Archive for July, 2007

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July 17, 2007

Wednesday, July 18th, 2007

Treasuries outperformed Canada bonds in what is being touted as a continued flight to safety in the US market. Or maybe it was the PPI release. Who knows? Ask a priest.

Mind you, a little safety could be just what the doctor ordered down south! Bear Stearns has warned that the smaller of its two famous hedge funds is a total write-off, and the other one isn’t much better. Take this lesson to heart: just because a firm is good at selling investments doesn’t mean that they’re necessarily good at running investments.

In other sub-prime news, Moody’s is expanding its review and, presumably, hopes to have the barn door locked within three months of the horse being stolen. Chrysler is being forced to pay up for loans (about time), while a couple of brand-name brokerages have been left holding the baby as demand for junk declines.

Interesting times! Particularly if you don’t actually have an investment in the sector yourself! It should be noted that credit spreads in the Canadian preferred market are widening markedly, with Pfd-3 issues getting progressively weaker — but I’m not holding any of those, either, thank heavens. A graph of the After-Tax Pfd-3 Yield Spread for the past three-and-a-half months has been uploaded.

Volume picked up a little today, with a few good size blocks being traded.

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 5.24% 5.26% 25,588 15.06 2 +0.0208% 1,019.5
Fixed-Floater 5.02% 5.31% 140,304 15.09 8 +0.1135% 1,006.7
Floater 4.87% 3.81% 79,572 7.5 4 -0.2904% 1,045.6
Op. Retract 4.83% 4.04% 84,635 2.73 16 +0.0579% 1,021.5
Split-Share 5.06% 4.64% 115,530 3.92 17 -0.1036% 1,045.2
Interest Bearing 6.21% 6.37% 65,491 4.42 3 +0.1024% 1,037.8
Perpetual-Premium 5.53% 5.16% 118,677 5.37 26 +0.0851% 1,022.3
Perpetual-Discount 5.11% 5.15% 355,892 15.24 38 +0.0793% 965.6
Major Price Changes
Issue Index Change Notes
BAM.PR.G FixedFloater -1.4102%  
SBN.PR.A SplitShare -1.3462% Now with a pre-tax bid-YTW of 4.92% based on a bid of 10.26 and a hardMaturity 2014-12-1 at 10.00.
BCE.PR.A FixFloat +1.0700%  
ELF.PR.F PerpetualDiscount +1.1255% Now with a pre-tax bid-YTW of 5.49% based on a bid of 24.26 and a limitMaturity.
NA.PR.L PerpetualDiscount +1.3080% Now with a pre-tax bid-YTW of 5.04% based on a bid of 24.01 and a limitMaturity.
Volume Highlights
Issue Index Volume Notes
WN.PR.B Scraps (Would be OpRet, but there are credit concerns) 120,060 Desjardins bought 114,600 from CIBC at 25.11. Now with a pre-tax bid-YTW of 4.97% based on a bid of 25.15 and a softMaturity 2009-6-30 at 25.00.
GWO.PR.X SplitShare 103,183 Now with a pre-tax bid-YTW of 3.50% based on a bid of 26.70 and a call 2009-10-30 at 26.00. Still some uncertainty with this issue … but at least Great-West is investment grade!
CM.PR.H PerpetualDiscount 63,600 Scotia crossed 48,700 at 23.50. Now with a pre-tax bid-YTW of 5.14% based on a bid of 23.40 and a limitMaturity.
SLF.PR.D PerpetualDiscount 58,875 Scotia crossed 46,500 at 22.35. Now with a pre-tax bid-YTW of 5.04% based on a bid of 22.25 and a limitMaturity.
ELF.PR.G PerpetualDiscount 52,735 Scotia crossed 43,800 at 21.70. Now with a pre-tax bid-YTW of 5.56% based on a bid of 21.50 and a limitMaturity.
RY.PR.G PerpetualDiscount 50,600 Nesbitt bought 25,000 at 22.80 from RBC, which sold another 20,000 in five tranches in the three minutes prior to this trade. This issue pays a fat first dividend, going ex next week. Well, relatively fat! Dimes are important! Now with a pre-tax bid-YTW of 5.04% based on a bid of 22.76 and a limitMaturity.

