Month: January 2009

Market Action

January 7, 2009

There is speculation that huge issuance may saturate the market for government bonds in the UK. Reception of a €6-billion issue of 10-year Bunds was sufficiently poor that the auction is being labelled a failure:

Germany’s sale of 10-year bunds lured the least demand in six months as investors shied away from a flood of government securities.

Investors bid for 5.2 billion euros of the bonds offered today, a level of demand that prompted the Bundesbank to retain 32 percent of the securities, according to the central bank’s Web site.

The press release tells the tale. A momentary blip? Or a sign of a turn in the tide from the flight-to-safety? Across the Curve notes “flight from risk-averse assets” and a tightening of credit spreads. Place yer bets, gents!

The Fed announced today that the Money Market Investor Funding Facility is being expanded:

the set of institutions eligible to participate in the MMIFF was expanded from U.S. money market mutual funds to also include a number of other money market investors. The newly eligible participants include U.S.-based securities-lending cash-collateral reinvestment funds, portfolios, and accounts (securities lenders); and U.S.-based investment funds that operate in a manner similar to money market mutual funds, such as certain local government investment pools, common trust funds, and collective investment funds.
…
the Board authorized the adjustment of several of the economic parameters of the MMIFF, including the minimum yield on assets eligible to be sold to the MMIFF, to enable the program to remain a viable source of backup liquidity for money market investors even at very low levels of money market interest rates
…
The MMIFF is designed to serve as a source of liquidity to money market mutual funds and other eligible money market investment vehicles, thereby increasing their ability to meet redemption requests and their willingness to invest in money market instruments, particularly term money market instruments. Under the MMIFF, the Federal Reserve Bank of New York provides a credit facility to a series of special purpose vehicles (SPVs) established by the private sector. The SPVs will purchase certain U.S. dollar-denominated, highly rated, short-term certificates of deposit, bank notes, and commercial paper from eligible money market investors

Speaking of the US, Across the Curve has some interesting colour today:

I had an interesting conversation with a relative value trader in the Treasury market. He loves the 2 year note at 80 basis points. With a zero handle, they would seem like an instrument which should have step child status.

However, he notes that with the ride down the yield curve and the positive carry from financing them at virtually zero, it is as if you own them at 1.75 percent one year from now.

That is the breakeven on a one year coupon. He makes the valid point that for that 1.75 percent to lose money one would need to posit a funds rate close to one percent. Given the tenor of comments from the central Bank, that does not seem likely.

Wild. Riding the yield curve from a 80bp starting point at a time when Treasury auction issuance is at record levels and there is fear of auction failures. This situation is not sustainable.

There’s an interesting development in US distressed mortgages:

Private National Mortgage Acceptance Company LLC, an investor in troubled mortgages run by a former president of Countrywide Financial Corp., bought $558 million of home loans that the Federal Deposit Insurance Corp. acquired last year after First National Bank of Nevada collapsed.

Known as PennyMac and led by Stanford Kurland, the firm is paying an average of 30 cents to 50 cents on the dollar for the loans and the FDIC is sharing some of the risk, spokesman Andrew Chang said.
…
“This asset sale did not provide any loss-sharing,” said FDIC spokesman David Barr in an interview about the PennyMac deal. “It is a participation sale, however, which means the FDIC benefits from cash-flow generated from these loans.”

The FDIC will receive 80 percent of the loan’s cash flow until a certain, undisclosed level of payments are received, then 60 percent thereafter, he said.

David Barr’s comments are disingenuous. “Participation” is equivalent to “Loss Sharing” – full stop.

PerpetualDiscounts managed to eke out another gain today – and, much to my surprise, so did fixed-resets! I would have thought that continued issuance would have pounded down the sector, but it is showing significant resilience. And I still have to fiddle with the damn programming of the damn tables.

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	7.08 %	7.53 %	29,318	13.49	2	-1.4428 %	864.7
FixedFloater	7.50 %	7.27 %	149,162	13.32	8	0.8064 %	1,362.8
Floater	5.56 %	5.36 %	34,542	14.91	4	-0.8545 %	1,097.9
OpRet	5.37 %	4.67 %	121,876	3.92	15	-0.0960 %	1,998.6
SplitShare	6.07 %	9.04 %	81,718	4.17	15	0.3169 %	1,833.2
Interest-Bearing	7.16 %	11.50 %	46,525	0.93	2	-0.8116 %	1,975.8
Perpetual-Premium	0.00 %	0.00 %	0	0.00	0	0.2627 %	1,553.5
Perpetual-Discount	6.89 %	6.95 %	237,780	12.65	71	0.2627 %	1,430.8
FixedReset	5.93 %	4.97 %	742,368	15.06	18	0.2337 %	1,799.6

