Shortly after the fund commenced trading, I published an analysis of the portfolio. However, the composition of this fund changes with each rebalancing; there have been significant index changes in July 2007, January 2008 and July 2008.
What are the effects of these rebalancings? Look for the research link!
Update, 2008-11-3: Bonus Spreadsheet!
These are total returns, with dividends presumed to have been reinvested at the bid price on the ex-date. The list has been restricted to issues in the HIMIPref™ indices.
| September, 2008 | ||||
| Issue | Index | DBRS Rating | Monthly Performance | Notes (“Now” means “September 30”) |
| BAM.PR.B | Floater | Pfd-2(low) | -18.0252% | |
| BNA.PR.C | SplitShare | Pfd-2(low) | -14.0403% | Asset coverage of just under 2.8:1 as of September 30, according to the company. Now with a pre-tax bid-YTW of 11.53% based on a bid of 14.51 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (9.94% to 2010-9-30) and BNA.PR.B (9.64% to 2016-3-25). |
| BAM.PR.K | Floater | Pfd-2(low) | -13.6954% | |
| SBN.PR.A | SplitShare | Pfd-2(low) | -11.6603% | Asset coverage of 2.1+:1 as of September 30, according to Mulvihill. Now with a pre-tax bid-YTW of 7.91% based on a bid of 8.76 and a hardMaturity 2014-12-1 at 10.00. |
| GWO.PR.H | PerpetualDiscount | Pfd-1(low) | -10.4712% | Now with a pre-tax bid-YTW of 6.50% based on a bid of 18.81 and a limitMaturity. |
| … | … | … | … | … |
| PWF.PR.F | PerpetualDiscount | Pfd-1(low) | +0.7759% | Now with a pre-tax bid-YTW of 6.06% based on a bid of 22.08 and a limitMaturity. |
| PWF.PR.H | PerpetualDiscount | Pfd-1(low) | +0.8439% | Now with a pre-tax bid-YTW of 6.12% based on a bid of 23.90 and a limitMaturity. |
| BNS.PR.M | PerpetualDiscount | Pfd-1(low) | +1.6993% | Now with a pre-tax bid-YTW of 5.81% based on a bid of 19.75 and a limitMaturity. |
| BNS.PR.L | PerpetualDiscount | Pfd-1 | +1.8013% | Now with a pre-tax bid-YTW of 5.79% based on a bid of 19.78 and a limitMaturity. |
| BNS.PR.K | PerpetualDiscount | Pfd-1 | +1.9774% | Now with a pre-tax bid-YTW of 5.62% based on a bid of 21.66 and a limitMaturity. |
The Bank of Canada has announced:
further details of its temporary additional Term Purchase and Resale Agreement (PRA) facility for private sector money market instruments.
Further details of an auction to be held on 27 October will be announced on 23 October.
This term PRA will be transacted with Primary Dealers (PDs)1 on a direct basis and other eligible money market participants on an indirect basis. Eligible indirect bidders will consist of institutions which can demonstrate significant activity in the Canadian dollar wholesale money markets and which are subject to Federal or Provincial regulation.
OK, so this must have been what the Globe was talking about on October 15. It was the third point of the October 14 announcement that was being referred to, not the second:
Third, to enhance the functioning of money markets, the Bank of Canada will, on a temporary basis, offer a new Term PRA facility for primary dealers on a direct basis and other money market participants on an indirect basis. (See appendix for further details)
Mea culpa.
The post regarding Tuesday’s appearance on BNN has been updated.
Naked Capitalism republishes extracts from a Financial Times article about the unintended consequences of Treasury’s Whack-a-Mole efforts:
US mortgage rates have soared this week in an unexpected reaction to the latest Treasury financial rescue plan, which has prompted investors to buy bank debt and sell bonds backed by home loans.
Interest rates on 30-year fixed-rate mortgages, as measured by Bankrate.com, rose to 6.38 per cent on Thursday from 5.87 per cent last week – before the Treasury said on Tuesday that it would take equity stakes in banks and guarantee new bank debt.
Investors responded to the new guarantee by buying existing bank debt, reckoning it could be refinanced with the new government-supported bonds.
An unrelated (as far as explicit mention is concerned, anyway) story on Bloomberg makes the BCE buy-out look either less likely to happen or more likely to cause massive and instant write-downs:
High-yield, or leveraged, loans have plummeted to a record low of 66.1 cents on the dollar from 88.5 cents on Sept. 2 and from above face value in June 2007, according to Standard & Poor’s LCD.
There are more details in a story about just how horrible the LBO-debt market is at the moment:
Prices of loans rated below investment grade declined to a record low 66.1 cents on the dollar, virtually guaranteeing investors get their money back, based on historical recovery rates, according to data compiled by Standard & Poor’s.
