Market Action

October 6, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.24% 4.18% 44,771 10.59 2 0.4022% 1,018.5
Fixed-Floater 5.00% 4.02% 204,814 12.39 7 0.0230% 1,017.2
Floater 4.53% -17.05% 78,069 6.52 5 -0.3142% 1,016.9
Op. Retract 4.68% 1.85% 90,004 2.43 17 -0.0387% 1,017.1
Split-Share 4.92% 3.24% 61,733 3.05 10 -0.0290% 1,017.9
Interest Bearing 6.88% 4.84% 54,519 1.81 7 0.1497% 1,023.5
Perpetual-Premium 5.13% 3.79% 175,054 4.20 47 -0.0108% 1,030.3
Perpetual-Discount 4.59% 4.62% 326,785 16.19 6 -0.1143% 1,036.6
Major Price Changes
Issue Index Change Notes
AL.PR.E Floater -1.3534% On volume of 3,685 shares, closing at 26.24-42, 3×5. I don’t understand why Alcan isn’t redeeming these shares … there are only 5.7-million out there, providing financing at 6% AFTER TAX. Alcan is, after all buying back its common. From the look of their website, though, it looks like they can barely remember the preferreds exist!
PWF.PR.L PerpetualPremium +1.1846% On volume of 4,000 shares, closing at 25.95-09, 90×32
Volume Highlights
Issue Index Volume Notes
TD.PR.M OpRet 397,125 Something of a joke … Global crossed 198,200 on a cash basis at 27.79, then crossed the same number for regular settlement at 27.49. They went ex-dividend yesterday, paying $0.29375. This issue is notable for being expensive even for an Operating Retractible: the pre-tax YTW is 2.16%, based on a bid of 27.50 and a call in 2009.
SLF.PR.B PerpetualPremium 123,745 Nesbitt processed an internal cross of 90,000 shares @ 25.60 just before the close.
POW.PR.C PerpetualPremium 101,000 RBC crossed 100,000 @ 26.60
CM.PR.A OpRet 85,060 Nesbitt processed an internal cross of 35,000 @ 26.65, Scotia crossed 45,500 @ 26.75.
MFC.PR.C PerpetualDiscount 84,755 Nesbitt processed an internal cross of 80,000 @ 24.70.

There were seven other index-included issues trading over 10,000 shares today.

Update, 2006-10-13 : There is an error on the issue performance reporting – the PWF.PR.L value was calculated on the basis that the ex-date for the first dividend was 10/6 – in fact, it was 10/5, as noted here.

HIMIPref News

Effect of Mass-Bank-Upgrade on Calculated Yield-Curve

As noted in DBRS Posts Mass Upgrade of Banks! there has been a major change in credit-quality inputs.

 Readers may be interested to see what effect these changes have on the yield curve calculation:

Taxable Curve
Parameter Before Upgrade After Upgrade
Base Rate 3.77 % 3.77%
Short Term Premium -1.02 % -0.98%
Short Term Decay Time 3.3 Years 3.4 Years
Long Term Premium -0.98 % -0.97%
Long Term Decay Time 10.8 Years 10.8 Years
Spread for Interest Income 0.77 % 0.76%
Spread for Cumulative payments 0.00 % 0.00%
Spread for Split Share Corps 0.34 % 0.32%
Spread for Retraction Privilege -0.54 % -0.54%
Spread for 2nd Tier Credits 0.14 % 0.12%
Liquidity Premium -0.16 % -0.16%
Spread for 3rd Tier Credits 0.37 % 0.35%
Floating Rate Premium -0.74 % -0.73%
Spread for HIGH Credits 0.00 % 0.00%
Spread for LOW Credits 0.07 % 0.10%
Fitting Data
Total Priced Instruments 170 170
Instruments Used in calculation 153 153
Fitting Error 82.1729 81.2355
Non-Taxable Curve
Parameter Before Upgrade After Upgrade
Base Rate 4.79 % 4.80%
Short Term Premium -1.73 % -1.72%
Short Term Decay Time 9.7 Years 9.5 Years
Long Term Premium -0.03 % -0.03%
Long Term Decay Time 29.7 Years 29.7 Years
Spread for Interest Income 3.40 % 3.39%
Spread for Cumulative payments 0.00 % -0.01%
Spread for Split Share Corps 0.48 % 0.46%
Spread for Retraction Privilege -0.72 % -0.72%
Spread for 2nd Tier Credits 0.22 % 0.20%
Liquidity Premium -0.18 % -0.17%
Spread for 3rd Tier Credits 0.56 % 0.54%
Floating Rate Premium -0.94 % -0.93%
Spread for HIGH Credits 0.00 % 0.00%
Spread for LOW Credits 0.10 % 0.13%
Fitting Data
Total Priced Instruments 170 170
Instruments Used in calculation 153 153
Fitting Error 104.9932 104.8866