Performance Highlights
Issue	Index	Change	Notes
BCE.PR.Y	Ratchet	-4.83 %	Yield-to-Worst (at Bid) : 8.13 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 25.00 Probability of Maturity : 100.00 % Evaluated at bid price : 13.80 Yield to Worst : 8.13 %
BAM.PR.K	Floater	-3.71 %	Yield-to-Worst (at Bid) : 6.11 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 10.11 Probability of Maturity : 100.00 % Evaluated at bid price : 10.11 Yield to Worst : 6.11 %
SLF.PR.A	Perpetual-Discount	-3.41 %	Yield-to-Worst (at Bid) : 7.18 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 16.71 Probability of Maturity : 100.00 % Evaluated at bid price : 16.71 Yield to Worst : 7.18 %
BAM.PR.G	FixedFloater	-3.02 %	Yield-to-Worst (at Bid) : 10.23 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 25.00 Probability of Maturity : 100.00 % Evaluated at bid price : 11.25 Yield to Worst : 10.23 %
BNS.PR.L	Perpetual-Discount	-2.84 %	Yield-to-Worst (at Bid) : 6.47 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 17.45 Probability of Maturity : 100.00 % Evaluated at bid price : 17.45 Yield to Worst : 6.47 %
LFE.PR.A	SplitShare	-2.60 %	Yield-to-Worst (at Bid) : 7.26 % YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Probability of Maturity : 100.00 % Evaluated at bid price : 9.35 Yield to Worst : 7.26 %
BAM.PR.B	Floater	-2.45 %	Yield-to-Worst (at Bid) : 6.21 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 9.96 Probability of Maturity : 100.00 % Evaluated at bid price : 9.96 Yield to Worst : 6.21 %
MFC.PR.C	Perpetual-Discount	-2.34 %	Yield-to-Worst (at Bid) : 6.48 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 17.56 Probability of Maturity : 100.00 % Evaluated at bid price : 17.56 Yield to Worst : 6.48 %
TD.PR.P	Perpetual-Discount	-2.20 %	Yield-to-Worst (at Bid) : 6.58 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 20.00 Probability of Maturity : 100.00 % Evaluated at bid price : 20.00 Yield to Worst : 6.58 %
PPL.PR.A	SplitShare	-2.08 %	Yield-to-Worst (at Bid) : 8.18 % YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Probability of Maturity : 100.00 % Evaluated at bid price : 8.96 Yield to Worst : 8.18 %
BNS.PR.M	Perpetual-Discount	-2.03 %	Yield-to-Worst (at Bid) : 6.49 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 17.40 Probability of Maturity : 100.00 % Evaluated at bid price : 17.40 Yield to Worst : 6.49 %
BAM.PR.J	OpRet	-1.82 %	Yield-to-Worst (at Bid) : 10.93 % YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Probability of Maturity : 100.00 % Evaluated at bid price : 17.22 Yield to Worst : 10.93 %
FIG.PR.A	Interest-Bearing	-1.81 %	Yield-to-Worst (at Bid) : 12.11 % YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-31 Maturity Price : 10.00 Probability of Maturity : 100.00 % Evaluated at bid price : 7.61 Yield to Worst : 12.11 %
RY.PR.B	Perpetual-Discount	-1.79 %	Yield-to-Worst (at Bid) : 6.40 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 18.66 Probability of Maturity : 100.00 % Evaluated at bid price : 18.66 Yield to Worst : 6.40 %
POW.PR.A	Perpetual-Discount	-1.65 %	Yield-to-Worst (at Bid) : 7.37 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 19.13 Probability of Maturity : 100.00 % Evaluated at bid price : 19.13 Yield to Worst : 7.37 %
PWF.PR.M	FixedReset	-1.61 %	Yield-to-Worst (at Bid) : 5.52 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 24.45 Probability of Maturity : 66.80 % Evaluated at bid price : 24.50 Yield to Worst : 5.52 %
CM.PR.I	Perpetual-Discount	-1.52 %	Yield-to-Worst (at Bid) : 7.03 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 16.79 Probability of Maturity : 100.00 % Evaluated at bid price : 16.79 Yield to Worst : 7.03 %
HSB.PR.C	Perpetual-Discount	-1.45 %	Yield-to-Worst (at Bid) : 7.28 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 17.70 Probability of Maturity : 100.00 % Evaluated at bid price : 17.70 Yield to Worst : 7.28 %
RY.PR.F	Perpetual-Discount	-1.41 %	Yield-to-Worst (at Bid) : 6.46 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 17.51 Probability of Maturity : 100.00 % Evaluated at bid price : 17.51 Yield to Worst : 6.46 %
SLF.PR.B	Perpetual-Discount	-1.29 %	Yield-to-Worst (at Bid) : 7.22 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 16.81 Probability of Maturity : 100.00 % Evaluated at bid price : 16.81 Yield to Worst : 7.22 %
RY.PR.C	Perpetual-Discount	-1.27 %	Yield-to-Worst (at Bid) : 6.53 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 17.93 Probability of Maturity : 100.00 % Evaluated at bid price : 17.93 Yield to Worst : 6.53 %
W.PR.J	Perpetual-Discount	-1.17 %	Yield-to-Worst (at Bid) : 7.93 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 17.79 Probability of Maturity : 100.00 % Evaluated at bid price : 17.79 Yield to Worst : 7.93 %
CM.PR.G	Perpetual-Discount	-1.11 %	Yield-to-Worst (at Bid) : 7.22 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 18.79 Probability of Maturity : 100.00 % Evaluated at bid price : 18.79 Yield to Worst : 7.22 %
CM.PR.J	Perpetual-Discount	-1.10 %	Yield-to-Worst (at Bid) : 7.01 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 16.11 Probability of Maturity : 100.00 % Evaluated at bid price : 16.11 Yield to Worst : 7.01 %
CM.PR.P	Perpetual-Discount	-1.03 %	Yield-to-Worst (at Bid) : 7.22 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 19.13 Probability of Maturity : 100.00 % Evaluated at bid price : 19.13 Yield to Worst : 7.22 %
TD.PR.C	FixedReset	1.08 %	Yield-to-Worst (at Bid) : 4.98 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 24.36 Probability of Maturity : 67.99 % Evaluated at bid price : 24.41 Yield to Worst : 4.98 %
BNS.PR.K	Perpetual-Discount	1.09 %	Yield-to-Worst (at Bid) : 6.51 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 18.50 Probability of Maturity : 100.00 % Evaluated at bid price : 18.50 Yield to Worst : 6.51 %
BNS.PR.N	Perpetual-Discount	1.10 %	Yield-to-Worst (at Bid) : 6.52 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 20.22 Probability of Maturity : 100.00 % Evaluated at bid price : 20.22 Yield to Worst : 6.52 %
CM.PR.K	FixedReset	1.14 %	Yield-to-Worst (at Bid) : 4.96 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 21.79 Probability of Maturity : 91.00 % Evaluated at bid price : 22.25 Yield to Worst : 4.96 %
W.PR.H	Perpetual-Discount	1.21 %	Yield-to-Worst (at Bid) : 7.88 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 17.60 Probability of Maturity : 100.00 % Evaluated at bid price : 17.60 Yield to Worst : 7.88 %
PWF.PR.H	Perpetual-Discount	1.24 %	Yield-to-Worst (at Bid) : 7.22 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 20.00 Probability of Maturity : 100.00 % Evaluated at bid price : 20.00 Yield to Worst : 7.22 %
NA.PR.L	Perpetual-Discount	1.34 %	Yield-to-Worst (at Bid) : 6.98 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 17.39 Probability of Maturity : 100.00 % Evaluated at bid price : 17.39 Yield to Worst : 6.98 %
