PrefBlog

DBRS commented on the Quebec budget:

Following disappointing real GDP growth of just 1.1% in 2013, the new budget assumes accelerating growth of 1.8% in 2014 and 2.0% in 2015, supported by an improvement in domestic demand and the external environment. This is consistent with the private sector consensus tracked by DBRS. Despite a difficult first quarter, the outlook for the U.S. economy is encouraging and a lower Canadian dollar will add further support to Québec exports.

At the time of last year’s rating review, DBRS anticipated that the debt-to-GDP ratio had peaked around 61% in 2012-13 and would begin to decline in 2013-14. As a result of the deterioration in fiscal performance, the latest estimates again point to a debt burden of approximately 61% in 2013-14, with another modest increase projected in 2014-15. After which, the debt burden is forecast to gradually decline to roughly 56% by 2018-19, provided that the fiscal recovery remains on target and capital spending moderates as planned.

Assiduous Reader BC wrote in and said:

One other thing I was curious about and thought you might well be the best source to ask.

Years ago, in 2006, the government outlawed income trusts and in the aftermath, a lot of companies began paying eligible dividends that qualify for the dividend tax credit

What possibility might there be that in the future, a revenue hungry government might decide to take similar action in connection with the dividend tax credit.

Thanks very much for any input you can provide

Well, nothing’s guaranteed. For all I know, the Trotskyists will form the next federal government and then I’ll be harvesting potatoes for a living.

That being said, the dividend tax credit seems politically safe to me; none of the three major parties is making it an issue and the major influence on it since it was introduced in 1972 (over the past ten years, anyway) has been changes in corporate tax rates.

However, it should be noted that the explicit purpose of the DTC is to encourage equity investment:

There will be a major increase in the dividend tax credit. Starting January 1, 1978, the amount of dividends received from taxable Canadian corporations will be grossed-up by one-half, as opposed to the current one-third, and taxpayers will be allowed to claim against tax a credit equal to this higher amount.

This measure will provide benefits in a progressive manner in that the net tax on each dollar of cash dividend received will decline by a larger dollar amount the lower the income of the taxpayer. This is shown in the table included in the Supplementary Information. The table also illustrates how this measure will improve the return on equity investments. The proposed increase in the dividend tax credit should thus make it more attractive for investors in all income brackets to return to the equity market. The federal revenue loss from this measure is estimated to be $120 million in the first full year of operation and the measure will also affect provincial tax revenues.

Geez, those were the days, eh? When a tax expenditure of $120-million wasn’t just a rounding error?

However, there are rising concerns about income inequality and its cause:

More than a quarter (26%) of self-identified Democrats and those who lean Democratic cited the tax system as a main reason for the gap. Just 14% of self-identified Republicans and those who lean Republican said the same.

This is particularly evident at the very top of the tree:

But Mr. Zucman and Mr. Saez show a dramatic increase in wealth inequality at the very top of the distribution, among households with more than $20 million in wealth – and especially among those with more than $100 million.

… and we all remember Warren Buffet’s secretary:

Buffett cited himself, the third-richest person in the world, as an example. Last year, Buffett said, he was taxed at 17.7 percent on his taxable income of more than $46 million. His receptionist was taxed at about 30 percent.

Buffett said that was despite the fact that he was not trying to avoid paying higher taxes. “I don’t have a tax shelter,” he said. And he challenged Congress and his audience to see what the people who “clean our offices” are taxed, to loud applause.

And why does this happen:

You might wonder how Mr Buffett managed such a low tax rate. Most likely, it arose because corporate dividends and capital gains are taxed at only 15 percent. But the corporate income that funded those returns was already taxed at the corporate level, where the tax rate is 35 percent. Mr Buffett seems to be ignoring the first round of taxation. Is it possible that the world’s most successful has failed to pierce the corporate veil? (If you want to more reliable data on the progressivity of the tax code, see this old post for numbers from the CBO.)

Even more striking to me is a fact that Mr Buffett did not emphasize: how low his taxable income is. His income of $46 million represents a mere 0.1 percent of his reported net worth of over $50 billion. That is not an impressive rate of return!

Why is it so low? I can think of at least four possible ways investors like Mr Buffet can keep their taxable income, as opposed to their true income, low:
1.They hold stocks that pay minimal dividends.
2.They avoid realizing capital gains.
3.They hold some of their portfolios in tax-free municipal bonds.
4.They give appreciated assets to charity, getting a deduction for the current market value without ever having to realize and pay tax on the capital gain

… and at least some of the super-rich are indulging in conspicuous consumption:

Money managers may resent Prof. Piketty’s book but they appear to love its takeaway notion, especially the implication that the market for expensive goods is just going to keep on getting bigger.

Further evidence for that viewpoint came this week when McLaren Automotive reported that it had made a profit in only its third year of operation. The British auto maker, which was spun out of McLaren Group, the Formula One racer, sells high-performance but road-legal cars that go for about $1.8-million.

This is a company that considers Ferrari and Porsche to be downmarket. Yet it has had no trouble selling out production of its P1 supercar.

Call it the 0.01 per cent market. Before Prof. Piketty and colleagues such as Emmanuel Saez at the University of California in Berkeley came on the scene, economists tended to pooh-pooh concerns about wealth distribution, since the middle class was clearly getting richer and at a pace not wildly different from that of the top 10 per cent of society.

It’s the old story, one that particularly impressed me when I visited Russia a few times and saw the glorious architecture in Moscow and St. Petersburg and the awesome craftsmanship of the relics in the Hermitage. I was so overwhelmed in the Hermitage that I decided I needed to concentrate my attention on one thing and just wandered from room to room looking at tables. How do you get such awesome craftsmanship? Well, first you spend ten years training a guy to make tables of superb quality. And then you tell him to spend the next five years to make a table for you. You can only afford to do this in conditions of extreme income inequality.

So, given all the above, I think that at some point the Dividend Tax Credit and Gross Up will attract some populist political criticism, as will the capital gains inclusion rate. It might well be that people will decide that double-taxation of distributed corporate profits is a Good Thing, particularly if snooty rich folks on Bay Street are getting the benefit of the tax breaks instead of hard-working ordinary Canadians on Main Street.

