PrefBlog

The feds’ buddies at the IMF have proposed a new Canadian civil service expansion plan:

Two key steps are worth considering.

First, providing a mandate for macroprudential oversight of the financial system as a whole to a single entity would strengthen accountability and reinforce policymakers’ ability to identify and respond to future potential crises. Such a body should have participation broad enough to “connect the dots” and form a complete and integrated view of systemic risks with powers to collect the required data.

Second, putting in place a coordination framework to support timely decision-making and test the capacity of both federal and provincial authorities to respond to crisis scenarios would benefit crisis preparedness. Extending the institutional arrangements and frameworks along these lines can help support both the capacity and willingness to act, especially at times of financial stress, and strengthen Canada’s financial system and economy.

The loonie had a rough ride today:

The loonie has touched a high point of 79.37 cents (U.S.) and a low of 78.85 cents today, edging closer to its most recent low of 78.22 cents and, arguably, to the 75-cent level that [chief currency strategist of Bank of Nova Scotia] Ms. [Camilla] Sutton and others expect later this year.

By late afternoon, it stood at 78.87 cents.

The U.S. dollar, in turn, is on a roll, spurred on by stronger economic readings that suggest the Federal Reserve will launch its first interest rate hike soon, possibly in June.

Feeding into that were the uncertainties of Europe, specifically the fears over whether Greece could default on its hefty debts or even leave the euro zone.

And equities got hit:

A looming rate hike from the U.S. Federal Reserve is taking its toll on stocks, currencies and commodities. Markets were a sea of red on Tuesday as the Dow Jones industrial average shed more than 333 points, or 1.8 per cent, the S&P 500 fell 1.7 per cent and the S&P/TSX Composite index gave back more than 200 points, or 1.4 per cent.

The U.S. dollar index rose to its highest level since September, 2003, as the euro continued to crumble and the Canadian dollar retreated below 79 cents (U.S.). The U.S. dollar is soaring as investors anticipate the Fed will begin hiking rates some time this year amid consistently strong readings on the country’s labour market.

But the greenback’s surge is raising concerns about the bottom line for corporate America. A strong U.S. dollar poses a headwind for major U.S. multinational companies that generate a substantial portion of their revenues overseas.

My new favourite SEC Commissioner Daniel M. Gallagher really screwed up when talking about the bond markets today:

With a record notional amount of outstanding corporate debt and dealers unable to commit capital and hold significant inventories, there is a real liquidity crisis brewing. The significant risk is that when the Fed starts to hike interest rates, which some tea leaves tell us could happen as early as this June[13] — investors may rush to exit their positions in high yielding and less liquid debt and may have severe difficulty in doing so.

Interestingly, while the biggest banks have cut back on their positions in more risky debt, insurance companies and mutual funds have increased their positions in those assets.[14] These firms have boosted their holdings of corporate and foreign bonds to $5.1 trillion, a 65% increase since the end of 2008.[15] This has offset the $800 billion decline in holdings at banks and securities firms in the same period.[16] Rather than banks holding the inventory, there are now “ballooning bond funds that own more and more risky debt,” and it is unclear how institutional asset managers and their clients will react when interest rates rise.[17]

Although the SEC may not have a silver bullet to address these issues, there are some discrete steps the agency can take to address the liquidity risks that plague the debt markets. For example, the Commission should be looking at all options for facilitating electronic and on-exchange transactions of these products.

Electronic and on-exchange transactions of these products will harm liquidity, not help it; how many times does this need to be pointed out? Exchange trading leads to thinner, more brittle markets; if Gallagher is seeking to find ways in which a 1994-style bond bear market can be experienced in an orderly fashion, he needs to think more about how to encourage bond salesmen, dark markets and deep pools of opportunistic capital.

While this potential liquidity crisis is a serious risk that warrants serious attention, there is a more discrete and addressable issue in the fixed income markets, an issue that disproportionately impacts retail investors. That issue is the lack of transparency. Retail participation in the municipal and corporate bond market is very high: over 70% in the municipal markets and 40% in the corporate markets.[21] And yet, these markets are incredibly opaque to retail investors.

Footnote [21] See Fed Flow of Funds.

It’s not entirely clear where he gets his 40% figure from. If we examine Table L.212 in the Fed Flow of Funds, December 2014 we see that the Fed estimates there are $11,441.4-billion in Corporate and Foreign Bonds outstanding at the end of 14Q3. Classes of holder that might reasonably be classified as retail are:

• Household, 919.2
• Money market mutual funds, 71.1
• Mutual funds, 2,232.3
• Closed-end funds, 77.8
• Exchange-traded funds, 194.4

The total is $3,494.8-billion, which is 30.5% of the total. Maybe he’s also counting

• Private pension funds, 582.5
• State and local govt. retirement funds, 433.4
• Federal government retirement funds, 6.9

This would bring the total to $4,517.6-billion, or 39.5%, which agrees well with his figure.

Regrettably, if he is getting to his 40% figure like that and weeping hysterically over the poor sweet innocent retail investor ravaged by the evil secretive dealers, his argument isn’t even internally consistent. Only the Household holdings, of 919.2-billion, less than 10% of the total outstanding, are being traded by retail; all the rest enjoys the (sometimes dubious!) benefits of professional management and it really doesn’t matter whether or not the finer details of the market are opaque to retail.

