Market Action

August 21, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Current Yield (at bid) YTW Average Trading Value Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.37% 4.35% 27,491 16.59 2 -0.6225% 987.0
Fixed-Floater 4.95% 4.23% 260,148 16.56 6 -0.0794% 1,000.7
Floater 4.58% -20.16% 58,479 6.43 5 0.1990% 1,010.1
Op. Retract 4.71% 2.56% 75,564 2.62 18 0.1002% 1,003.1
Split-Share 5.00% 3.45% 55,827 2.75 10 0.0657% 1,004.9
Interest Bearing 6.84% 5.29% 60,479 2.13 7 0.0094% 1,011.8
Perpetual-Premium 5.27% 4.19% 165,201 3.92 42 -0.0314% 1,012.7
Perpetual-Discount 4.72% 4.72% 342,788 13.08 13 -0.0014% 1,020.1
Major Price Changes
Issue Index Change Notes
There were no major price changes in index-listed issues on the day
Volume Highlights
Issue Index Volume Notes
BMO.PR.I OpRet 37,300 Scotia bought 35,000 in three tranches, 2×10,000 from CIBC and 15,000 from Desjardins, all at $25.50. The YTW at 25.45 is 2.23%
BNS.PR.K PerpetualPremium 32,460 BMO bought 27,600 from HSBC in two tranches at 25.50.
TOC.PR.B Floater 24,277 Anonymous bought 23,700 in two tranches (and therefore not necessarily the same anonymous!) from CIBC at 25.50
PWF.PR.L PerpetualPremium 15,108  
GWO.PR.I PerpetualDiscount 14,610  

There were six other index-included issues with volumes of more than 10,000 shares.

 The YTW on RY.PR.K (an operating retractible) went negative today, based on its closing bid of 25.40.

Programme Changes

New HIMIPref™ Release : 2006-08-21

A new version of HIMIPref-2005 has been released via the usual route.

This release allows dividends for one or more accounts to be booked for a specified period automatically – it also allows for immediate cash reversals of these entries for those interested in both performance measurement and keeping the system as strictly a swap-analyzer.

Note that these entries are booked with the ex-date as the trade date of the dividend entry and the pay-date as the value date of the dividend entry.

 

Publications

Research : Yield Ahead

The new (September) issue of Canadian Moneysaver has been released, so now I am releasing the column that was in the old (July/August) one: Yield Ahead.

This article looks at yield calculation and provides a link to an accurate spreadsheet. As all of us know, you can’t use bond calculators to calculate preferred share yields due to the difference in treatment of accrued income on settlement … so, I hope, this article will help small investors be a little more accurate in their pricing.

 Look for the “Research” Link!

Update, 2007-6-10: I sometimes use a reference to this article when talking about Yield-to-Worst, but this calculation is not explicitly described in the article. To find the Yield-to-Worst of a preferred share:

  1. Calculate the Yield-to-Maturity for each call option available to the issuer.
  2. If necessary, adjust this list to reflect the potential for the holder to exercise retraction options to influence the scenario.
  3. The yield-to-worst is the lowest yield in the resultant list.
Market Action

August 18, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Current Yield (at bid) YTW Average Trading Value Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.35% 4.31% 25,733 16.66 2 -0.1003% 993.1
Fixed-Floater 4.95% 4.22% 263,671 16.58 6 -0.1777% 1,001.5
Floater 4.59% -18.52% 58,033 6.44 5 0.0878% 1,008.1
Op. Retract 4.72% 2.95% 75,582 2.62 18 0.0632% 1,002.1
Split-Share 5.01% 3.39% 56,001 2.76 10 0.2879% 1,004.3
Interest Bearing 6.84% 5.16% 60,163 2.14 7 0.0592% 1,011.7
Perpetual-Premium 5.27% 4.22% 167,084 3.83 42 0.1044% 1,013.1
Perpetual-Discount 4.71% 4.73% 348,333 12.34 13 0.2677% 1,020.1
Major Price Changes
Issue Index Change Notes
WFS.PR.A SplitShare +1.4151%  
Volume Highlights
Issue Index Volume Notes
STW.PR.A InterestBearing 380,000 $10 p.v., so not as much as it sounds … but still respectable!
SLF.PR.B PerpetualDiscount 32,570  
PWF.PR.L PerpetualPremium 23,920  
BC.PR.C FixedFloater 22,766  
WN.PR.E PerpetualDiscount 14,053  

There were five other index-included issues with volumes of more than 10,000 shares

HIMIPref News

HIMIPref™ Update : 2006-08-18

7:30 pm EDT The bug on the TSX site is still around … I can only hope that they succeed in their ambition of fixing it on the 21st. In the meantime, I’ll check just after midnight and see if I can download the prices.

