PrefLetter

PrefLetter Now Available in British Columbia!

I am pleased to announce that PrefLetter is now available to residents of British Columbia.

PrefLetter is the monthly newsletter recommending individual issues of preferred shares to subscribers. There is at least one recommendation from every major type of preferred share (two of them recently added); the recommendations are taylored for “buy-and-hold” investors.

Preferred share dividends enjoy a privileged position with respect to taxes in BC; even more so than in other major provinces.

The next edition of PrefLetter will be prepared as of the close tomorrow, January 9, and be eMailed to subscribers in PDF format prior to the opening of the Toronto Stock Exchange on January 12.

Taxation

Marginal Tax Rates: BC 2008 (updated)

Here are the rates from the E&Y Tax Calculator, as updated to include legislation to October 22, 2008. There has been a marginal change since my last post on the topic.

Clawbacks are not included; I am hopeful that at some point I will be able to get some authoritative data on the effects of clawbacks, but have not found anything credible … please contact me if you do know of any credible public sources!

Investors Taxable Income Marginal Rate on Interest Marginal Rate on Dividends Equivalency Factor
Widows & Orphans $30,000 20.06% 0.00% 1.27
Professionals $75,000 32.50% 4.40% 1.42
Plutocrats $150,000 43.70% 18.47% 1.45

Look at those rates, eh? The choice between interest and dividends is roughly the same as in Ontario at all income levels … but I look at the rate on dividends for “professionals” and I just can’t believe my eyes!

The comments to the Ontario update included some discussion of the calculation of the equivalency factor in the presence of the OAS clawback.

Banking Crisis 2008

Banks Cozy up to Feds: Quid Pro Quo?

Maybe I’m just a suspicious person. Maybe I’m too cynical. And I always worry about cluttering up this blog with politics, which in normal times is irrelevant to real life – for which westerners in general and Canadians in particular can be very grateful.

But two stories in the Globe today were on the same page:Economists’ advice to Flaherty: Cut taxes now:

At the Economic Club of Canada’s annual outlook roundtable, economists from the country’s five biggest banks called on Mr. Flaherty to make tax cuts and well-focused infrastructure spending the centerpieces of his Jan. 27 budget, and to resist futile bailouts for dying industries.

They also called on the Bank of Canada to continue cutting its interest rates to lend further stimulus to the struggling economy and credit markets.

And they stressed that any personal tax cut – something Mr. Flaherty has already hinted could be in the budget – needs to be permanent if it’s going to be effective, and needs to be offset in future years by reining in government spending.

A permanent tax cut starting now, to be offset by spending cuts, er, later? Haven’t I seen this movie before? The very suggestion is thoroughly irresponsible.

I will also point out that permanent tax cuts have very little stimulatory effect compared to other forms of stimulus:

The chart is from Moody’s Economy.com chief economist Mark Zandi’s testimony to the US House Committee on Small Business.

Why would the banks – and remember, sell-side economists are similar to sell-side analysts of any other description: sold for entertainment value only – be pushing such an lunatic plan that so conveniently fits into Spend-Every-Penny’s electoral strategy? Here’s a clue, in a story titled Loosen capital rules, banks ask watchdog:

The big banks are pushing Canada’s financial services regulator to loosen the rules about what counts as capital, a change that they say would enable them to hand out more loans.

Bank chief executive officers brought up the issue at this week’s meeting with the Finance Minister, the central bank Governor and the banking regulator, according to sources familiar with the discussion.

They want Julie Dickson, the head of the Office of the Superintendent of Financial Institutions, to let them develop new hybrid financial instruments that would count toward their capital ratios.
…
OSFI gave the banks new leeway in November, when it raised the level of preferred shares they could count as capital. As a result, the banks have been issuing a flurry of them. This week alone, Bank of Nova Scotia and Royal Bank of Canada each said they will sell $200-million worth of preferred shares, and Toronto-Dominion Bank said it is selling $300-million.

But bankers say they can’t issue enough preferred shares to use up all of the room OSFI has given them, because there is not enough demand from investors. Part of the problem, they say, is that pension funds are not inclined to buy preferred shares because of tax rules. So the banks want to develop a hybrid instrument that will generate higher demand from institutional investors.

Other countries give banks more flexibility when it comes to what types of instruments count as Tier 1 capital.

It is not clear just what is meant by the last paragraph – just what, precisely, are the banks asking for that is not permitted here but permitted elsewhere? The have recently been allowed to issue cumulative Tier 1 Capital with a set maturity, something that virtually unknown anywhere else.

Remember that OSFI is not independent: I’m sure Julia Dickson remembers who’s the boss – and why that’s important.

OSFI has shown gross irresponsibility in the past year, with no more public justification that bland reassurances that they know what’s best. It would be a tragedy if Canadian banking regulation were to be gutted as part of deal for the banks to support a boneheaded electoral strategy.

Interesting External Papers

Momentum and Bubbles

Neil Reynolds of the Globe had an interesting column today, Why governments can’t stop market crashes:

The formats for Prof. Smith’s market experiments vary. In one version, a number of people (traders) are given the same investment opportunity – an investment, say, that pays a 24-cent dividend every four weeks for 60 weeks. The guaranteed return is thus $3.60. In the lab setting, the times get compressed; the dividend is paid every four minutes. The traders engage in the computer-assisted buying and selling of this income stream. The process may be repeated, with variations, 15 times in a single session. Invariably, as Prof. Smith (and other economists) have repeatedly shown, traders bid each other up well beyond the actual worth of the investment. In 90 per cent of the sessions, trading ends in market crashes. Author and editor Virginia Postrel, by the way, has written a lucid and illuminating account of this research (“Pop Psychology”) in the December issue of The Atlantic magazine. Experimental economics demonstrates that people don’t normally buy and sell assets based on fundamental worth. People normally are momentum traders, trying simply to buy low and to sell high – a process that, repeated enough times, must eventually end in crashes. Laboratory research by Dutch economist Charles Noussair shows that the lab traders who make the most money are not people who determine fundamental worth; they are people who buy a lot of assets at the beginning of a trading cycle and then sell out midway through the game.

Dr. Smith’s recent paper is available through SSRN: Financial Bubbles: Excess Cash, Momentum, and Incomplete Information:

The intricate relationship between momentum and liquidity may be the chief reason for the sudden changes that occur in the markets without any apparent rationale. The overvaluation of an asset, for example, may continue as an overreaction to some new information. A small trend that is thereby established leads to buying on the part of the momentum traders. This in turn leads to a more sustained trend that continues until the available cash is too small in comparison with the asset prices. The rally then runs out of steam and appears to turn abruptly and unpredictably without any new information on fundamentals.
…
In summary, stock and other asset prices are influenced by factors beyond the market’s realistic assessment of value. The level of cash available for investment in a particular type of investment appears to be chief among them.

Note: The price evolution is shownfor six experiments, along with the straight line representing the fundamental value (which declines from $3.60 to $0.24). In the three experiments, marked by circles, in which prices soar far above the fundamental value, there is an excess of cash, the dividends are distributed at the end of each period (adding more cash) and there is a closed book so that traders do not know the entire bid–ask book. In the experiments marked by diamonds, the opposite conditions prevail, and prices remain low and there is no bubble.

I’m not sure how I can use this information, but the paper was fascinating anyway! In the meantime, the data appear to support the idea that central banks should lean against asset bubbles – the authors’ note:

In terms of world markets, the experiments suggest that the “easy money” policies of central banks lead to higher prices in financial markets. Economists often regard a nation’s stock market as a barometer of the strength of the economy, so a rising market is considered a good omen. However, from our experimental perspective, a rising market and high valuations may signify an overly relaxed monetary policy, in which assets (rather than common goods) are becoming inflated and pose a boom–bust threat.

It is generally acknowledged that central banks should not attempt to influence stock market prices, for doing so would defeat the purpose of a free market. Yet, from our perspective, the actions of central banks have a profound influence on the price levels of markets. The expansion of price/earnings ratios in U.S. stocks during the mid-1990s may have been enhanced by the Federal Reserve’s easing of monetary policy in response to the savings and loan crisis. Similarly, the Fed’s easing of interest rates during the fall of 1998, this time in response to the insolvency of Long Term Capital Management, and the precautionary increase in liquidity in anticipation of a Year 2000 problem, occurred during a time of economic expansion and may have contributed to the bubble of 1999.

Market Action

January 7, 2009

There is speculation that huge issuance may saturate the market for government bonds in the UK. Reception of a €6-billion issue of 10-year Bunds was sufficiently poor that the auction is being labelled a failure:

Germany’s sale of 10-year bunds lured the least demand in six months as investors shied away from a flood of government securities.

Investors bid for 5.2 billion euros of the bonds offered today, a level of demand that prompted the Bundesbank to retain 32 percent of the securities, according to the central bank’s Web site.

The press release tells the tale. A momentary blip? Or a sign of a turn in the tide from the flight-to-safety? Across the Curve notes “flight from risk-averse assets” and a tightening of credit spreads. Place yer bets, gents!