On the other hand, perhaps one of the biggest macro-economic problems facing governments nowadays is that hard-working ordinary Canadians on Main Street are showing an increasing preference for personal real-estate as an investment rather than productive investment. So my political prediction is that eventually the DTC and the lower inclusion rate capital gains will be capped at some figure that is extremely high as far as the man in the street is concerned (say, income of $150,000) but is mere pocket change to the about-to-be-soaked rich. And remember: with one of my political predictions and $2.00, you can get a coffee at Timmy’s. After all, I didn’t expect the The Pickton-ization of Communities and Exploited Persons Act.

On a less philosophical note, Draghi has earned himself a chapter in future histories of monetary policy:

Mario Draghi unveiled an unprecedented round of measures to help the European Central Bank’s record-low interest rates feed through to an economy threatened by deflation.

The ECB today cut its deposit rate to minus 0.1 percent, becoming the first major central bank to take one of its main rates negative. In a bid to get credit flowing to parts of the economy that need it, the ECB also opened a 400-billion-euro ($542 billion) liquidity channel tied to bank lending and officials will start work on an asset-purchase plan. While conceding that rates are at the lower bound “for all practical purposes,” the ECB president signaled policy makers are willing to act again.
…
Draghi announced a new liquidity program designed to encourage lending. Financial institutions will be allowed to borrow money from the ECB equivalent to as much as 7 percent of their outstanding loans to non-financial corporations and households, excluding mortgages.
…
The negative deposit rate, which means charging banks that want to deposit excess funds with the ECB, has been heralded by Draghi as a way to stem unwarranted increases in money-market rates, as well as to curb euro strength that has contributed to slower inflation.

The measure has been used by a handful of smaller central banks in recent years, including Sweden’s, which conducted a 14-month experiment in 2009-2010. Denmark moved below zero in July 2012 — though the cut was aimed more at protecting its currency than stimulating growth — and ended the policy in April.

“It’s another whatever-it-takes moment in the life of the ECB and the euro zone,” said Carsten Brzeski, chief economist at ING-DiBa AG in Brussels “He threw in all he had.”

Excluding mortgages, mind you. Don’t spend no more damned money on your damned houses, people! Use it to collateralize your carry trades:

The policy divergences will widen even further over the next three years as the Fed and then the BOE raise rates, putting them on a course counter to the ECB and the BOJ, according to Andrew Kenningham, an economist at Capital Economics Ltd. in London. By 2017, he estimates, the gap between the U.S. benchmark and those of the euro area and Japan could be nearing four percentage points.

Such divides, he says, are unusual although not unprecedented. The split between U.S. and Japanese rates has often exceeded four percentage points in recent decades and between the U.S. and Germany it topped three percentage points for much of the 1980s.

There are some very interesting musings about solar power:

Deregulated electricity generators make most of their profits on hot summer afternoons, when air conditioners and offices force grid operators to call up their most expensive electricity: natural gas “peaker” plants. Cheap to build but expensive to operate, these plants are essentially jet engines, producing power on demand for a few hours at a time. However, the entire industry benefits when peaker plants kick in, because every other generator, including the cheapest hydropower operator, receives the same top dollar during those peak hours.

Solar panels — whether utility scale or residential rooftop — generate maximum power on exactly those hot afternoons when demand peaks. What’s more, they do so at no marginal cost; the sun is free. This reduces reliance on peakers, causing prices to fall across the board, including for customers without solar power.

This is what terrifies power companies. In California, the afternoon peak has effectively collapsed. CAISO, the state’s grid manager, projects that the peak will become an afternoon chasm, so low that even power plants designed to operate 24 hours a day as “baseload power” (nuclear energy is a good example) may face difficult decisions about when to operate.

The first victims among utilities will be generators that sell electricity from peakers and other plants in the open market. Soon, their plants will be needed only for the few hours around dusk when the sun is weak but demand is still relatively high.

Arizona has net metering, but is considering changes:

The future of solar net metering in Arizona is under attack, with the state’s largest utility Arizona Public Service (APS) proposing changes that undermine cost benefits for residential solar installations.

Under a plan submitted in July with the state’s public utility commission, APS proposes two options for future residential solar customers – both of which will reduce potential financial returns homeowners would receive on their investment.

One alternative would model net-metering contracts much the same as today but require residential customers to pay what APS calls a “convenience fee” – a monthly charge for sending power to the grid. The other option would give homeowners a small ongoing bill reduction, based on market rates APS pays to other power generators.

Seems to me a two-part electricity bill is what’s required – one part for actual electricity use, one part for access to the grid. This would be similar to Toronto Hydro’s charges, but ideally the grid access charge will be based on capacity rather that usage.

TransCanada, proud issuer of TRP.PR.A, TRP.PR.B, TRP.PR.C, TRP.PR.D and TRP.PR.E, was confirmed at Pfd-2(low) by DBRS:

DBRS has today confirmed the ratings of TransCanada Corporation (TCC or the Company) and its wholly owned subsidiary, TransCanada PipeLines Limited (TCPL), both with Stable trends. The ratings primarily reflect (1) expected improvement in TCC’s overall business risk profile over the medium term, (2) potential medium term pressure on its credit metrics and (3) environmental, regulatory and political risks with respect to its natural gas and liquids pipelines segments.

It was a positive day for the Canadian preferred share market, with PerpetualDiscounts gaining 3bp, FixedResets winning 19bp and DeemedRetractibles up 9bp. The longer-than-usual Performance Highlights table, still reflecting the dislocations of the past two weeks, is dominated by winning FixedResets. Volume was quite low and dominated by recent new issues.