I will also point out that share of holdings is by no means equivalent to share of trading. My guess is that retail turnover is lower than institutional turnover, but we’ll leave that question for another day.

If we repeat the exercise for Table L.211, Municipal Securities and Loans, we get a total of $3,631.1-billion, of which:

• Household, 1,557.6
• Money market mutual funds, 278.7
• Mutual funds, 645.4
• Closed-end funds, 84.2
• Exchange-traded funds, 13.4
• Private pension funds, 0
• State and local govt. retirement funds, 0
• Federal government retirement funds, 0

Total $2,579.3-billion, or 71.0%, against his claim of “over 70%”, so I suspect I’ve been able to reproduce his calculation.

Well, fine. Maybe the purpose of the corporate and municipal bond markets is, in fact, not the transfer of investment capital from savers to investors, as I have always (perhaps naively) thought. Maybe the purpose of these markets is “to be fair to Granny”. If this is the case, then the idea of exchange trading makes more sense – but let’s be explicit about this in advance of any rule-making, and let us continually bear in mind that changing the system to favour one group will act to the disadvantage of another group. The loss of liquidity and greater volatility that will result from a greater emphasis on exchange trading will result in increased yields; these increased yields will knock some issuers out of the market by rendering marginally profitable investment opportunities economically unfeasible.

Can we please think about what we’re doing, why we’re doing it, what we want to accomplish and just plain think things through a bit?

He redeems himself somewhat with a jab against FSOC, the Financial Stability Oversight Council:

The SEC is also bringing cases against state and local entities — San Diego, New Jersey, Illinois, and most recently Kansas — for making misleading disclosures about the funding of their pension plans. The failure by municipal issuers to provide adequate disclosures of underfunded pension plans is an unpardonable sin. Politically-powerful state workers’ unions, and state constitutional protections for benefits, make the reduction of these liabilities extremely difficult. The failure to set aside adequate funds to cover these liabilities creates a material risk that future payments to bondholders would need to be sacrificed. This risk is not merely theoretical; we have seen it play out already in Detroit’s bankruptcy.[30] Pension liabilities are a true systemic risk, but don’t hold your breath waiting for FSOC to address it. They are probably too busy with Stage 3 assessments of lemonade stands anyway![31]

Footnote [31] I’ll spare you the suspense. Lemonade stands will be designated as systemically important. Expert forecasts of global warming’s effects on summer temperatures create a risk that the sudden withdrawal of sweet, tangy liquid relief from the U.S. financial system could cause a sudden collapse. If you doubt me, this is at least as plausible as FSOC’s designation of insurance companies.

TransAlta Corporation, proud issuer of TA.PR.D, TA.PR.F, TA.PR.H and TA.PR.J, was confirmed at Pfd-3 by DBRS today:

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Unsecured Debt/Medium-Term Notes rating of TransAlta Corporation (TAC or the Company) at BBB and the Preferred Shares rating at Pfd-3, all with Stable trends. The confirmations are based on DBRS’s expectation that TAC will further improve its relatively constrained key credit metrics over the near term to be more in line with the current rating category. Moreover, DBRS notes that TAC’s ratings reflect its high level of contracted output, strong position in the Alberta (the Province) market and reasonable level of geographic and fuel diversification, while also factoring in unplanned outage risks, the challenging wholesale market conditions over the next several years and TAC’s merchant exposure (including post-2020 power purchase agreement expiries in Alberta).

It was a poor day for the Canadian preferred share market, with PerpetualDiscounts losing 38bp, FixedResets down 12bp and DeemedRetractibles off 5bp. The Performance Highlights table is relatively short (by recent standards), with losing Floaters being prominent. Volume was above average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.05 to be $0.50 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.75 to be $0.51 cheap.

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

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 21.89 to be $0.36 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.20 and appears to be $0.49 rich.

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.36, looks $1.68 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.71 and is $1.13 rich.

The cancellation of the previously announced deflationary environment had an immediate effect on the implied three month bill rate, with investment-grade pairs predicting an average over the next five years of a whopping 0.10%

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-3.4850 %	2,324.8
FixedFloater	0.00 %	0.00 %	0	0.00	0	-3.4850 %	4,064.7
Floater	3.24 %	3.22 %	72,163	19.11	3	-3.4850 %	2,471.4
OpRet	4.07 %	0.98 %	106,820	0.28	1	-0.0397 %	2,764.8
SplitShare	4.48 %	4.62 %	56,197	4.45	5	-0.0359 %	3,206.5
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0397 %	2,528.1
Perpetual-Premium	5.29 %	0.84 %	56,545	0.08	25	-0.0391 %	2,519.9
Perpetual-Discount	4.98 %	5.02 %	154,748	15.40	9	-0.3764 %	2,793.8
FixedReset	4.41 %	3.65 %	233,337	16.51	81	-0.1167 %	2,421.1
Deemed-Retractible	4.91 %	0.14 %	106,338	0.14	37	-0.0491 %	2,655.2
FloatingReset	2.54 %	2.98 %	85,831	6.32	8	-0.2352 %	2,329.9