The Fed announced today that the Money Market Investor Funding Facility is being expanded:

the set of institutions eligible to participate in the MMIFF was expanded from U.S. money market mutual funds to also include a number of other money market investors. The newly eligible participants include U.S.-based securities-lending cash-collateral reinvestment funds, portfolios, and accounts (securities lenders); and U.S.-based investment funds that operate in a manner similar to money market mutual funds, such as certain local government investment pools, common trust funds, and collective investment funds.
…
the Board authorized the adjustment of several of the economic parameters of the MMIFF, including the minimum yield on assets eligible to be sold to the MMIFF, to enable the program to remain a viable source of backup liquidity for money market investors even at very low levels of money market interest rates
…
The MMIFF is designed to serve as a source of liquidity to money market mutual funds and other eligible money market investment vehicles, thereby increasing their ability to meet redemption requests and their willingness to invest in money market instruments, particularly term money market instruments. Under the MMIFF, the Federal Reserve Bank of New York provides a credit facility to a series of special purpose vehicles (SPVs) established by the private sector. The SPVs will purchase certain U.S. dollar-denominated, highly rated, short-term certificates of deposit, bank notes, and commercial paper from eligible money market investors

Speaking of the US, Across the Curve has some interesting colour today:

I had an interesting conversation with a relative value trader in the Treasury market. He loves the 2 year note at 80 basis points. With a zero handle, they would seem like an instrument which should have step child status.

However, he notes that with the ride down the yield curve and the positive carry from financing them at virtually zero, it is as if you own them at 1.75 percent one year from now.

That is the breakeven on a one year coupon. He makes the valid point that for that 1.75 percent to lose money one would need to posit a funds rate close to one percent. Given the tenor of comments from the central Bank, that does not seem likely.

Wild. Riding the yield curve from a 80bp starting point at a time when Treasury auction issuance is at record levels and there is fear of auction failures. This situation is not sustainable.

There’s an interesting development in US distressed mortgages:

Private National Mortgage Acceptance Company LLC, an investor in troubled mortgages run by a former president of Countrywide Financial Corp., bought $558 million of home loans that the Federal Deposit Insurance Corp. acquired last year after First National Bank of Nevada collapsed.

Known as PennyMac and led by Stanford Kurland, the firm is paying an average of 30 cents to 50 cents on the dollar for the loans and the FDIC is sharing some of the risk, spokesman Andrew Chang said.
…
“This asset sale did not provide any loss-sharing,” said FDIC spokesman David Barr in an interview about the PennyMac deal. “It is a participation sale, however, which means the FDIC benefits from cash-flow generated from these loans.”

The FDIC will receive 80 percent of the loan’s cash flow until a certain, undisclosed level of payments are received, then 60 percent thereafter, he said.

David Barr’s comments are disingenuous. “Participation” is equivalent to “Loss Sharing” – full stop.

PerpetualDiscounts managed to eke out another gain today – and, much to my surprise, so did fixed-resets! I would have thought that continued issuance would have pounded down the sector, but it is showing significant resilience. And I still have to fiddle with the damn programming of the damn tables.

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 7.08 % 7.53 % 29,318 13.49 2 -1.4428 % 864.7
FixedFloater 7.50 % 7.27 % 149,162 13.32 8 0.8064 % 1,362.8
Floater 5.56 % 5.36 % 34,542 14.91 4 -0.8545 % 1,097.9
OpRet 5.37 % 4.67 % 121,876 3.92 15 -0.0960 % 1,998.6
SplitShare 6.07 % 9.04 % 81,718 4.17 15 0.3169 % 1,833.2
Interest-Bearing 7.16 % 11.50 % 46,525 0.93 2 -0.8116 % 1,975.8
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.2627 % 1,553.5
Perpetual-Discount 6.89 % 6.95 % 237,780 12.65 71 0.2627 % 1,430.8
FixedReset 5.93 % 4.97 % 742,368 15.06 18 0.2337 % 1,799.6
Performance Highlights
Issue Index Change Notes
BCE.PR.Y Ratchet -4.83 % Yield-to-Worst (at Bid) : 8.13 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 25.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 13.80
Yield to Worst : 8.13 %
BAM.PR.K Floater -3.71 % Yield-to-Worst (at Bid) : 6.11 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 10.11
Probability of Maturity : 100.00 %

Evaluated at bid price : 10.11
Yield to Worst : 6.11 %
SLF.PR.A Perpetual-Discount -3.41 % Yield-to-Worst (at Bid) : 7.18 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 16.71
Probability of Maturity : 100.00 %

Evaluated at bid price : 16.71
Yield to Worst : 7.18 %
BAM.PR.G FixedFloater -3.02 % Yield-to-Worst (at Bid) : 10.23 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 25.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 11.25
Yield to Worst : 10.23 %
BNS.PR.L Perpetual-Discount -2.84 % Yield-to-Worst (at Bid) : 6.47 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 17.45
Probability of Maturity : 100.00 %

Evaluated at bid price : 17.45
Yield to Worst : 6.47 %
LFE.PR.A SplitShare -2.60 % Yield-to-Worst (at Bid) : 7.26 %
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 9.35
Yield to Worst : 7.26 %
BAM.PR.B Floater -2.45 % Yield-to-Worst (at Bid) : 6.21 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 9.96
Probability of Maturity : 100.00 %

Evaluated at bid price : 9.96
Yield to Worst : 6.21 %
MFC.PR.C Perpetual-Discount -2.34 % Yield-to-Worst (at Bid) : 6.48 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 17.56
Probability of Maturity : 100.00 %

Evaluated at bid price : 17.56
Yield to Worst : 6.48 %
TD.PR.P Perpetual-Discount -2.20 % Yield-to-Worst (at Bid) : 6.58 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 20.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 20.00
Yield to Worst : 6.58 %
PPL.PR.A SplitShare -2.08 % Yield-to-Worst (at Bid) : 8.18 %
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 8.96
Yield to Worst : 8.18 %
BNS.PR.M Perpetual-Discount -2.03 % Yield-to-Worst (at Bid) : 6.49 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 17.40
Probability of Maturity : 100.00 %

Evaluated at bid price : 17.40
Yield to Worst : 6.49 %
BAM.PR.J OpRet -1.82 % Yield-to-Worst (at Bid) : 10.93 %
YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 17.22
Yield to Worst : 10.93 %
FIG.PR.A Interest-Bearing -1.81 % Yield-to-Worst (at Bid) : 12.11 %
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-31
Maturity Price : 10.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 7.61
Yield to Worst : 12.11 %
RY.PR.B Perpetual-Discount -1.79 % Yield-to-Worst (at Bid) : 6.40 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 18.66
Probability of Maturity : 100.00 %

Evaluated at bid price : 18.66
Yield to Worst : 6.40 %
POW.PR.A Perpetual-Discount -1.65 % Yield-to-Worst (at Bid) : 7.37 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 19.13
Probability of Maturity : 100.00 %

Evaluated at bid price : 19.13
Yield to Worst : 7.37 %
PWF.PR.M FixedReset -1.61 % Yield-to-Worst (at Bid) : 5.52 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 24.45
Probability of Maturity : 66.80 %

Evaluated at bid price : 24.50
Yield to Worst : 5.52 %
CM.PR.I Perpetual-Discount -1.52 % Yield-to-Worst (at Bid) : 7.03 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 16.79
Probability of Maturity : 100.00 %

Evaluated at bid price : 16.79
Yield to Worst : 7.03 %
HSB.PR.C Perpetual-Discount -1.45 % Yield-to-Worst (at Bid) : 7.28 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 17.70
Probability of Maturity : 100.00 %

Evaluated at bid price : 17.70
Yield to Worst : 7.28 %
RY.PR.F Perpetual-Discount -1.41 % Yield-to-Worst (at Bid) : 6.46 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 17.51
Probability of Maturity : 100.00 %

Evaluated at bid price : 17.51
Yield to Worst : 6.46 %
SLF.PR.B Perpetual-Discount -1.29 % Yield-to-Worst (at Bid) : 7.22 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 16.81
Probability of Maturity : 100.00 %

Evaluated at bid price : 16.81
Yield to Worst : 7.22 %
RY.PR.C Perpetual-Discount -1.27 % Yield-to-Worst (at Bid) : 6.53 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 17.93
Probability of Maturity : 100.00 %

Evaluated at bid price : 17.93
Yield to Worst : 6.53 %
W.PR.J Perpetual-Discount -1.17 % Yield-to-Worst (at Bid) : 7.93 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 17.79
Probability of Maturity : 100.00 %

Evaluated at bid price : 17.79
Yield to Worst : 7.93 %
CM.PR.G Perpetual-Discount -1.11 % Yield-to-Worst (at Bid) : 7.22 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 18.79
Probability of Maturity : 100.00 %

Evaluated at bid price : 18.79
Yield to Worst : 7.22 %
CM.PR.J Perpetual-Discount -1.10 % Yield-to-Worst (at Bid) : 7.01 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 16.11
Probability of Maturity : 100.00 %

Evaluated at bid price : 16.11
Yield to Worst : 7.01 %
CM.PR.P Perpetual-Discount -1.03 % Yield-to-Worst (at Bid) : 7.22 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 19.13
Probability of Maturity : 100.00 %