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	0.6947 %	2,516.4
FixedFloater	4.56 %	3.81 %	30,670	17.79	1	0.2404 %	3,768.4
Floater	2.90 %	3.02 %	46,382	19.61	4	0.6947 %	2,717.1
OpRet	4.38 %	-14.38 %	29,338	0.09	2	0.0000 %	2,711.6
SplitShare	4.81 %	4.30 %	62,878	4.15	5	0.0159 %	3,114.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,479.5
Perpetual-Premium	5.52 %	1.99 %	84,673	0.09	17	-0.0669 %	2,400.9
Perpetual-Discount	5.27 %	5.27 %	104,272	14.99	20	0.0322 %	2,539.8
FixedReset	4.53 %	3.72 %	220,173	8.57	77	0.1852 %	2,519.2
Deemed-Retractible	5.01 %	1.55 %	150,678	0.22	43	0.0895 %	2,523.1
FloatingReset	2.68 %	2.51 %	138,158	3.99	6	0.1461 %	2,479.6

Performance Highlights
Issue	Index	Change	Notes
CIU.PR.C	FixedReset	-1.74 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 20.93 Evaluated at bid price : 20.93 Bid-YTW : 3.60 %
CU.PR.D	Perpetual-Discount	-1.35 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.79 Evaluated at bid price : 24.17 Bid-YTW : 5.08 %
ENB.PR.N	FixedReset	1.03 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.06 Evaluated at bid price : 24.60 Bid-YTW : 4.15 %
ENB.PR.T	FixedReset	1.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 22.80 Evaluated at bid price : 24.06 Bid-YTW : 4.14 %
CU.PR.C	FixedReset	1.15 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : 3.45 %
ENB.PR.P	FixedReset	1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 22.84 Evaluated at bid price : 24.10 Bid-YTW : 4.13 %
BAM.PR.K	Floater	1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 17.44 Evaluated at bid price : 17.44 Bid-YTW : 3.04 %
ENB.PR.B	FixedReset	1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.03 Evaluated at bid price : 24.11 Bid-YTW : 4.06 %
ENB.PR.F	FixedReset	1.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 22.92 Evaluated at bid price : 24.15 Bid-YTW : 4.14 %
BAM.PR.B	Floater	1.50 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 17.55 Evaluated at bid price : 17.55 Bid-YTW : 3.02 %

Volume Highlights
Issue	Index	Shares Traded	Notes
BAM.PF.F	FixedReset	598,107	New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.12 Evaluated at bid price : 24.94 Bid-YTW : 4.36 %
TD.PF.A	FixedReset	335,413	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.13 Evaluated at bid price : 24.97 Bid-YTW : 3.71 %
RY.PR.Z	FixedReset	178,865	Nesbitt crossed 150,000 at 25.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.22 Evaluated at bid price : 25.17 Bid-YTW : 3.68 %
RY.PR.H	FixedReset	126,844	Recent new issue YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.13 Evaluated at bid price : 24.95 Bid-YTW : 3.73 %
ENB.PF.C	FixedReset	88,294	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.12 Evaluated at bid price : 25.00 Bid-YTW : 4.16 %
SLF.PR.H	FixedReset	61,777	Desjardins crossed 11,600 at 25.16; RBC crossed 26,400 at 25.09. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.10 Bid-YTW : 3.61 %
There were 21 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.K	FixedReset	Quote: 24.60 – 25.07 Spot Rate : 0.4700 Average : 0.3243 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.60 Bid-YTW : 3.98 %
MFC.PR.J	FixedReset	Quote: 25.24 – 25.63 Spot Rate : 0.3900 Average : 0.2734 YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.24 Bid-YTW : 3.70 %
CU.PR.D	Perpetual-Discount	Quote: 24.17 – 24.75 Spot Rate : 0.5800 Average : 0.4653 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 23.79 Evaluated at bid price : 24.17 Bid-YTW : 5.08 %
TD.PR.R	Deemed-Retractible	Quote: 26.33 – 26.61 Spot Rate : 0.2800 Average : 0.1853 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-05 Maturity Price : 25.75 Evaluated at bid price : 26.33 Bid-YTW : -14.65 %
CU.PR.G	Perpetual-Discount	Quote: 22.24 – 22.50 Spot Rate : 0.2600 Average : 0.1808 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 21.89 Evaluated at bid price : 22.24 Bid-YTW : 5.07 %
TRP.PR.C	FixedReset	Quote: 22.30 – 22.65 Spot Rate : 0.3500 Average : 0.2774 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-05 Maturity Price : 21.80 Evaluated at bid price : 22.30 Bid-YTW : 3.59 %

It’s nice to see a statistic about how many CLOs lost money in the Credit Crunch:

Issuance of CLOs, which helped finance some of the biggest leveraged buyouts in history during the last credit boom, has picked up following an early 2014 slump brought on by the publication of the Volcker Rule designed to limit risk-taking by banks — major buyers of the funds. CLOs are investors in speculative-grade loans, an asset class in which U.S. banking regulators have said underwriting standards have become too lax.
…
CLOs pool high-yield corporate loans and slice them into securities of varying risk and return, typically from AAA ratings down to BB. The lowest portion, known as the equity tranche, offers the highest potential returns and the greatest risk because investors are the first to see their interest payouts reduced when loans backing the CLO default.

CLO managers may also be trying to issue deals ahead of risk-retention rules proposed by the Dodd-Frank Act in order to increase assets under management and income, said Kroszner. The regulation may require CLO managers to hold 5 percent of the debt they package or sell.
…
Out of 719 U.S. CLOs that purchased widely syndicated loans and were rated by Moody’s Investors Service between January 1996 and May 2012, only 14 funds lost any of their principal at maturity, according to a July 2012 report from the ratings firm.
…
The growth in riskier corporate lending led the Federal Reserve and the Office of the Comptroller of the Currency to warn lenders last year to improve lax underwriting practices. Todd Vermilyea, a Fed official, said May 13 that standards “have continued to deteriorate in 2014” and that “stronger supervisory action” may be needed.

While the Volcker Rule hasn’t led to fewer CLOs it has kept the cost to raise the funds elevated.

The average rate paid on CLO portions ranked AAA was about 150 basis points more than the London interbank offered rate in May, according to Wells Fargo. That’s up from a spread as low as 110 basis points on AAA slices last year.

As I have often complained, regulators and politicians are always careful to talk about downgrades of engineered products, rather than actual defaults.

Watch out for falling house prices!

In May, new home prices in 62 Chinese cities edged downward from the month before, dragging down the Chinese average for the first time in nearly two years. The biggest decline came in Shantou, where prices fell 3.64 per cent from April, according to China Index Academy, a research arm of SouFun, which operates the country’s largest real estate portal.