…
The selling is being compounded by hedge funds and mutual funds dumping holdings to meet redemptions, which may push prices even lower, according to analysts at UBS AG.Barclays Plc, the U.K.’s second-biggest bank, is auctioning $642 million of loans seized this week from Dallas-based Highland Capital Management LP, according to people with knowledge of the sale who declined to be identified because the sale hasn’t been announced. Hedge funds Tudor Investment Corp., run by Paul Tudor Jones, and SAC Capital Advisors LLC, managed by Steven Cohen, sold assets this month to raise cash as stock prices dropped, according to people with knowledge of the sales.
BCE common has traded in a 10% range today, closing at $34.89, +8.02%.
On another note, I have no idea whether Andrew Lahde was lucky or smart. But either way, I like him!
“I was in this game for money,” Lahde, 37, wrote in a two-page letter today in which he said he had come to hate the hedge-fund business. “The low-hanging fruit, i.e. idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.
“All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other sides of my trades. God Bless America.”
The market performed well today, on reasonable volume. Still relatively illiquid and volatile – the performers table is limited to absolute moves of more than 2% today – but improving.
| Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30. The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index. |
|||||||
| Index | Mean Current Yield (at bid) | Mean YTW | Mean Average Trading Value | Mean Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | N/A | N/A | N/A | N/A | 0 | N/A | N/A |
| Fixed-Floater | 5.40% | 5.64% | 73,113 | 14.71 | 6 | +0.4175% | 957.4 |
| Floater | 6.38% | 6.46% | 48,164 | 13.28 | 2 | +3.7860% | 569.2 |
| Op. Retract | 5.39% | 6.40% | 125,567 | 4.04 | 14 | +0.2843% | 979.1 |
| Split-Share | 6.30% | 10.52% | 58,941 | 3.99 | 12 | +1.5435% | 927.4 |
| Interest Bearing | 7.66% | 12.35% | 50,005 | 3.40 | 3 | +2.8821% | 911.6 |
| Perpetual-Premium | 6.62% | 6.68% | 48,727 | 12.92 | 1 | +0.6823% | 937.8 |
| Perpetual-Discount | 6.76% | 6.83% | 172,711 | 12.79 | 70 | +0.6144% | 799.5 |
| Fixed-Reset | 5.21% | 5.04% | 918,390 | 15.32 | 10 | +0.2348% | 1,100.0 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| BNA.PR.B | SplitShare | -7.0526% | Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of 2.2+:1 based on BAM.A at 23.37 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 11.01% based on a bid of 17.66 and a hardMaturity 2016-3-25 at 25.00. Compare with BNA.PR.A (19.28% to 2010-9-30) and BNA.PR.C (13.39% to 2019-1-10). Closing quote 17.66-20.98. No trades today. |
| PWF.PR.F | PerpetualDiscount | -2.6368% | Now with a pre-tax bid-YTW of 6.74% based on a bid of 19.57 and a limitMaturity. Closing quote 19.57-49, 4X3; day’s range 19.75-11. |
| LBS.PR.A | SplitShare | -2.6316% | Asset coverage of just under 2.0:1 as of October 2, according to Brompton Group. Now with a pre-tax bid-YTW of 9.01% based on a bid of 8.51 and a hardMaturity 2013-11-29 at 10.00. Closing quote 8.51-98, 3×1. Day’s range, 8.51-00. |
| PWF.PR.I | PerpetualDiscount | -2.0851% | Now with a pre-tax bid-YTW of 6.54% based on a bid of 23.01 and a limitMaturity. Closing Quote 23.01-75, 10×10. One trade at 23.02. |
| BNS.PR.N | PerpetualDiscount | +2.0227% | Now with a pre-tax bid-YTW of 6.38% based on a bid of 20.68 and a limitMaturity. Closing Quote 20.68-99, 5X5. Day’s range 20.05-80. |
| CM.PR.A | OpRet | +2.0408% | Now with a pre-tax bid-YTW of 5.28% based on a bid of 25.00 and a softMaturity 2011-7-30 at 25.00. Closing Quote 25.00-25, 10×5. Day’s range 24.60 (?)-00. |
| POW.PR.C | PerpetualDiscount | +2.0655% | Now with a pre-tax bid-YTW of 7.22% based on a bid of 20.26 and a limitMaturity. Closing Quote 20.26-98, 8×4. Day’s range 19.75-20.99. |
| DFN.PR.A | SplitShare | +2.0930% | Asset coverage of 1.9+:1 as of October 16, according to some guy’s estimate. Now with a pre-tax bid-YTW of 7.91% based on a bid of 8.78 and a hardMaturity 2014-12-1 at 10.00. Closing quote 8.78-95, 1×2. Day’s range 8.50-62. |
| CM.PR.K | FixedReset | +2.1277% | |
| RY.PR.D | PerpetualDiscount | +2.3782% | Now with a pre-tax bid-YTW of 6.50% based on a bid of 17.65 and a limitMaturity. Closing Quote 17.65-79, 2×5. Day’s range 17.40-80. |
