Rob Carrick has a piece in today’s Globe, Two words for investors stung by the trust crackdown: preferred shares, in which he points out the enormous tax advantage provided by the Dividend Tax Credit and has some nice things to say about me.
Documentation : Analytical Universe Selection
Drew’s comments and queries have, as always, pointed out some deficiencies and, as is not quite so often the case, have led to an improvement in my documentation.
There is a new page in the User Manual: Analytical Universe, that basically restates my responses to the original query. Please – don’t be shy about asking questions and telling me that something’s not clear! I’ll always listen – it’s getting me to do anything useful that’s hard!
January 22, 2007
| Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30 | |||||||
| Index | Mean Current Yield (at bid) | Mean YTW | Mean Average Trading Value | Mean Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | 4.05% | 4.07% | 24,908 | 17.30 | 1 | 0.0000% | 1,029.6 |
| Fixed-Floater | 4.75% | 3.06% | 74,733 | 6.58 | 7 | 0.0957% | 1,046.4 |
| Floater | 4.56% | -20.97% | 62,305 | 4.16 | 4 | +0.1081% | 1,045.0 |
| Op. Retract | 4.68% | 2.24% | 78,176 | 2.04 | 17 | -0.0106% | 1,031.3 |
| Split-Share | 5.05% | 0.26% | 387,796 | 2.84 | 11 | -0.0147% | 1,045.2 |
| Interest Bearing | 6.71% | 5.88% | 74,199 | 2.63 | 6 | -0.0617% | 1,034.8 |
| Perpetual-Premium | 5.02% | 3.71% | 230,448 | 5.35 | 55 | -0.0086% | 1,051.8 |
| Perpetual-Discount | 4.50% | 4.52% | 1,480,658 | 16.35 | 5 | +0.0806% | 1,056.1 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| There were no index-included issues with major price changes (bid/bid) today. | |||
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| RY.PR.E | PerpetualDiscount | 185,599 | Recent new issue. Now with a pre-tax bid-YTW of 4.52% based on a bid of $24.94 and a limitMaturity |
| MFC.PR.C | PerpetualPremium | 177,475 | RBC crossed 50,000 at 24.99; Scotia crossed 11,500 at the same price. Now with a pre-tax bid-YTW of 4.55% based on a bid of $25.01 and optionCertainty 2037-1-22 at $25.00. |
| BMO.PR.J | PerpetualDiscount | 101,300 | Recent new issue. Now with a pre-tax bid-YTW of 4.52% based on a bid of $24.95 and a limitMaturity. |
| FBS.PR.B | SplitShare | 255,990 | Recent new issue. CIBC crossed 217,000 at $10.30. I don’t understand why anybody would buy it at such a price – the pre-tax bid-YTW is 2.16% based on a bid of $10.30 and a call 2008-1-14 at $10.00. Buyers must be looking at the yield of 4.20% based on a hardMaturity 2011-12-15 at $10.00, but I consider the chance of a large proportion of extant shares surviving that long to be fairly slim. |
| RY.PR.A | PerpetualPremium | 74,325 | Scotia crossed 17,300 at 25.00. Now with a pre-tax bid-YTW of 4.51% based on a bid of $24.99 and a limitMaturity. |
There were twelve other “$25 p.v. equivalent” index-included issues with over 10,000 shares traded today.
HIMI Preferred Indices : March 1997
All indices were assigned a value of 1000.0 as of December 31, 1993.
| HIMI Index Values 1997-03-31 | |||||||
| Index | Closing Value (Total Return) | Issues | Mean Credit Quality | Median YTW | Median DTW | Median Daily Trading | Mean Current Yield |
| Ratchet | 1,481.7 | 0 | 0 | 0 | 0 | 0 | 0 |
| FixedFloater | 1,446.8 | 4 | 2.00 | 3.34% | 17.6 | 798M | 5.19% |
| Floater | 1,395.1 | 8 | 1.74 | 3.47% | 18.5 | 48M | 3.77% |
| OpRet | 1,266.8 | 28 | 1.24 | 4.88% | 4.6 | 91M | 6.42% |
| SplitShare | 1,252.4 | 1 | 2.00 | 5.78% | 5.4 | 238M | 5.69% |
| Interest-Bearing | 1,266.8 | 0 | 0 | 0 | 0 | 0 | 0 |
| Perpetual-Premium | 1,193.5 | 4 | 1.00 | 3.46% | 2.3 | 123M | 7.93% |
| Perpetual-Discount | 1,139.4 | 0 | 0 | 0 | 0 | 0 | 0 |
No Surprises on RY.PR.E First Day of Trading
This was pretty much a carbon copy of the BMO.PR.J opening last Wednesday. Volume was 313,249 trading in a range of 24.85-95 – which was below the issue price, which is eventually going to annoy the buyers of these new issues!