China’s real estate market is the bedrock of its economy. Residential housing is worth some 12.5 per cent of GDP, and homes contain some two-thirds of Chinese household wealth. A fracture in Chinese housing, in other words, is a fracture in China’s financial well-being.

And the slowdown has come with remarkable speed. Last December, Chinese housing prices rose 12 per cent year-on-year, the biggest gain of 2013. By May, sales were down more than 50 per cent from April at Shantou’s Jiacheng Real Estate Agency.

Assiduous Readers will know of my fondness for mocking CalPERS – the politicized fund that doesn’t do credit analysis. I’ve acquired another target – The Norwegian Government Pension Fund, an $853.9 billion pension fund with no trading expertise:

Norway’s $880 billion sovereign wealth fund, the world’s largest, is throwing its support behind Brad Katsuyama’s new exchange.

Katsuyama’s IEX Group Inc., made famous in Michael Lewis’s best-selling book “Flash Boys,” could shield investors from the predatory habits of high-frequency traders, said the fund, which holds $521.2 billion in stocks globally and is Europe’s biggest equity investor.

“IEX is a trading venue where all players participate on the same terms,” oil fund spokesman Thomas Sevang said in an e-mailed response to questions. “We support this.”

The BoC kept overnight rates steady:

Total CPI inflation has moved up to around the 2 per cent target, sooner than anticipated in the Bank’s April Monetary Policy Report (MPR), largely due to the temporary effects of higher energy prices and exchange rate pass-through. Core inflation remains significantly below 2 per cent although it has drifted up slightly, partly owing to past exchange rate movements.
…
The Canadian economy grew at a modest rate in the first quarter, held back by severe weather and supply constraints. The ingredients for a pickup in exports remain in place, including the lower Canadian dollar and an anticipated strengthening of foreign demand. Improved corporate profits, especially in exchange rate-sensitive sectors, should also support higher business investment in the coming quarters. There are continued signs of a soft landing in the housing market and a constructive evolution of household imbalances. We still expect excess supply to be absorbed gradually as the fundamental drivers of growth and inflation in Canada strengthen.

Weighing recent higher inflation readings against slightly increased risks to economic growth leaves the downside risks to the inflation outlook as important as before. At the same time, the risks associated with household imbalances remain elevated. The Bank judges that the balance of risks remains within the zone for which the current stance of monetary policy is appropriate and therefore has decided to maintain the target for the overnight rate at 1 per cent. The timing and direction of the next change to the policy rate will depend on how new information influences the balance of risks.

There was some chatter about the effect on the dollar:

The loonie had been as high as about 91.7 cents, but began to slip in anticipation of the announcement, to 91.5 cents. In the wake of the statement, it dipped further to 91.3 cents, and by midday stood at 91.4 cents.

Before today, the currency had been hovering around the 92-cent level, having moved up recently.
…
“It could have been expected that downside interest rates moves were taken off the table but this is not the case,” said Rahim Madhavji of Knightsbridge Foreign Exchange.

“The Canadian dollar fell lower on the Bank of Canada continuing to harp a tone of we’re still nowhere close to raising interest rates,” he added in a research note titled “Bank of Canada slaps loonie lower.”

“It seems that the Bank of Canada is quite content with the lower Canadian dollar boosting exports and assisting with inflation. Today’s BoC statement removes any catalyst for loonie bulls in the near term.”

… and some criticism of the dovish language:

“Comes a point the central bank will have to drop the dovish language, although it’s clear that it will try to delay as long as possible,” said Krishen Rangasamy, senior economist the National Bank of Canada.

The bank’s insistence that disinflation remains a threat could prove tough to defend as as the summer and fall wear on, Bank of Nova Scotia economists Derek Holt and Dov Zigler said in a research note. “The Bank of Canada faces a greater sales job to explain why the ‘downside risks to the inflation outlook [are] as important as before,’” they said.

… though mind you, the dollar isn’t helping exports much:

For months, Mr. Poloz and other bank officials have stressed the importance of exports and business investment to putting the economy back on track.

But so far, exports continue to underperform – a reality underscored by Statistics Canada’s report Wednesday that exports dropped 1.8 per cent in April, tilting the trade balance back into deficit.

I think it’s unclear as to where all this hyperinflation and wheelbarrowfulls of cash are going to come from. Not Europe!

Euro zone price inflation fell unexpectedly in May, increasing the risks of deflation in the currency area and sealing the case for the European Central Bank to act this week.

Annual consumer inflation in the 18 countries sharing the euro fell to 0.5 per cent in May from 0.7 per cent in April, the EU’s statistics office Eurostat said on Tuesday.

… not with negative interest rates in Europe, it won’t:

Mario Draghi’s experiment with negative interest rates is unlikely to stop investors from seeking something stronger.

The European Central Bank president will herald a new era today by taking the deposit rate below zero, according to economists in a Bloomberg News survey. That probably won’t quell calls for more radical measures such as quantitative easing to stop the euro area from sliding into deflation.
…
In the Bloomberg survey, 44 of 50 economists said the ECB will cut its deposit rate to negative from zero, with the median estimate for a level of minus 0.1 percent. The survey also predicts that the benchmark main refinancing rate will be reduced by 15 basis points to a record-low 0.1 percent.

The decision will be announced at 1:45 p.m. in Frankfurt. Draghi will hold a press conference 45 minutes later, where he’ll also release revised ECB forecasts on inflation and economic growth.

… which may help a mouthpiece for the UK government carry out his instructions:

Mark Carney has a new ally in his battle to keep Bank of England policy loose: Mario Draghi.

As the BOE’s nine-person Monetary Policy Committee divides between Carney’s view that low rates are still needed and a faction leaning toward higher borrowing costs, events in Frankfurt may favor the governor by weakening the euro against the pound, helping to curb U.K. inflation pressure. The MPC meets in London today and will announce its decision at noon.

It was a mixed day of adjustment for the Canadian preferred share market today, following yesterday’s fireworks, with PerpetualDiscounts down 26bp, FixedResets up 23bp and DeemedRetractibles gaining 4bp. The Performance Highlights table is longer than usual and dominated by winning FixedResets. Volume was on the high side of average.