 

Update, 2006-10-7 : The credit changes have been processed, the curve recalculated, the results of the recalculation posted and there are a few items of interest. Split share corporations have tightened in to the "base curve" noticably, but there is nothing that leaps immediately to mind as an interesting comment to make. I’ll have to think about it … and see if Tuesday’s trading starts moving the curve around a little!

Data Changes

DBRS Posts Mass Upgrade of Banks!

DBRS has announced a slew of upgrades to the credit rating of bank preferreds:

Issuer Industry Debt Rated Action Rating Trend
Bank of Montreal Banks & Trusts Cumulative Preferred Shares Upgraded Pfd-1 Stb
Scotia Mortgage Investment Corporation Banks & Trusts Non-Cumulative Preferred Shares Series A (bsd. on BNS) Upgraded Pfd-1 Stb
National Bank of Canada Banks & Trusts Cumulative Preferred Shares Upgraded Pfd-1 (low) Stb
TD Mortgage Investment Corporation Banks & Trusts Higher Yielding Bank Related Securities (bsd. on TD Bank) Upgraded Pfd-1 Stb
Royal Bank of Canada Banks & Trusts Non-Cumulative Preferred Shares Upgraded Pfd-1 Stb
Bank of Nova Scotia Banks & Trusts Cumulative Preferred Shares Upgraded Pfd-1 Stb
Bank of Nova Scotia Banks & Trusts Non-Cumulative Preferred Shares Upgraded Pfd-1 Stb
Canadian Imperial Bank of Commerce Banks & Trusts Cumulative Preferred Shares Upgraded Pfd-1 (low) Stb

Well! This creates an exercise in data-entry, doesn’t it? I won’t be able to get these done tonight, although I will update prices as normal. I will update this post once the upgrades have been reflected in the HIMIPref™ database – and this will happen well before the market opens on Tuesday morning.

I don’t really anticipate much change in HIMIPref™ values as a result of this change, although I will be most interested to see if anything happens to the “Low” spread! I suspect that the most noticable change will be with CIBC issues since

Update, 2006-10-7 : The changes have been processed. There is some discussion of the effects of these changes on calculated values at Effect of Mass-Bank-Upgrade on Calculated Yield-Curve

Market Action

October 5, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.27% 4.21% 45,418 10.52 2 -0.1200% 1,014.4
Fixed-Floater 5.00% 4.02% 210,670 12.38 7 -0.0225% 1,017.0
Floater 4.52% -19.55% 79,029 6.51 5 -0.0632% 1,020.1
Op. Retract 4.68% 2.23% 89,732 2.43 17 0.0406% 1,017.5
Split-Share 4.92% 3.26% 61,275 3.05 10 0.0613% 1,018.2
Interest Bearing 6.89% 4.85% 55,121 1.80 7 -0.0419% 1,022.0
Perpetual-Premium 5.13% 3.85% 177,267 4.22 47 0.0265% 1,030.4
Perpetual-Discount 4.59% 4.61% 325,597 16.20 6 -0.0197% 1,037.8
Major Price Changes
Issue Index Change Notes
There were no index-included issues with major price changes today.
Volume Highlights
Issue Index Volume Notes
RY.PR.A PerpetualDiscount 107,185  
MFC.PR.B PerpetualPremium 97,625  
NA.PR.L PerpetualPremium 64,700 Nesbitt processed an internal cross of 60,000 @ 25.63. This issue has a pre-tax YTW of 4.58% at the closing bid of $25.64, based on a call in 2014. Given that it’s only Pfd-2(high) by DBRS, it looks a little expensive there.
RY.PR.B PerpetualPremium 56,465 Nesbitt had an internal cross of 50,000 @25.51. At the closing bid of 25.50, this has a pre-tax YTW of 4.59% based on a call in 2015. Given that Royal Bank is a better credit than the issue above, why is it trading at the same yield?
FTN.PR.A SplitShares 44,800 Credit Suisse bought 36,000 from Nesbitt @ $10.50

There were ten other index-included issues trading over 10,000 shares today.