TD.PR.S	FixedReset	1.35 %	Yield-to-Worst (at Bid) : 4.23 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 22.44 Probability of Maturity : 88.90 % Evaluated at bid price : 22.50 Yield to Worst : 4.23 %
BMO.PR.L	Perpetual-Discount	1.39 %	Yield-to-Worst (at Bid) : 6.99 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 21.11 Probability of Maturity : 100.00 % Evaluated at bid price : 21.11 Yield to Worst : 6.99 %
PWF.PR.F	Perpetual-Discount	1.40 %	Yield-to-Worst (at Bid) : 6.88 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 19.14 Probability of Maturity : 100.00 % Evaluated at bid price : 19.14 Yield to Worst : 6.88 %
ALB.PR.A	SplitShare	1.40 %	Yield-to-Worst (at Bid) : 13.35 % YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2011-02-28 Maturity Price : 25.00 Probability of Maturity : 100.00 % Evaluated at bid price : 21.02 Yield to Worst : 13.35 %
ELF.PR.G	Perpetual-Discount	1.49 %	Yield-to-Worst (at Bid) : 7.97 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 15.02 Probability of Maturity : 100.00 % Evaluated at bid price : 15.02 Yield to Worst : 7.97 %
POW.PR.D	Perpetual-Discount	1.51 %	Yield-to-Worst (at Bid) : 6.96 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 18.10 Probability of Maturity : 100.00 % Evaluated at bid price : 18.10 Yield to Worst : 6.96 %
WFS.PR.A	SplitShare	1.66 %	Yield-to-Worst (at Bid) : 9.04 % YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2011-06-30 Maturity Price : 10.00 Probability of Maturity : 100.00 % Evaluated at bid price : 9.20 Yield to Worst : 9.04 %
BMO.PR.H	Perpetual-Discount	1.72 %	Yield-to-Worst (at Bid) : 6.69 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 20.15 Probability of Maturity : 100.00 % Evaluated at bid price : 20.15 Yield to Worst : 6.69 %
POW.PR.B	Perpetual-Discount	1.72 %	Yield-to-Worst (at Bid) : 6.89 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 19.54 Probability of Maturity : 100.00 % Evaluated at bid price : 19.54 Yield to Worst : 6.89 %
PWF.PR.G	Perpetual-Discount	1.73 %	Yield-to-Worst (at Bid) : 7.14 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 20.75 Probability of Maturity : 100.00 % Evaluated at bid price : 20.75 Yield to Worst : 7.14 %
NA.PR.K	Perpetual-Discount	1.77 %	Yield-to-Worst (at Bid) : 7.10 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 20.61 Probability of Maturity : 100.00 % Evaluated at bid price : 20.61 Yield to Worst : 7.10 %
DF.PR.A	SplitShare	1.81 %	Yield-to-Worst (at Bid) : 7.43 % YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Probability of Maturity : 100.00 % Evaluated at bid price : 9.01 Yield to Worst : 7.43 %
BCE.PR.C	FixedFloater	1.86 %	Yield-to-Worst (at Bid) : 7.31 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 25.00 Probability of Maturity : 100.00 % Evaluated at bid price : 15.92 Yield to Worst : 7.31 %
BCE.PR.S	Ratchet	1.92 %	Yield-to-Worst (at Bid) : 7.53 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 25.00 Probability of Maturity : 100.00 % Evaluated at bid price : 14.89 Yield to Worst : 7.53 %
PWF.PR.A	Floater	2.04 %	Yield-to-Worst (at Bid) : 4.96 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 12.51 Probability of Maturity : 100.00 % Evaluated at bid price : 12.51 Yield to Worst : 4.96 %
PWF.PR.E	Perpetual-Discount	2.04 %	Yield-to-Worst (at Bid) : 7.15 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 19.30 Probability of Maturity : 100.00 % Evaluated at bid price : 19.30 Yield to Worst : 7.15 %
PWF.PR.K	Perpetual-Discount	2.06 %	Yield-to-Worst (at Bid) : 6.90 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 18.00 Probability of Maturity : 100.00 % Evaluated at bid price : 18.00 Yield to Worst : 6.90 %
PWF.PR.I	Perpetual-Discount	2.06 %	Yield-to-Worst (at Bid) : 7.11 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 21.17 Probability of Maturity : 100.00 % Evaluated at bid price : 21.17 Yield to Worst : 7.11 %
CL.PR.B	Perpetual-Discount	2.11 %	Yield-to-Worst (at Bid) : 7.09 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 22.26 Probability of Maturity : 100.00 % Evaluated at bid price : 22.26 Yield to Worst : 7.09 %
NA.PR.M	Perpetual-Discount	2.12 %	Yield-to-Worst (at Bid) : 7.12 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 21.08 Probability of Maturity : 100.00 % Evaluated at bid price : 21.08 Yield to Worst : 7.12 %
PWF.PR.L	Perpetual-Discount	2.12 %	Yield-to-Worst (at Bid) : 7.15 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 17.90 Probability of Maturity : 100.00 % Evaluated at bid price : 17.90 Yield to Worst : 7.15 %
BNS.PR.O	Perpetual-Discount	2.14 %	Yield-to-Worst (at Bid) : 6.69 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 21.00 Probability of Maturity : 100.00 % Evaluated at bid price : 21.00 Yield to Worst : 6.69 %
SBN.PR.A	SplitShare	2.15 %	Yield-to-Worst (at Bid) : 6.36 % YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Probability of Maturity : 100.00 % Evaluated at bid price : 9.50 Yield to Worst : 6.36 %
FFN.PR.A	SplitShare	2.29 %	Yield-to-Worst (at Bid) : 9.80 % YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Probability of Maturity : 100.00 % Evaluated at bid price : 8.04 Yield to Worst : 9.80 %
GWO.PR.H	Perpetual-Discount	2.35 %	Yield-to-Worst (at Bid) : 7.02 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 17.45 Probability of Maturity : 100.00 % Evaluated at bid price : 17.45 Yield to Worst : 7.02 %
RY.PR.H	Perpetual-Discount	2.36 %	Yield-to-Worst (at Bid) : 6.61 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 21.38 Probability of Maturity : 94.07 % Evaluated at bid price : 21.70 Yield to Worst : 6.61 %
BCE.PR.I	FixedFloater	2.40 %	Yield-to-Worst (at Bid) : 7.22 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 25.00 Probability of Maturity : 100.00 % Evaluated at bid price : 15.76 Yield to Worst : 7.22 %
POW.PR.C	Perpetual-Discount	2.62 %	Yield-to-Worst (at Bid) : 6.90 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 21.16 Probability of Maturity : 100.00 % Evaluated at bid price : 21.16 Yield to Worst : 6.90 %
GWO.PR.I	Perpetual-Discount	2.74 %	Yield-to-Worst (at Bid) : 7.05 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 16.13 Probability of Maturity : 100.00 % Evaluated at bid price : 16.13 Yield to Worst : 7.05 %
NA.PR.N	FixedReset	2.77 %	Yield-to-Worst (at Bid) : 4.97 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 21.41 Probability of Maturity : 100.00 % Evaluated at bid price : 21.41 Yield to Worst : 4.97 %
BCE.PR.R	FixedFloater	3.33 %	Yield-to-Worst (at Bid) : 7.37 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 25.00 Probability of Maturity : 100.00 % Evaluated at bid price : 15.50 Yield to Worst : 7.37 %
CIU.PR.A	Perpetual-Discount	3.35 %	Yield-to-Worst (at Bid) : 7.02 % YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2039-01-07 Maturity Price : 16.65 Probability of Maturity : 100.00 % Evaluated at bid price : 16.65 Yield to Worst : 7.02 %