| NA.PR.K | PerpetualDiscount | +2.4510% | Now with a pre-tax bid-YTW of 7.01% based on a bid of 20.90 and a limitMaturity. Closing Quote 20.90-40, 10X16. No trades. |
| GWO.PR.H | PerpetualDiscount | +2.6570% | Now with a pre-tax bid-YTW of 7.22% based on a bid of 17.00 and a limitMaturity. Closing Quote 17.00-49, 21X4. Day’s range 16.50-36. |
| CM.PR.E | PerpetualDiscount | +2.6835% | Now with a pre-tax bid-YTW of 7.52% based on a bid of 18.75 and a limitMaturity. Closing Quote 18.75-13, 2X4. Day’s range 18.35-20. |
| SLF.PR.D | PerpetualDiscount | +2.7473% | Now with a pre-tax bid-YTW of 6.69% based on a bid of 16.83 and a limitMaturity. Closing Quote 16.83-15, 2X3. Day’s range 16.45-00. |
| BAM.PR.M | PerpetualDiscount | +2.8107% | Now with a pre-tax bid-YTW of 8.67% based on a bid of 13.90 and a limitMaturity. Closing Quote 13.90-00, 1X365. Day’s range 13.21-99. |
| BAM.PR.O | OpRet | +2.9589% | Now with a pre-tax bid-YTW of 12.25% based on a bid of 18.79 and optionCertainty 2013-6-30 at 25.00. Compare with BAM.PR.H (11.70% to 2012-3-30), BAM.PR.I (10.74% to 2013-12-30) and BAM.PR.J (11.34% to 2018-3-30). Closing quote 18.79-95, 1X6. Day’s range 18.25-19.25. |
| BNA.PR.C | SplitShare | +3.3038% | See BNA.PR.B, above. Closing quote of 12.82-79, 12×2. Day’s range of 13.24-14.55. |
| WFS.PR.A | SplitShare | +3.5669% | Asset coverage of 1.3+:1 as of October 9, according to Mulvihill. Now with a pre-tax bid-YTW of 14.02% based on a bid of 8.13 and a hardMaturity 2011-6-30 at 10.00. Closing quote of 8.13-54, 43×4; day’s range 7.95-25. |
| POW.PR.B | PerpetualDiscount | +3.6119% | Now with a pre-tax bid-YTW of 7.02% based on a bid of 19.22 and a limitMaturity. Closing Quote 19.22-49, 5X4. Day’s range 18.75-50. |
| BSD.PR.A | InterestBearing | +3.8179% | Asset coverage of 0.9+:1 as of October 10, according to a page removed from the Brookfield Funds site. Now with a pre-tax bid-YTW of 13.09% (interest + cap gain) based on a bid of 7.07 and a hardMaturity 2015-3-31 at 10.00. Closing quote 7.07-40, 48×45. Day’s range 6.86-50. |
| FTN.PR.A | SplitShare | +4.0609% | Asset coverage of 2.2+:1 as of September 30 according to the company. Now with a pre-tax bid-YTW of 8.82% based on a bid of 8.20 and a hardMaturity 2015-12-1 at 10.00. Closing quote of 8.20-46, 83×1. Day’s range 7.99-20. |
| GWO.PR.I | PerpetualDiscount | +4.0789% | Now with a pre-tax bid-YTW of 7.44% based on a bid of 15.31 and a limitMaturity. Closing Quote 15.31-05, 12X5. Day’s range 14.90-16.10. |
| ALB.PR.A | SplitShare | +4.3265% | Asset coverage of 1.5+:1 as of October 16 according to Scotia Managed Companies. Now with a pre-tax bid-YTW of 7.57% based on a bid of 23.39 and a hardMaturity 2011-2-28 at 25.00. Closing quote of 23.39-40, 33×5. Day’s range of 22.52-40 |
| BCE.PR.R | FixedFloat | +4.5720% | |
| FIG.PR.A | InterestBearing | +4.8502% | Asset coverage of just under 1.4:1 as of October 15, according to Faircourt. Now with a pre-tax bid-YTW of 12.72% based on a bid of 7.35 and a hardMaturity 2014-12-31 at 10.00. Closing quote 7.35-50, 12×18. Day’s range of 7.00-50. |
| LFE.PR.A | SplitShare | +8.1731% | Asset coverage of 1.8+:1 as of October 15, according to the company. Now with a pre-tax bid-YTW of 8.28% based on a bid of 9.00 and a hardMaturity 2012-12-1 at 10.00. Closing quote of 9.00-25, 5×26. Day’s range of 9.01-25. |
| BAM.PR.B | Floater | +8.3117% | |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| MFC.PR.B | PerpetualDiscount | 364,100 | Nesbitt crossed 170,600 at 17.80, then another 189,400 at the same price. Now with a pre-tax bid-YTW of 6.63% based on a bid of 17.79 and a limitMaturity. |
| BNS.PR.L | PerpetualDiscount | 306,200 | Nesbitt crossed 50,000 at 17.60, then Desjardins crossed 250,000 at 17.61. Now with a pre-tax bid-YTW of 6.42% based on a bid of 17.61 and a limitMaturity. |
| GWO.PR.X | OpRet | 301,747 | CIBC crossed blocks of 70,000; 100,000; 50,000; and 80,000, all at 26.10. Now with a pre-tax bid-YTW of 3.90% based on a bid of 26.09 and a softMaturity 2013-9-29 at 25.00. |
| NTL.PR.G | Scraps (would be Ratchet but there are credit concerns) | 158,100 | CIBC crossed 140,000 at 3.25. |