Market Action

October 4, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.28% 4.21% 42,517 10.51 2 0.1002% 1,015.7
Fixed-Floater 5.00% 4.01% 216,451 12.38 7 0.0794% 1,017.2
Floater 4.52% -19.54% 80,475 6.53 5 -0.2086% 1,020.8
Op. Retract 4.67% 2.49% 90,995 2.43 17 0.0308% 1,017.1
Split-Share 4.92% 3.12% 60,375 3.05 10 0.0379% 1,017.6
Interest Bearing 6.89% 4.74% 53,759 2.05 7 0.1077% 1,022.4
Perpetual-Premium 5.12% 3.93% 176,642 4.23 47 -0.0108% 1,030.1
Perpetual-Discount 4.59% 4.61% 324,524 16.20 6 0.0069% 1,038.0
Major Price Changes
Issue Index Change Notes
PWF.PR.A Floater -1.5504% Giving up most of yesterday’s gains on good volume of 21,600 shares. Scotia crossed 20,000 @ 25.45
Volume Highlights
Issue Index Volume Notes
TD.PR.O PerpetualPremium 131,245 Nesbitt had an internal cross @ 26.07
IGM.PR.A OpRet 131,114  
PWF.PR.L PerpetualPremium 116,100 There were a number of blocks put through today: RBC crossed 43,900 @ 26.15, followed by National (10,000), Scotia (25,000) and National again (10,000) at the same price. Scotia then crossed 24,700 @ 26.25 just before the close. At a closing bid of 26.15, this issue still has a Pre-tax YTW of 4.62% based on a call in 2015.
GWO.PR.G PerpetualPremium 102,960 RBC crossed 100,000 shares @ 26.55
PWF.PR.G PerpetualPremium 102,000 Scotia crossed 100,000 shares at $26.55 (a popular price for 100,000 share lots of issues ending in G today). For this issue, the Pre-Tax YTW at the closing bid of $26.51 is 4.56% based on a call in 2007 … if it survives to its call-at-par date in 2011, the yield will have been 4.77%. Doesn’t seem like there’s much upside to this issue, though.
ELF.PR.F PerpetualPremium 100,000 Nesbitt crossed 100,000 @ $26.25. This issue has a YTW of 4.57% based on a call in 2013, but since it’s only rated Pfd-2(low) by DBRS, it seems expensive at the closing quote of 26.10-41, especially since the new issue comes with a coupon of 4.75%.

There were twenty-one other index-included issues trading over 10,000 shares today.

Market Action

October 3, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.30% 4.23% 41,261 10.48 2 -0.0798% 1,014.6
Fixed-Floater 5.00% 4.01% 221,623 12.37 7 0.0228% 1,016.4
Floater 4.51% -22.83% 79,954 6.49 5 0.3622% 1,022.9
Op. Retract 4.67% 2.47% 89,098 2.47 17 -0.0837% 1,016.8
Split-Share 4.93% 2.89% 60,359 3.03 10 0.3260% 1,017.2
Interest Bearing 6.90% 4.81% 53,847 1.81 7 -0.1221% 1,021.3
Perpetual-Premium 5.12% 3.76% 175,175 4.21 47 0.0972% 1,030.2
Perpetual-Discount 4.59% 4.61% 326,319 16.21 6 -0.0266% 1,037.9
Major Price Changes
Issue Index Change Notes
ACO.PR.A OpRet -1.5575% Did this on volume of 1,922 shares and closed at $27.81-40. The day’s low was $28.00, which means that a good chunk of this poor performance was due to the bid only, not to actual trades.
PWF.PR.A Floater +1.7751% No trading, but there’s a bid for 1500 shares at $25.80! At this price, the issue has a Current Yield of only 4.07%, the lowest of the five issues in the “Floater” index … and YTW is large and negative.
WFS.PR.A SplitShare +1.3258%  
GWO.PR.G PerpetualPremium +1.0274% I think it’s a little pricey at the bid-side of $26.55, but what do I know? The YTW is 4.24% based on a call in 2014
POW.PR.C PerpetualPremium +1.0208% Only 100 shares are bid at the closing $26.72
Volume Highlights
Issue Index Volume Notes
NA.PR.L PerpetualPremium 67,410 Nesbitt bought 57,800 from Scotia at $25.60 in three successive tranches.
IGM.PR.A OpRet 42,359  
PWF.PR.L PerpetualPremium 35,100 Scotia crossed 33,700 @ $26.15, which was the closing bid.
CM.PR.A OpRet 29,850 Scotia crossed 25,100 at $26.75, which was the closing bid. These have a YTW of only 1.47% at this level, but will have yielded 3.65% if they survive until just before their retraction date.
FTS.PR.F Scraps 29,780 Let’s hear it for the Little New Issue That Could (stay above par).

