Index Construction / Reporting

Yield on Retractibles Index Goes Negative!

Well, it had to happen sometime … the headline event has occurred.

It is, I admit, a bit of a crock – only three of the 18 members of the index have negative yields-to-worst. Due to the very short term-to-worst for these three issues (BMO.PR.G, RY.PR.K and BMO.PR.I) it doesn’t take very much of a price change to change the yield drastically. Since the averages I’m currently reporting are the means, this means that a few large negatives can drag down the whole index. The HIMI Preferred Indices, currently only compiled until January 1996 (but gaining fast!) will report the median averages.

Still, it’s a landmark! Those who like preferreds, but are not so fond of sub-zero yields, may wish to consider buying high-premium perpetuals … the high coupon on these makes it more likely they will be called, mitigating (but not eliminating!) the risk of having to hold a perpetual when you don’t want to. See How Long is Forever?, where I introduce some arithmetic to the question.

To get you started, I’m attaching “Portfolio Evaluations” of three of the indices:

OpRet

SplitShare

PerpetualPremium

Market Action

November 28, 2006

Huh.

Past 11pm and I’ve only just found an internet connection that will allow me to update the prices … somebody’s been improving things again!

Prices have been updated on HIMIPref™ for November 28 but the daily report, I’m afraid, will have to wait. I’ll just quickly note that the volume leaders were BAM.PR.M, CM.PR.I, POW.PR.D, SLF.PR.D & CM.PR.G. Bad performance was registered by AL.PR.F; good performance by BSD.PR.A (which went ex-dividend today).

Update, 2006-11-29

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 4.22% 4.10% 32,977 10.48 2 +0.4921% 1,025.8
Fixed-Floater 4.80% 3.85% 105,137 6.68 7 +0.0341% 1,030.2
Floater 4.47% -22.96% 63,379 6.59 5 +0.0393% 1,037.6
Op. Retract 4.65% -0.23% 81,911 2.24 18 +0.1564% 1,031.2
Split-Share 4.98% 3.10% 144,946 3.32 9 +0.0806% 1,036.4
Interest Bearing 6.90% 5.62% 68,806 3.88 7 +0.2576% 1,023.6
Perpetual-Premium 5.05% 3.69% 211,468 4.13 48 +0.1393% 1,047.7
Perpetual-Discount 4.60% 4.62% 1,095,008 15.11 9 +0.0902% 1,044.0
Major Price Changes
Issue Index Change Notes
BSD.PR.A InterestBearing +1.7000%  
Volume Highlights
Issue Index Volume Notes
BAM.PR.M PerpetualDiscount 360,925  
CM.PR.I PerpetualDiscount 187,383  
POW.PR.D PerpetualPremium 118,855  
SLF.PR.D PerpetualDiscount 79,783  
CM.PR.G PerpetualPremium 75,900  

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

HIMI Preferred Indices

HIMI Preferred Indices : January 1996

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1996-01-31
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,328.0 1 0 0 0 0 0
FixedFloater 1,328.0 0 0 0 0 0 0
Floater 1,253.1 7 1.56 5.76% 14.2 76M 6.07%
OpRet 1,142.8 29 1.34 5.80% 5.7 89M 6.76%
SplitShare 1,142.8 0 0 0 0 0 0
Interest-Bearing 1,142.8 0 0 0 0 0 0
Perpetual-Premium 1,134.5 5 1.00 4.93% 2.1 83M 7.93%
Perpetual-Discount 1,083.2 0 0 0 0 0 0