| TD.PR.M | OpRet | 101,500 | TD crossed 75,000 at 24.75, then another 26,500 at the same price. Now with a pre-tax bid-YTW of 4.91% based on a bid of 24.75 and a softMaturity 2013-10-30 at 25.00. |
| BNS.PR.Q | FixedReset | 51,631 | TD crossed 45,000 at 24.30. |
There were twenty-two other index-included $25-pv-equivalent issues trading over 10,000 shares today.
The markets have closed and the Update to the October edition of PrefLetter is now being prepared. I noted in the notice that the October edition had been released that there would be an update … and it’s almost on its way.
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.
The Update to the October issue will be eMailed to clients and available for single-issue purchase with immediate delivery prior to the opening on Monday 20th. After sending the update to clients, I will:
Assiduous Readers will recall that October 10, the scheduled date of preparation for the October edition, was a catastrophic day for PerpetualDiscounts – and other types, notably SplitShares – with bid/offer spreads and relationships between issues at, shall we say, highly unusual levels. The market has become somewhat more rational in the four trading days since, gaining 4.27% on the week. This does not completely erase October 10’ths 5.05% loss, but the main thing is that the market is more internally consistent.
IIROC has released a 113 page report on ABCP. For those who have no time to read the entire thing, here’s the official PrefBlog summary: Don’t sell stuff that goes down, OK guys? Only sell stuff that goes up.
The focus of the report is on “suitability”; the words “concentration” and “diversification” each appear exactly once, in the sections describing the paper itself, not the client’s portfolio. Given that the Capital Asset Pricing Model, with its emphasis on risk reduction via diversification, is only about 40 years old, it is hardly surprising that the concept is foreign to the regulators.
The Accounting Standards Board has announced:
amendments to Sections 3855, Financial Instruments — Recognition and Measurement, and 3862, Financial Instruments — Disclosures. The amendments permit reclassification of financial assets in specified circumstances. They are being made to ensure consistency of Canadian standards with International Financial Reporting Standards (IFRS) and US standards. They are effective for reclassifications made on or after July 1, 2008, but only for periods for which annual or interim financial statements have not been issued previously.
“The amendments allow entities to move financial assets out of categories that require fair value changes to be recognized immediately in net income,” said Paul Cherry, Chair, AcSB. “However, it must be stressed that assets will remain subject to impairment testing and the amendments involve extensive disclosure requirements. Transparency will remain for investors.”
Predictably, this is being treated as big news by the Financial Post:
Canada’s top financial institutions will get relief from the corrosive effects of the toxic assets sitting on their books today thanks to a controversial decision that turns back the clock on modern accounting methods, according to people familiar with the process.
…
The timing of the announcement will be welcomed by the Conservatives and puts Ottawa onside with Paris on a divisive issue that has split Europe because of fears that loosening of so-called mark-to-market rules will mask losses and encourage riskier behaviour.
…
The decision will be welcomed on Bay Street and give insurers such as Manulife Financial Corp. extra breathing room when they report on their performance next month after seeing their share prices punished.The new ruling will also provide some relief to Canada’s banks as they prepare end-of-year results expected to show a broad decline in profitability.
Chief executives on Bay Street have said they were counting on the measures to help them deal with problematic portfolios of mostly foreign loans.
…
Associations representing accountants and financial analysts have objected to the rule changes, charging that they mask the problem of toxic assets on the books of financial services companies.
The Globe and Mail story is similar but not as detailed.