Volume Highlights
Issue	Index	Shares Traded	Notes
WFS.PR.A	SplitShare	490,900
LFE.PR.A	SplitShare	64,507
GWO.PR.H	Perpetual-Discount	63,899
GWO.PR.I	Perpetual-Discount	55,300
RY.PR.D	Perpetual-Discount	39,570
RY.PR.N	FixedReset	38,762
BAM.PR.O	OpRet	30,855
PPL.PR.A	SplitShare	29,313
RY.PR.E	Perpetual-Discount	26,200
BCE.PR.I	FixedFloater	23,613
FFN.PR.A	SplitShare	22,255
CU.PR.B	Perpetual-Discount	20,587
BNS.PR.L	Perpetual-Discount	18,240
BAM.PR.N	Perpetual-Discount	17,574
CIU.PR.A	Perpetual-Discount	17,000
RY.PR.B	Perpetual-Discount	16,410
HSB.PR.C	Perpetual-Discount	16,400
CM.PR.H	Perpetual-Discount	15,655
BMO.PR.J	Perpetual-Discount	15,150
BNS.PR.M	Perpetual-Discount	14,935
SLF.PR.B	Perpetual-Discount	14,240
BMO.PR.N	FixedReset	13,950
BMO.PR.L	Perpetual-Discount	13,030
CM.PR.G	Perpetual-Discount	13,015
BNA.PR.C	SplitShare	12,600
MFC.PR.A	OpRet	12,400
SLF.PR.D	Perpetual-Discount	12,379
FIG.PR.A	Interest-Bearing	12,376
CM.PR.D	Perpetual-Discount	12,250
TD.PR.P	Perpetual-Discount	11,465
BCE.PR.Z	FixedFloater	10,341