Performance Highlights
Issue	Index	Change	Notes
BAM.PR.K	Floater	-6.75 %	Not real. The closing bid was 14.79, compared to a day’s range of 15.56-03, so the reported bid is about 5% below the day’s low. It is not clear whether this is due to inadequate Toronto Stock Exchange reporting or inadequate Toronto Stock Exchange supervision of market-makers. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 14.79 Evaluated at bid price : 14.79 Bid-YTW : 3.41 %
BAM.PR.C	Floater	-1.88 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 15.65 Evaluated at bid price : 15.65 Bid-YTW : 3.22 %
BAM.PR.B	Floater	-1.86 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 15.81 Evaluated at bid price : 15.81 Bid-YTW : 3.19 %
FTS.PR.H	FixedReset	-1.80 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 16.36 Evaluated at bid price : 16.36 Bid-YTW : 3.66 %
BAM.PR.N	Perpetual-Discount	-1.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 22.66 Evaluated at bid price : 23.00 Bid-YTW : 5.24 %
BAM.PF.A	FixedReset	-1.09 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 23.41 Evaluated at bid price : 25.34 Bid-YTW : 3.82 %
BAM.PR.R	FixedReset	-1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 21.53 Evaluated at bid price : 21.89 Bid-YTW : 3.90 %
CIU.PR.C	FixedReset	5.78 %	A rebound from yesterday’s poor reported performance. There was also a problem on March 2 / March 3. This nonsense is brought to you courtesy of the Toronto Stock Exchange. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 16.65 Evaluated at bid price : 16.65 Bid-YTW : 3.58 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PF.D	FixedReset	777,595	New issue settled today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 23.12 Evaluated at bid price : 24.95 Bid-YTW : 3.57 %
BMO.PR.S	FixedReset	93,075	TD crossed 30,000 at 24.97; RBC crossed 49,200 at 24.95. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 23.19 Evaluated at bid price : 24.89 Bid-YTW : 3.31 %
RY.PR.Z	FixedReset	59,122	Scotia crossed 50,000 at 24.85. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 23.14 Evaluated at bid price : 24.75 Bid-YTW : 3.23 %
ENB.PR.P	FixedReset	53,541	TD crossed 25,000 at 20.65. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 20.68 Evaluated at bid price : 20.68 Bid-YTW : 4.32 %
CM.PR.P	FixedReset	47,505	TD crossed 35,000 at 24.55. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 23.01 Evaluated at bid price : 24.55 Bid-YTW : 3.23 %
BMO.PR.T	FixedReset	47,178	TD crossed 30,000 at 24.67. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 23.07 Evaluated at bid price : 24.63 Bid-YTW : 3.27 %
There were 39 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PR.K	Floater	Quote: 14.79 – 15.90 Spot Rate : 1.1100 Average : 0.6382 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 14.79 Evaluated at bid price : 14.79 Bid-YTW : 3.41 %
TRP.PR.F	FloatingReset	Quote: 18.65 – 19.39 Spot Rate : 0.7400 Average : 0.5073 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 18.65 Evaluated at bid price : 18.65 Bid-YTW : 3.33 %
MFC.PR.M	FixedReset	Quote: 24.20 – 24.60 Spot Rate : 0.4000 Average : 0.2528 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.20 Bid-YTW : 4.00 %
GWO.PR.I	Deemed-Retractible	Quote: 24.00 – 24.50 Spot Rate : 0.5000 Average : 0.3542 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 5.01 %
BAM.PR.N	Perpetual-Discount	Quote: 23.00 – 23.34 Spot Rate : 0.3400 Average : 0.2297 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-10 Maturity Price : 22.66 Evaluated at bid price : 23.00 Bid-YTW : 5.24 %
MFC.PR.H	FixedReset	Quote: 25.75 – 26.05 Spot Rate : 0.3000 Average : 0.2051 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.75 Bid-YTW : 3.01 %

There’s a bit more colour about the effect of the US jobs number, discussed March 6 on the treasury long bond:

Since hitting an all-time low of 2.22 percent on Jan. 30, Treasury 30-year bond yields have posted the biggest five-week jump in six years as better-than-forecast employment growth led investors to pull forward wagers for the Federal Reserve to raise interest rates.
…
The 30-year bond yield rose 25 basis points, or 0.25 percentage point, this week to 2.84 percent, according to Bloomberg Bond Trader prices.

That pushed the yield increase to 62 basis points since January. The move is the biggest since a 1 percentage point rise in the five weeks ended Jan. 30, 2009, after the Fed said it was considering buying Treasuries to help stimulate economic growth.
…
Yields soared March 6 after the Labor Department reported the U.S. added 295,000 jobs last month, compared with a forecast for a 235,000 gain in a Bloomberg survey. The unemployment rate fell to 5.5 percent, an almost seven-year low, from 5.7 percent.

It was 12th straight month payrolls have increased by at least 200,000, the best run since March 1995. Payrolls rose 3.1 million in 2014, the most in 15 years.

And some colour on the effect of the suspension of Canadian forward guidance:

Pacific Investment Management Co.’s Ed Devlin is getting out of Canadian government bonds, and Bank of Canada Governor Stephen Poloz is the reason why.

Mr. Devlin, who oversees about $17-billion (U.S.), including the Canadian portfolios for the world’s biggest manager of bond funds, said higher yields are needed to compensate for the risk of buying debt whipsawed by Mr. Poloz’s policy pronouncements.