Evaluated at bid price : 19.13
Yield to Worst : 7.22 %
TD.PR.C FixedReset 1.08 % Yield-to-Worst (at Bid) : 4.98 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 24.36
Probability of Maturity : 67.99 %

Evaluated at bid price : 24.41
Yield to Worst : 4.98 %
BNS.PR.K Perpetual-Discount 1.09 % Yield-to-Worst (at Bid) : 6.51 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 18.50
Probability of Maturity : 100.00 %

Evaluated at bid price : 18.50
Yield to Worst : 6.51 %
BNS.PR.N Perpetual-Discount 1.10 % Yield-to-Worst (at Bid) : 6.52 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 20.22
Probability of Maturity : 100.00 %

Evaluated at bid price : 20.22
Yield to Worst : 6.52 %
CM.PR.K FixedReset 1.14 % Yield-to-Worst (at Bid) : 4.96 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 21.79
Probability of Maturity : 91.00 %

Evaluated at bid price : 22.25
Yield to Worst : 4.96 %
W.PR.H Perpetual-Discount 1.21 % Yield-to-Worst (at Bid) : 7.88 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 17.60
Probability of Maturity : 100.00 %

Evaluated at bid price : 17.60
Yield to Worst : 7.88 %
PWF.PR.H Perpetual-Discount 1.24 % Yield-to-Worst (at Bid) : 7.22 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 20.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 20.00
Yield to Worst : 7.22 %
NA.PR.L Perpetual-Discount 1.34 % Yield-to-Worst (at Bid) : 6.98 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 17.39
Probability of Maturity : 100.00 %

Evaluated at bid price : 17.39
Yield to Worst : 6.98 %
TD.PR.S FixedReset 1.35 % Yield-to-Worst (at Bid) : 4.23 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 22.44
Probability of Maturity : 88.90 %

Evaluated at bid price : 22.50
Yield to Worst : 4.23 %
BMO.PR.L Perpetual-Discount 1.39 % Yield-to-Worst (at Bid) : 6.99 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 21.11
Probability of Maturity : 100.00 %

Evaluated at bid price : 21.11
Yield to Worst : 6.99 %
PWF.PR.F Perpetual-Discount 1.40 % Yield-to-Worst (at Bid) : 6.88 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 19.14
Probability of Maturity : 100.00 %

Evaluated at bid price : 19.14
Yield to Worst : 6.88 %
ALB.PR.A SplitShare 1.40 % Yield-to-Worst (at Bid) : 13.35 %
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2011-02-28
Maturity Price : 25.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 21.02
Yield to Worst : 13.35 %
ELF.PR.G Perpetual-Discount 1.49 % Yield-to-Worst (at Bid) : 7.97 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 15.02
Probability of Maturity : 100.00 %

Evaluated at bid price : 15.02
Yield to Worst : 7.97 %
POW.PR.D Perpetual-Discount 1.51 % Yield-to-Worst (at Bid) : 6.96 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 18.10
Probability of Maturity : 100.00 %

Evaluated at bid price : 18.10
Yield to Worst : 6.96 %
WFS.PR.A SplitShare 1.66 % Yield-to-Worst (at Bid) : 9.04 %
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2011-06-30
Maturity Price : 10.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 9.20
Yield to Worst : 9.04 %
BMO.PR.H Perpetual-Discount 1.72 % Yield-to-Worst (at Bid) : 6.69 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 20.15
Probability of Maturity : 100.00 %

Evaluated at bid price : 20.15
Yield to Worst : 6.69 %
POW.PR.B Perpetual-Discount 1.72 % Yield-to-Worst (at Bid) : 6.89 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 19.54
Probability of Maturity : 100.00 %

Evaluated at bid price : 19.54
Yield to Worst : 6.89 %
PWF.PR.G Perpetual-Discount 1.73 % Yield-to-Worst (at Bid) : 7.14 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 20.75
Probability of Maturity : 100.00 %

Evaluated at bid price : 20.75
Yield to Worst : 7.14 %
NA.PR.K Perpetual-Discount 1.77 % Yield-to-Worst (at Bid) : 7.10 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 20.61
Probability of Maturity : 100.00 %

Evaluated at bid price : 20.61
Yield to Worst : 7.10 %
DF.PR.A SplitShare 1.81 % Yield-to-Worst (at Bid) : 7.43 %
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 9.01
Yield to Worst : 7.43 %
BCE.PR.C FixedFloater 1.86 % Yield-to-Worst (at Bid) : 7.31 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 25.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 15.92
Yield to Worst : 7.31 %
BCE.PR.S Ratchet 1.92 % Yield-to-Worst (at Bid) : 7.53 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 25.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 14.89
Yield to Worst : 7.53 %
PWF.PR.A Floater 2.04 % Yield-to-Worst (at Bid) : 4.96 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 12.51
Probability of Maturity : 100.00 %

Evaluated at bid price : 12.51
Yield to Worst : 4.96 %
PWF.PR.E Perpetual-Discount 2.04 % Yield-to-Worst (at Bid) : 7.15 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 19.30
Probability of Maturity : 100.00 %

Evaluated at bid price : 19.30
Yield to Worst : 7.15 %
PWF.PR.K Perpetual-Discount 2.06 % Yield-to-Worst (at Bid) : 6.90 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 18.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 18.00
Yield to Worst : 6.90 %
PWF.PR.I Perpetual-Discount 2.06 % Yield-to-Worst (at Bid) : 7.11 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 21.17
Probability of Maturity : 100.00 %

Evaluated at bid price : 21.17
Yield to Worst : 7.11 %
CL.PR.B Perpetual-Discount 2.11 % Yield-to-Worst (at Bid) : 7.09 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 22.26
Probability of Maturity : 100.00 %

Evaluated at bid price : 22.26
Yield to Worst : 7.09 %
NA.PR.M Perpetual-Discount 2.12 % Yield-to-Worst (at Bid) : 7.12 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 21.08
Probability of Maturity : 100.00 %

Evaluated at bid price : 21.08
Yield to Worst : 7.12 %
PWF.PR.L Perpetual-Discount 2.12 % Yield-to-Worst (at Bid) : 7.15 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 17.90
Probability of Maturity : 100.00 %

Evaluated at bid price : 17.90
Yield to Worst : 7.15 %
BNS.PR.O Perpetual-Discount 2.14 % Yield-to-Worst (at Bid) : 6.69 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 21.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 21.00
Yield to Worst : 6.69 %
SBN.PR.A SplitShare 2.15 % Yield-to-Worst (at Bid) : 6.36 %
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 9.50
Yield to Worst : 6.36 %
FFN.PR.A SplitShare 2.29 % Yield-to-Worst (at Bid) : 9.80 %
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 8.04
Yield to Worst : 9.80 %
GWO.PR.H Perpetual-Discount 2.35 % Yield-to-Worst (at Bid) : 7.02 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 17.45
Probability of Maturity : 100.00 %

Evaluated at bid price : 17.45
Yield to Worst : 7.02 %
RY.PR.H Perpetual-Discount 2.36 % Yield-to-Worst (at Bid) : 6.61 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 21.38
Probability of Maturity : 94.07 %

Evaluated at bid price : 21.70
Yield to Worst : 6.61 %
BCE.PR.I FixedFloater 2.40 % Yield-to-Worst (at Bid) : 7.22 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 25.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 15.76
Yield to Worst : 7.22 %
POW.PR.C Perpetual-Discount 2.62 % Yield-to-Worst (at Bid) : 6.90 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 21.16
Probability of Maturity : 100.00 %

Evaluated at bid price : 21.16
Yield to Worst : 6.90 %
GWO.PR.I Perpetual-Discount 2.74 % Yield-to-Worst (at Bid) : 7.05 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 16.13
Probability of Maturity : 100.00 %

Evaluated at bid price : 16.13
Yield to Worst : 7.05 %
NA.PR.N FixedReset 2.77 % Yield-to-Worst (at Bid) : 4.97 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 21.41
Probability of Maturity : 100.00 %

Evaluated at bid price : 21.41
Yield to Worst : 4.97 %
BCE.PR.R FixedFloater 3.33 % Yield-to-Worst (at Bid) : 7.37 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 25.00
Probability of Maturity : 100.00 %

Evaluated at bid price : 15.50
Yield to Worst : 7.37 %
CIU.PR.A Perpetual-Discount 3.35 % Yield-to-Worst (at Bid) : 7.02 %
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2039-01-07
Maturity Price : 16.65
Probability of Maturity : 100.00 %

Evaluated at bid price : 16.65
Yield to Worst : 7.02 %
Volume Highlights
Issue Index Shares
Traded		 Notes
WFS.PR.A SplitShare 490,900
LFE.PR.A SplitShare 64,507
GWO.PR.H Perpetual-Discount 63,899
GWO.PR.I Perpetual-Discount 55,300
RY.PR.D Perpetual-Discount 39,570
RY.PR.N FixedReset 38,762
BAM.PR.O OpRet 30,855
PPL.PR.A SplitShare 29,313
RY.PR.E Perpetual-Discount 26,200
BCE.PR.I FixedFloater 23,613
FFN.PR.A SplitShare 22,255
CU.PR.B Perpetual-Discount 20,587
BNS.PR.L Perpetual-Discount 18,240
BAM.PR.N Perpetual-Discount 17,574
CIU.PR.A Perpetual-Discount 17,000
RY.PR.B Perpetual-Discount 16,410
HSB.PR.C Perpetual-Discount 16,400
CM.PR.H Perpetual-Discount 15,655
BMO.PR.J Perpetual-Discount 15,150
BNS.PR.M Perpetual-Discount 14,935
SLF.PR.B Perpetual-Discount 14,240
BMO.PR.N FixedReset 13,950
BMO.PR.L Perpetual-Discount 13,030
CM.PR.G Perpetual-Discount 13,015
BNA.PR.C SplitShare 12,600
MFC.PR.A OpRet 12,400
SLF.PR.D Perpetual-Discount 12,379
FIG.PR.A Interest-Bearing 12,376
CM.PR.D Perpetual-Discount 12,250
TD.PR.P Perpetual-Discount 11,465
BCE.PR.Z FixedFloater 10,341
New Issues

New Issue: BNS Fixed-Reset 6.25%+414

BNS has announced:

a domestic public offering of 8 million non-cumulative 6.25% 5-year rate reset preferred shares Series 26 (the “Preferred Shares Series 26”) at a price of $25.00 per share, for gross proceeds of $200 million.

