PrefBlog

TXPR closed at 570.98, down 1.50% on the day. Volume today was 2.06-million, above the median of the past 21 trading days.

CPD closed at 11.43, down 0.87% on the day. Volume was 68,410, above the median of the past 21 trading days.

ZPR closed at 9.72, down 1.12% on the day. Volume was 203,040, fourth-highest of the past 21 trading days.

Five-year Canada yields were up to 3.37%.

The day was enlivened by the announcement that IAF.PR.B, a heavily discounted Straight Perpetual, would quite possibly get redeemed. It was enlivened even more by the fact that dissemination of this news was not quite as even-handed as might be considered ideal. Still, it’s entertaining to see a not-insignificant issuer make such a declaration that the preferred share market is cheap, cheap, cheap on the same day that prices fell through the floor.

There are worries about liquidity … in the Treasuries market:

U.S. bond market participants are worried market liquidity will keep deteriorating as the U.S. Treasury continues to issue large amounts of debt to back deficit spending while dealers struggle to keep up with the ballooning size of the market.

Liquidity – or the ability to trade an asset without significantly moving its price – has worsened over the past few years. U.S. government bond prices have fluctuated sharply since the Federal Reserve started hiking interest rates to tame inflation and the issue was discussed during several panels at the Fixed Income Leaders Summit event in Boston on June 13-14.

Regulators and the Treasury itself have launched a slate of reforms to improve trading conditions and avoid disruptions in the world’s biggest bond market, the bedrock of the global financial system. Still, many are concerned that vulnerabilities that emerged in previous incidents, such as in March 2020 when liquidity rapidly deteriorated amid pandemic fears, could still reappear in case of spikes in volatility and as demand struggles to keep up with supply.
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New York Fed researchers said in a paper last year that yield volatility explains most of the variation in Treasury market liquidity. But they also noted “a significant loss in U.S. Treasury market functionality when intensive use of dealer balance sheets is needed to intermediate bond markets, as in March 2020.”

TXPR closed at 579.69, down 0.66% on the day. Volume today was 1.41-million, below the median of the past 21 trading days.

CPD closed at 11.53, down 0.35% on the day. Volume was 44,560, third-lowest of the past 21 trading days.

ZPR closed at 9.83, down 0.20% on the day. Volume was 144,200, near the median of the past 21 trading days.

Five-year Canada yields were down to 3.34%.

Well, that’s been a day of interest! My server-guy bricked my website server this morning and I’ve been without eMail and uncertain about when anything would come back; and all this on a PrefLetter weekend! Things appear to OK … for now.

TXPR closed at 583.56, down 0.72% on the day. Volume today was 2.26-million, fourth-highest of the past 21 trading days.

CPD closed at 11.57, down 0.94% on the day. Volume was 59,790, slightly above the median of the past 21 trading days.

ZPR closed at 9.85, down 1.20% on the day. Volume was 127,530, near the median by far of the past 21 trading days.

Five-year Canada yields were down to 3.38%.

So, US inflation was announced today:

Overall inflation cooled: The Consumer Price Index for May was up 3.3 percent from a year earlier, lower than the 3.4 percent economists had forecast and down from the April reading. And if you compared May prices just to the previous month, they did not climb at all.

“Core” inflation also slowed: A closely watched measure that strips out volatile food and fuel prices to give a sense of the underlying trend climbed 3.4 percent from a year earlier, down from 3.6 percent the previous month and slower than economists had forecast. That was the slowest pace of increase since April 2021.
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One piece of bad news in a mostly good-news report: The cost of shelter continued to rise fairly quickly, particularly for homeowners. That has been one of the most stubborn categories of inflation, which is unfortunate because it is also the single largest component of the Consumer Price Index.
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As investors dial down expectations for interest rates, the two-year Treasury yield has fallen 0.15 percentage points, on course for its biggest move lower this year.

But the FOMC was wary:

Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; Loretta J. Mester; and Christopher J. Waller.

Five year Canadas closed at 3.43%, down a fair bit.

PerpetualDiscounts now yield 6.58%, equivalent to 8.55% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.18% on 2024-5-31 and since then the closing price of ZLC has changed from 14.73 to 15.10, an increase of 251bp in price, implying a decrease of yields of 20bp (BMO reports a duration of 12.31, but don’t disclose whether this is Macaulay or Modified; I will assume Modified) to 4.98%. Therefore, the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained constant at the 355bp reported June 5.