Why is this important? There’s one small reason why it matter, but to your basic investor it doesn’t mean a thing.
I’ve got some news for the “associations representing accountants and financial analysts” mentioned in the report … nothing is being masked. The assets will still be on the books and will be worth whatever it is they’re worth, regardless of which of the “historical cost”, “mark-to-market” or “discounted cash flows” methods is used to value them for bookkeeping purposes. Each of these three methods has its strengths and weaknesses – big deal.
Virtually the only people affected by this will be brain-dead pseudo-quants, who pick a few numbers of the balance sheet and income statements, throw away all those boring old notes to the financial statements – geez, who reads all that muck anyway? – and makes a big kerfuffle about how scientific they’re being.
The only real-life implications I can see to this change is that it may affect the enforcement of regulatory capital ratios, because the regulators pick a few numbers off the balance sheets and cherish them deeply. The regulators are the guys who figured the credit rating agencies spoke with the voice of God, remember, and turned a blind eye to potential problems. But now they’re frantically trying to patch up the divinity with MORE RULES, so perhaps everything will be OK. If not, expect MORE RULES!
Each of the various methods of valuing an asset has its strengths and weaknesses. Sometimes one form will be appropriate, sometimes another. All in all, the Accounting Standards Board has got it right, telling the industry: use your best efforts and justify yourself in the notes. Investors may then make any adjustments they please to the published figures. It is desirable, of course, that they read the notes to the financial statements and make a genuine effort to understand what’s going on.
Brookfield Funds is now posting the Preferred Security NAV as well as the Capital Unit NAV; the asset coverage has now fallen below unity.
The following table shows the swiftness of the descent:
| BSD.UN + BSD.PR.A NAV | |
| Date | NAVPU |
| September 5 | 15.50 |
| September 12 | 14.99 |
| September 19 | 14.67 |
| September 26 | 14.30 |
| September 30 | 13.67 |
| October 3 | 12.70 |
| October 10 | 9.07 |
Holy smokes, that was FAST. Today’s closing quote on BSD.UN was 1.11-19, 100×2, with a trading range of 1.06-20; BSD.PR.A was quoted at 6.81-50, 25×7, with all 968 shares trading at 6.78.
Holders of BSD.PR.A (some of whom, I fear, bought it on my recommendation) should not sell instantly. The market price is well below the NAV and there remains a good chance that the income coverage of over 2:1 will yet repair the damage to asset coverage over the remaining term of the security (the scheduled wind-up date is 2015-3-31); there will be no payments to capital unitholders until the damage is repaired:
The Trust may not make any cash distributions on the Capital Units if, after giving effect to the proposed distribution, the Combined Value would be less than 1.4 times the Repayment Price.
There is the possibility of Concurrent Retraction in November:
Commencing in 2005, Preferred Securities may be surrendered together with an equal number of Capital Units for redemption in the month of November of each year for redemption on the last Business Day (any day on which the Toronto Stock Exchange is open for trading is hereinafter referred to as a ‘‘Business Day’’) in November of that year (a ‘‘Redemption Date’’), subject to the Trust’s right to suspend redemptions in certain circumstances. A Securityholder who surrenders Preferred Securities together with Capital Units for redemption at least 15 Business Days prior to a Redemption Date will receive payment for each Combined Security equal to the Combined Value determined as of the Redemption Date, less redemption costs.
DBRS still has the prefs rated at Pfd-2; FTU.PR.A was downgraded to Pfd-5 when it was in better shape.
For those holding this in their portfolios, I recommend – for now – that it be kept (since the realizable value on sale is far less than NAV) but that some thought be given to buying capital units for use in next month’s redemption opportunity. It should now be considered an equity for Asset Allocation purposes.
Also remember, that unless and until the distributions in the underlying holdings are cut massively, income will exceed expenditure.
BSD.PR.A is tracked by HIMIPref™ and is part of the InterestBearing index. It was last discussed on PrefBlog in a September post, BSD.PR.A: Globe & Mail Gets the Numbers Wrong.
Update, 2008-10-17: This is very odd. The Preferred Share NAV Page no longer exists on the Brookfield Funds website.
Canadas efforts to join the Banksgiving Moneyday rescues have now commenced implementation. The results of the first mortgage reverse-auction have been announced:
Auction Date: October 16, 2008
Settlement Date: October 23, 2008
Maturity Date: October 15, 2013
Amount: $5 billion
High Yield: 4.679%
Low Yield: 4.041%
Average Yield: 4.241%
There are rumours that old What-Debt? is going to have to run a deficit:
While his Oct. 14 victory left him with more Conservative Party seats in Parliament, the deepening global financial crisis may force him to backpedal on both pledges.
