banks introduce a transparent pricing mechanism on such trades to remove the incentive for dealers to manipulate the benchmark to make a profit. Clients have until now been able to trade at the WM/Reuters rates at no charge.

I don’t get it, frankly. How is this supposed to work? Is the idea that everybody puts in an order at the time of the fix, and the price does what it likes? Just like Lapdog Carney’s mum does when she’s buying 100 shares of BCE? Nobody, anywhere, is going to work an order and parcel it out through the day and try to make a dollar by getting good prices? Or is the fix going to be set by some committee of Wise Regulators, who will of course receive an honorarium, a mere trifle I assure you, for their acuity in being able to set a price to six decimal places without any of this ‘free market’ crap? How will an imbalance be avoided?

Maybe the Grexit is a big conspiracy by Illuminati members:

Currency volatility increased along with the dollar as Germany and Greece head for a showdown that is spurring traders to take out insurance against euro declines.

The premium to protect against a drop in the euro versus the greenback rose to the highest since Jan. 23 — the day after the European Central Bank announced it would buy sovereign bonds — before Greece’s official creditors hold an emergency meeting. A gauge of the dollar closed at its highest level in data going back to 2004 as comments from regional Federal Reserve presidents suggested policy makers could raise interest rates by mid-year.

“The outcome of the Greek bailout saga is highly uncertain,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “You’ll get pre-positioning and repositioning after the event, depending on whether it’s a positive or negative surprise. It might cause some volatility,” and that would support dollar buying, he said.

Speaking of idiotic moronization of the capital markets, the SEC’s going to fix up bond trading:

“We spend a lot of time on equities, when there is a greater amount of efficiency,” Stephen Luparello, the Securities and Exchange Commission’s director of trading and markets, said Tuesday at a Investment Company Institute conference in New York. “We spend less time on fixed income, when there is a greater amount of inefficiency.”
…
The SEC last year outlined a sweeping agenda to improve transparency in the $24 trillion U.S. stock market, including giving investors more information about how their orders are filled. By comparison, the SEC has outsourced many fixed-income reforms to groups such as the Financial Industry Regulatory Authority.

Finra and the Municipal Securities Rulemaking Board have proposed requiring that brokers disclose markups on bonds they hold for no more than one day. While stock brokers must tell investors how much they earn, the same hasn’t been required of bond dealers, which have profited from an opaque market where most trades are completed by telephone.

It was another good day for the Canadian preferred share market, with PerpetualDiscounts gaining 17bp, FixedResets winning 27bp and DeemedRetractibles up 18bp. The Performance Highlights table is lengthy, but not as lengthy as it has been lately, suitably dominated by winning FixedResets.

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.58 to be $0.82 rich, while TRP.PR.A, resetting 2019-12-31 at +192, and TRP.PR.C, resetting 2016-1-30 at +154, are bid at 20.00 and 17.06, respectively, to be $0.43 cheap.

Click for Big

Most expensive is MFC.PR.N, resetting at +230 on 2020-3-19, bid at 25.00 to be $0.60 rich, while MFC.PR.H, resetting at +313 on 2017-3-19 is bid at 25.91 to be $0.44 cheap.

Click for Big

Here’s another good fit to reasonable numbers (it’s the scale that makes it look so awful!). I hope this market doesn’t start making sense, or I’ll be out of work!

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 22.00 to be $0.50 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.71 and appears to be $0.77 rich.

Click for Big

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 17.00, looks $0.85 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, bid at 23.65, and is $0.93 rich.

Click for Big

All the break-even rates are scattered around zero – which is at least somewhat more reasonable than being negative!

On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:

Click for Big

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.1811 %	2,191.0
FixedFloater	4.35 %	3.51 %	20,760	18.40	1	-0.4106 %	4,061.4
Floater	3.29 %	3.48 %	62,486	18.55	4	-0.1811 %	2,329.2
OpRet	4.04 %	1.51 %	99,878	0.35	1	0.1579 %	2,757.5
SplitShare	4.27 %	3.68 %	31,558	3.56	5	0.1030 %	3,198.9
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.1579 %	2,521.4
Perpetual-Premium	5.32 %	-4.83 %	58,715	0.08	24	0.0669 %	2,516.1
Perpetual-Discount	4.94 %	4.82 %	126,032	15.25	10	0.1669 %	2,794.0
FixedReset	4.36 %	3.36 %	216,996	16.99	79	0.2720 %	2,451.0
Deemed-Retractible	4.90 %	-1.78 %	108,949	0.12	39	0.1825 %	2,652.4
FloatingReset	2.48 %	2.90 %	84,103	6.42	7	-0.0124 %	2,312.4