Holders of Preferred Shares Series 26 will be entitled to receive a non-cumulative quarterly fixed dividend for the initial period ending April 25, 2014 yielding 6.25% per annum, as and when declared by the Board of Directors of Scotiabank. Thereafter, the dividend rate will reset every five years at a rate equal to 4.14% over the 5-year Government of Canada bond yield. Holders of Preferred Shares Series 26 will, subject to certain conditions, have the right to convert all or any part of their shares to non-cumulative floating rate preferred shares Series 27 (the “Preferred Shares Series 27”) of Scotiabank on April 26, 2014 and on April 26 every five years thereafter.

Holders of the Preferred Shares Series 27 will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.14%, as and when declared by the Board of Directors of Scotiabank. Holders of Preferred Shares Series 27 will, subject to certain conditions, have the right to convert all or any part
of their shares to Preferred Shares Series 26 on April 26, 2019 and on April 26 every five years thereafter.

The Bank has agreed to sell the Preferred Shares Series 26 to a syndicate of underwriters led by Scotia Capital Inc. on a bought deal basis. The Bank has granted to the underwriters an option to purchase up to an additional 3 million Preferred Shares Series 26 at closing, which option is exercisable by the underwriters any time up to 48 hours before closing.

Closing is expected to occur on or after January 21, 2009. This domestic public offering is part of Scotiabank’s ongoing and proactive management of its Tier 1 capital structure.

The initial dividend is planned to be paid on 2009-4-28 for $0.41524, based on a January 21 closing.

It’s odd … SunLife still hasn’t done anything with its $250-million of Series 24 FixedReset 6.25%+384 acquired in partial settlement for its stake in CI. I don’t know what’s happening with those things.

Market Action

January 6, 2008 2009

Yet another banner day for preferreds, although Fixed-Resets are (not surprisingly) reacting poorly to the flood of new issuance (RY, 6.25%+419, NA, 6.60%+463, TD, 6.25%+437) at higher coupons.

Formatting of the tables is horrible today. Yesterday’s fiddling may be on the right track programatically, but definitely a step backward esthetically. Sorry, guys! I’d like to write more (especially with Spend-Every-Penny mumbling about putting Canada into a permanent structural deficit, just like Mr. Bush) … but I have to do some more fiddling …

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 6.99 % 7.70 % 30,538 13.31 2 0.7266 % 877.3
FixedFloater 7.56 % 7.42 % 151,663 13.32 8 1.5785 % 1,351.9
Floater 5.51 % 5.37 % 34,332 14.91 4 0.8161 % 1,107.4
OpRet 5.36 % 4.61 % 126,570 3.88 15 0.6845 % 2,000.5
SplitShare 6.08 % 9.47 % 75,681 4.18 15 1.8066 % 1,827.4
InterestBearing 7.10 % 11.47 % 46,538 0.94 2 4.1667 % 1,992.0
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 1.3189 % 1,549.4
Perpetual-Discount 6.89 % 7.01 % 237,528 12.54 71 1.3189 % 1,427.0
FixedReset 5.94 % 5.04 % 753,731 14.85 18 -0.2694 % 1,795.4
Performance Highlights
Issue Index Change Notes
MFC.PR.B Perpetual-Discount -3.11 % Yield-to-Worst (at Bid) : 6.52 %
Evaluated at bid price : 18.0400

Limit Maturity 2039-01-06 YTM: 6.52 % [Restricted: 6.52 %] (Prob: 100.00 %)

Yield to Worst : 6.5218 %
RY.PR.L FixedReset -2.55 % Yield-to-Worst (at Bid) : 5.09 %
Evaluated at bid price : 24.1200

Call 2014-03-26 YTM: 6.64 % [Restricted: 6.64 %] (Prob: 28.03 %)
Call 2019-03-26 YTM: 5.74 % [Restricted: 5.74 %] (Prob: 0.19 %)
Limit Maturity 2039-01-06 YTM: 5.09 % [Restricted: 5.09 %] (Prob: 71.77 %)

Yield to Worst : 5.0876 %
PWF.PR.F Perpetual-Discount -2.54 % Yield-to-Worst (at Bid) : 6.99 %
Evaluated at bid price : 19.2000

Limit Maturity 2039-01-06 YTM: 6.99 % [Restricted: 6.99 %] (Prob: 100.00 %)

Yield to Worst : 6.9945 %
BNS.PR.N Perpetual-Discount -2.44 % Yield-to-Worst (at Bid) : 6.59 %
Evaluated at bid price : 20.0000

Limit Maturity 2039-01-06 YTM: 6.59 % [Restricted: 6.59 %] (Prob: 100.00 %)

Yield to Worst : 6.5864 %
CM.PR.K FixedReset -2.22 % Yield-to-Worst (at Bid) : 5.03 %
Evaluated at bid price : 22.0000

Call 2014-08-30 YTM: 8.02 % [Restricted: 8.02 %] (Prob: 7.32 %)
Limit Maturity 2039-01-06 YTM: 5.03 % [Restricted: 5.03 %] (Prob: 92.68 %)

Yield to Worst : 5.0268 %
RY.PR.N FixedReset -1.92 % Yield-to-Worst (at Bid) : 5.67 %
Evaluated at bid price : 25.0200

Call 2014-03-26 YTM: 6.35 % [Restricted: 6.35 %] (Prob: 40.08 %)
Call 2019-03-26 YTM: 5.94 % [Restricted: 5.94 %] (Prob: 0.10 %)
Limit Maturity 2039-01-06 YTM: 5.67 % [Restricted: 5.67 %] (Prob: 59.82 %)

Yield to Worst : 5.6744 %
BNS.PR.Q FixedReset -1.77 % Yield-to-Worst (at Bid) : 4.40 %
Evaluated at bid price : 22.2000

Call 2013-11-24 YTM: 7.71 % [Restricted: 7.71 %] (Prob: 8.22 %)
Call 2018-11-24 YTM: 5.82 % [Restricted: 5.82 %] (Prob: 0.53 %)
Limit Maturity 2039-01-06 YTM: 4.40 % [Restricted: 4.40 %] (Prob: 91.25 %)

Yield to Worst : 4.3984 %
BNA.PR.B SplitShare -1.23 % Yield-to-Worst (at Bid) : 8.90 %
Evaluated at bid price : 20.0000

Hard Maturity 2016-03-25 YTM: 8.90 % [Restricted: 8.90 %] (Prob: 100.00 %)

Yield to Worst : 8.9015 %
GWO.PR.J FixedReset -1.01 % Yield-to-Worst (at Bid) : 5.40 %
Evaluated at bid price : 24.5000

Call 2014-01-30 YTM: 6.62 % [Restricted: 6.62 %] (Prob: 32.96 %)
Call 2019-01-30 YTM: 5.90 % [Restricted: 5.90 %] (Prob: 0.26 %)
Limit Maturity 2039-01-06 YTM: 5.40 % [Restricted: 5.40 %] (Prob: 66.78 %)

Yield to Worst : 5.3987 %
BNS.PR.J Perpetual-Discount 1.00 % Yield-to-Worst (at Bid) : 6.53 %
Evaluated at bid price : 20.1600

Limit Maturity 2039-01-06 YTM: 6.53 % [Restricted: 6.53 %] (Prob: 100.00 %)

Yield to Worst : 6.5339 %
PWF.PR.J OpRet 1.01 % Yield-to-Worst (at Bid) : 4.84 %
Evaluated at bid price : 25.1000

Call 2009-04-06 YTM: 23.48 % [Restricted: 5.79 %] (Prob: 7.08 %)
Call 2009-05-30 YTM: 13.71 % [Restricted: 5.40 %] (Prob: 6.56 %)
Call 2010-05-30 YTM: 6.49 % [Restricted: 6.49 %] (Prob: 8.27 %)
Call 2011-05-30 YTM: 5.34 % [Restricted: 5.34 %] (Prob: 0.66 %)
Soft Maturity 2013-07-30 YTM: 4.84 % [Restricted: 4.84 %] (Prob: 77.43 %)