Harper yesterday said his first move may be a taxpayer- funded package to keep financial institutions competitive amid bailouts in the U.S. and Europe. With the budget surplus shrinking and Harper lacking a parliamentary majority, he’ll also probably end up spending more than he wants because he’ll need help passing legislation from opposition parties that want to expand social programs.
Geez … having cut taxes and run the structural budget balance to zero in order to goose an already over-stimulated economy, we now find that bad times may require a deficit. What a surprise. What an absolutely incredible surprise.
On the bright side US inflation is moderating, although the headline number is still scary looking:
Prices increased 4.9 percent in the 12 months to September after a year-over-year gain of 5.4 percent in August. The core rate increased 2.5 percent from September 2007, the same as the year-over-year increase in the prior month.
Via Dealbreaker comes news that Iceland’s Glitnir Bank has defaulted on a $750-million FRN.
And the Fed’s discount window is wide open:
The Federal Reserve’s direct loans to commercial banks rose to a record $101.9 billion yesterday versus $98.1 billion a week earlier as still-high money market rates encouraged more borrowing from the lender of last resort.
Borrowing by securities firms through the Fed’s Primary Dealer Credit Facility totaled $133.9 billion, up from $123 billion, the central bank said today in its weekly report.
“The ability to borrow 90-day funds at 1.75 percent is a good deal for a lot of banks,” said Michael Feroli, economist at JPMorgan Chase & Co. “The stigma of borrowing from the Fed is declining.”
Borrowing 90-day funds at 1.75 is a very good deal for a lot of banks. I have no objections to the facility itself, but the discount rate is set way too low, in defiance of Bagehot.
Closed off the ‘performers’ table at +/- 2% today. Volatility continues high, liquidity continues dry.
| Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30. The Fixed-Reset index was added effective 2008-9-5 at that day’s closing value of 1,119.4 for the Fixed-Floater index. |
|||||||
| Index | Mean Current Yield (at bid) | Mean YTW | Mean Average Trading Value | Mean Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | N/A | N/A | N/A | N/A | 0 | N/A | N/A |
| Fixed-Floater | 5.42% | 5.66% | 75,071 | 14.67 | 6 | -0.6734% | 953.4 |
| Floater | 6.61% | 6.69% | 47,386 | 12.95 | 2 | -2.1863% | 548.4 |
| Op. Retract | 5.41% | 6.47% | 124,750 | 4.04 | 14 | -0.0754% | 976.4 |
| Split-Share | 6.39% | 10.98% | 58,719 | 3.99 | 12 | +1.1844% | 913.3 |
| Interest Bearing | 7.88% | 13.10% | 49,045 | 3.34 | 3 | -3.7209% | 886.0 |
| Perpetual-Premium | 6.66% | 6.73% | 50,402 | 12.86 | 1 | -2.2917% | 931.4 |
| Perpetual-Discount | 6.80% | 6.87% | 173,478 | 12.75 | 70 | +0.4681% | 794.6 |
| Fixed-Reset | 5.23% | 5.05% | 937,200 | 15.30 | 10 | -0.0738% | 1,097.4 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| FIG.PR.A | InterestBearing | -7.1523% | Asset coverage of just under 1.4:1 as of October 15, according to Faircourt. Now with a pre-tax bid-YTW of 13.74% based on a bid of 7.01 and a hardMaturity 2014-12-31 at 10.00. Closing quote 7.01-78, 3×2. Day’s range of 7.25-79. |
| BNA.PR.C | SplitShare | -6.3396% | Asset coverage of 3.2+:1 as of August 31 according to the company. Coverage now of 2.2+:1 based on BAM.A at 22.98 and 2.4 BAM.A held per preferred. Now with a pre-tax bid-YTW of 13.87% based on a bid of 12.41 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (18.16% to 2010-9-30) and BNA.PR.B (9.72% to 2016-3-25). Closing quote 12.41-24. Day’s range of 12.46-24. |
| BCE.PR.R | FixFloat | -4.3721% | |
| BMO.PR.H | PerpetualDiscount | -4.1814% | Now with a pre-tax bid-YTW of 7.11% based on a bid of 19.02 and a limitMaturity. Closing quote 19.02-99, 15×5; day’s range 18.77-20.00. |
| BAM.PR.K | Floater | -3.9474% | |