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.K	Floater	-1.68 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 14.06 Evaluated at bid price : 14.06 Bid-YTW : 3.58 %
HSE.PR.A	FixedReset	-1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 17.75 Evaluated at bid price : 17.75 Bid-YTW : 3.67 %
TRP.PR.C	FixedReset	-1.10 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 17.06 Evaluated at bid price : 17.06 Bid-YTW : 3.49 %
MFC.PR.L	FixedReset	-1.08 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.75 Bid-YTW : 4.07 %
TRP.PR.E	FixedReset	1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 23.03 Evaluated at bid price : 24.58 Bid-YTW : 3.30 %
PWF.PR.T	FixedReset	1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 23.43 Evaluated at bid price : 25.57 Bid-YTW : 3.08 %
MFC.PR.K	FixedReset	1.23 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.91 Bid-YTW : 3.90 %
IAG.PR.G	FixedReset	1.24 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.17 Bid-YTW : 2.49 %
TRP.PR.B	FixedReset	1.33 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 15.20 Evaluated at bid price : 15.20 Bid-YTW : 3.41 %
BNS.PR.Z	FixedReset	1.43 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.39 Bid-YTW : 3.39 %
BAM.PR.R	FixedReset	1.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 21.60 Evaluated at bid price : 22.00 Bid-YTW : 3.64 %
BAM.PF.E	FixedReset	1.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 23.05 Evaluated at bid price : 24.71 Bid-YTW : 3.52 %
BAM.PR.Z	FixedReset	1.57 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 23.68 Evaluated at bid price : 25.90 Bid-YTW : 3.60 %
PWF.PR.A	Floater	1.72 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 17.75 Evaluated at bid price : 17.75 Bid-YTW : 2.80 %
MFC.PR.N	FixedReset	1.79 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 3.55 %
BAM.PR.T	FixedReset	1.84 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 22.90 Evaluated at bid price : 23.22 Bid-YTW : 3.46 %
BAM.PR.X	FixedReset	1.92 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 18.55 Evaluated at bid price : 18.55 Bid-YTW : 3.80 %
TRP.PR.A	FixedReset	5.26 %	Not significant, just a reversal of yesterday‘s nonsense. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 3.54 %

Volume Highlights
Issue	Index	Shares Traded	Notes
HSB.PR.C	Deemed-Retractible	102,610	Nesbitt crossed 100,000 at 25.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-03-12 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : -2.50 %
TD.PF.C	FixedReset	100,115	TD crossed blocks of 23,800 and 50,000, both at 24.82, then sold 12,200 to anonymous at 24.85. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 23.09 Evaluated at bid price : 24.80 Bid-YTW : 3.10 %
NA.PR.W	FixedReset	64,054	TD crossed 49,900 at 24.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 23.11 Evaluated at bid price : 24.84 Bid-YTW : 3.09 %
RY.PR.J	FixedReset	50,258	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 23.20 Evaluated at bid price : 25.17 Bid-YTW : 3.35 %
SLF.PR.C	Deemed-Retractible	40,454	RBC crossed 24,900 at 24.20. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.22 Bid-YTW : 4.94 %
CM.PR.O	FixedReset	35,597	TD crossed 25,000 at 24.89. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 23.15 Evaluated at bid price : 24.85 Bid-YTW : 3.14 %
There were 39 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: 23.75 – 24.75 Spot Rate : 1.0000 Average : 0.7266 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.75 Bid-YTW : 4.07 %
IFC.PR.A	FixedReset	Quote: 20.11 – 20.95 Spot Rate : 0.8400 Average : 0.6059 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.11 Bid-YTW : 5.71 %
BMO.PR.M	FixedReset	Quote: 25.17 – 25.73 Spot Rate : 0.5600 Average : 0.3259 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.17 Bid-YTW : 2.79 %
PVS.PR.C	SplitShare	Quote: 25.95 – 26.50 Spot Rate : 0.5500 Average : 0.4112 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-12-10 Maturity Price : 25.50 Evaluated at bid price : 25.95 Bid-YTW : 3.65 %
TRP.PR.D	FixedReset	Quote: 24.00 – 24.40 Spot Rate : 0.4000 Average : 0.3066 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 22.84 Evaluated at bid price : 24.00 Bid-YTW : 3.36 %
TRP.PR.C	FixedReset	Quote: 17.06 – 17.35 Spot Rate : 0.2900 Average : 0.2014 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-10 Maturity Price : 17.06 Evaluated at bid price : 17.06 Bid-YTW : 3.49 %

PrefBlog

February 18, 2015

FFH: S&P Says Outlook Negative

February 17, 2015

February PrefLetter Released!

February 13, 2015

DBRS Downgrades Bombardier

February 12, 2015

February 11, 2015

ALB.PR.B: Partial Call For Redemption

February 10, 2015

Archives

Of Interest