There were twenty-one other $25-equivalent index-included issues trading over 10,000 shares today.

Posted in Market Action | 1 Comment »

BMT.PR.A: Dividends Not Yet Declared; Have Been Estimated

Tuesday, July 17th, 2007

BMT.PR.A last paid a dividend on May 4, with a record date of April 25.

Dividends for the current quarter have not yet been declared (according to the Toronto Stock Exchange) – I guess at Scotia Capital, summer vacations are more important. Or something.

The current dividend has been input to HIMIPref™ with the estimated dates 7/23, 7/25, 8/4.

Update, 2007-07-18: BMONT has announced:

The Board of Directors of BMONT Split Corp. (the “Company”) has declared today dividends of $0.3089 per Preferred Share and $0.1350 per Capital Share, payable on August 03, 2007 to holders of record at the close of business on August 02, 2007.

HIMIPref™ has been updated to reflect the correct dates.

Posted in Better Communication, Please! | 1 Comment »

July 16, 2007

Monday, July 16th, 2007

Treasuries had a good day, possibly due to a projected drop in supply, but more likely a flight to quality amid sub-prime worries, or, even more likely, they just felt like going up.

Hey, if you want somebody with a bright smile to explain to you why everything that happened, happened because it had to happen, go read some other blog.

KKR cancelled a $1.4-billion European issue and Rosneft is rumoured to be doing the same. This is significant … and if this should happen to be a real, no-fooling turning point, then financing the Teachers / BCE deal could be interesting!

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 5.26% 5.29% 26,628 15.02 2 +0.0000% 1,019.3
Fixed-Floater 5.03% 5.32% 140,234 13.67 8 +0.1306% 1,005.5
Floater 4.86% 1.29% 80,079 4.18 4 +0.0107% 1,048.7
Op. Retract 4.83% 4.05% 83,799 2.87 16 -0.0011% 1,021.0
Split-Share 5.06% 4.64% 117,301 3.92 17 -0.0658% 1,046.3
Interest Bearing 6.21% 6.36% 66,105 4.42 3 +0.0687% 1,036.8
Perpetual-Premium 5.54% 5.17% 118,256 5.30 26 -0.0334% 1,021.4
Perpetual-Discount 5.11% 5.15% 356,749 14.85 38 +0.0746% 964.9
Major Price Changes
Issue Index Change Notes
NA.PR.L PerpetualDiscount -1.3733% Now with a pre-tax bid-YTW of 5.11% based on a bid of 23.70 and a limitMaturity.
LBS.PR.A SplitShare -1.1429% Now with a pre-tax bid-YTW of 4.58% based on a bid of 10.38 and a hardMaturity 2013-11-29 at 10.00.
PWF.PR.K PerpetualDiscount +1.2090% Now with a pre-tax bid-YTW of 5.29% based on a bid of 23.44 and a limitMaturity.
LFE.PR.E SplitShare +1.6409% Now with a pre-tax bid-YTW of 4.20% based on a bid of 10.53 and a hardMaturity 2012-12-01 at 10.00
GWO.PR.E OpRet +1.9391% Now with a pre-tax bid-YTW of 3.92% based on a bid of 25.76 and a call 2011-4-30 at 25.00
Volume Highlights
Issue Index Volume Notes
BCE.PR.G FixFloat 52,700 Scotia crossed 50,000 at 24.00.
CM.PR.J PerpetualDiscount 31,020 Now with a pre-tax bid-YTW of 5.10% based on a bid of 22.11 and a limitMaturity.
HSB.PR.C PerpetualPremium 27,550 TD crossed 25,000 at 25.49. Now with a pre-tax bid-YTW of 5.04% based on a bid of 25.20 and a call 2014-7-30 at 25.00.
CM.PR.G PerpetualPremium 20,840 Now with a pre-tax bid-YTW of 5.30% based on a bid of 25.15 and a call 2014-5-31 at 25.00.
TD.PR.O PerpetualDiscount 16,200 Now with a pre-tax bid-YTW of 4.98% based on a bid of 24.35 and a limitMaturity.