It closed at 24.90-92, 17×338, and looks reasonably attractive there. When I look at the curvePrice according to the yieldCurve calculated for taxable accounts, I get:
| RY.PR.E Taxable Curve Price | |
| Component | Value |
| Price due to base-rate | 23.30 |
| Price due to short-term | 0.04 |
| Price due to long-term | 0.49 |
| Price due to Liquidity | 1.48 |
| Price due to error | -0.03 |
| Total | 25.28 |
At the closing bid of $24.90, the issue has a pre-tax bid-yieldToWorst of 4.53%, based on a limitMaturity.
The issue has been added to the PerpetualDiscount index.
The securityCode for this issue is A45014 and a reorgDataEntry has been processed to reflect the change from the preIssue code of P87000.
Update (for linking!) 2007-01-27 : This issue was announced on January 10.
January 19, 2007
| Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30 | |||||||
| Index | Mean Current Yield (at bid) | Mean YTW | Mean Average Trading Value | Mean Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | 4.06% | 4.08% | 24,910 | 17.30 | 1 | -0.0804% | 1,029.6 |
| Fixed-Floater | 4.76% | 3.18% | 75,254 | 10.73 | 7 | -0.2642% | 1,045.4 |
| Floater | 4.56% | -23.76% | 63,524 | 8.23 | 4 | +0.0688% | 1,043.8 |
| Op. Retract | 4.68% | 2.09% | 78,173 | 2.01 | 17 | -0.0479% | 1,031.4 |
| Split-Share | 5.05% | 0.37% | 393,412 | 2.84 | 11 | +0.1033% | 1,045.4 |
| Interest Bearing | 6.70% | 5.50% | 74,192 | 2.63 | 6 | -0.1111% | 1,035.4 |
| Perpetual-Premium | 5.02% | 3.65% | 230,544 | 5.37 | 55 | -0.0461% | 1,051.8 |
| Perpetual-Discount | 4.50% | 4.53% | 1,482,997 | 16.36 | 5 | -0.0077% | 1,055.3 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| There were no index-included issues with major price moves today. | |||
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| RY.PR.E | PerpetualDiscount | 313,249 | New issue settled today. Now with a pre-tax bid-YTW of 4.53% based on a bid of $24.90 and a limitMaturity |
| PIC.PR.A | SplitShare | 77,623 | It’s not often a seasoned splitShare makes it to the volume list! Desjardins bought 15,000 from RBC at $16.15, then crossed 60,000 at the same price. Now with a pre-tax bid-YTW of 3.63% based on a bid of $16.10 and a hardMaturity 2010-11-01 at $15.00. That’s an interest-equivalent for high-bracket Ontarians of 5.08% … not bad for a less than three year term! |
| BMO.PR.J | PerpetualDiscount | 29,375 | Recent new issue. Now with a pre-tax bid-YTW of 4.53% based on a bid of $24.93 and a limitMaturity. |
| PWF.PR.K | PerpetualPremium | 20,500 | RBC bought a total of 14,600 from Scotia in four tranches [2,000 at $26.15, the rest at $26.10] and 1,300 in two other trades at $26.05. Now with a pre-tax bid-YTW of 4.32% based on a bid of $26.05 and a call 2014-11-30 at $25.00. |
| LBS.PR.A | SplitShare | 48,720 | Now with a pre-tax bid-YTW of 3.93%, based on a bid of $10.81 and a hardMaturity 2013-11-29 at $10.00. Interest equivalent for rich people in Ontario of 5.50% … not bad for investment-grade 7-year paper! |
There were ten other “$25 p.v. equivalent” index-included issues with over 10,000 shares traded today.