“Investors should require a bigger risk premium to invest in these bonds,” Mr. Devlin said by phone from Los Angeles on Friday. “If you don’t know what they’re going to do, you should get paid more money to invest in them than if they were fairly predictable.”

And there are the usual arguments about this:

Gluskin-Sheff chief economist David Rosenberg said last week the confusion was putting the Bank of Canada’s credibility at risk.

“The fact that they decided to stop offering guidance and start serving up confusion makes me gun-shy about making a call,” Rosenberg told Bloomberg. “If you’re trying to promote economic growth, you probably don’t want to generate too much volatility in the financial markets to achieve that goal.”

But [Dominion Lending Centres Chief Economist Sherry] Cooper says Bay Street should spend more time watching the data, instead of obsessing about what the bank will do.

“What caused this hissy fit on Bay Street was the economists were wrong,” Cooper wrote in a note. “No one expected the rate cut, so caught with their proverbial pants down, the pundits dumped on Poloz for having misled them.”

Cooper said not only was Poloz right to cut rates, but she also sees no reason why the central bank should “telegraph rate moves in advance.”

“The lamentation over the loss of ‘forward guidance’ is pathetic .… Everyone knows that central bank action is data dependent. When the data surprise, all bets are off,” she wrote.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 15bp, FixedResets down 21bp and DeemedRetractibles gaining 3bp. Volatility was down from the levels we’ve generally seen for the past three months. Volume was low.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.14 to be $1.20 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.07 cheap at its bid price of 24.75.

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 23.91 to be $0.34 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.91 to be $0.38 cheap.

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

The cheapest issue relative to its peers is BAM.PR.Z, resetting at +296bp on 2017-12-31, bid at 25.26 to be $0.45 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.42 and appears to be $0.61 rich.

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.66, looks $1.56 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.77 and is $1.04 rich.

The cancellation of the previously announced deflationary environment had an immediate effect on the implied three month bill rate, with investment-grade pairs predicting an average over the next five years of a whopping 0.10%.

Not shown is the DC.PR.B / DC.PR.D pair, which implies an average rate of negative 1.77% until its exchange date 2019-9-30.

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.4777 %	2,408.7
FixedFloater	0.00 %	0.00 %	0	0.00	0	-0.4777 %	4,211.5
Floater	3.12 %	3.16 %	73,188	19.26	3	-0.4777 %	2,560.6
OpRet	4.07 %	0.83 %	105,283	0.28	1	0.0000 %	2,765.8
SplitShare	4.48 %	4.60 %	56,172	4.45	5	0.0080 %	3,207.6
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0000 %	2,529.1
Perpetual-Premium	5.29 %	-0.36 %	56,628	0.08	25	-0.0454 %	2,520.9
Perpetual-Discount	4.96 %	5.03 %	154,171	15.08	9	-0.1531 %	2,804.3
FixedReset	4.42 %	3.64 %	233,557	16.51	80	-0.2081 %	2,423.9
Deemed-Retractible	4.90 %	0.02 %	105,071	0.14	37	0.0277 %	2,656.5
FloatingReset	2.53 %	2.91 %	87,195	6.33	8	-0.0854 %	2,335.4

Performance Highlights
Issue	Index	Change	Notes
CIU.PR.C	FixedReset	-4.61 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-09 Maturity Price : 15.74 Evaluated at bid price : 15.74 Bid-YTW : 3.79 %
BAM.PR.Z	FixedReset	-1.71 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-09 Maturity Price : 23.50 Evaluated at bid price : 25.26 Bid-YTW : 3.92 %
TRP.PR.A	FixedReset	-1.21 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-09 Maturity Price : 19.62 Evaluated at bid price : 19.62 Bid-YTW : 3.76 %
PWF.PR.P	FixedReset	-1.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-09 Maturity Price : 18.65 Evaluated at bid price : 18.65 Bid-YTW : 3.53 %
VNR.PR.A	FixedReset	1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-09 Maturity Price : 23.30 Evaluated at bid price : 24.61 Bid-YTW : 3.84 %
BAM.PR.X	FixedReset	1.93 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-09 Maturity Price : 19.04 Evaluated at bid price : 19.04 Bid-YTW : 3.95 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.G	Perpetual-Premium	352,980	Called for redemption 2015-4-30 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-08 Maturity Price : 25.00 Evaluated at bid price : 25.28 Bid-YTW : -1.38 %
RY.PR.W	Perpetual-Premium	85,708	Nesbitt crossed 85,000 at 25.30. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-08 Maturity Price : 25.00 Evaluated at bid price : 25.24 Bid-YTW : -4.58 %
OSP.PR.A	SplitShare	66,500	Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2020-03-31 Maturity Price : 10.00 Evaluated at bid price : 10.21 Bid-YTW : 4.60 %
RY.PR.A	Deemed-Retractible	35,817	YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-08 Maturity Price : 25.25 Evaluated at bid price : 25.56 Bid-YTW : -8.38 %
RY.PR.J	FixedReset	33,480	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-09 Maturity Price : 23.14 Evaluated at bid price : 24.98 Bid-YTW : 3.55 %
BAM.PR.X	FixedReset	30,317	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-09 Maturity Price : 19.04 Evaluated at bid price : 19.04 Bid-YTW : 3.95 %
There were 20 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
CIU.PR.C	FixedReset	Quote: 15.74 – 16.64 Spot Rate : 0.9000 Average : 0.5670 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-09 Maturity Price : 15.74 Evaluated at bid price : 15.74 Bid-YTW : 3.79 %
ENB.PF.G	FixedReset	Quote: 22.21 – 22.70 Spot Rate : 0.4900 Average : 0.3279 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-09 Maturity Price : 21.77 Evaluated at bid price : 22.21 Bid-YTW : 4.31 %
SLF.PR.G	FixedReset	Quote: 17.95 – 18.42 Spot Rate : 0.4700 Average : 0.3253 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.95 Bid-YTW : 6.20 %
PWF.PR.P	FixedReset	Quote: 18.65 – 18.98 Spot Rate : 0.3300 Average : 0.2528 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-09 Maturity Price : 18.65 Evaluated at bid price : 18.65 Bid-YTW : 3.53 %
TRP.PR.A	FixedReset	Quote: 19.62 – 19.90 Spot Rate : 0.2800 Average : 0.2046 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-09 Maturity Price : 19.62 Evaluated at bid price : 19.62 Bid-YTW : 3.76 %
PVS.PR.C	SplitShare	Quote: 25.07 – 25.30 Spot Rate : 0.2300 Average : 0.1589 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2017-12-10 Maturity Price : 25.00 Evaluated at bid price : 25.07 Bid-YTW : 4.77 %