| BAM.PR.O | OpRet | -3.9474% | Now with a pre-tax bid-YTW of 13.00% based on a bid of 18.25 and optionCertainty 2013-6-30 at 25.00. Compare with BAM.PR.H (11.69% to 2012-3-30), BAM.PR.I (10.74% to 2013-12-30) and BAM.PR.J (11.33% to 2018-3-30). Closing quote 18.25-50, 5×6. Day’s range 18.00-75. |
| BSD.PR.A | InterestBearing | -3.1294% | Asset coverage of just under 1.3:1 as of October 3, according to Brookfield Funds. Now with a pre-tax bid-YTW of 13.87% (interest + cap gain) based on a bid of 6.81 and a hardMaturity 2015-3-31 at 10.00. Closing quote 6.81-7.50, 25×7. All 968 shares traded today were at 6.78 – looks like one order. |
| BMO.PR.K | PerpetualDiscount | -3.0025% | Now with a pre-tax bid-YTW of 7.02% based on a bid of 19.06 and a limitMaturity. Closing Quote 19.06-50, 3×20. Day’s range 19.05-65. |
| BMO.PR.J | PerpetualDiscount | -2.6393% | Now with a pre-tax bid-YTW of 6.91% based on a bid of 16.60 and a limitMaturity. Closing Quote 16.60-70, 15×5. Day’s range 16.70-10. |
| FTN.PR.A | SplitShare | -2.4752% | Asset coverage of 2.2+:1 as of September 30 according to the company. Now with a pre-tax bid-YTW of 9.54% based on a bid of 7.88 and a hardMaturity 2015-12-1 at 10.00. Closing quote of 7.88-09, 24×2. Day’s range 7.63-01. |
| CL.PR.B | PerpetualPremium (for now!) | -2.2917% | Now with a pre-tax bid-YTW of 6.73% based on a bid of 23.45 and a limitMaturity. Closing Quote 23.45-94, 3×2. Day’s range 23.50-39. |
| CM.PR.K | FixedReset | -2.0833% | Closing Quote 23.50-00, 9×3. Day’s range 23.50-00. |
| BNS.PR.R | FixedReset | -2.0408% | Closing Quote 24.00-39, 1×20. Day’s range 24.35-69. |
| RY.PR.A | PerpetualDiscount | +2.0290% | Now with a pre-tax bid-YTW of 6.44% based on a bid of 17.60 and a limitMaturity. Closing Quote 17.60-86, 6×8. Day’s range 17.46 (?) – 99. |
| NA.PR.L | PerpetualDiscount | +2.0710% | Now with a pre-tax bid-YTW of 7.04% based on a bid of 17.25 and a limitMaturity. Closing Quote 17.25-40, 16×15. Day’s range 17.25 (?) – 89 (?). |
| RY.PR.E | PerpetualDiscount | +2.1114% | Now with a pre-tax bid-YTW of 6.59% based on a bid of 17.41 and a limitMaturity. Closing Quote 17.41-49, 9×4. Day’s range 17.04-52. |
| PWF.PR.I | PerpetualDiscount | +2.1739% | Now with a pre-tax bid-YTW of 6.40% based on a bid of 23.50 and a limitMaturity. Closing Quote 23.50-60, 5×8. Day’s range 22.12-24.70 (!). |
| HSB.PR.D | PerpetualDiscount | +2.3151% | Now with a pre-tax bid-YTW of 6.98% based on a bid of 18.12 and a limitMaturity. Closing Quote 18.12-00, 2×31. Traded 100 shares at 19.00. |
| DFN.PR.A | SplitShare | +2.3810% | Asset coverage of 1.9+:1 as of October 16, according to some guy’s estimate. Now with a pre-tax bid-YTW of 8.32% based on a bid of 8.60 and a hardMaturity 2014-12-1 at 10.00. Closing quote 8.60-77, 20×2. Day’s range 8.35-57. |
| POW.PR.B | PerpetualDiscount | +2.4296% | Now with a pre-tax bid-YTW of 7.28% based on a bid of 18.55 and a limitMaturity. Closing Quote 18.55-89, 4×1. Day’s range 18.25-99. |
| POW.PR.D | PerpetualDiscount | +2.4670% | Now with a pre-tax bid-YTW of 7.06% based on a bid of 17.86 and a limitMaturity. Closing Quote 17.86-45, 7×7. Day’s range 17.79-45. |
| SLF.PR.B | PerpetualDiscount | +2.5419% | Now with a pre-tax bid-YTW of 6.84% based on a bid of 17.75 and a limitMaturity. Closing Quote 17.75-99, 17×4. Day’s range 17.51-33. |
| PWF.PR.K | PerpetualDiscount | +2.6417% | Now with a pre-tax bid-YTW of 6.67% based on a bid of 18.65 and a limitMaturity. Closing Quote 18.65-99, 4X2. Day’s range 18.01-99. |
| SLF.PR.D | PerpetualDiscount | +2.8894% | Now with a pre-tax bid-YTW of 6.87% based on a bid of 16.38 and a limitMaturity. Closing Quote 16.38-50, 5×10. Day’s range 16.16-50. |
| SLF.PR.C | PerpetualDiscount | +3.0568% | Now with a pre-tax bid-YTW of 6.81% based on a bid of 16.52 and a limitMaturity. Closing Quote 16.52-43, 3×11. Day’s range 15.93-90. |
| PWF.PR.F | PerpetualDiscount | +3.0769% | Now with a pre-tax bid-YTW of 6.56% based on a bid of 20.10 and a limitMaturity. Closing Quote 20.10-99, 10×5. Day’s range 20.15-29. |
| SBC.PR.A | SplitShare | +3.5496% | Asset coverage of just under 1.7:1 as of October 9 according to Brompton Group. Now with a pre-tax bid-YTW of 9.96% based on a bid of 8.46 and a hardMaturity 2012-11-30. Closing quote 8.46-85, 10×26. Day’s range 6.18-8.50 (!). |