Yield to Worst : 4.8432 %
BCE.PR.R FixedFloater 1.01 % Yield-to-Worst (at Bid) : 7.64 %
Evaluated at bid price : 15.0000

Limit Maturity 2039-01-06 YTM: 7.64 % [Restricted: 7.64 %] (Prob: 100.00 %)

Yield to Worst : 7.6367 %
CM.PR.P Perpetual-Discount 1.05 % Yield-to-Worst (at Bid) : 7.14 %
Evaluated at bid price : 19.3300

Limit Maturity 2039-01-06 YTM: 7.14 % [Restricted: 7.14 %] (Prob: 100.00 %)

Yield to Worst : 7.1438 %
CM.PR.I Perpetual-Discount 1.07 % Yield-to-Worst (at Bid) : 6.92 %
Evaluated at bid price : 17.0500

Limit Maturity 2039-01-06 YTM: 6.92 % [Restricted: 6.92 %] (Prob: 100.00 %)

Yield to Worst : 6.9199 %
LBS.PR.A SplitShare 1.10 % Yield-to-Worst (at Bid) : 9.88 %
Evaluated at bid price : 8.2500

Hard Maturity 2013-11-29 YTM: 9.88 % [Restricted: 9.88 %] (Prob: 100.00 %)

Yield to Worst : 9.8799 %
POW.PR.B Perpetual-Discount 1.11 % Yield-to-Worst (at Bid) : 7.01 %
Evaluated at bid price : 19.2100

Limit Maturity 2039-01-06 YTM: 7.01 % [Restricted: 7.01 %] (Prob: 100.00 %)

Yield to Worst : 7.0113 %
TD.PR.N OpRet 1.11 % Yield-to-Worst (at Bid) : 3.55 %
Evaluated at bid price : 26.0000

Call 2009-05-30 YTM: 3.71 % [Restricted: 1.46 %] (Prob: 26.43 %)
Call 2010-05-30 YTM: 3.55 % [Restricted: 3.55 %] (Prob: 5.03 %)
Soft Maturity 2014-01-30 YTM: 3.68 % [Restricted: 3.68 %] (Prob: 68.54 %)

Yield to Worst : 3.5548 %
TD.PR.O Perpetual-Discount 1.23 % Yield-to-Worst (at Bid) : 6.43 %
Evaluated at bid price : 18.9100

Limit Maturity 2039-01-06 YTM: 6.43 % [Restricted: 6.43 %] (Prob: 100.00 %)

Yield to Worst : 6.4318 %
GWO.PR.F Perpetual-Discount 1.25 % Yield-to-Worst (at Bid) : 7.36 %
Evaluated at bid price : 20.2600

Limit Maturity 2039-01-06 YTM: 7.36 % [Restricted: 7.36 %] (Prob: 100.00 %)

Yield to Worst : 7.3584 %
CM.PR.D Perpetual-Discount 1.27 % Yield-to-Worst (at Bid) : 7.22 %
Evaluated at bid price : 20.0000

Limit Maturity 2039-01-06 YTM: 7.22 % [Restricted: 7.22 %] (Prob: 100.00 %)

Yield to Worst : 7.2188 %
SLF.PR.E Perpetual-Discount 1.31 % Yield-to-Worst (at Bid) : 7.33 %
Evaluated at bid price : 15.5100

Limit Maturity 2039-01-06 YTM: 7.33 % [Restricted: 7.33 %] (Prob: 100.00 %)

Yield to Worst : 7.3309 %
PWF.PR.H Perpetual-Discount 1.31 % Yield-to-Worst (at Bid) : 7.32 %
Evaluated at bid price : 20.1100

Limit Maturity 2039-01-06 YTM: 7.32 % [Restricted: 7.32 %] (Prob: 100.00 %)

Yield to Worst : 7.3202 %
CM.PR.G Perpetual-Discount 1.33 % Yield-to-Worst (at Bid) : 7.14 %
Evaluated at bid price : 19.0000

Limit Maturity 2039-01-06 YTM: 7.14 % [Restricted: 7.14 %] (Prob: 100.00 %)

Yield to Worst : 7.1357 %
BNS.PR.P FixedReset 1.33 % Yield-to-Worst (at Bid) : 4.54 %
Evaluated at bid price : 22.8000

Call 2013-05-25 YTM: 7.29 % [Restricted: 7.29 %] (Prob: 12.60 %)
Call 2018-05-25 YTM: 5.66 % [Restricted: 5.66 %] (Prob: 1.18 %)
Limit Maturity 2039-01-06 YTM: 4.54 % [Restricted: 4.54 %] (Prob: 86.22 %)

Yield to Worst : 4.5434 %
PWF.PR.E Perpetual-Discount 1.37 % Yield-to-Worst (at Bid) : 7.31 %
Evaluated at bid price : 19.2600

Limit Maturity 2039-01-06 YTM: 7.31 % [Restricted: 7.31 %] (Prob: 100.00 %)

Yield to Worst : 7.3108 %
RY.PR.F Perpetual-Discount 1.37 % Yield-to-Worst (at Bid) : 6.37 %
Evaluated at bid price : 17.7600

Limit Maturity 2039-01-06 YTM: 6.37 % [Restricted: 6.37 %] (Prob: 100.00 %)

Yield to Worst : 6.3707 %
TD.PR.A FixedReset 1.41 % Yield-to-Worst (at Bid) : 4.68 %
Evaluated at bid price : 22.0500

Call 2014-03-02 YTM: 7.74 % [Restricted: 7.74 %] (Prob: 7.39 %)
Call 2019-03-02 YTM: 6.03 % [Restricted: 6.03 %] (Prob: 0.26 %)
Limit Maturity 2039-01-06 YTM: 4.68 % [Restricted: 4.68 %] (Prob: 92.35 %)

Yield to Worst : 4.6754 %
RY.PR.C Perpetual-Discount 1.45 % Yield-to-Worst (at Bid) : 6.44 %
Evaluated at bid price : 18.1600

Limit Maturity 2039-01-06 YTM: 6.44 % [Restricted: 6.44 %] (Prob: 100.00 %)

Yield to Worst : 6.4414 %
TCA.PR.Y Perpetual-Discount 1.47 % Yield-to-Worst (at Bid) : 6.35 %
Evaluated at bid price : 44.1000

Call 2014-04-04 YTM: 8.40 % [Restricted: 8.40 %] (Prob: 7.44 %)
Limit Maturity 2039-01-06 YTM: 6.35 % [Restricted: 6.35 %] (Prob: 92.56 %)

Yield to Worst : 6.3484 %
HSB.PR.D Perpetual-Discount 1.47 % Yield-to-Worst (at Bid) : 7.35 %
Evaluated at bid price : 17.2000

Limit Maturity 2039-01-06 YTM: 7.35 % [Restricted: 7.35 %] (Prob: 100.00 %)

Yield to Worst : 7.3452 %
BCE.PR.I FixedFloater 1.58 % Yield-to-Worst (at Bid) : 7.42 %
Evaluated at bid price : 15.3900

Limit Maturity 2039-01-06 YTM: 7.42 % [Restricted: 7.42 %] (Prob: 100.00 %)

Yield to Worst : 7.4171 %
NA.PR.K Perpetual-Discount 1.63 % Yield-to-Worst (at Bid) : 7.24 %
Evaluated at bid price : 20.6100

Limit Maturity 2039-01-06 YTM: 7.24 % [Restricted: 7.24 %] (Prob: 100.00 %)

Yield to Worst : 7.2416 %
TD.PR.S FixedReset 1.64 % Yield-to-Worst (at Bid) : 4.28 %
Evaluated at bid price : 22.2000

Call 2013-08-30 YTM: 7.81 % [Restricted: 7.81 %] (Prob: 8.05 %)
Call 2018-08-30 YTM: 5.77 % [Restricted: 5.77 %] (Prob: 0.77 %)
Limit Maturity 2039-01-06 YTM: 4.28 % [Restricted: 4.28 %] (Prob: 91.18 %)

Yield to Worst : 4.2844 %
BCE.PR.G FixedFloater 1.64 % Yield-to-Worst (at Bid) : 7.28 %
Evaluated at bid price : 15.5000

Limit Maturity 2039-01-06 YTM: 7.28 % [Restricted: 7.28 %] (Prob: 100.00 %)

Yield to Worst : 7.2815 %
BAM.PR.J OpRet 1.68 % Yield-to-Worst (at Bid) : 10.64 %
Evaluated at bid price : 17.5400

Soft Maturity 2018-03-30 YTM: 10.64 % [Restricted: 10.64 %] (Prob: 100.00 %)

Yield to Worst : 10.6445 %
PWF.PR.I Perpetual-Discount 1.69 % Yield-to-Worst (at Bid) : 7.28 %
Evaluated at bid price : 21.1100

Limit Maturity 2039-01-06 YTM: 7.28 % [Restricted: 7.28 %] (Prob: 100.00 %)

Yield to Worst : 7.2758 %
TRI.PR.B Floater 1.77 % Yield-to-Worst (at Bid) : 5.37 %
Evaluated at bid price : 11.5000