New Issues

New Issue: BNS Fixed-Reset 6.25%+414

BNS has announced:

a domestic public offering of 8 million non-cumulative 6.25% 5-year rate reset preferred shares Series 26 (the “Preferred Shares Series 26”) at a price of $25.00 per share, for gross proceeds of $200 million.

Holders of Preferred Shares Series 26 will be entitled to receive a non-cumulative quarterly fixed dividend for the initial period ending April 25, 2014 yielding 6.25% per annum, as and when declared by the Board of Directors of Scotiabank. Thereafter, the dividend rate will reset every five years at a rate equal to 4.14% over the 5-year Government of Canada bond yield. Holders of Preferred Shares Series 26 will, subject to certain conditions, have the right to convert all or any part of their shares to non-cumulative floating rate preferred shares Series 27 (the “Preferred Shares Series 27”) of Scotiabank on April 26, 2014 and on April 26 every five years thereafter.

Holders of the Preferred Shares Series 27 will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.14%, as and when declared by the Board of Directors of Scotiabank. Holders of Preferred Shares Series 27 will, subject to certain conditions, have the right to convert all or any part
of their shares to Preferred Shares Series 26 on April 26, 2019 and on April 26 every five years thereafter.

The Bank has agreed to sell the Preferred Shares Series 26 to a syndicate of underwriters led by Scotia Capital Inc. on a bought deal basis. The Bank has granted to the underwriters an option to purchase up to an additional 3 million Preferred Shares Series 26 at closing, which option is exercisable by the underwriters any time up to 48 hours before closing.

Closing is expected to occur on or after January 21, 2009. This domestic public offering is part of Scotiabank’s ongoing and proactive management of its Tier 1 capital structure.

The initial dividend is planned to be paid on 2009-4-28 for $0.41524, based on a January 21 closing.

It’s odd … SunLife still hasn’t done anything with its $250-million of Series 24 FixedReset 6.25%+384 acquired in partial settlement for its stake in CI. I don’t know what’s happening with those things.

Market Action

January 6, 2008 2009

Yet another banner day for preferreds, although Fixed-Resets are (not surprisingly) reacting poorly to the flood of new issuance (RY, 6.25%+419, NA, 6.60%+463, TD, 6.25%+437) at higher coupons.