January 18, 2007
| Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30 | |||||||
| Index | Mean Current Yield (at bid) | Mean YTW | Mean Average Trading Value | Mean Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | 4.06% | 4.08% | 25,937 | 17.30 | 1 | +0.2015% | 1,030.4 |
| Fixed-Floater | 4.75% | 2.98% | 75,444 | 10.72 | 7 | +0.1230% | 1,048.2 |
| Floater | 4.56% | -23.86% | 64,020 | 8.22 | 4 | +0.1556% | 1,043.1 |
| Op. Retract | 4.67% | 2.19% | 78,460 | 2.02 | 17 | +0.0402% | 1,031.9 |
| Split-Share | 5.06% | 1.12% | 402,233 | 2.85 | 11 | -0.0443% | 1,044.3 |
| Interest Bearing | 6.70% | 5.58% | 74,501 | 2.64 | 6 | +0.0033% | 1,036.6 |
| Perpetual-Premium | 5.02% | 3.70% | 234,728 | 5.14 | 55 | +0.0085% | 1,052.3 |
| Perpetual-Discount | 4.51% | 4.53% | 1,218,255 | 16.35 | 4 | +0.0807% | 1,055.4 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| There were no index-included issues with major price moves today. | |||
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| BNS.PR.K | PerpetualPremium | 202,800 | TD crossed 100,000 at 26.00, then another 100,000 at the same price 90 minutes later. Now with a pre-tax bid-YTW of 4.20% based on a bid of 25.95 and a call 2014-05-28 at $25.00 |
| BMO.PR.J | PerpetualDiscount | 131,233 | Recent new issue. Now with a pre-tax bid-YTW of 4.52% based on a bid of $24.94 and a limitMaturity. |
| GWO.PR.X | OpRet | 108,160 | Nesbitt crossed 85,000 at $27.51; Desjardins crossed 18,500 at 27.56. Now with a pre-tax bid-YTW of 2.48% based on a bid of $27.56 and a call 2009-10-30 at $26.00. |
| GWO.PR.H | PerpetualPremium | 58,860 | RBC crossed 50,000 at 26.00. Now with a pre-tax bid-YTW of 4.41% based on a bid of $25.82 and a call 2014-10-31 at $25.00. |
| RY.PR.D | PerpetualPremium | 34,440 | RBC bought a 19,800 from Scotia in three successive trades at 25.01. Now with a pre-tax bid-YTW of 4.54% based on a limitMaturity. |
There were thirteen other “$25 p.v. equivalent” index-included issues with over 10,000 shares traded today.
Updated 2007-1-24 … Correction of some trading information
User Manual : Deleting Account & Deleting Transaction
Some documentation has been added to the user manual on the captioned issues:
HIMI Preferred Indices : February, 1997
All indices were assigned a value of 1000.0 as of December 31, 1993.
| HIMI Index Values 1997-02-28 | |||||||
| Index | Closing Value (Total Return) | Issues | Mean Credit Quality | Median YTW | Median DTW | Median Daily Trading | Mean Current Yield |
| Ratchet | 1,492.3 | 0 | 0 | 0 | 0 | 0 | 0 |
| FixedFloater | 1,492.1 | 3 | 2.00 | 3.12% | 17.9 | 1,145M | 5.01% |
| Floater | 1,405.2 | 7 | 1.71 | 3.45% | 18.1 | 83M | 3.77% |
| OpRet | 1,282.9 | 27 | 1.25 | 4.57% | 4.6 | 84M | 6.37% |
| SplitShare | 1,273.1 | 1 | 2.00 | 5.39% | 5.5 | 370M | 5.60% |
| Interest-Bearing | 1,282.9 | 0 | 0 | 0 | 0 | 0 | 0 |
| Perpetual-Premium | 1,201.8 | 4 | 1.00 | 3.26% | 2.4 | 108M | 7.84% |
| Perpetual-Discount | 1,147.4 | 0 | 0 | 0 | 0 | 0 | 0 |
BCE.PR.Y / BCE.PR.Z
I mentioned one half of this pairing in the January 17, 2007 report and I’ll just make things more explicit here.
This pair is very similar to the BBD.PR.B / BBD.PR.D pair that has been discussed previously. They are convertable into each other on December 1, 2007, just over ten months off, but are trading at prices that are very different.
At the moment, for instance, BCE.PR.Z is quoted at 26.38-75, 1×9, and BCE.PR.Y is quoted at 24.86-90, 4×9. Between now and December 1, 2007, when they can convert into each other, the former issue may be expected to pay dividends at a fixed rate totalling $1.3298, while the Ys, paying a ratchetFloatingRate based on Canadian Prime will pay somewhere around 0.92125. Therefore, the price differential, in the absence of liquidity premia, should be in the neighborhood of $0.40 … but it ain’t. The differential bid/bid is more like $1.50, implying (in this very simple analysis) that there is $1.10 just lying around waiting to be scooped up.
I recognize that the BCE.PR.Y (the cheap ones) are relatively illiquid, due to their float of only 1.1-million-odd shares. The Zs (the expensive ones) have a float of 8.8-million-odd shares. So, there will be problems exploiting this inefficiency for those who care to try it.
But … what I can’t understand is: why would anybody hold the Zs? Even if they’re unable to buy sufficient Ys to replace them? BCE can put an extremely low rate on the “Z” dividend payout commencing December 1, 2007, all but forcing conversion. Surely nobody seriously believes that BCE will leave the rate as it was set five years ago, at 5.319%. In BCE’s last ratchet/reset, the BCE.PR.S / BCE.PR.T the rate was reset to 4.502% … and I certainly wouldn’t bet on this very generous payout being offered again on the Y/Z reset date.
Update: The Zs actually went up in price today (2007-1-18) (bid/bid), closing at 26.39-75, 3×8. Why? Surely there will be few who disagree that the projected price as of the Dec. 1 conversion date is $25.00 … and if you do disagree, please leave a comment, because I’m interest. So the projected capital loss (from the bid price) exceeds the intervening dividends – expected total return over the next 10 months is negative. I don’t understand ….