Index Constitution, 1996-01-31, Pre-Rebalancing

Index Constitution, 1996-01-31, Post-Rebalancing

Market Action

November 27, 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 4.22% 4.18% 34,341 16.90 2 +0.1415% 1,020.8
Fixed-Floater 4.81% 3.89% 107,367 6.69 7 +0.1592% 1,029.8
Floater 4.47% -22.97% 64,012 6.58 5 +0.2759% 1,037.2
Op. Retract 4.65% 0.26% 81,492 2.24 18 +0.0992% 1,029.6
Split-Share 4.97% 3.22% 146,951 3.31 9 +0.0790% 1,035.5
Interest Bearing 6.90% 5.87% 67,940 3.87 7 +0.2321% 1,020.9
Perpetual-Premium 5.05% 3.74% 211,983 4.32 48 +0.1154% 1,046.2
Perpetual-Discount 4.60% 4.63% 1,072,456 16.17 9 +0.2252% 1,043.1
Major Price Changes
Issue Index Change Notes
ACO.PR.A OpRet -1.8169% Losing some of Friday’s move, but still with a pre-tax YTW of only 1.57% based on a bid of $28.10 and a call 2008-12-31 at $26.00.
BSD.PR.A InterestBearing +1.0101% Whereas this one is building on Friday’s gains! Pre-tax YTW of 6.24%, based on a bid of $10.00 and a maturity 2015-3-31 at par. It goes ex-dividend tomorrow, Nov. 28, for those who are wondering how an issue with a 6.00% coupon priced at par can have a YTW of 6.24%.
RY.PR.B PerpetualPremium +1.0526% Huh! The day after I called it a shade expensive, it skyrockets. But I mean, holy smokes, look at the pre-tax YTWs:  

  • RY.PR.A 4.47%
  • RY.PR.B 4.23%
  • RY.PR.C 4.55%
  • RY.PR.W 4.21%

Someday, I’m sure, I’ll understand this market. But not just yet.
BC.PR.C FixedFloater +1.0950% This one now recovering somewhat from yesterday’s drop.
CM.PR.H PerpetualPremium +1.3774% Now has a pre-tax YTW of 4.41% based on a call 2014-4-29 at $25.00 and a bid of $25.76. Still, I call it a little expensive … not much, just a little, mainly because of optionDoubt.
Volume Highlights
Issue Index Volume Notes
BAM.PR.M PerpetualDiscount 283,500 Recent new issue
CM.PR.I PerpetualDiscount 212,142 Another recent new issue.
GWO.PR.X OpRet 52,393 Scotia crossed 50,000 at $27.53. Closed at $27.50-55 for a pre-tax bid-YTW of 2.83%, based on a call 2009-10-30 at $26.00. If it survives until its softMaturity 2013-9-29, it will have yielded 3.30% pre-tax … it’s basically bond-equivalent at the soft-maturity … with extra risk if they call it … why buy?
SLF.PR.D PerpetualDiscount 36,578 Continues the high-volume tradition that started with the clearance sale
CM.PR.B PerpetualPremium 34,245 This has been trading quite a bit since called for redemption.

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

HIMI Preferred Indices

HIMI Preferred Indices : December, 1995

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1995-12-29
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,307.0 0 0 0 0 0 0
FixedFloater 1,307.0 0 0 0 0 0 0
Floater 1,233.3 8 1.48 5.98% 13.9 74M 6.26%
OpRet 1,119.6 29 1.37 6.02% 5.5 84M 6.89%
SplitShare 1,119.6 0 0 0 0 0 0
Interest-Bearing 1,119.6 0 0 0 0 0 0
Perpetual-Premium 1,126.9 5 1.00 4.79% 2.2 67M 7.95%
Perpetual-Discount 1,075.9 0 0 0 0 0 0

Index Constitution, 1995-12-29, Pre-Rebalancing

Index Constitution, 1995-12-29, Post-Rebalancing

Publications

Research : Closed-End Preferred Funds : Effects of Calls

There are three major Preferred Share funds currently trading on the Toronto Stock Exchange : DPS.UN, PFD.PR.A and PFR.UN
There was an indication on the Financial Webring Forum that some people, at any rate, thought the dividends paid on these funds were secure and sustainable … so I wrote an article calculating just what would happen to the pay-outs on these funds as the underlying portfolios got called away and replaced with current-coupon issues.

Look for the Research Link!

  • Note: The “Y” axes of the two charts at the bottom left of the first page were mislabelled.
    • The “Y” axis of the chart “Projected Absolute Net Dividends” should be labelled “Projected Annual Dividend (dollars)”
    • The “Y” axis of the chart “Projected Relative Gross Dividends” should be labelled “Projected Relative Dividend (Current = 100)”
  • The following “extras” are provided here:

Market Action

November 24, 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 4.23% 4.13% 32,051 16.87 2 -0.1961% 1,019.3
Fixed-Floater 4.81% 3.88% 107,918 8.98 7 -0.0933% 1,028.2
Floater 4.48% -21.11% 63,591 6.58 5 +0.1580% 1,034.3
Op. Retract 4.66% 0.98% 80,778 2.25 18 +0.0209% 1,028.6
Split-Share 4.97% 3.14% 148,136 3.32 9 +0.0298% 1,034.7
Interest Bearing 6.92% 5.87% 66,915 3.87 7 +0.1651% 1,018.6
Perpetual-Premium 5.06% 3.81% 211,330 4.13 49 +0.0852% 1,045.0
Perpetual-Discount 4.61% 4.63% 1,059,606 15.09 9 +0.3749% 1,040.7
Major Price Changes
Issue Index Change Notes
CM.PR.R OpRet -1.8048% Ha! Yesterday I said “This issue simply looks expensive”, and look what happens! I swing a pretty big stick around here, eh? Either that or I’m simply spouting the obvious. The pre-tax bid-YTW is now 2.68%, based on a price of $26.66 and a call at $25.75 2008-05-30.
BC.PR.C FixedFloater -1.2360% Despite this drop, it remains the issue in the FixedFloater index with the lowest bid-YTW, based on a price of $25.57 and a call 2011-8-31 at $25.00.
RY.PR.A PerpetualDiscount +1.0200% Impressive performance with impressive volume of 90,550 shares! Pre-tax bid-YTW now relatively low in the PerpetualDiscount index (only MFC.PR.C is lower) at 4.50% based on a price of $24.76 and a limitMaturity.
BSD.PR.A InterestBearing +1.0204% On no trading! This one has been bouncing around a lot lately.
ACO.PR.A OpRet +2.0321% It seems like only yesterday I was calling this thing expensive, but it  was Wednesday. Shows how big a stick I swing around here. Still, with the pre-tax YTW now 0.65% based on a bid of $28.62 and a call 2008-12-31 at $26.00 (the buyers appear to be hoping it makes it to the day-before-retraction, so it will have earned a princely 2.64%), I’m sure the oblivious ingrates will get their come-uppance soon. In the medium term? Eventually? Please?
PAY.PR.A Scraps +2.28% I wrote about this one recently: the credit looks OK but I kept my mouth shut about valuation. Today’s massive gain was only a reversal of interim movement, because it closed with the same bid as the post mentioned: $25.57, for a pre-tax bid YTW of 4.06% based on a maturity 2008-7-31 at par.
Volume Highlights
Issue Index Volume Notes
BAM.PR.M PerpetualDiscount 338,043 Recent new issue, and a nice move on the day, closing at 24.75-88 for a pre-tax bid-YTW of 4.82%
SLF.PR.D PerpetualDiscount 187,657 Is everybody else as tired of the constant references to the clearance sale as I am? The blow-out sale was October 25; in the month since then it has returned 2.18%, with the help of an intervening dividend. The only index-included issues to have done better between October 25 & November 24 are: GWO.PR.H (PerpetualPremium), BAM.PR.B (huh? – Floater), POW.PR.D (PerpetualPremium), HSB.PR.D (PerpetualPremium), HPF.PR.B (Not in the indices, but I posted about it lately … it’s doing well just to spite me), LBS.PR.A (SplitShare) and … wait for it … the grand champion, ACO.PR.A, discussed above (OpRet). Still and all, SLF.PR.D’s performance has been quite good. Pre-tax bid-YTW is now 4.57%, based on a bid of $24.27 and a limitMaturity.
RY.PR.A PerpetualDiscount 90,550 Pre-tax bid-YTW of 4.50% based on a bid of $24.76 and a limit maturity.
RY.PR.B PerpetualPremium 59,350 Pre-tax Bid YTW of 4.37% based on a call at par 2015-9-23 and a bid of $25.65. Is the call protection really worth 13bp of yield? Nesbitt processed an internal cross of 55,000 shares at $25.61. I think it’s a shade expensive here, but what do I know?
CM.PR.I PerpetualDiscount 53,481 Recent new issue, now has a pre-tax bid-YTW of 4.73% based on a bid of $24.96.