PerpetualDiscounts now yield 5.30%, equivalent to 6.89% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.35%, so the pre-tax interest-equivalent spread (in this context the “Seniority Spread”) is now about 255bp, a slight (and perhaps spurious) widening from the 250bp reported May 28.

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	-0.4840 %	2,499.1
FixedFloater	4.57 %	3.82 %	31,867	17.77	1	0.3377 %	3,759.4
Floater	2.92 %	3.04 %	46,985	19.57	4	-0.4840 %	2,698.3
OpRet	4.38 %	-13.66 %	30,546	0.09	2	0.0389 %	2,711.6
SplitShare	4.81 %	4.31 %	63,765	4.15	5	0.0796 %	3,113.9
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0389 %	2,479.5
Perpetual-Premium	5.51 %	1.02 %	85,658	0.08	17	0.0069 %	2,402.5
Perpetual-Discount	5.27 %	5.30 %	103,148	14.94	20	-0.2568 %	2,539.0
FixedReset	4.54 %	3.72 %	220,557	8.79	76	0.2269 %	2,514.5
Deemed-Retractible	5.02 %	1.17 %	151,916	0.22	43	0.0410 %	2,520.9
FloatingReset	2.68 %	2.53 %	143,048	3.99	6	-0.2452 %	2,476.0

Performance Highlights
Issue	Index	Change	Notes
TD.PR.Z	FloatingReset	-1.08 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.82 Bid-YTW : 2.76 %
MFC.PR.J	FixedReset	1.07 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.49 Bid-YTW : 3.41 %
TRP.PR.A	FixedReset	1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 22.76 Evaluated at bid price : 23.46 Bid-YTW : 3.69 %
BAM.PF.B	FixedReset	1.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.05 Evaluated at bid price : 24.65 Bid-YTW : 4.21 %
TRP.PR.D	FixedReset	1.49 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 22.99 Evaluated at bid price : 24.51 Bid-YTW : 3.97 %
CU.PR.C	FixedReset	1.66 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.42 Evaluated at bid price : 25.12 Bid-YTW : 3.85 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PF.A	FixedReset	872,717	New issue settled today. I know this volume is different from the volume reported on the Issue Comments post; here, it’s TSX; there, it’s consolidated. Sue me. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.12 Evaluated at bid price : 24.94 Bid-YTW : 3.72 %
RY.PR.H	FixedReset	323,000	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.12 Evaluated at bid price : 24.93 Bid-YTW : 3.74 %
ENB.PF.C	FixedReset	76,753	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.10 Evaluated at bid price : 24.95 Bid-YTW : 4.17 %
GWO.PR.G	Deemed-Retractible	38,971	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.82 Bid-YTW : 5.28 %
BNS.PR.Z	FixedReset	35,680	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 3.77 %
MFC.PR.G	FixedReset	33,809	Scotia crossed 30,000 at 25.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-19 Maturity Price : 25.00 Evaluated at bid price : 25.67 Bid-YTW : 3.23 %
There were 36 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
CU.PR.C	FixedReset	Quote: 25.12 – 25.59 Spot Rate : 0.4700 Average : 0.3468 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.42 Evaluated at bid price : 25.12 Bid-YTW : 3.85 %
ELF.PR.G	Perpetual-Discount	Quote: 21.81 – 22.29 Spot Rate : 0.4800 Average : 0.3596 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 21.81 Evaluated at bid price : 21.81 Bid-YTW : 5.53 %
VNR.PR.A	FixedReset	Quote: 25.62 – 25.99 Spot Rate : 0.3700 Average : 0.2626 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.62 Bid-YTW : 3.77 %
TD.PR.Z	FloatingReset	Quote: 24.82 – 25.07 Spot Rate : 0.2500 Average : 0.1497 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.82 Bid-YTW : 2.76 %
FTS.PR.J	Perpetual-Discount	Quote: 23.45 – 23.78 Spot Rate : 0.3300 Average : 0.2312 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.13 Evaluated at bid price : 23.45 Bid-YTW : 5.08 %
BAM.PR.T	FixedReset	Quote: 24.22 – 24.55 Spot Rate : 0.3300 Average : 0.2440 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-04 Maturity Price : 23.10 Evaluated at bid price : 24.22 Bid-YTW : 4.08 %

Scott Barlow had a polemic in the Globe titled Debt markets’ ‘lunacy’ threatens equity investors:

U.S. credit markets are absurdly overbought and equity investors on both sides of the border will be very much in the way of the inevitable correction when it occurs.

The most common method of gauging whether corporate debt is attractive or expensive is the spread – the difference in yield between a corporate bond issue and a government bond issue of the same maturity. When the spread is low, it is more difficult for investors to generate returns and there is less margin of safety.

The accompanying chart shows that the spread on the riskiest form of corporate debt – high yield bonds – are trading at spreads very close to the pre-2007 lows. At the same time, the CBOE Volatility Index – which uses equity option prices to measure expected volatility and market risk – is hitting all time lows. In other words, debt markets are expensive, and investors are broadly complacent.
…
New River Investments LLC hedge fund manager Guillermo Roditi Dominguez’s exasperation with current prices was evident on Twitter last week (where insiders can be particularly blunt on this issue) after a Walt Disney Co. three-year bond was issued: “just saw the disney bond. 20 over [treasuries]. twenty. time to pack it up and go hit the pool. i aint abuyin no more bonds this year [sic].”

Well, fine. But the reference to Disney led me to do a little more digging on the deal:

The strong demand for double A rated company’s offering has allowed the deal to price inside its outstanding bonds, which is a market coup for the technology giant.
…
Apple’s outstanding 2.4% May 2023s are quoted at a G-spread of 75bp, suggesting the new issue concession on the 10-year is around 2bp. The 30-year bonds are offering just 4bp of concession, based on where the outstanding 3.85% May 2043 is trading at Treasuries plus 104bp, while the five-year bonds offer a roughly negative 1.5bp concession compared with the outstanding 1% May 2018s trading at a G-spread of 39bp.

Outstanding three-year bonds were quoted at a G-spread of 19bp, so the concession on the new bonds was about negative 1bp.