Formatting of the tables is horrible today. Yesterday’s fiddling may be on the right track programatically, but definitely a step backward esthetically. Sorry, guys! I’d like to write more (especially with Spend-Every-Penny mumbling about putting Canada into a permanent structural deficit, just like Mr. Bush) … but I have to do some more fiddling …

HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	6.99 %	7.70 %	30,538	13.31	2	0.7266 %	877.3
FixedFloater	7.56 %	7.42 %	151,663	13.32	8	1.5785 %	1,351.9
Floater	5.51 %	5.37 %	34,332	14.91	4	0.8161 %	1,107.4
OpRet	5.36 %	4.61 %	126,570	3.88	15	0.6845 %	2,000.5
SplitShare	6.08 %	9.47 %	75,681	4.18	15	1.8066 %	1,827.4
InterestBearing	7.10 %	11.47 %	46,538	0.94	2	4.1667 %	1,992.0
Perpetual-Premium	0.00 %	0.00 %	0	0.00	0	1.3189 %	1,549.4
Perpetual-Discount	6.89 %	7.01 %	237,528	12.54	71	1.3189 %	1,427.0
FixedReset	5.94 %	5.04 %	753,731	14.85	18	-0.2694 %	1,795.4

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.B	Perpetual-Discount	-3.11 %	Yield-to-Worst (at Bid) : 6.52 % Evaluated at bid price : 18.0400 Limit Maturity 2039-01-06 YTM: 6.52 % [Restricted: 6.52 %] (Prob: 100.00 %) Yield to Worst : 6.5218 %
RY.PR.L	FixedReset	-2.55 %	Yield-to-Worst (at Bid) : 5.09 % Evaluated at bid price : 24.1200 Call 2014-03-26 YTM: 6.64 % [Restricted: 6.64 %] (Prob: 28.03 %) Call 2019-03-26 YTM: 5.74 % [Restricted: 5.74 %] (Prob: 0.19 %) Limit Maturity 2039-01-06 YTM: 5.09 % [Restricted: 5.09 %] (Prob: 71.77 %) Yield to Worst : 5.0876 %
PWF.PR.F	Perpetual-Discount	-2.54 %	Yield-to-Worst (at Bid) : 6.99 % Evaluated at bid price : 19.2000 Limit Maturity 2039-01-06 YTM: 6.99 % [Restricted: 6.99 %] (Prob: 100.00 %) Yield to Worst : 6.9945 %
BNS.PR.N	Perpetual-Discount	-2.44 %	Yield-to-Worst (at Bid) : 6.59 % Evaluated at bid price : 20.0000 Limit Maturity 2039-01-06 YTM: 6.59 % [Restricted: 6.59 %] (Prob: 100.00 %) Yield to Worst : 6.5864 %
CM.PR.K	FixedReset	-2.22 %	Yield-to-Worst (at Bid) : 5.03 % Evaluated at bid price : 22.0000 Call 2014-08-30 YTM: 8.02 % [Restricted: 8.02 %] (Prob: 7.32 %) Limit Maturity 2039-01-06 YTM: 5.03 % [Restricted: 5.03 %] (Prob: 92.68 %) Yield to Worst : 5.0268 %
RY.PR.N	FixedReset	-1.92 %	Yield-to-Worst (at Bid) : 5.67 % Evaluated at bid price : 25.0200 Call 2014-03-26 YTM: 6.35 % [Restricted: 6.35 %] (Prob: 40.08 %) Call 2019-03-26 YTM: 5.94 % [Restricted: 5.94 %] (Prob: 0.10 %) Limit Maturity 2039-01-06 YTM: 5.67 % [Restricted: 5.67 %] (Prob: 59.82 %) Yield to Worst : 5.6744 %
BNS.PR.Q	FixedReset	-1.77 %	Yield-to-Worst (at Bid) : 4.40 % Evaluated at bid price : 22.2000 Call 2013-11-24 YTM: 7.71 % [Restricted: 7.71 %] (Prob: 8.22 %) Call 2018-11-24 YTM: 5.82 % [Restricted: 5.82 %] (Prob: 0.53 %) Limit Maturity 2039-01-06 YTM: 4.40 % [Restricted: 4.40 %] (Prob: 91.25 %) Yield to Worst : 4.3984 %
BNA.PR.B	SplitShare	-1.23 %	Yield-to-Worst (at Bid) : 8.90 % Evaluated at bid price : 20.0000 Hard Maturity 2016-03-25 YTM: 8.90 % [Restricted: 8.90 %] (Prob: 100.00 %) Yield to Worst : 8.9015 %
GWO.PR.J	FixedReset	-1.01 %	Yield-to-Worst (at Bid) : 5.40 % Evaluated at bid price : 24.5000 Call 2014-01-30 YTM: 6.62 % [Restricted: 6.62 %] (Prob: 32.96 %) Call 2019-01-30 YTM: 5.90 % [Restricted: 5.90 %] (Prob: 0.26 %) Limit Maturity 2039-01-06 YTM: 5.40 % [Restricted: 5.40 %] (Prob: 66.78 %) Yield to Worst : 5.3987 %
BNS.PR.J	Perpetual-Discount	1.00 %	Yield-to-Worst (at Bid) : 6.53 % Evaluated at bid price : 20.1600 Limit Maturity 2039-01-06 YTM: 6.53 % [Restricted: 6.53 %] (Prob: 100.00 %) Yield to Worst : 6.5339 %
PWF.PR.J	OpRet	1.01 %	Yield-to-Worst (at Bid) : 4.84 % Evaluated at bid price : 25.1000 Call 2009-04-06 YTM: 23.48 % [Restricted: 5.79 %] (Prob: 7.08 %) Call 2009-05-30 YTM: 13.71 % [Restricted: 5.40 %] (Prob: 6.56 %) Call 2010-05-30 YTM: 6.49 % [Restricted: 6.49 %] (Prob: 8.27 %) Call 2011-05-30 YTM: 5.34 % [Restricted: 5.34 %] (Prob: 0.66 %) Soft Maturity 2013-07-30 YTM: 4.84 % [Restricted: 4.84 %] (Prob: 77.43 %) Yield to Worst : 4.8432 %
BCE.PR.R	FixedFloater	1.01 %	Yield-to-Worst (at Bid) : 7.64 % Evaluated at bid price : 15.0000 Limit Maturity 2039-01-06 YTM: 7.64 % [Restricted: 7.64 %] (Prob: 100.00 %) Yield to Worst : 7.6367 %
CM.PR.P	Perpetual-Discount	1.05 %	Yield-to-Worst (at Bid) : 7.14 % Evaluated at bid price : 19.3300 Limit Maturity 2039-01-06 YTM: 7.14 % [Restricted: 7.14 %] (Prob: 100.00 %) Yield to Worst : 7.1438 %
CM.PR.I	Perpetual-Discount	1.07 %	Yield-to-Worst (at Bid) : 6.92 % Evaluated at bid price : 17.0500 Limit Maturity 2039-01-06 YTM: 6.92 % [Restricted: 6.92 %] (Prob: 100.00 %) Yield to Worst : 6.9199 %
LBS.PR.A	SplitShare	1.10 %	Yield-to-Worst (at Bid) : 9.88 % Evaluated at bid price : 8.2500 Hard Maturity 2013-11-29 YTM: 9.88 % [Restricted: 9.88 %] (Prob: 100.00 %) Yield to Worst : 9.8799 %
POW.PR.B	Perpetual-Discount	1.11 %	Yield-to-Worst (at Bid) : 7.01 % Evaluated at bid price : 19.2100 Limit Maturity 2039-01-06 YTM: 7.01 % [Restricted: 7.01 %] (Prob: 100.00 %) Yield to Worst : 7.0113 %