| LBS.PR.A | SplitShare | +3.9239% | Asset coverage of just under 2.0:1 as of October 2, according to Brompton Group. Now with a pre-tax bid-YTW of 8.39% based on a bid of 8.74 and a hardMaturity 2013-11-29 at 10.00. Closing quote 8.74-24, 2×2. Day’s range, 8.74-24. |
| BAM.PR.I | OpRet | +6.5495% | See BAM.PR.O, above. |
| FFN.PR.A | SplitShare | +6.9900% | Asset coverage of 1.8+:1 as of September 30, according to the company. Now with a pre-tax bid-YTW of 11.13% based on a bid of 7.50 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 7.50-68, 11×13. Day’s range of 7.50-60. |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| TD.PR.P | PerpetualDiscount | 84,503 | TD crossed 75,000 at 20.51. Now with a pre-tax bid-YTW of 6.43% based on a bid of 20.50 and a limitMaturity. |
| BMO.PR.J | PerpetualDiscount | 37,030 | Now with a pre-tax bid-YTW of 6.91% based on a bid of 16.60 and a limitMaturity. |
| BNS.PR.R | FixedReset | 31,800 | RBC bought two lots of 10,000 each from (possible different) anonymous(es). |
| RY.PR.E | PerpetualDiscount | 27,500 | CIBC bought 11,800 at 17.30 from CIBC. Now with a pre-tax bid-YTW of 6.59% based on a bid of 17.41 and a limitMaturity. |
| TD.PR.A | FixedReset | 23,000 | Nesbitt crossed 10,000 at 24.15. |
There were eleven other index-included $25-pv-equivalent issues trading over 10,000 shares today.
Fresh from silencing criticism of FTU.PR.A’s credit quality, Quadravest has issued an extraordinary press release:
Fueled by the intensification of the ongoing credit crisis, world financial markets reached a level of “panic” during the last several weeks which arguably has never been seen by investors on such a global scale.
…
The impact of the broad based selling has adversely impacted the portfolios of Dividend 15 Split Corp. (“Dividend 15”) and Dividend 15 Split Corp. II (“Dividend 15 II”). The net asset values have declined by approximately 21% from August 31, 2008 to October 16, 2008.
…
The portfolio manager continues to view the underlying holdings of Dividend 15 and Dividend 15 II as among the lowest risk companies in Canada. When capital market liquidation slows or ceases and investors return to fundamentals of the underlying companies, we believe the portfolios will be fairly rewarded. High dividend yields, low valuations and significant option premiums available in the market place all bode well for the Dividend 15 and Dividend 15 II portfolios.
Normally it would be up to the brokers to shriek for calm … :
The Manager will pay the Service Fee to each dealer whose clients hold Class A Shares. The Service Fee will be calculated and paid at the end of each calendar quarter and will be equal to 0.50% annually of the value of the Class A Shares held by clients of the dealer. For these purposes, the value of a Class A Share is the Net Asset Value per Unit less $10.00. No Service Fee will be paid in any calendar quarter if regular dividends are not paid to holders of Class A Shares in respect of each month in such calendar quarter.
… but with the NAV down as much as it is, I guess 50bp doesn’t buy what it used to … especially if the dividends for the Class A shareholders are at risk:
No regular monthly dividends will be paid in any year on the Class A Shares so long as any dividends on the Preferred Shares are then in arrears or so long as the Net Asset Value per Unit is equal to or less than $15.00
Oddly, today’s press release did not contain NAV information, but applying the 21% figure to the August month end valuations for DFN and for DF we can derived the following table:
| DF & DFN unit values October 16, 2008 |
|||
| Capital Shares Quote |
Preferred Shares Quote |
NAV (Estimated) |
|
| DF | 7.40-65 | 7.80-94 | 16.04 |
| DFN | 9.81-95 | 8.60-77 | 19.06 |
… so the numbers aren’t really all that bad … but with the recent preciptuous decline in the market price of the capital units:
… I suppose they had to do something!