There were seven other $25-equivalent index-included issues trading over 10,000 shares today.

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PrefLetter for July, 2007, Released!

Sunday, July 15th, 2007

The July edition of PrefLetter has been released and is now available for purchase as the “Previous edition”.

Until further notice, the “Previous Edition” will refer to the July, 2007 issue, while the “Next Edition” will be the August, 2007 issue.

PrefLetter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Posted in PrefLetter | No Comments »

Bombardier Announces Reset Rate on BBD.PR.D

Saturday, July 14th, 2007

Bombardier has announced:

As of August 1, 2007, the Series 3 Preferred Shares will pay, on a quarterly basis, as and when declared by the Board of Directors of Bombardier Inc., cash dividends for the following five years that will be based on a fixed rate equal to the product of (a) the average of the yield to maturity, designated on July 11, 2007 by CIBC World Markets Inc. and National Bank Financial, that would be carried by a Government of Canada bond with a 5-year maturity, multiplied by (b) 115%.

The average yield of this Government of Canada bond is 4.580%. Accordingly, the annual dividend rate applicable to the Series 3 Preferred Shares for the period of five years beginning on August 1, 2007 will be 5.267%

As discussed earlier, the BBD.PR.B will continue to pay a ratcheted floating rate that may be expected to be 100% of Canadian Prime, currently 6.25%. Given that the issues are both rated Pfd-4 by DBRS, I do not recommend them for inclusion in fixed-income portfolios – they’re equity-substitutes for heavens’ sake! If you must hold either of them, I recommend the BBD.PR.B –  I consider the chance that Canadian Prime will average less than 5.25% over the next five years to be pretty slim.

Posted in Issue Comments | 2 Comments »

July 13, 2007

Friday, July 13th, 2007

Bonds closed the week on a happy note, while Dura Automotive Systems reminded investors why junk got such a pejoritive name. New junk issues slowed this week as a few issues were pulled amid widening spreads.

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 5.28% 5.30% 27,711 15.00 2 +0.4202% 1,019.3
Fixed-Floater 5.03% 5.33% 138,861 13.66 8 +0.4455% 1,004.2
Floater 4.86% 0.26% 79,603 4.17 4 -0.0199% 1,048.5
Op. Retract 4.83% 4.07% 84,959 2.80 16 -0.1345% 1,021.0
Split-Share 5.05% 4.57% 119,174 3.99 17 -0.0042% 1,047.0
Interest Bearing 6.22% 6.34% 66,250 4.42 3 -0.2031% 1,036.1
Perpetual-Premium 5.54% 5.16% 118,589 5.28 26 -0.0193% 1,021.8
Perpetual-Discount 5.12% 5.15% 361,990 14.86 38 +0.0583% 964.2
Major Price Changes
Issue Index Change Notes
GWO.PR.E OpRet -1.8641% Now with a pre-tax bid-YTW of 4.47% based on a bid of 25.27 and a call 2011-4-30 at 25.00. There is still some some uncertainty about GWO’s capital market plans, despite the recent successful bond issue.
CFS.PR.A SplitShare -1.400% Now with a pre-tax bid-YTW of 4.61% based on a bid of 9.86 and a hardMaturity 2012-1-31 at 10.00.
FFN.PR.A SplitShare +1.3553% Now with a pre-tax bid-YTW of 4.55% based on a bid of 10.47 and a hardMaturity 2014-12-1 at 10.00.
Volume Highlights
Issue Index Volume Notes
BMO.PR.J PerpetualDiscount 18,165 Now with a pre-tax bid-YTW of 5.09% based on a bid of 22.40 and a limitMaturity.
TOC.PR.B Floater 17,300 National Bank crossed 17,300 at 25.20 in the day’s only trade. Still on credit review negative by DBRS.
POW.PR.B PerpetualDiscount 16,700 Now with a pre-tax bid-YTW of 5.46% based on a bid of 24.56 and a limitMaturity.
SLF.PR.C PerpetualDiscount 14,795 Now with a pre-tax bid-YTW of 5.06% based on a bid of 22.15 and a limitMaturity.
SLF.PR.D PerpetualDiscount 13,458 Now with a pre-tax bid-YTW of 5.06% based on a bid of 22.15 and a limitMaturity.