2:00 am EDT, 2006-08-19 Prices have been updated. I really hope this gets fixed soon. This is killing me.

Issue Comments

BMO.PR.G

This issue became the only “Operating Retractible” to have a negative bid-Yield-to-Worst (YTW) on August 17, with a bid price of 25.36.

 It was issued in the spring of 1998 and has an annual coupon of $1.20. The option schedule is:

  • Redemption      2005-08-25      2006-08-24  25.500000
  • Redemption      2006-08-25      2007-08-24  25.250000
  • Redemption      2007-08-25   INFINITE DATE  25.000000
  • Retraction      2008-05-25   INFINITE DATE  26.040000

And the calculation of YTW is:

  • Call  2006-09-16 YTM: 10.41 % [Restricted: 0.86 %] (Prob: 12.31 %)
  • Call  2006-09-24 YTM: -0.43 % [Restricted: -0.05 %] (Prob: 9.32 %)
  • Soft Maturity  2008-05-24 YTM: 3.90 % [Restricted: 3.90 %] (Prob: 78.38 %)

And the cash flow for YTW is:

  • 2006-09-24  FINAL DIVIDEND   0.10   1.000451   0.10
  • 2006-09-24        MATURITY  25.25   1.000451  25.26

Which at least has the advantage of being simple!

HIMIPref™ does not consider the investment merits (or lack thereof!) of this issue when evaluating trades – the eligibleForPurchase function returns code “14” :

pseudoModifiedDuration (Worst) of buy side less than minimum setting

In other words, the issue is simple too short-term to be worth bothering with.

With an annual coupon of only $1.20 and with the bank having the chance to save $0.25 by waiting until the end of August, 2007 to redeem these shares, they will probably be around for another year, no matter what the term until the YTW scenario. From an investor’s perspective, however … Who’s putting a bid on these things???? The most likely scenario has the pre-tax cash flow analysis:

  • 2006-11-25        DIVIDEND   0.30   0.989474   0.30
  • 2007-02-25        DIVIDEND   0.30   0.979888   0.29
  • 2007-05-25        DIVIDEND   0.30   0.970703   0.29
  • 2007-08-25        DIVIDEND   0.30   0.961299   0.29
  • 2007-11-25        DIVIDEND   0.30   0.951985   0.29
  • 2008-02-25        DIVIDEND   0.30   0.942762   0.28
  • 2008-05-24  FINAL DIVIDEND   0.29   0.933925   0.27
  • 2008-05-24        MATURITY  25.00   0.933925  23.35
  • Total Cash Flows    27.0924
  • Total Present Value    25.3601
  • Discounting Rate 3.9026 % (Annual rate compounded semi-annually)

which doesn’t look all that great to me!

Update, 2008-9-9: And, as a matter of fact, the issue was called for redemption at par, effective 2007-8-27.

Market Action

August 17, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Current Yield (at bid) YTW Average Trading Value Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.34% 4.31% 25,634 16.67 2 0.1006% 994.1
Fixed-Floater 4.94% 4.15% 266,483 14.04 6 -0.0065% 1,003.3
Floater 4.60% -17.70% 59,040 6.45 5 -0.0158% 1,007.3
Op. Retract 4.72% 3.03% 76,141 2.68 18 0.1490% 1,001.5
Split-Share 5.02% 3.54% 56,030 2.76 10 -0.0527% 1,001.4
Interest Bearing 6.85% 5.31% 60,272 2.14 7 0.0585% 1,011.1
Perpetual-Premium 5.27% 4.19% 169,346 3.87 42 0.0504% 1,012.01
Perpetual-Discount 4.72% 4.75% 352,073 13.79 13 0.0718% 1,017.4
Major Price Changes
Issue Index Change Notes
GWO.PR.E OpRet +1.1459%  
Volume Highlights
Issue Index Volume Notes
GWO.PR.I PerpetualDiscount 498,885  
TD.PR.O PerpetualPremium 87,000  
RY.PR.A PerpetualDiscount 82,400  
SLF.PR.C PerpetualDiscount 57,600  
GWO.PR.H PerpetualDiscount 56,275  

There were ten other index-included issues with volumes of more than 10,000 shares

HIMIPref News

HIMIPref™ Update : 2006-08-17

I have just (8pm EDT) attempted to download the prices and run into the same bug as has plagued operations all week. You have no idea how much I’m looking forward to next Monday, when the TSX says they hope to have their systems fixed! I will update this post as warranted.