There were fourteen other index-included issues trading over 10,000 shares today.

The large number of index-included issues that had absolute returns in excess of 1% today makes the market look a little sloppy. Could this have something to do with the continuation of The Great Oil Slaughter of 2006?

Market Action

October 2, 2006

Note that the index has been rebalanced and as a result statistical characterizations of the various indices will not be directly comparable to those of September 29.

 

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.31% 4.31% 42,382 10.49 2 -0.1199% 1,015.4
Fixed-Floater 5.00% 3.96% 227,096 10.1 7 0.0062% 1,016.2
Floater 4.52% -19.11% 82,554 6.51 5 -0.0552% 1,019.2
Op. Retract 4.67% 2.59% 88,254 2.59 17 0.0047% 1,017.6
Split-Share 4.94% 2.96% 60,246 3.03 10 -0.0602% 1,013.9
Interest Bearing 6.89% 4.64% 54,362 1.81 7 -0.0861% 1,022.6
Perpetual-Premium 5.13% 4.00% 176,118 4.21 47 0.0289% 1,029.2
Perpetual-Discount 4.59% 4.61% 328,409 16.21 6 -0.0672% 1,038.2
Major Price Changes
Issue Index Change Notes
TCA.PR.X PerpetualPremium +1.0538% Both TCA.PR.X and TCA.PR.Y were strong today. The “X” closed at 53.70, with a YTW of 4.34% based on a call in 2013.
Volume Highlights
Issue Index Volume Notes
POW.PR.B PerpetualPremium 105,050 Nesbitt crossed 100,000 @ $25.85. This issue has a YTW of 4.53% based on a call at par in late 2010.
MFC.PR.B PerpetualPremium 63,325 Scotia crossed 44,000 @25.20. YTW is 4.58% based on a call at par in spring, 2014.
TCA.PR.X PerpetualPremium 21,865 Nesbitt crossed 20,000 @ 53.75. YTW is 4.34% based on a call in late 2013 at par (which is $50 for this issue).
BAM.PR.B Floater 21,325 Scotia crossed 20,000 @24.30.
TCA.PR.Y PerpetualPremium 17,839 Nesbitt crossed 16,800 @53.75

There were five other index-included issues trading over 10,000 shares today.

Index Construction / Reporting

Index Rebalancing: September 29, 2006

The following changes have been made to the composition of the experimental indices:

Ticker From To Because
PWF.PR.D OpRet Scraps Volume
PAY.PR.A SplitShares Scraps Volume
MIC.PR.A PerpetualPremium Scraps Volume
BAM.PR.G Scraps FixedFloater Volume
PWF.PR.A Scraps Floater Volume
FTU.PR.A Scraps SplitShares Volume
BC.PR.E Scraps RatchetRate Volume

MAPF

MAPF Results : September, 2006

The monthly return for Malachite Aggressive Preferred Fund has now been calculated. The unit price is $9.6162 after a third-quarter distribution of $0.050227.

Returns may therefore be calculated as:

Period Ending September 29, 2006 Return (see Note)
Month +1.45%
Quarter +3.51%
Year +5.96%
Two Years (Annualized) +6.52%
Three Years (Annualized) +9.44%
Four Years (Annualized) +14.67%
Five Years (Annualized) +10.47%
MAPF returns are shown after expenses, but before fees.

Note that past performance should not be taken as a guarantee of future performance. You can lose money investing in MAPF or any other investment. 

The nice thing about these returns is that they have been virtually entirely dividends and capital gains, resulting in a generally lower tax rate than for interest for most taxable investors.

Data Changes

HIMIPref Parameterization Changes

As a result of continuing optimization of parameters, the following optimizableParameters have been changed:

Parameter Old Value New Value
riskPseudoModifiedDurationPort 0.059 0.060
riskPseudoConvexityPort 0.014 0.012
instrumentYieldDisparityValuation 0.360 0.358

I do not consider any of these changes to be particularly earth-shaking (although every little bit helps!) and do not anticipate that any users will find that a slew of trades has suddenly been recommended.