TD.PR.N	OpRet	1.11 %	Yield-to-Worst (at Bid) : 3.55 % Evaluated at bid price : 26.0000 Call 2009-05-30 YTM: 3.71 % [Restricted: 1.46 %] (Prob: 26.43 %) Call 2010-05-30 YTM: 3.55 % [Restricted: 3.55 %] (Prob: 5.03 %) Soft Maturity 2014-01-30 YTM: 3.68 % [Restricted: 3.68 %] (Prob: 68.54 %) Yield to Worst : 3.5548 %
TD.PR.O	Perpetual-Discount	1.23 %	Yield-to-Worst (at Bid) : 6.43 % Evaluated at bid price : 18.9100 Limit Maturity 2039-01-06 YTM: 6.43 % [Restricted: 6.43 %] (Prob: 100.00 %) Yield to Worst : 6.4318 %
GWO.PR.F	Perpetual-Discount	1.25 %	Yield-to-Worst (at Bid) : 7.36 % Evaluated at bid price : 20.2600 Limit Maturity 2039-01-06 YTM: 7.36 % [Restricted: 7.36 %] (Prob: 100.00 %) Yield to Worst : 7.3584 %
CM.PR.D	Perpetual-Discount	1.27 %	Yield-to-Worst (at Bid) : 7.22 % Evaluated at bid price : 20.0000 Limit Maturity 2039-01-06 YTM: 7.22 % [Restricted: 7.22 %] (Prob: 100.00 %) Yield to Worst : 7.2188 %
SLF.PR.E	Perpetual-Discount	1.31 %	Yield-to-Worst (at Bid) : 7.33 % Evaluated at bid price : 15.5100 Limit Maturity 2039-01-06 YTM: 7.33 % [Restricted: 7.33 %] (Prob: 100.00 %) Yield to Worst : 7.3309 %
PWF.PR.H	Perpetual-Discount	1.31 %	Yield-to-Worst (at Bid) : 7.32 % Evaluated at bid price : 20.1100 Limit Maturity 2039-01-06 YTM: 7.32 % [Restricted: 7.32 %] (Prob: 100.00 %) Yield to Worst : 7.3202 %
CM.PR.G	Perpetual-Discount	1.33 %	Yield-to-Worst (at Bid) : 7.14 % Evaluated at bid price : 19.0000 Limit Maturity 2039-01-06 YTM: 7.14 % [Restricted: 7.14 %] (Prob: 100.00 %) Yield to Worst : 7.1357 %
BNS.PR.P	FixedReset	1.33 %	Yield-to-Worst (at Bid) : 4.54 % Evaluated at bid price : 22.8000 Call 2013-05-25 YTM: 7.29 % [Restricted: 7.29 %] (Prob: 12.60 %) Call 2018-05-25 YTM: 5.66 % [Restricted: 5.66 %] (Prob: 1.18 %) Limit Maturity 2039-01-06 YTM: 4.54 % [Restricted: 4.54 %] (Prob: 86.22 %) Yield to Worst : 4.5434 %
PWF.PR.E	Perpetual-Discount	1.37 %	Yield-to-Worst (at Bid) : 7.31 % Evaluated at bid price : 19.2600 Limit Maturity 2039-01-06 YTM: 7.31 % [Restricted: 7.31 %] (Prob: 100.00 %) Yield to Worst : 7.3108 %
RY.PR.F	Perpetual-Discount	1.37 %	Yield-to-Worst (at Bid) : 6.37 % Evaluated at bid price : 17.7600 Limit Maturity 2039-01-06 YTM: 6.37 % [Restricted: 6.37 %] (Prob: 100.00 %) Yield to Worst : 6.3707 %
TD.PR.A	FixedReset	1.41 %	Yield-to-Worst (at Bid) : 4.68 % Evaluated at bid price : 22.0500 Call 2014-03-02 YTM: 7.74 % [Restricted: 7.74 %] (Prob: 7.39 %) Call 2019-03-02 YTM: 6.03 % [Restricted: 6.03 %] (Prob: 0.26 %) Limit Maturity 2039-01-06 YTM: 4.68 % [Restricted: 4.68 %] (Prob: 92.35 %) Yield to Worst : 4.6754 %
RY.PR.C	Perpetual-Discount	1.45 %	Yield-to-Worst (at Bid) : 6.44 % Evaluated at bid price : 18.1600 Limit Maturity 2039-01-06 YTM: 6.44 % [Restricted: 6.44 %] (Prob: 100.00 %) Yield to Worst : 6.4414 %
TCA.PR.Y	Perpetual-Discount	1.47 %	Yield-to-Worst (at Bid) : 6.35 % Evaluated at bid price : 44.1000 Call 2014-04-04 YTM: 8.40 % [Restricted: 8.40 %] (Prob: 7.44 %) Limit Maturity 2039-01-06 YTM: 6.35 % [Restricted: 6.35 %] (Prob: 92.56 %) Yield to Worst : 6.3484 %
HSB.PR.D	Perpetual-Discount	1.47 %	Yield-to-Worst (at Bid) : 7.35 % Evaluated at bid price : 17.2000 Limit Maturity 2039-01-06 YTM: 7.35 % [Restricted: 7.35 %] (Prob: 100.00 %) Yield to Worst : 7.3452 %
BCE.PR.I	FixedFloater	1.58 %	Yield-to-Worst (at Bid) : 7.42 % Evaluated at bid price : 15.3900 Limit Maturity 2039-01-06 YTM: 7.42 % [Restricted: 7.42 %] (Prob: 100.00 %) Yield to Worst : 7.4171 %
NA.PR.K	Perpetual-Discount	1.63 %	Yield-to-Worst (at Bid) : 7.24 % Evaluated at bid price : 20.6100 Limit Maturity 2039-01-06 YTM: 7.24 % [Restricted: 7.24 %] (Prob: 100.00 %) Yield to Worst : 7.2416 %
TD.PR.S	FixedReset	1.64 %	Yield-to-Worst (at Bid) : 4.28 % Evaluated at bid price : 22.2000 Call 2013-08-30 YTM: 7.81 % [Restricted: 7.81 %] (Prob: 8.05 %) Call 2018-08-30 YTM: 5.77 % [Restricted: 5.77 %] (Prob: 0.77 %) Limit Maturity 2039-01-06 YTM: 4.28 % [Restricted: 4.28 %] (Prob: 91.18 %) Yield to Worst : 4.2844 %
BCE.PR.G	FixedFloater	1.64 %	Yield-to-Worst (at Bid) : 7.28 % Evaluated at bid price : 15.5000 Limit Maturity 2039-01-06 YTM: 7.28 % [Restricted: 7.28 %] (Prob: 100.00 %) Yield to Worst : 7.2815 %
BAM.PR.J	OpRet	1.68 %	Yield-to-Worst (at Bid) : 10.64 % Evaluated at bid price : 17.5400 Soft Maturity 2018-03-30 YTM: 10.64 % [Restricted: 10.64 %] (Prob: 100.00 %) Yield to Worst : 10.6445 %
PWF.PR.I	Perpetual-Discount	1.69 %	Yield-to-Worst (at Bid) : 7.28 % Evaluated at bid price : 21.1100 Limit Maturity 2039-01-06 YTM: 7.28 % [Restricted: 7.28 %] (Prob: 100.00 %) Yield to Worst : 7.2758 %
TRI.PR.B	Floater	1.77 %	Yield-to-Worst (at Bid) : 5.37 % Evaluated at bid price : 11.5000 Limit Maturity 2039-01-06 YTM: 5.37 % [Restricted: 5.37 %] (Prob: 100.00 %) Yield to Worst : 5.3674 %
RY.PR.H	Perpetual-Discount	1.83 %	Yield-to-Worst (at Bid) : 6.78 % Evaluated at bid price : 21.2000 Limit Maturity 2039-01-06 YTM: 6.78 % [Restricted: 6.78 %] (Prob: 100.00 %) Yield to Worst : 6.7792 %