August 18, 2006, 12:30 a.m. Prices are in, system is ready to go.

Issue Comments

W.PR.J

This is an interesting issue, a member of the PerpetualPremium index. It’s rated Pfd-2(low) by DBRS, where it was confirmed in their latest review of 2005-09-20. The issue had a closing quotation of 25.22-35 on the TSX on 2006-08-16.

The redemption schedule is:

  • Redemption      2004-07-15      2005-07-14  26.000000
  • Redemption      2005-07-15      2006-07-14  25.750000
  • Redemption      2006-07-15      2007-07-14  25.500000
  • Redemption      2007-07-15      2008-07-14  25.250000
  • Redemption      2008-07-15      2999-12-29  25.000000

so it is currently trading at a discount to its current redemption price, but at a discount to its future redemption price.
Analysis of the schedule and its current price gives this calculation for portfolioYield (from the bid-side of the market):

  • Call  2006-09-15 YTM: 26.33 % [Restricted: 2.16 %] (Prob: 10.32 %)
  • Call  2006-10-15 YTM: 15.67 % [Restricted: 2.57 %] (Prob: 5.69 %)
  • Call  2006-12-14 YTM: 10.54 % [Restricted: 3.46 %] (Prob: 5.64 %)
  • Call  2007-04-13 YTM: 8.02 % [Restricted: 5.27 %] (Prob: 5.05 %)
  • Call  2007-08-14 YTM: 6.23 % [Restricted: 6.19 %] (Prob: 7.39 %)
  • Call  2008-08-14 YTM: 5.42 % [Restricted: 5.42 %] (Prob: 7.06 %) 
  • Limit Maturity  2036-08-16 YTM: 5.60 % [Restricted: 5.60 %] (Prob: 58.87 %)

and the cash flow analysis of the YTW scenario is:

  • 2006-10-15        DIVIDEND   0.35   0.991246   0.35
  • 2007-01-15        DIVIDEND   0.35   0.977971   0.34
  • 2007-04-15        DIVIDEND   0.35   0.965158   0.34
  • 2007-07-15        DIVIDEND   0.35   0.952372   0.33
  • 2007-10-15        DIVIDEND   0.35   0.939618   0.33
  • 2008-01-15        DIVIDEND   0.35   0.927035   0.32
  • 2008-04-15        DIVIDEND   0.35   0.914755   0.32
  • 2008-07-15        DIVIDEND   0.35   0.902637   0.32
  • 2008-08-14  FINAL DIVIDEND   0.11   0.898677   0.10
  • 2008-08-14        MATURITY  25.00   0.898677  22.47

The averageTradingValue of the shares (as defined by HIMIPref™) is only 34,088 … too small to attract institutional players, but quite large enough for the occasional retail purchaser.

The issue now has the highest YTW of any issue in the HIMI Proprietary PerpetualPremium index – even if we measure the YTW from the ask price of 25.35.

 

Market Action

August 16, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Current Yield (at bid) YTW Average Trading Value Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.34% 4.31% 25,731 16.67 2 -0.5379% 993.1
Fixed-Floater 4.94% 4.13% 267,651 14.04 6 -0.0592% 1,003.4
Floater 4.60% -18.01% 58,912 6.44 5 -0.0392% 1,007.4
Op. Retract 4.73% 3.31% 75,942 2.77 18 -0.0043% 1,000.0
Split-Share 5.01% 3.61% 56,434 2.77 10 0.0166% 1,001.9
Interest Bearing 6.85% 5.39% 60,756 2.14 7 0.0090% 1,010.5
Perpetual-Premium 5.28% 4.21% 170,187 3.94 42 0.1012% 1,011.5
Perpetual-Discount 4.72% 4.75% 349,324 13.79 13 0.0822% 1,016.7
Major Price Changes
Issue Index Change Notes
ACO.PR.A OpRet -1.4953%  
MFC.PR.C PerpetualDiscount +1.0309%  
Volume Highlights
Issue Index Volume Notes
RY.PR.A PerpetualDiscount 257,700  
CM.PR.G PerpetualPremium 203,000  
HSB.PR.D PerpetualPremium 202,600  
PWF.PR.L PerpetualDiscount 55,826  
POW.PR.C PerpetualPremium 31,090  

There were nine other index-included issues with volumes of more than 10,000 shares