Limit Maturity 2039-01-06 YTM: 5.37 % [Restricted: 5.37 %] (Prob: 100.00 %)

Yield to Worst : 5.3674 %
RY.PR.H Perpetual-Discount 1.83 % Yield-to-Worst (at Bid) : 6.78 %
Evaluated at bid price : 21.2000

Limit Maturity 2039-01-06 YTM: 6.78 % [Restricted: 6.78 %] (Prob: 100.00 %)

Yield to Worst : 6.7792 %
TD.PR.Y FixedReset 1.93 % Yield-to-Worst (at Bid) : 4.48 %
Evaluated at bid price : 21.8500

Call 2013-11-30 YTM: 8.17 % [Restricted: 8.17 %] (Prob: 6.04 %)
Call 2018-11-30 YTM: 6.07 % [Restricted: 6.07 %] (Prob: 0.46 %)
Limit Maturity 2039-01-06 YTM: 4.48 % [Restricted: 4.48 %] (Prob: 93.50 %)

Yield to Worst : 4.4819 %
PWF.PR.L Perpetual-Discount 1.94 % Yield-to-Worst (at Bid) : 7.32 %
Evaluated at bid price : 17.8400

Limit Maturity 2039-01-06 YTM: 7.32 % [Restricted: 7.32 %] (Prob: 100.00 %)

Yield to Worst : 7.3189 %
SLF.PR.D Perpetual-Discount 1.99 % Yield-to-Worst (at Bid) : 7.30 %
Evaluated at bid price : 15.4100

Limit Maturity 2039-01-06 YTM: 7.30 % [Restricted: 7.30 %] (Prob: 100.00 %)

Yield to Worst : 7.2961 %
PWF.PR.K Perpetual-Discount 2.05 % Yield-to-Worst (at Bid) : 7.06 %
Evaluated at bid price : 17.9400

Limit Maturity 2039-01-06 YTM: 7.06 % [Restricted: 7.06 %] (Prob: 100.00 %)

Yield to Worst : 7.0592 %
CM.PR.J Perpetual-Discount 2.07 % Yield-to-Worst (at Bid) : 6.93 %
Evaluated at bid price : 16.2900

Limit Maturity 2039-01-06 YTM: 6.93 % [Restricted: 6.93 %] (Prob: 100.00 %)

Yield to Worst : 6.9346 %
GWO.PR.H Perpetual-Discount 2.10 % Yield-to-Worst (at Bid) : 7.19 %
Evaluated at bid price : 17.0500

Limit Maturity 2039-01-06 YTM: 7.19 % [Restricted: 7.19 %] (Prob: 100.00 %)

Yield to Worst : 7.1860 %
BNA.PR.C SplitShare 2.15 % Yield-to-Worst (at Bid) : 19.04 %
Evaluated at bid price : 9.0400

Hard Maturity 2019-01-10 YTM: 19.04 % [Restricted: 19.04 %] (Prob: 100.00 %)

Yield to Worst : 19.0370 %
PWF.PR.A Floater 2.17 % Yield-to-Worst (at Bid) : 5.06 %
Evaluated at bid price : 12.2600

Limit Maturity 2039-01-06 YTM: 5.06 % [Restricted: 5.06 %] (Prob: 100.00 %)

Yield to Worst : 5.0629 %
BMO.PR.K Perpetual-Discount 2.18 % Yield-to-Worst (at Bid) : 6.94 %
Evaluated at bid price : 19.2500

Limit Maturity 2039-01-06 YTM: 6.94 % [Restricted: 6.94 %] (Prob: 100.00 %)

Yield to Worst : 6.9382 %
W.PR.J Perpetual-Discount 2.21 % Yield-to-Worst (at Bid) : 7.84 %
Evaluated at bid price : 18.0000

Limit Maturity 2039-01-06 YTM: 7.84 % [Restricted: 7.84 %] (Prob: 100.00 %)

Yield to Worst : 7.8391 %
BCE.PR.Z FixedFloater 2.40 % Yield-to-Worst (at Bid) : 7.93 %
Evaluated at bid price : 14.5100

Limit Maturity 2039-01-06 YTM: 7.93 % [Restricted: 7.93 %] (Prob: 100.00 %)

Yield to Worst : 7.9293 %
BMO.PR.J Perpetual-Discount 2.46 % Yield-to-Worst (at Bid) : 6.69 %
Evaluated at bid price : 17.1100

Limit Maturity 2039-01-06 YTM: 6.69 % [Restricted: 6.69 %] (Prob: 100.00 %)

Yield to Worst : 6.6874 %
PWF.PR.G Perpetual-Discount 2.47 % Yield-to-Worst (at Bid) : 7.28 %
Evaluated at bid price : 20.7600

Limit Maturity 2039-01-06 YTM: 7.28 % [Restricted: 7.28 %] (Prob: 100.00 %)

Yield to Worst : 7.2752 %
BCE.PR.A FixedFloater 2.50 % Yield-to-Worst (at Bid) : 7.13 %
Evaluated at bid price : 16.4100

Limit Maturity 2039-01-06 YTM: 7.13 % [Restricted: 7.13 %] (Prob: 100.00 %)

Yield to Worst : 7.1266 %
NA.PR.L Perpetual-Discount 2.59 % Yield-to-Worst (at Bid) : 7.08 %
Evaluated at bid price : 17.4600

Limit Maturity 2039-01-06 YTM: 7.08 % [Restricted: 7.08 %] (Prob: 100.00 %)

Yield to Worst : 7.0843 %
STW.PR.A InterestBearing 2.59 % Yield-to-Worst (at Bid) : 11.47 %
Evaluated at bid price : 9.5000

Hard Maturity 2009-12-31 YTM: 11.47 % [Restricted: 11.27 %] (Prob: 100.00 %)

Yield to Worst : 11.4674 %
CU.PR.B Perpetual-Discount 2.68 % Yield-to-Worst (at Bid) : 6.62 %
Evaluated at bid price : 23.0000

Call 2011-07-01 YTM: 10.47 % [Restricted: 10.47 %] (Prob: 9.42 %)
Call 2012-07-01 YTM: 9.00 % [Restricted: 9.00 %] (Prob: 3.96 %)
Limit Maturity 2039-01-06 YTM: 6.62 % [Restricted: 6.62 %] (Prob: 86.61 %)

Yield to Worst : 6.6159 %
BNA.PR.A SplitShare 2.70 % Yield-to-Worst (at Bid) : 12.50 %
Evaluated at bid price : 22.8000

Hard Maturity 2010-09-30 YTM: 12.50 % [Restricted: 12.50 %] (Prob: 100.00 %)

Yield to Worst : 12.5006 %
LFE.PR.A SplitShare 2.78 % Yield-to-Worst (at Bid) : 6.48 %
Evaluated at bid price : 9.6000

Hard Maturity 2012-12-01 YTM: 6.48 % [Restricted: 6.48 %] (Prob: 100.00 %)

Yield to Worst : 6.4803 %
PPL.PR.A SplitShare 2.81 % Yield-to-Worst (at Bid) : 7.55 %
Evaluated at bid price : 9.1500

Hard Maturity 2012-12-01 YTM: 7.55 % [Restricted: 7.55 %] (Prob: 100.00 %)

Yield to Worst : 7.5529 %
BAM.PR.H OpRet 2.93 % Yield-to-Worst (at Bid) : 11.82 %
Evaluated at bid price : 21.1000

Soft Maturity 2012-03-30 YTM: 11.82 % [Restricted: 11.82 %] (Prob: 100.00 %)

Yield to Worst : 11.8242 %
POW.PR.D Perpetual-Discount 3.00 % Yield-to-Worst (at Bid) : 7.06 %
Evaluated at bid price : 17.8300

Limit Maturity 2039-01-06 YTM: 7.06 % [Restricted: 7.06 %] (Prob: 100.00 %)

Yield to Worst : 7.0602 %
ALB.PR.A SplitShare 3.03 % Yield-to-Worst (at Bid) : 14.05 %
Evaluated at bid price : 20.7300

Hard Maturity 2011-02-28 YTM: 14.05 % [Restricted: 14.05 %] (Prob: 100.00 %)

Yield to Worst : 14.0550 %
BAM.PR.G FixedFloater 3.11 % Yield-to-Worst (at Bid) : 9.95 %
Evaluated at bid price : 11.6000

Limit Maturity 2039-01-06 YTM: 9.95 % [Restricted: 9.95 %] (Prob: 100.00 %)

Yield to Worst : 9.9491 %
CIU.PR.A Perpetual-Discount 3.20 % Yield-to-Worst (at Bid) : 7.26 %
Evaluated at bid price : 16.1100

Limit Maturity 2039-01-06 YTM: 7.26 % [Restricted: 7.26 %] (Prob: 100.00 %)

Yield to Worst : 7.2622 %
FFN.PR.A SplitShare 3.29 % Yield-to-Worst (at Bid) : 10.28 %
Evaluated at bid price : 7.8600

Hard Maturity 2014-12-01 YTM: 10.28 % [Restricted: 10.28 %] (Prob: 100.00 %)