A negative concession is fascinating and in conjunction with yesterday‘s discussion of increased underwriting competition – as well as previous discussions of US corporate bond liquidity – lead me to suspect that liquidity is in very short supply in the States. Where else but in the new issue market can a PM buy $10-million in corporates at a reasonable – albeit historically narrow – spread?

Other Disney commentary led into a discussion of Enbridge (briefly mentioned on May 29):

Other deals Wednesday saw spreads tighten even further from IPTs to pricing, which one banker said was down to Disney beginning with little in the way of new issue concession – leaving investors unwilling to lose out on any further pick-up.

At pricing the four-part trade appeared to carry concessions between flat to 8bp compared with the company’s outstandings.
…
“But broadly, after the recent flurry of issuance, most other issuers may need to be a bit more conservative at the start to create momentum in the book.” [said an unnamed banker].

Canadian energy company Enbridge did just that – and was able to tighten levels on its 10- and 30-year fixed rate bonds and three-year floaters substantially.

The 10s and 30s were announced with IPTs of Treasuries plus 125bp–130bp and plus 145bp–150bp, while the floater came at Libor plus low 60s.

These levels were pushed tighter to final pricing levels of plus 110bp and plus 125bp on the fixed and plus 45bp on the floater.

At the IPT stage, compared with outstanding 4% October 2023s at a G-spread of 114bp, the 10-year seemed to carry about 11bp to 16bp in concession, while the 30-year had about 15bp to 20bp in concession versus 4.55% August 2043s at G+130bp.

These juicy concessions enticed investors to jump in with orders that subsequently allowed it to tighten levels – and end up paying concessions of negative 4bp and negative 5bp.

Low yields are not confined to the US:

Europe’s lowest government bond yields since the Napoleonic Wars are signaling investors want more action from Mario Draghi.

Instead of a vote of confidence, the most pronounced rally in 200 years suggests the European Central Bank president needs to stave off the risks of stagnation and deflation. Austria, Belgium, France (GFRN10) and Germany can borrow at lower rates than the U.S. as inflation less than half the ECB’s target stokes concern the euro zone will take many years to recover from its longest-ever recession.
…
Speculation the ECB will provide more stimulus pushed yields on euro-region sovereign debt to a record-low 1.43 percent on May 30, according to Bank of America Merrill Lynch’s Euro Government Bond Index. Draghi said May 8 the Governing Council is “comfortable” taking action to boost consumer-price growth, which at 0.7 percent in April was well below the ECB’s aim of keeping it just under 2 percent.
…
Rates on German 10-year bonds were at 1.37 percent yesterday, less than a quarter of a percentage point away from 1.127 percent reached in June 2012, the lowest since at least 1815, according to “The History of Interest Rates” by Sidney Homer and Richard Sylla. That was the year of Napoleon’s final defeat at Waterloo, after which the Congress of Vienna redrew the map of Europe, leading to the creation of the German Confederation.

Germany’s current yield compares with an average of 3.03 percent in the past 10 years. The interest rate for government loans was 3.6 percent in 1944 during World War II and 12.5 percent in 1931 amid the Great Depression, according to the book.

I’m not sure I’d want to be a fixed income manager in Germany in 1944, even if I was seeing 3.6% yields!

I understand that marketing for the NEW.PR.C refunding has commenced, but a prospectus is not yet available.

It was a negative day for the Canadian preferred share market, with FixedReset prices collapsing in the final hour of trading; PerpetualDiscounts were off 1bp, FixedResets got whacked for 44bp and DeemedRetractibles were flat. A lengthy Performance Highlights table is comprised almost entirely of losing FixedResets, with the solitary exception being a FixedFloater loser. Volume was very heavy.

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	-0.0967 %	2,511.2
FixedFloater	4.58 %	3.83 %	33,179	17.75	1	-1.2857 %	3,746.7
Floater	2.90 %	3.01 %	47,560	19.63	4	-0.0967 %	2,711.4
OpRet	4.38 %	-13.81 %	31,803	0.09	2	0.0000 %	2,710.5
SplitShare	4.82 %	4.22 %	62,357	4.16	5	-0.0318 %	3,111.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,478.5
Perpetual-Premium	5.52 %	-2.26 %	84,910	0.09	17	-0.0530 %	2,402.4
Perpetual-Discount	5.26 %	5.27 %	105,152	14.99	20	-0.0086 %	2,545.5
FixedReset	4.56 %	3.75 %	220,363	8.76	75	-0.4410 %	2,508.8
Deemed-Retractible	5.02 %	1.33 %	154,769	0.16	43	0.0047 %	2,519.8
FloatingReset	2.67 %	2.51 %	122,560	4.13	6	-0.0331 %	2,482.1