There were ten other $25-equivalent index-included issues trading over 10,000 shares today.

Posted in Market Action | No Comments »

BCE.PR.A / BCE.PR.B Conversion Reminder Sent

Friday, July 13th, 2007

BCE has announced:

that in accordance with the terms of its articles, it has sent a conversion notice to the holders of its Series AA Cumulative Redeemable First Preferred Shares. A copy of this notice has been publicly filed by BCE on SEDAR.

It’s not entirely clear to me whether this release, dated July 13, refers to the Reminder Notice dated June 28. I think they had other things to worry about at that time!

Anyway … the conversion is effective September 1, 2007.

Comparison of Terms
  BCE.PR.A BCE.PR.B
Issued 20-million None
Dividend Unknown – % of Canadas to be announced July 18, precise figure to be announced August 7 Ratchet between 50% and 100% of Canadian Prime on par value
Teachers’ Bid Price $25.76 $25.50

I’ll post more on this as news trickles in. Most people will, I think, be better served by converting to ‘B’ …. the Teachers’ bid price is less, but not much less, but the dividends will probably be much greater in the event that the Teachers’ bid does not close.

It is interesting to note that BCE.PR.A is included in the S&P/TSX Preferred Share Index. Those who are historically inclined will remember that the long-dead Income Trust related offer bid 25.65 for BCE.PR.A.

Posted in Issue Comments | 1 Comment »

July PrefLetter Now in Preparation

Friday, July 13th, 2007

The markets have closed and the July edition of PrefLetter is now being prepared.

The July version will be eMailed to clients and available for single-issue purchase with immediate delivery prior to the opening bell on Monday. I will write another post on the weekend advising when the July issue has been uploaded to the server … so watch this space carefully if you intend to order “Next Issue” or “Previous Issue”!

Posted in PrefLetter | No Comments »

The Bond Market is Excitable

Friday, July 13th, 2007

Prof. Hamilton at Econbrowser commented on a speech by Bernanke in which variability of inflation expectations was discussed. JDH went on to reference a very good academic paper, The Excess Sensitivity of Long-Term Interest Rates: Evidence and Implications for Macroeconomic Models in which these effects are quantified.

Of course, that paper is nearly four years old now. In the interim, there have been expressions of regret for the disappearance of bond market vigilantes; this apparent disappearance is probably due also to indiscrimate buying by the Chinese as much as anything else. Also, probably, due to the fact that idiots such as myself, who have been saying for years that inflation of 2%-ish should mean Canadian 10-year-yields of 4.75-5.25%-ish have had our heads handed to us on a 3.75% plate.

Anyway, the paper is a good one. Abstract:

This paper demonstrates that long-term forward interest rates in the U.S. often react considerably to surprises in macroeconomic data releases and monetary policy announcements. This behavior is inconsistent with the assumption of many macroeconomic models that the long-run properties of the economy are time-invariant and perfectly known by all economic agents. Under those conditions, the shocks we consider would have only transitory effects on short-term interest rates, and hence would not generate large responses in forward rates. Our empirical findings suggest that private agents adjust their expectations of the long-run inflation rate in response to macroeconomic and monetary policy surprises. Consistent with our hypothesis, forward rates derived from inflation-indexed Treasury debt show little sensitivity to these shocks, indicating that the response of nominal forward rates is mostly driven by inflation compensation. In addition, we find that in the U.K., where the long-run inflation target is known by the private sector, long-term forward rates have not demonstrated excess sensitivity since the Bank of England achieved independence in mid-1997. We present an alternative model in which agents’ perceptions of long-run inflation are not completely anchored, which fits all of our empirical results.