Jobs, jobs, jobs!

The U.S. job-creation machine kept exceeding expectations in February. Wages continued to disappoint.

Employers added 295,000 workers to payrolls last month, more than forecast, and the unemployment rate dropped to 5.5 percent, the lowest in almost seven years, figures from the Labor Department showed Friday in Washington. Hourly earnings rose less than forecast.

A lingering appetite to boost headcounts comes as increased purchasing power from cheaper fuel helps drive consumer spending. The jobless rate has now reached the Federal Reserve’s range for what it considers full employment, keeping policy makers on course to raise interest rates this year as persistent job growth sets the stage for a pickup in wages.
…
The median forecast in a Bloomberg survey of economists called for a 235,000 advance in February payrolls. Estimates ranged from 150,000 to 370,000. Employment in January climbed 239,000. The drop in the unemployment rate was also bigger than projected, and down from 5.7 percent in January.

Average hourly earnings rose 0.1 percent from the prior month after advancing 0.5 percent in January, which was the most since November 2008. The median forecast called for a 0.2 percent gain. Earnings were up 2 percent over the past year, also less than projected and matching the increase on average since the expansion began in mid-2009.

So the previously scheduled deflation has been cancelled:

U.S. stocks fell, with the Standard & Poor’s 500 Index tumbling the most in two months, as better-than-forecast jobs data fueled speculation the Federal Reserve is moving closer to raising interest rates.
…
The S&P 500 fell 1.4 percent, the most since Jan. 5, to 2,071.26 at 4 p.m. in New York. The equity gauge lost 1.6 percent for the week. The Dow retreated 278.94 points, or 1.5 percent, to 17,856.78 for its worst drop in five weeks. The Nasdaq Composite Index slipped 1.1 percent. More than 7.4 billion shares changed hands on U.S. exchanges, 7.2 percent above the 30-day average.
…
Utility companies in the S&P 500 tumbled 3.1 percent. Selling picked up in the industry as the rate on 10-year Treasury notes spiked 13 basis points to 2.25 percent, the highest this year. The group’s dividend yield of 3.7 percent is the second-highest in the index.

AllBanc Split Corp., proud issuer of ABK.PR.C, was confirmed at Pfd-2 by DBRS:

Since the last rating action in March 2014, the net asset value of the Company has been slightly volatile, mirroring the performance of Canadian banks over the past year. However, downside protection rose from 60.1% on February 20, 2014, to 62.6% as of February 26, 2015. As a result, the rating of the Class C Preferred Shares has been confirmed at Pfd-2.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 9bp, FixedResets gaining 26bp and DeemedRetractibles down 15bp. The Performance Highlights table is its usual lengthy self. Volume was high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.14 to be $1.18 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.10 cheap at its bid price of 24.71.

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 24.91 to be $0.30 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.88 to be $0.47 cheap.

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

The cheapest issue relative to its peers is BAM.PF.X, resetting at +188bp on 2017-6-30, bid at 18.68 to be $0.17 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.45 and appears to be $0.68 rich.

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.70, looks $1.51 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.80 and is $1.13 rich.

The cancellation of the previously announced deflationary environment had an immediate effect on the implied three month bill rate, with investment-grade pairs predicting an average over the next five years of a whopping 0.10%.