Performance Highlights
Issue	Index	Change	Notes
TRP.PR.D	FixedReset	-2.62 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 22.85 Evaluated at bid price : 24.15 Bid-YTW : 4.04 %
BAM.PR.X	FixedReset	-2.38 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 21.33 Evaluated at bid price : 21.33 Bid-YTW : 4.25 %
BAM.PR.R	FixedReset	-2.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 23.50 Evaluated at bid price : 24.82 Bid-YTW : 4.03 %
TRP.PR.B	FixedReset	-1.86 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 20.05 Evaluated at bid price : 20.05 Bid-YTW : 3.61 %
MFC.PR.F	FixedReset	-1.75 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.42 Bid-YTW : 4.45 %
ENB.PR.Y	FixedReset	-1.69 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 22.44 Evaluated at bid price : 23.33 Bid-YTW : 4.20 %
CU.PR.C	FixedReset	-1.55 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 23.28 Evaluated at bid price : 24.71 Bid-YTW : 3.93 %
HSE.PR.A	FixedReset	-1.44 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 22.27 Evaluated at bid price : 22.60 Bid-YTW : 3.79 %
BNS.PR.Y	FixedReset	-1.43 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.42 Bid-YTW : 3.71 %
VNR.PR.A	FixedReset	-1.36 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-10-15 Maturity Price : 25.00 Evaluated at bid price : 25.45 Bid-YTW : 3.98 %
BAM.PR.G	FixedFloater	-1.29 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 21.44 Evaluated at bid price : 20.73 Bid-YTW : 3.83 %
MFC.PR.J	FixedReset	-1.21 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.22 Bid-YTW : 3.72 %
RY.PR.Z	FixedReset	-1.14 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 23.22 Evaluated at bid price : 25.16 Bid-YTW : 3.68 %
ENB.PR.B	FixedReset	-1.08 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 22.88 Evaluated at bid price : 23.80 Bid-YTW : 4.12 %
SLF.PR.G	FixedReset	-1.03 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.12 Bid-YTW : 4.46 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.H	FixedReset	1,106,001	New issue closed today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 23.10 Evaluated at bid price : 24.86 Bid-YTW : 3.75 %
CM.PR.K	FixedReset	464,641	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.27 Bid-YTW : 1.70 %
NA.PR.S	FixedReset	182,828	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 23.24 Evaluated at bid price : 25.22 Bid-YTW : 3.85 %
RY.PR.L	FixedReset	162,850	YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.92 Bid-YTW : 3.45 %
HSB.PR.E	FixedReset	124,070	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-30 Maturity Price : 25.00 Evaluated at bid price : 25.39 Bid-YTW : 3.62 %
CM.PR.M	FixedReset	107,754	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.34 Bid-YTW : 1.76 %
There were 60 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
TRP.PR.D	FixedReset	Quote: 24.15 – 24.95 Spot Rate : 0.8000 Average : 0.4743 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 22.85 Evaluated at bid price : 24.15 Bid-YTW : 4.04 %
TRP.PR.B	FixedReset	Quote: 20.05 – 20.45 Spot Rate : 0.4000 Average : 0.2238 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 20.05 Evaluated at bid price : 20.05 Bid-YTW : 3.61 %
CU.PR.D	Perpetual-Discount	Quote: 24.30 – 24.85 Spot Rate : 0.5500 Average : 0.3830 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 23.91 Evaluated at bid price : 24.30 Bid-YTW : 5.05 %
BNS.PR.Y	FixedReset	Quote: 23.42 – 23.88 Spot Rate : 0.4600 Average : 0.2962 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.42 Bid-YTW : 3.71 %
BAM.PR.X	FixedReset	Quote: 21.33 – 21.79 Spot Rate : 0.4600 Average : 0.3093 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-03 Maturity Price : 21.33 Evaluated at bid price : 21.33 Bid-YTW : 4.25 %
PWF.PR.R	Perpetual-Premium	Quote: 25.51 – 25.83 Spot Rate : 0.3200 Average : 0.1918 YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-30 Maturity Price : 25.00 Evaluated at bid price : 25.51 Bid-YTW : 5.27 %

No sooner had I delivered my crushing retort to my cashless friends than I became aware of a piece in the Globe by Ian McGugan titled Why central bankers would like to trash your cash:

An end to folding money could offer many advantages, according to Kenneth Rogoff, a Harvard professor and former chief economist at the International Monetary Fund. The most immediate payoffs would come from cracking down on drug traffickers and tax evaders.

This could have surprisingly large benefits for government coffers. In a column in the Financial Times this week, Prof. Rogoff estimates that untaxed, underground transactions account for 7 to 8 per cent of the U.S. economy and probably even more of its European counterpart. Bringing all those cash-only transactions into the light by forcing them to be conducted through the banking system, where the taxman could track them, would provide governments with a nice revenue boost.
…
One option, in theory, would be to impose negative interest rates – to apply a penalty charge on bank balances to spur people to spend. One big problem with this in practice, however, is that it just won’t work because “people will start bailing out into cash,” as Prof. Rogoff writes.

But what if there was no cash? Government could then adjust rates however it wanted, even well into negative territory, to force people to stop sitting on their wealth.

A miracle has occurred! Competition is having an effect on underwriting fees … maybe!

With trading profits dwindling, more dealers than ever are fighting for assignments managing U.S. corporate-bond sales, one of the few bright spots in fixed income. Companies from the most-creditworthy to the most-indebted have been selling trillions of dollars of debt, locking in record-low borrowing costs ahead of the anticipated rise in interest rates.
…
A record 144 underwriters for the period have split an estimated $4.2 billion of fees on U.S. sales, the data show.
…
The five most-active corporate-debt underwriters this year landed 47 percent of the business, the smallest share on record. That’s down from 59 percent of the assignments for all of 2009.
…
Smaller firms see an opportunity to break into the business as Wall Street’s behemoths unload inventories of riskier securities in the face of higher capital requirements and limits imposed by the U.S. Dodd-Frank Act’s Volcker Rule on the amount of their own money they can use to trade.

Royal Bank of Canada has climbed to 11th most-active underwriter of corporate bonds in the U.S., from 14th place in the period four years earlier, Bloomberg data show.
…
Debt underwriting fees among the nine-biggest banks were 5.8 percent lower in the first three months of 2014 from the same period last year, according to data compiled by Bloomberg Industries. The slump in fees outpaced a 2.6 percent drop in the volume of global corporate bond sales.

The article isn’t all that clear on actual fees. The fee drop among the nine-biggest firms outpaces the drop in total issuance, but the market share of the five-biggest has dropped considerably. It is conceivable that prices haven’t dropped at all and that the quoted differences are due the changes in volume, market share and product mix. But we can hope!

Tobias Adrian, Richard Crump, Benjamin Mills and Emanuel Moench have been working on the Treasury term premium:

Treasury yields can be decomposed into two components: expectations of the future path of short-term Treasury yields and the Treasury term premium. The term premium is the compensation that investors require for bearing the risk that short-term Treasury yields do not evolve as they expected. Studying the term premium over a long time period allows us to investigate what has historically driven changes in Treasury yields. In this blog post, we estimate and analyze the Treasury term premium from 1961 to the present, and make these estimates available for download here.
…
In a previous post, we compared our estimated term premium to a number of observable variables. We showed that the term premium is a countercyclical variable which tends to move with measures of uncertainty and disagreement about the future level of yields.
…
The evolution of term premia has been of particular interest since the Federal Reserve began large-scale asset purchases. Over this time, short-term interest rates have been close to zero, and our estimates show that the term premium has been compressed and has at times even been negative. An advantage of our estimate is that it is available back to 1961. Hence, we can study the term premium at another time when short-term interest rates were close to zero. By comparing the ten-year ACM term premium of the past decade to that of the 1960s in the first chart, we find that the ten-year term premium was negative at times in the 1960s, but reverted back to positive. Similarly, our estimate of the term premium has risen above zero recently.