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

HIMI Preferred Indices

HIMI Preferred Indices : November 1995

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1995-11-30
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,293.2 0 0 0 0 0 0
FixedFloater 1,293.2 0 0 0 0 0 0
Floater 1,220.3 7 1.55 6.28% 13.2 77M 6.57%
OpRet 1,115.2 28 1.35 5.98% 5.5 88M 6.87%
SplitShare 1,115.2 0 0 0 0 0 0
Interest-Bearing 1,115.2 0 0 0 0 0 0
Perpetual-Premium 1,117.9 5 1.00 5.34% 2.2 87M 7.95%
Perpetual-Discount 1,067.3 0 0 0 0 0 0

Index Constitution, 1995-11-30, Pre-Rebalancing

Index Constitution, 1995-11-30, Post-Rebalancing

Market Action

November 23, 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 4.21% 4.13% 32,113 10.43 2 +0.2208% 1,021.3
Fixed-Floater 4.81% 3.92% 110,684 11.25 7 +0.1017% 1,029.1
Floater 4.49% -20.78% 63,527 6.56 5 +0.1028% 1,032.7
Op. Retract 4.66% 1.07% 80,575 2.25 18 +0.1223% 1,028.4
Split-Share 4.97% 3.21% 148,345 3.32 9 +0.0985% 1,034.4
Interest Bearing 6.93% 5.91% 67,380 3.87 7 +0.0061% 1,016.9
Perpetual-Premium 5.07% 3.88% 213,285 4.18 49 +0.0803% 1,044.1
Perpetual-Discount 4.63% 4.65% 1,041,900 16.13 9 +0.0515% 1,036.8
Major Price Changes
Issue Index Change Notes
CM.PR.R OpRet +1.1173% Puzzling. It did this on volume of 2,325 shares, roughly average for this issue, and closed at $27.15-40, 2×7, for a pre-tax bid-YTW of 1.42% based on a call 2008-5-30 at 25.75. This is a somewhat unusual issue, in that the premium decline in the call schedule is only $0.15 p.a. The issue pays $1.238 annually, so even taking the premium decline into account, the cost to CIBC is well above what they would pay to issue retractibles now – assuming that they wanted to issue retractibles. And I certainly wouldn’t be enthusiastically taking the risk, hoping to have obtained a yield of 3.61% should they make it to their soft maturity 2013-4-29! This issue simply looks expensive.
Volume Highlights
Issue Index Volume Notes
BAM.PR.M PerpetualDiscount 181,952 Recent new issue, closed at $24.58-65 for a pre-tax bid-YTW of 4.85%
TD.PR.N OpRet 81,420 A similar story to the CM.PR.R, above. This issue closed at $27.50-65, 40×15, for a pre-tax bid-YTW of 2.18% based on a call 2009-5-30 at $26.00. If it makes it to the soft maturity 2014-1-30, it will have yielded 3.10%, which is no great shakes either … 4.34% interest equivalent (at the Ontario Plutocrat Equivalency), you can buy a bank bond of that tenor that pays more!
CM.PR.I PerpetualDiscount 60,090 Recent new issue, closed at 24.90-95 for a pre-tax bid-YTW of 4.74%.
PWF.PR.L PerpetualPremium 55,900 Closed at $26.55-65, for a pre-tax bid-YTW of 4.33%, based on a call at $25.00, 2015-11-30. Somewhat expensive at these prices, I think.
NSI.PR.C Scraps 50,440 This issue commenced trading 2000-10-2 (by conversion from another series – see the 2000 Annual Report) and trades by appointment, so it was interesting to see Scotia crossing 50,000 at $26.60 today. They closed at $26.06-00 … pre-tax bid-YTW of 3.40% based on a call 2009-5-1, ask-YTW of 1.84% based on the same call. Icky! The fact that the retraction price is lower than the call price makes this one of the more interesting issues to analyze … I’ll have to blog about it sometime.

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

HIMI Preferred Indices

HIMI Preferred Indices : October, 1995

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1995-10-31
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,274.5 0 0 0 0 0 0
FixedFloater 1,274.5 0 0 0 0 0 0
Floater 1,202.7 7 1.55 6.64% 13.0 96M 6.82%
OpRet 1,087.0 28 1.35 6.43% 5.6 94M 7.04%
SplitShare 1,087.0 0 0 0 0 0 0
Interest-Bearing 1,087.0 0 0 0 0 0 0
Perpetual-Premium 1,094.4 5 1.00 6.22% 2.3 63M 8.09%
Perpetual-Discount 1,044.9 0 0 0 0 0 0

Index Constitution, 1995-10-31, Pre-Rebalancing

Index Constitution, 1995-10-31, Post-Rebalancing