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	0.9857 %	2,420.3
FixedFloater	0.00 %	0.00 %	0	0.00	0	0.9857 %	4,231.7
Floater	3.11 %	3.14 %	75,974	19.31	3	0.9857 %	2,572.9
OpRet	4.07 %	0.80 %	106,402	0.29	1	0.0794 %	2,765.8
SplitShare	4.48 %	4.54 %	56,213	4.46	5	0.0080 %	3,207.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0794 %	2,529.1
Perpetual-Premium	5.29 %	-0.78 %	54,523	0.08	25	0.0360 %	2,522.1
Perpetual-Discount	4.95 %	5.03 %	155,274	15.09	9	-0.0927 %	2,808.6
FixedReset	4.41 %	3.43 %	236,285	16.83	80	0.2630 %	2,429.0
Deemed-Retractible	4.90 %	-0.16 %	105,040	0.15	37	-0.1502 %	2,655.8
FloatingReset	2.50 %	2.88 %	90,150	6.34	8	-0.1440 %	2,337.4

Performance Highlights
Issue	Index	Change	Notes
TRP.PR.F	FloatingReset	-3.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 18.81 Evaluated at bid price : 18.81 Bid-YTW : 3.26 %
SLF.PR.H	FixedReset	-1.41 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.38 Bid-YTW : 4.40 %
MFC.PR.B	Deemed-Retractible	-1.14 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.32 Bid-YTW : 5.01 %
BNS.PR.Z	FixedReset	1.08 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.30 Bid-YTW : 3.51 %
IAG.PR.G	FixedReset	1.21 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.92 Bid-YTW : 2.53 %
ENB.PR.H	FixedReset	1.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 18.63 Evaluated at bid price : 18.63 Bid-YTW : 4.17 %
BAM.PR.C	Floater	1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 16.05 Evaluated at bid price : 16.05 Bid-YTW : 3.14 %
MFC.PR.K	FixedReset	1.27 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 3.79 %
ENB.PR.B	FixedReset	1.47 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 19.31 Evaluated at bid price : 19.31 Bid-YTW : 4.25 %
HSE.PR.A	FixedReset	1.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 17.78 Evaluated at bid price : 17.78 Bid-YTW : 3.73 %
BMO.PR.Q	FixedReset	1.53 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.25 Bid-YTW : 3.53 %
CM.PR.P	FixedReset	1.55 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 23.02 Evaluated at bid price : 24.59 Bid-YTW : 3.09 %
PWF.PR.P	FixedReset	1.84 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 18.84 Evaluated at bid price : 18.84 Bid-YTW : 3.28 %
MFC.PR.F	FixedReset	2.58 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.90 Bid-YTW : 5.10 %
IFC.PR.A	FixedReset	3.38 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.78 Bid-YTW : 5.37 %

Volume Highlights
Issue	Index	Shares Traded	Notes
RY.PR.J	FixedReset	105,427	TD bought blocks of 12,600 and 11,400 from anonymous, both at 25.05. Nesbitt bought 10,000 from anonymous at 25.03. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 23.15 Evaluated at bid price : 25.02 Bid-YTW : 3.42 %
ENB.PR.B	FixedReset	74,341	TD crossed 50,000 at 19.20. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 19.31 Evaluated at bid price : 19.31 Bid-YTW : 4.25 %
TRP.PR.G	FixedReset	49,200	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 23.02 Evaluated at bid price : 24.71 Bid-YTW : 3.69 %
BNS.PR.Y	FixedReset	48,813	To be extended. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.40 Bid-YTW : 3.58 %
RY.PR.A	Deemed-Retractible	31,651	RBC crossed 11,500 at 25.59. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-05 Maturity Price : 25.25 Evaluated at bid price : 25.50 Bid-YTW : -6.04 %
BAM.PR.X	FixedReset	29,945	RBC bought 17,900 from TD at 18.79. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 18.68 Evaluated at bid price : 18.68 Bid-YTW : 3.83 %
There were 44 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
MFC.PR.F	FixedReset	Quote: 19.90 – 20.48 Spot Rate : 0.5800 Average : 0.3639 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.90 Bid-YTW : 5.10 %
PWF.PR.S	Perpetual-Discount	Quote: 25.13 – 25.58 Spot Rate : 0.4500 Average : 0.2779 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 24.70 Evaluated at bid price : 25.13 Bid-YTW : 4.81 %
RY.PR.F	Deemed-Retractible	Quote: 25.53 – 26.08 Spot Rate : 0.5500 Average : 0.4084 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-05-24 Maturity Price : 25.25 Evaluated at bid price : 25.53 Bid-YTW : -0.16 %
FTS.PR.J	Perpetual-Premium	Quote: 25.05 – 25.37 Spot Rate : 0.3200 Average : 0.2125 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 24.62 Evaluated at bid price : 25.05 Bid-YTW : 4.75 %
BAM.PF.A	FixedReset	Quote: 25.60 – 25.91 Spot Rate : 0.3100 Average : 0.2094 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 23.49 Evaluated at bid price : 25.60 Bid-YTW : 3.63 %
ENB.PR.H	FixedReset	Quote: 18.63 – 18.92 Spot Rate : 0.2900 Average : 0.1991 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 18.63 Evaluated at bid price : 18.63 Bid-YTW : 4.17 %

Canadians are loading up on debt:

Canadians have taken on $80-billion worth of mortgages, personal loans and credit card debt in the past year, Royal Bank of Canada found, with much of that growth coming in the past three months. Household debt totalled $1.82-trillion in January, eclipsing the country’s GDP, which stood at an annualized $1.65-trillion in December.

Most of the growth came from new residential mortgages, which rose 5.4 per cent in January compared to a year earlier, to nearly $1.3-trillion.
…
Homeowners weren’t the only ones taking on new debt. Business credit jumped 8.3 per cent in January, the fastest rate of expansion since 2007 as worries over the oil sector pushed more companies toward short-term loans, RBC said.

With all that, it’s a good thing we’ve all got good jobs!