Daily estimates of the ACM term premium from 1961 to the present are now available for download from the Data & Indicators section of the New York Fed’s website. The data are updated weekly and include estimates of the term premium for yearly Treasury maturities from one to ten years, as well as fitted yields and the expected average level of short-term interest rates.

I get lots of ‘friend’ requests on LinkedIn and Facebook from people whose names I don’t recognize. If I don’t recognize the name, I don’t respond; to me, that sounds basic. Some people disagree:

In an unprecedented, three-year cyber espionage campaign, Iranian hackers created false social networking accounts and a fake news website to spy on military and political leaders in the United States, Israel and other countries, a cyber intelligence firm said on Thursday.

ISight Partners, which uncovered the operation, said the hackers’ targets include a four-star U.S. Navy admiral, U.S. lawmakers and ambassadors, members of the U.S.-Israeli lobby, and personnel from Britain, Saudi Arabia, Syria, Iraq and Afghanistan.
…
The hackers set up false accounts on Facebook and other online social networks for these 14 personas, populated their profiles with fictitious personal content, and then tried to befriend target victims, according to iSight.
…
To build credibility, the hackers would approach high-value targets by first establishing ties with the victims’ friends, classmates, colleagues, relatives and other connections over social networks run by Facebook Inc., Google Inc. and its YouTube, LinkedIn Corp. and Twitter Inc.

The hackers would initially send the targets content that was not malicious, such as links to news articles on NewsOnAir.org, in a bid to establish trust. Then they would send links that infected PCs with malicious software, or direct targets to web portals that ask for network log-in credentials, iSight said.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 20bp, FixedResets up 10bp and DeemedRetractibles gaining 1bp. The Performance Highlights table is of above-average length, with a preponderance of FixedReset issues on the winning side, bouncing back a bit from Friday‘s carnage. Volume was below average.

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	0.7656 %	2,513.7
FixedFloater	4.52 %	3.77 %	32,676	17.85	1	0.0000 %	3,795.5
Floater	2.90 %	3.03 %	47,845	19.60	4	0.7656 %	2,714.1
OpRet	4.38 %	-13.95 %	31,765	0.09	2	0.0195 %	2,710.5
SplitShare	4.82 %	4.10 %	62,358	4.16	5	-0.1828 %	3,112.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0195 %	2,478.5
Perpetual-Premium	5.51 %	-5.26 %	85,724	0.09	17	-0.0438 %	2,403.6
Perpetual-Discount	5.26 %	5.26 %	104,570	15.00	20	-0.1965 %	2,545.7
FixedReset	4.55 %	3.73 %	214,927	8.77	74	0.0995 %	2,519.9
Deemed-Retractible	5.02 %	2.20 %	156,423	0.16	43	0.0149 %	2,519.7
FloatingReset	2.67 %	2.51 %	142,182	3.99	6	0.0597 %	2,482.9

Performance Highlights
Issue	Index	Change	Notes
ELF.PR.G	Perpetual-Discount	-1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 21.76 Evaluated at bid price : 22.15 Bid-YTW : 5.42 %
PWF.PR.S	Perpetual-Discount	-1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 23.14 Evaluated at bid price : 23.45 Bid-YTW : 5.16 %
RY.PR.Z	FixedReset	1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 23.30 Evaluated at bid price : 25.45 Bid-YTW : 3.62 %
CU.PR.D	Perpetual-Discount	1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 24.02 Evaluated at bid price : 24.42 Bid-YTW : 5.02 %
BAM.PR.R	FixedReset	1.36 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 23.69 Evaluated at bid price : 25.35 Bid-YTW : 3.92 %
IFC.PR.A	FixedReset	2.05 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.88 Bid-YTW : 4.25 %
PWF.PR.A	Floater	2.51 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 20.04 Evaluated at bid price : 20.04 Bid-YTW : 2.63 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.K	FixedReset	86,855	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.29 Bid-YTW : 1.18 %
CM.PR.M	FixedReset	86,080	Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.39 Bid-YTW : 0.51 %
SLF.PR.H	FixedReset	84,905	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 3.75 %
ENB.PF.C	FixedReset	81,159	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 23.10 Evaluated at bid price : 24.95 Bid-YTW : 4.17 %
CU.PR.E	Perpetual-Discount	41,865	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 23.66 Evaluated at bid price : 24.03 Bid-YTW : 5.11 %
BMO.PR.P	FixedReset	38,843	YTW SCENARIO Maturity Type : Call Maturity Date : 2015-02-25 Maturity Price : 25.00 Evaluated at bid price : 25.60 Bid-YTW : 2.23 %
There were 25 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.K	FixedReset	Quote: 24.60 – 25.00 Spot Rate : 0.4000 Average : 0.2562 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.60 Bid-YTW : 3.97 %
TD.PR.R	Deemed-Retractible	Quote: 26.35 – 26.59 Spot Rate : 0.2400 Average : 0.1556 YTW SCENARIO Maturity Type : Call Maturity Date : 2014-07-02 Maturity Price : 25.75 Evaluated at bid price : 26.35 Bid-YTW : -16.00 %
FTS.PR.G	FixedReset	Quote: 24.30 – 24.60 Spot Rate : 0.3000 Average : 0.2186 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 22.96 Evaluated at bid price : 24.30 Bid-YTW : 3.75 %
MFC.PR.L	FixedReset	Quote: 24.60 – 24.89 Spot Rate : 0.2900 Average : 0.2121 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.60 Bid-YTW : 3.99 %
CU.PR.E	Perpetual-Discount	Quote: 24.03 – 24.54 Spot Rate : 0.5100 Average : 0.4379 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 23.66 Evaluated at bid price : 24.03 Bid-YTW : 5.11 %
ELF.PR.G	Perpetual-Discount	Quote: 22.15 – 22.38 Spot Rate : 0.2300 Average : 0.1591 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-06-02 Maturity Price : 21.76 Evaluated at bid price : 22.15 Bid-YTW : 5.42 %