Posted in Interesting External Papers | 6 Comments »

July 12, 2007

Thursday, July 12th, 2007

In what may well signal the final descent of this degenerate society into slovenly barbaric torpor, a Toronto dry-cleaning conglomerate filed for CCCA protection today. The Bank of Canada projected 3% inflation in 4Q07, possibly because track-suit-wearing sluggards are usually too spaced out to care what they pay for things.

Bonds had a bad day, enlivened by mass downgrades of sub-prime paper, much of it packaged by General Electric, which is planning to exit the business.

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 5.32% 5.34% 27,985 14.92 2 -0.4149% 1,015.0
Fixed-Floater 5.06% 5.35% 141,129 15.03 8 +0.1023% 999.8
Floater 4.86% -0.04% 79,938 4.16 4 -0.0080% 1,048.8
Op. Retract 4.82% 3.97% 85,714 2.98 16 +0.1017% 1,022.3
Split-Share 5.05% 4.55% 121,137 3.99 17 +0.1023% 1,047.0
Interest Bearing 6.21% 6.28% 67,179 4.43 3 -0.1351% 1,038.2
Perpetual-Premium 5.54% 5.15% 119,848 5.81 26 +0.0351% 1,022.0
Perpetual-Discount 5.12% 5.15% 368,263 14.85 38 -0.1441% 963.6
Major Price Changes
Issue Index Change Notes
PWF.PR.K PerpetualDiscount -1.4013% Now with a pre-tax bid-YTW of 5.34% based on a bid of 23.22 and a limitMaturity.
SLF.PR.C PerpetualDiscount -1.3393% Now with a pre-tax bid-YTW of 5.07% based on a bid of 22.10 and a limitMaturity.
BMO.PR.J PerpetualDiscount -1.0667% Now with a pre-tax bid-YTW of 5.12% based on a bid of 22.26 and a limitMaturity.
BCE.PR.T FixFloat -1.0504%  
PWF.PR.F PerpetualPremium (for now!) +1.2270% Now with a pre-tax bid-YTW of 5.30% based on a bid of 24.75 and a limitMaturity.
BAM.PR.G FixFloat +1.2657%  
CFS.PR.A SplitShare +1.4199% Now with a pre-tax bid-YTW of 4.26% based on a bid of 10.00 and a hardMaturity 2012-1-31 at 10.00
Volume Highlights
Issue Index Volume Notes
SLF.PR.E PerpetualDiscount 57,220 Scotia crossed 42,700 at 22.50. Now with a pre-tax bid-YTW of 5.07% based on a bid of 22.36 and a limitMaturity.
ACO.PR.A OpRet 50,270 Nesbitt crossed 50,000 at 27.00. Now with a pre-tax bid-YTW of 3.54% based on a bid of 26.90 and a softMaturity 2011-11-30 at 25.00.
FTU.PR.A SplitShare 76,900 Scotia crossed 76,000 at 10.30. Now with a pre-tax bid-YTW of 4.73% based on a bid of 10.27 and a hardMaturity 2012-12-01 at 10.00.
SLF.PR.D PerpetualDiscount 24,971 Now with a pre-tax bid-YTW of 5.07% based on a bid of 22.10 and a limitMaturity.
PWF.PR.F PerpetualPremium (for now!) 23,030 See “Major Price Moves”, above.

There were fourteen other $25-equivalent index-included issues trading over 10,000 shares today.

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