Several reports have concluded that the country’s job market is not as strong as it looks and now a study from Canadian Imperial Bank of Commerce paints an even worse picture. According to the bank’s analysis, job quality has fallen to its lowest level in more than two decades. A CIBC index that measures 25 years worth of data on part-time versus full-time work, paid versus self-employment and compensation trends, has fallen to its lowest level on record.
…
One notable shift is that a smaller portion of the labour market now has higher bargaining power, or high-paying jobs, while a larger segment has lower bargaining power, [Benjamin Tal, CIBC’s deputy chief economist,] said. “This is the main reason why the income gap is rising, which I believe is the number one economic, social issue facing the country in this decade.”

The CIBC index tracks three components, all of which are showing a deterioration. The first indicated that the number of part-time positions has risen “much faster” than that of full-time jobs since the 1980s. (Over the past year, though, some of this has reversed as full-time jobs rose faster). Self-employment is another measure, as economists tend to view it as less stable and, on average, lower paying than salaried employment. The number of self-employed workers has been on a “steeper incline” over the past 25 years, and in the past year grew four times faster than the number of paid employees, the CIBC report said.

On compensation, the bank said low-paying full-time jobs have risen faster than mid-paying jobs over much of the past two decades, which in turn have risen more quickly than high-paying jobs. And in the past year “the job-creation gap between low- and high-paying jobs has widened,” with low-wage full-time paid positions rising at twice the pace of high-paying jobs.

Mark Cuban may not be the most academic of sources, but he probably knows more than I do about the problems of angel investors:

For those who can’t figure out how to be Angels. You can sign up to be part of the new excitement called Equity Crowd Funding. Equity Crowd Funding allows you to join the masses to chase investments with as little as 5k dollars. Oh the possibilities !!

I have absolutely not doubt in my mind that most of these individual Angels and crowd funders are currently under water in their investments. Absolutely none. I say most. The percentage could be higher

Why ?

Because there is ZERO liquidity for any of those investments. None. Zero. Zip.

All those Angel investments in all those apps and startups. All that crowdfunded equity. All in search of their unicorn because the only real salvation right now is an exit or cash pay out from operations. The SEC made sure that there is no market for any of these companies to go public and create liquidity for their Angels. The market for sub 25mm dollar raises is effectively dead. DOA . Gone. Thanks SEC. And with the new Equity CrowdFunding rules yet to be finalized, there is no reason to believe that the SEC will be smart enough to create some form of liquidity for all those widows and orphans who will put their $5k into the dream only to realize they can’t get any cash back when they need money to fix their car.

Longevity risk has been a fascination of mine over the past few years; it was briefly mentioned yesterday. But there are interesting wrinkles with respect to women:

Black women have a much higher mortality rate, but it has declined significantly—23 percent since 1999. Hispanic women also posted declines. (Hispanics of all age groups, both men and women, have lower mortality rates than average, a demographic phenomenon known as the Hispanic paradox.)

Part of the jump in the death rate for whites is explained by the epidemic of prescription painkiller abuse and overdoses that disproportionately affected whites. But that accounts for only half the total increase, according to the report. Other causes of death on the rise include suicide and respiratory disease. Some declined, including traffic deaths, homicides, and the cancers most closely linked to smoking.
…
The pattern may reflect “a systematic reversal in the long-term trend of mortality decline” for white women, according to the Urban Institute paper. Such a shift could be linked to social and economic circumstances. Poorer people generally have poorer health for a variety of reasons, and growing inequality could be weighing on death rates.

“It’s possible that as this group of women ages, there could be a reversal of a very long-term decline in the death rate,” said Nan Marie Astone, a senior fellow at the Urban Institute and the lead author of the report. America isn’t really used to the idea of declining life expectancy. The next few decades might change that.

 

It was a quiet, mixed day for the Canadian preferred share market, with PerpetualDiscounts off 7bp, FixedResets down 8bp and DeemedRetractibles gaining 1bp. Enbridge FixedResets were prominent in the bad part of the Performance Highlights table. Volume was quite high, with eight issues breaking the 100,000 barrier.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.37 to be $1.38 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.16 cheap at its bid price of 24.70.

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.M, resetting at +236 on 2019-12-19, bid at 24.61 to be $0.34 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.85 to be $0.55 cheap.

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

The cheapest issue relative to its peers is BAM.PF.F, resetting at +286bp on 2019-9-30, bid at 25.117 to be $0.26 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.30 and appears to be $0.54 rich.

This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 16.74, looks $1.48 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.79 and is $1.06 rich.

This is rather odd – the investment grade break-even rates are clustered around zero, with one outlier: the TRP.PR.A / TRP.PR.F pair, clocking in at more realistic 1.04%.