Yield to Worst : 10.2752 %
TD.PR.P Perpetual-Discount 3.37 % Yield-to-Worst (at Bid) : 6.44 %
Evaluated at bid price : 20.4500

Limit Maturity 2039-01-06 YTM: 6.44 % [Restricted: 6.44 %] (Prob: 100.00 %)

Yield to Worst : 6.4379 %
BAM.PR.O OpRet 3.48 % Yield-to-Worst (at Bid) : 13.90 %
Evaluated at bid price : 17.8500

Option Certainty 2013-06-30 YTM: 13.90 % [Restricted: 13.90 %] (Prob: 100.00 %)

Yield to Worst : 13.9048 %
RY.PR.B Perpetual-Discount 3.54 % Yield-to-Worst (at Bid) : 6.29 %
Evaluated at bid price : 19.0000

Limit Maturity 2039-01-06 YTM: 6.29 % [Restricted: 6.29 %] (Prob: 100.00 %)

Yield to Worst : 6.2858 %
BMO.PR.H Perpetual-Discount 3.83 % Yield-to-Worst (at Bid) : 6.80 %
Evaluated at bid price : 19.8100

Limit Maturity 2039-01-06 YTM: 6.80 % [Restricted: 6.80 %] (Prob: 100.00 %)

Yield to Worst : 6.8044 %
TCA.PR.X Perpetual-Discount 4.00 % Yield-to-Worst (at Bid) : 6.37 %
Evaluated at bid price : 43.9500

Call 2013-11-14 YTM: 8.67 % [Restricted: 8.67 %] (Prob: 6.75 %)
Limit Maturity 2039-01-06 YTM: 6.37 % [Restricted: 6.37 %] (Prob: 93.25 %)

Yield to Worst : 6.3721 %
FTN.PR.A SplitShare 4.14 % Yield-to-Worst (at Bid) : 8.11 %
Evaluated at bid price : 8.5500

Hard Maturity 2015-12-01 YTM: 8.11 % [Restricted: 8.11 %] (Prob: 100.00 %)

Yield to Worst : 8.1137 %
SBC.PR.A SplitShare 4.21 % Yield-to-Worst (at Bid) : 9.47 %
Evaluated at bid price : 8.6600

Hard Maturity 2012-11-30 YTM: 9.47 % [Restricted: 9.47 %] (Prob: 100.00 %)

Yield to Worst : 9.4662 %
CU.PR.A Perpetual-Discount 4.26 % Yield-to-Worst (at Bid) : 6.39 %
Evaluated at bid price : 23.0000

Call 2011-03-31 YTM: 10.73 % [Restricted: 10.73 %] (Prob: 8.80 %)
Call 2012-03-31 YTM: 8.99 % [Restricted: 8.99 %] (Prob: 4.18 %)
Limit Maturity 2039-01-06 YTM: 6.39 % [Restricted: 6.39 %] (Prob: 87.01 %)

Yield to Worst : 6.3914 %
FBS.PR.B SplitShare 4.36 % Yield-to-Worst (at Bid) : 9.50 %
Evaluated at bid price : 8.8500

Hard Maturity 2011-12-15 YTM: 9.50 % [Restricted: 9.50 %] (Prob: 100.00 %)

Yield to Worst : 9.4998 %
SLF.PR.A Perpetual-Discount 4.41 % Yield-to-Worst (at Bid) : 6.93 %
Evaluated at bid price : 17.3000

Limit Maturity 2039-01-06 YTM: 6.93 % [Restricted: 6.93 %] (Prob: 100.00 %)

Yield to Worst : 6.9337 %
ELF.PR.F Perpetual-Discount 4.59 % Yield-to-Worst (at Bid) : 8.14 %
Evaluated at bid price : 16.4000

Limit Maturity 2039-01-06 YTM: 8.14 % [Restricted: 8.14 %] (Prob: 100.00 %)

Yield to Worst : 8.1417 %
FIG.PR.A InterestBearing 6.16 % Yield-to-Worst (at Bid) : 11.70 %
Evaluated at bid price : 7.7500

Hard Maturity 2014-12-31 YTM: 11.70 % [Restricted: 11.70 %] (Prob: 100.00 %)

Yield to Worst : 11.7020 %
BAM.PR.M Perpetual-Discount 6.21 % Yield-to-Worst (at Bid) : 9.91 %
Evaluated at bid price : 12.1500

Limit Maturity 2039-01-06 YTM: 9.91 % [Restricted: 9.91 %] (Prob: 100.00 %)

Yield to Worst : 9.9133 %
BAM.PR.N Perpetual-Discount 7.08 % Yield-to-Worst (at Bid) : 9.95 %
Evaluated at bid price : 12.1000

Limit Maturity 2039-01-06 YTM: 9.95 % [Restricted: 9.95 %] (Prob: 100.00 %)

Yield to Worst : 9.9549 %
IAG.PR.A Perpetual-Discount 7.11 % Yield-to-Worst (at Bid) : 6.95 %
Evaluated at bid price : 16.7200

Limit Maturity 2039-01-06 YTM: 6.95 % [Restricted: 6.95 %] (Prob: 100.00 %)

Yield to Worst : 6.9478 %
Volume Highlights
Issue Index Shares
Traded		 Notes
LBS.PR.A SplitShare 111,572
BCE.PR.Z FixedFloater 86,931
SLF.PR.B Perpetual-Discount 61,463
CL.PR.B Perpetual-Discount 49,100
RY.PR.N FixedReset 46,510
W.PR.J Perpetual-Discount 45,230
CM.PR.A OpRet 43,975
SLF.PR.D Perpetual-Discount 34,857
CM.PR.D Perpetual-Discount 33,200
SLF.PR.C Perpetual-Discount 30,746
RY.PR.F Perpetual-Discount 28,900
BNA.PR.C SplitShare 28,850
MFC.PR.A OpRet 26,315
BNS.PR.M Perpetual-Discount 24,625
BAM.PR.N Perpetual-Discount 24,625
BMO.PR.J Perpetual-Discount 24,572
BAM.PR.M Perpetual-Discount 24,064
POW.PR.D Perpetual-Discount 22,275
CM.PR.J Perpetual-Discount 21,425
RY.PR.E Perpetual-Discount 21,011
BNA.PR.A SplitShare 20,700
PWF.PR.F Perpetual-Discount 19,490
POW.PR.B Perpetual-Discount 19,180
BNS.PR.L Perpetual-Discount 18,200
WFS.PR.A SplitShare 17,900
RY.PR.H Perpetual-Discount 16,928
LFE.PR.A SplitShare 16,300
CM.PR.E Perpetual-Discount 16,300
TD.PR.O Perpetual-Discount 15,828
IGM.PR.A OpRet 15,819
RY.PR.D Perpetual-Discount 15,724
FIG.PR.A InterestBearing 15,511
CM.PR.G Perpetual-Discount 15,320
PPL.PR.A SplitShare 15,266
RY.PR.I FixedReset 15,035
FBS.PR.B SplitShare 14,816
BNS.PR.R FixedReset 14,375
CM.PR.I Perpetual-Discount 14,270
CM.PR.H Perpetual-Discount 14,037
HSB.PR.C Perpetual-Discount 13,480
SBN.PR.A SplitShare 12,400
RY.PR.W Perpetual-Discount 12,305
BNS.PR.O Perpetual-Discount 12,300
BAM.PR.O OpRet 12,222
GWO.PR.G Perpetual-Discount 12,153
NA.PR.M Perpetual-Discount 12,105
BAM.PR.B Floater 11,911
PWF.PR.I Perpetual-Discount 11,406
BMO.PR.N FixedReset 10,700
BAM.PR.K Floater 10,550
BCE.PR.C FixedFloater 10,315
BNS.PR.N Perpetual-Discount 10,015
MAPF

MAPF Performance: December 2008

Sometimes everything works.

There are times – such as June of this year – when everything goes wrong. The market doesn’t just behave in a manner differently from that expected by quantitative models, but differently from basic common sense. All you can do at such times is review your models, review your assumptions, review your application … and if everything seems all right, sit tight! It will happen occasionally; no permanent harm is done unless you’re a leveraged forced seller, as were the quants in August ’07.

But sometimes the market cooperates enthusiastically, being just inefficient enough to allow a trade to be put on and then snapping back to normalcy to allow a profitable reversal. That’s what happened in December:

Returns to December 31, 2008
Period MAPF Index CPD
according to
Claymore
One Month +17.05% +6.39% +7.08%
Three Months +0.21% -12.74% -11.62%
One Year -3.85% -16.42% -17.20%
Two Years (annualized) -2.74% -11.45%  
Three Years (annualized) +0.37% -6.49%  
Four Years (annualized) +1.73% -4.01%  
Five Years (annualized) +3.96% -2.08%  
Six Years (annualized) +8.39% -0.57%  
Seven Years (annualized) +7.33% +0.12%  
The Index is the BMO-CM “50”
CPD Returns are for the NAV and are after all fees and expenses.

Returns assume reinvestment of dividends, and are shown after expenses but before fees. Past performance is not a guarantee of future performance. You can lose money investing in Malachite Aggressive Preferred Fund or any other fund. For more information, see the fund’s main page.

All I can say is … don’t expect this every month, folks! My indices – and my records of external indices – go back to 1993-12-31; the worst month according to the HIMIPref™ PerpetualDiscount index and the “BMO-CM 50” was November, 2008. The best month in that period, by both measures, was December, 2008. The mood swing of the market exacerbated normal inefficiency and made huge bargains available that were promptly resold at ludicrous profit.

When it works, it really, really works!

The yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW		 Leverage
Divisor		 Securities
Average
YTW		 Sustainable
Income
June, 2007 9.3114 5.16% 1.03 5.01% 0.4665
September 9.1489 5.35% 0.98 5.46% 0.4995
December, 2007 9.0070 5.53% 0.942 5.87% 0.5288
March, 2008 8.8512 6.17% 1.047 5.89% 0.5216
June 8.3419 6.034% 0.952 6.338% $0.5287
September 8.1886 7.108% 0.969 7.335% $0.6006
December, 2008 8.0464 9.24% 0.992 9.166% $0.7375
NAVPU is shown after quarterly distributions.
“Portfolio YTW” includes cash (or margin borrowing), with an assumed interest rate of 0.00%
“Securities YTW” divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings.
“Sustainable Income” is the best available estimate of the fund’s dividend income per unit, before fees and expenses.

As discussed in the post MAPF Portfolio Composition: December 2008, the fund has positions in splitShares, which complicate the calculation greatly. Since the yield is, by and large, higher than that of the perpetuals despite the fact that the term is limited, the sustainability of the calculated “sustainable yield” is suspect, as discussed in August. Additionally, the calculated yield for the fixed-floater in the portfolio, BCE.PR.I, depends on the presumed value of Canada Prime (3.50%) and the percentage of Canada Prime paid on par value (100%); both of these figures may change.

However, if the entire portfolio except for the PerpetualDiscounts were to be sold and reinvested in these issues, the yield of the portfolio would be the 7.49% currently shown for the PerpetualDiscounts segment of the portfolio and the sustainable yield would be calculated as $8.0464 * 7.49% = $0.6027, significantly less than the figure calculated above, but still an increase from last month’s adjusted figure and continuing the long-term upward trend.

Additionally, the bulk of SplitShares held at month end were tendered for retraction; the remainder is almost entirely BNA.PR.C which does not mature until 2019, so the fat yield will be enjoyed for some time yet!

It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

  • the very good performance against the index
  • the long term increases in sustainable income per unit

As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance is due to constant exploitation of trading anomalies.

Trading in December was frenetic, with portfolio turnover of about 200%. Many of these trades were not just intra-sector, but intra-issuer; that is, between similar issues of the same issuer, notably the PerpetualDiscount issues of CM, BMO and SLF. These trades were, in aggregate, highly profitable.

Of interest is the position held in November of FFN.PR.A. Readers will remember that I mourned the fact that it had been unprofitable to month-end, but that sad situation was rectified in December:

A major trade was executed from PerpetualDiscounts into SplitShares when – against all reason – the split share with a short term maturity and well-buffered against default underperformed the PerpetualDiscount index. This trade – into FFN.PR.A; discussed in the post on portfolio composition – is not yet profitable, but I am confident that it will become so in the near future.

Post-Mortem on the FFN.PR.A Trade
Date BMO.PR.H
(see Note)		 FFN.PR.A FTN.PR.A WFS.PR.A BNA.PR.C
Nov 19 Sold
18.05		 Bought
6.40		      
Nov 28
Closing Bid		 17.02 5.63      
Dec 8   Sold
7.00		 Bought
6.91		    
Dec 10   Sold
7.25		   Bought
7.90		  
Dec 12   Sold
7.00		     Bought
8.65
Dec 31
Closing Bid		 18.52 7.56 8.16 8.99 8.75
All trades were “scrappy”; that is, not performed on a one-issue-into-one-issue swap basis. This is particularly true of the purchase of FFN.PR.A; many issues were sold to cover the cost.

Readers will also remember the November 24 trade from WFS.PR.A to FBS.PR.B; to continue that table:

Post-Mortem
WFS.PR.A to FBS.PR.B
Date WFS.PR.A FBS.PR.B
10/31 7.71
Yield: 16.57%		 8.70
Yield: 9.99%
Trade, 11/24
Net of Commission		 Sold
7.735		 Bought
7.024
11/28 7.80
Yield: 16.59%
No Dividends		 7.49
Yield: 15.39%
Earned Dividend $0.11875
Trade
Dec 8		 Bought
8.06		 Sold
8.18
Note that trades were not performed on a one-to-one swap basis and that prices reflect a best-effort to show an average. Trade detail will be published in the coming year

2008 has been a tumultuous year, with declines in prices unparalleled in recent memory. The fund has not escaped unscathed, but has greatly outperformed its benchmark while remaining fully invested at all times. Enormous volatility in the market aggravated the normal inefficiency, particularly in the third quarter and provided the fund with ample opportunites for favourable trading.

And now we will see what 2009 brings…

New Issues

New Issue: Royal Bank Fixed-Reset 6.25%+419

Royal Bank has announced:

a domestic public offering of $200 million of Non-Cumulative, 5 year rate reset Preferred Shares Series AP.

The bank will issue 8.0 million Preferred Shares Series AP priced at $25 per share and holders will be entitled to receive non-cumulative quarterly fixed dividend for the initial period ending February 24, 2014 in the amount of $1.5625 per share, to yield 6.25% annually. The bank has granted the Underwriters an option, exercisable in whole or in part, to purchase up to an additional 3.0 million Preferred Shares at the same offering price.

Subject to regulatory approval, on or after February 24, 2014, the bank may redeem the Preferred Shares Series AP in whole or in part at par. Thereafter, the dividend rate will reset every five years at a rate equal to 4.19% over the 5 year Government of Canada bond yield. Holders of Preferred Shares Series AP will, subject to certain conditions, have the right to convert all or any part of their shares to non-cumulative floating rate preferred shares Series AQ (the “Preferred Shares Series AQ”) on February 24, 2014 and on February 24 every five years thereafter.

Holders of the Preferred Shares Series AQ will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.19%. Holders of Preferred Shares Series AQ will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series AP on February 24, 2019 and on February 24 every five years thereafter.

The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is January 14, 2009.

January 14 will be a busy day! The new NA 6.60%+463 and TD 6.25%+437 issues will also be settling then.

Index Construction / Reporting

Index Performance: December 2008

Performance of the HIMIPref™ Indices for December, 2008, was:

Total Return
Index Performance
December 2008		 Three Months
to
December 31, 2008
Ratchet -22.78% -45.03
FixFloat -15.60% -39.36%
Floater +34.20% -42.10%
OpRet +1.96% -4.72%
SplitShare +18.39% -8.76%
Interest +2.00% -28.19%
PerpetualPremium +10.68%* -15.00%*
PerpetualDiscount +10.68% -12.72%%
FixedReset +4.11% -11.59%
* The last member of the PerpetualPremium index was transferred to PerpetualDiscount at the October rebalancing; subsequent performance figures are set equal to the PerpetualDiscount index
Funds (see below for calculations)
CPD +9.21% -11.51%
DPS.UN +5.65% -16.82%
Index
BMO-CM 50 +6.39% -12.74%

Claymore has published NAV and distribution data for its exchange traded fund (CPD) and I have derived the following table:

CPD Return, 1- & 3-month, to December, 2008
Date NAV Distribution Return for Sub-Period Monthly Return
Sept 30 16.21      
October 31 15.04 0.00   -7.22%
November 28, 2008 13.37 0.00   -11.10%
Dec 24 12.92 0.2135 -1.77% +7.28%
Dec 31 14.11   +9.21%
Quarterly Return -11.51%

The DPS.UN NAV for December 31 has been published so we may calculate the December returns (approximately!) for this closed end fund. Unfortunately, they did not publish their NAV on their December distribution’s ex-date, so things are a little hairy this month:

DPS.UN NAV Return, December-ish 2008
Date NAV Distribution Return for period
Estimated November Ending Stub +3.80%
November 26, 2008 14.53    
December 24, 2008 14.43   -0.69%
December 29, 2008 14.69 * 0.30 +3.87% *
December 31, 2008 15.64   +6.47%
Estimated December Return +5.65%
* CPD had a NAV of $12.92 on December 24 and $13.52 on December 29. Return for this period for CPD was therefore +3.87%. Assuming equality of returns, then DPS.UN would have had a NAV of 14.99 before payment of the $0.30 dividend.
CPD had a NAV of $12.88 on November 26 and $13.37 on November 28. The estimated November month-end stub period return for CPD was therefore +3.80%, which is subtracted from the DPS.UN period return to estimate a return for the month.
The October return for DPS.UN’s NAV is therefore the product of four period returns, -3.80%, -0.69%, +3.87%, +6.47%, to arrive at an estimate for the calendar month of +5.65%

Now, to see the DPS.UN quarterly NAV approximate return, we refer to the calculations for October and November:

DPS.UN NAV Returns, three-month-ish to end-October-ish, 2008
October-ish -9.56%
November-ish -12.95%
December-ish +5.65%
Three-months-ish -16.82%