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

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	0.00 %	0.00 %	0	0.00	0	-0.2093 %	2,396.6
FixedFloater	0.00 %	0.00 %	0	0.00	0	-0.2093 %	4,190.4
Floater	3.14 %	3.18 %	76,141	19.22	3	-0.2093 %	2,547.8
OpRet	4.07 %	1.07 %	107,355	0.29	1	0.0397 %	2,763.7
SplitShare	4.48 %	4.59 %	56,421	4.46	5	0.1638 %	3,207.1
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0397 %	2,527.1
Perpetual-Premium	5.29 %	-2.04 %	56,570	0.08	25	-0.0219 %	2,521.2
Perpetual-Discount	4.95 %	5.02 %	156,320	15.09	9	-0.0695 %	2,811.2
FixedReset	4.42 %	3.50 %	238,534	16.75	80	-0.0803 %	2,422.6
Deemed-Retractible	4.90 %	0.02 %	106,692	0.09	37	0.0085 %	2,659.8
FloatingReset	2.50 %	2.92 %	90,513	6.35	8	-0.3666 %	2,340.7

Performance Highlights
Issue	Index	Change	Notes
ENB.PF.G	FixedReset	-2.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 21.89 Evaluated at bid price : 22.40 Bid-YTW : 4.12 %
TRP.PR.F	FloatingReset	-2.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 19.40 Evaluated at bid price : 19.40 Bid-YTW : 3.16 %
ENB.PF.A	FixedReset	-1.72 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 21.89 Evaluated at bid price : 22.35 Bid-YTW : 4.08 %
ENB.PF.C	FixedReset	-1.63 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 21.87 Evaluated at bid price : 22.33 Bid-YTW : 4.08 %
TRP.PR.E	FixedReset	-1.54 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 22.96 Evaluated at bid price : 24.37 Bid-YTW : 3.38 %
IFC.PR.A	FixedReset	-1.52 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.10 Bid-YTW : 5.79 %
BAM.PR.T	FixedReset	-1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 21.75 Evaluated at bid price : 22.23 Bid-YTW : 3.65 %
PWF.PR.T	FixedReset	-1.20 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 23.19 Evaluated at bid price : 24.80 Bid-YTW : 3.26 %
ENB.PF.E	FixedReset	-1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 21.93 Evaluated at bid price : 22.44 Bid-YTW : 4.09 %
BAM.PF.A	FixedReset	1.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 23.47 Evaluated at bid price : 25.55 Bid-YTW : 3.64 %
GWO.PR.N	FixedReset	1.37 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.50 Bid-YTW : 5.64 %
TRP.PR.B	FixedReset	1.62 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 15.09 Evaluated at bid price : 15.09 Bid-YTW : 3.41 %
SLF.PR.G	FixedReset	2.14 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.13 Bid-YTW : 5.89 %
BAM.PR.X	FixedReset	2.37 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 18.54 Evaluated at bid price : 18.54 Bid-YTW : 3.86 %
TRP.PR.C	FixedReset	3.81 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 17.71 Evaluated at bid price : 17.71 Bid-YTW : 3.41 %

Volume Highlights
Issue	Index	Shares Traded	Notes
TD.PR.R	Deemed-Retractible	443,286	Called for redemption 2015-4-30. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-30 Maturity Price : 25.50 Evaluated at bid price : 25.80 Bid-YTW : 0.94 %
RY.PR.J	FixedReset	392,232	Scotia crossed blocks of 25,000 and 200,000, both at 25.03. TD crossed 10,000 at 25.06. Nesbitt crossed 55,800 at 25.03; RBC crossed 25,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 23.15 Evaluated at bid price : 25.00 Bid-YTW : 3.42 %
TRP.PR.B	FixedReset	218,647	RBC crossed 176,300 at 15.19. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 15.09 Evaluated at bid price : 15.09 Bid-YTW : 3.41 %
SLF.PR.G	FixedReset	206,510	RBC crossed 177,200 at 18.40. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.13 Bid-YTW : 5.89 %
TRP.PR.G	FixedReset	182,740	Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 23.02 Evaluated at bid price : 24.70 Bid-YTW : 3.69 %
CU.PR.C	FixedReset	146,811	RBC crossed 131,300 at 24.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 23.09 Evaluated at bid price : 23.98 Bid-YTW : 3.34 %
GWO.PR.N	FixedReset	118,601	RBC crossed 100,000 at 18.70. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.50 Bid-YTW : 5.64 %
MFC.PR.N	FixedReset	106,500	Desjardins crossed 100,000 at 24.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.29 Bid-YTW : 3.81 %
There were 45 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
ENB.PF.C	FixedReset	Quote: 22.33 – 22.79 Spot Rate : 0.4600 Average : 0.3158 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 21.87 Evaluated at bid price : 22.33 Bid-YTW : 4.08 %
BNS.PR.B	FloatingReset	Quote: 23.89 – 24.24 Spot Rate : 0.3500 Average : 0.2467 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.89 Bid-YTW : 2.92 %
PWF.PR.E	Perpetual-Premium	Quote: 25.49 – 25.78 Spot Rate : 0.2900 Average : 0.2017 YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-04 Maturity Price : 25.00 Evaluated at bid price : 25.49 Bid-YTW : -11.95 %
CU.PR.C	FixedReset	Quote: 23.98 – 24.44 Spot Rate : 0.4600 Average : 0.3818 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 23.09 Evaluated at bid price : 23.98 Bid-YTW : 3.34 %
BNS.PR.P	FixedReset	Quote: 25.40 – 25.64 Spot Rate : 0.2400 Average : 0.1656 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 2.88 %
ELF.PR.F	Perpetual-Premium	Quote: 25.15 – 25.36 Spot Rate : 0.2100 Average : 0.1406 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-05 Maturity Price : 24.92 Evaluated at bid price : 25.15 Bid-YTW : 5.34 %