TD.PR.Y	FixedReset	1.93 %	Yield-to-Worst (at Bid) : 4.48 % Evaluated at bid price : 21.8500 Call 2013-11-30 YTM: 8.17 % [Restricted: 8.17 %] (Prob: 6.04 %) Call 2018-11-30 YTM: 6.07 % [Restricted: 6.07 %] (Prob: 0.46 %) Limit Maturity 2039-01-06 YTM: 4.48 % [Restricted: 4.48 %] (Prob: 93.50 %) Yield to Worst : 4.4819 %
PWF.PR.L	Perpetual-Discount	1.94 %	Yield-to-Worst (at Bid) : 7.32 % Evaluated at bid price : 17.8400 Limit Maturity 2039-01-06 YTM: 7.32 % [Restricted: 7.32 %] (Prob: 100.00 %) Yield to Worst : 7.3189 %
SLF.PR.D	Perpetual-Discount	1.99 %	Yield-to-Worst (at Bid) : 7.30 % Evaluated at bid price : 15.4100 Limit Maturity 2039-01-06 YTM: 7.30 % [Restricted: 7.30 %] (Prob: 100.00 %) Yield to Worst : 7.2961 %
PWF.PR.K	Perpetual-Discount	2.05 %	Yield-to-Worst (at Bid) : 7.06 % Evaluated at bid price : 17.9400 Limit Maturity 2039-01-06 YTM: 7.06 % [Restricted: 7.06 %] (Prob: 100.00 %) Yield to Worst : 7.0592 %
CM.PR.J	Perpetual-Discount	2.07 %	Yield-to-Worst (at Bid) : 6.93 % Evaluated at bid price : 16.2900 Limit Maturity 2039-01-06 YTM: 6.93 % [Restricted: 6.93 %] (Prob: 100.00 %) Yield to Worst : 6.9346 %
GWO.PR.H	Perpetual-Discount	2.10 %	Yield-to-Worst (at Bid) : 7.19 % Evaluated at bid price : 17.0500 Limit Maturity 2039-01-06 YTM: 7.19 % [Restricted: 7.19 %] (Prob: 100.00 %) Yield to Worst : 7.1860 %
BNA.PR.C	SplitShare	2.15 %	Yield-to-Worst (at Bid) : 19.04 % Evaluated at bid price : 9.0400 Hard Maturity 2019-01-10 YTM: 19.04 % [Restricted: 19.04 %] (Prob: 100.00 %) Yield to Worst : 19.0370 %
PWF.PR.A	Floater	2.17 %	Yield-to-Worst (at Bid) : 5.06 % Evaluated at bid price : 12.2600 Limit Maturity 2039-01-06 YTM: 5.06 % [Restricted: 5.06 %] (Prob: 100.00 %) Yield to Worst : 5.0629 %
BMO.PR.K	Perpetual-Discount	2.18 %	Yield-to-Worst (at Bid) : 6.94 % Evaluated at bid price : 19.2500 Limit Maturity 2039-01-06 YTM: 6.94 % [Restricted: 6.94 %] (Prob: 100.00 %) Yield to Worst : 6.9382 %
W.PR.J	Perpetual-Discount	2.21 %	Yield-to-Worst (at Bid) : 7.84 % Evaluated at bid price : 18.0000 Limit Maturity 2039-01-06 YTM: 7.84 % [Restricted: 7.84 %] (Prob: 100.00 %) Yield to Worst : 7.8391 %
BCE.PR.Z	FixedFloater	2.40 %	Yield-to-Worst (at Bid) : 7.93 % Evaluated at bid price : 14.5100 Limit Maturity 2039-01-06 YTM: 7.93 % [Restricted: 7.93 %] (Prob: 100.00 %) Yield to Worst : 7.9293 %
BMO.PR.J	Perpetual-Discount	2.46 %	Yield-to-Worst (at Bid) : 6.69 % Evaluated at bid price : 17.1100 Limit Maturity 2039-01-06 YTM: 6.69 % [Restricted: 6.69 %] (Prob: 100.00 %) Yield to Worst : 6.6874 %
PWF.PR.G	Perpetual-Discount	2.47 %	Yield-to-Worst (at Bid) : 7.28 % Evaluated at bid price : 20.7600 Limit Maturity 2039-01-06 YTM: 7.28 % [Restricted: 7.28 %] (Prob: 100.00 %) Yield to Worst : 7.2752 %
BCE.PR.A	FixedFloater	2.50 %	Yield-to-Worst (at Bid) : 7.13 % Evaluated at bid price : 16.4100 Limit Maturity 2039-01-06 YTM: 7.13 % [Restricted: 7.13 %] (Prob: 100.00 %) Yield to Worst : 7.1266 %
NA.PR.L	Perpetual-Discount	2.59 %	Yield-to-Worst (at Bid) : 7.08 % Evaluated at bid price : 17.4600 Limit Maturity 2039-01-06 YTM: 7.08 % [Restricted: 7.08 %] (Prob: 100.00 %) Yield to Worst : 7.0843 %
STW.PR.A	InterestBearing	2.59 %	Yield-to-Worst (at Bid) : 11.47 % Evaluated at bid price : 9.5000 Hard Maturity 2009-12-31 YTM: 11.47 % [Restricted: 11.27 %] (Prob: 100.00 %) Yield to Worst : 11.4674 %
CU.PR.B	Perpetual-Discount	2.68 %	Yield-to-Worst (at Bid) : 6.62 % Evaluated at bid price : 23.0000 Call 2011-07-01 YTM: 10.47 % [Restricted: 10.47 %] (Prob: 9.42 %) Call 2012-07-01 YTM: 9.00 % [Restricted: 9.00 %] (Prob: 3.96 %) Limit Maturity 2039-01-06 YTM: 6.62 % [Restricted: 6.62 %] (Prob: 86.61 %) Yield to Worst : 6.6159 %
BNA.PR.A	SplitShare	2.70 %	Yield-to-Worst (at Bid) : 12.50 % Evaluated at bid price : 22.8000 Hard Maturity 2010-09-30 YTM: 12.50 % [Restricted: 12.50 %] (Prob: 100.00 %) Yield to Worst : 12.5006 %
LFE.PR.A	SplitShare	2.78 %	Yield-to-Worst (at Bid) : 6.48 % Evaluated at bid price : 9.6000 Hard Maturity 2012-12-01 YTM: 6.48 % [Restricted: 6.48 %] (Prob: 100.00 %) Yield to Worst : 6.4803 %
PPL.PR.A	SplitShare	2.81 %	Yield-to-Worst (at Bid) : 7.55 % Evaluated at bid price : 9.1500 Hard Maturity 2012-12-01 YTM: 7.55 % [Restricted: 7.55 %] (Prob: 100.00 %) Yield to Worst : 7.5529 %
BAM.PR.H	OpRet	2.93 %	Yield-to-Worst (at Bid) : 11.82 % Evaluated at bid price : 21.1000 Soft Maturity 2012-03-30 YTM: 11.82 % [Restricted: 11.82 %] (Prob: 100.00 %) Yield to Worst : 11.8242 %
POW.PR.D	Perpetual-Discount	3.00 %	Yield-to-Worst (at Bid) : 7.06 % Evaluated at bid price : 17.8300 Limit Maturity 2039-01-06 YTM: 7.06 % [Restricted: 7.06 %] (Prob: 100.00 %) Yield to Worst : 7.0602 %
ALB.PR.A	SplitShare	3.03 %	Yield-to-Worst (at Bid) : 14.05 % Evaluated at bid price : 20.7300 Hard Maturity 2011-02-28 YTM: 14.05 % [Restricted: 14.05 %] (Prob: 100.00 %) Yield to Worst : 14.0550 %
BAM.PR.G	FixedFloater	3.11 %	Yield-to-Worst (at Bid) : 9.95 % Evaluated at bid price : 11.6000 Limit Maturity 2039-01-06 YTM: 9.95 % [Restricted: 9.95 %] (Prob: 100.00 %) Yield to Worst : 9.9491 %
CIU.PR.A	Perpetual-Discount	3.20 %	Yield-to-Worst (at Bid) : 7.26 % Evaluated at bid price : 16.1100 Limit Maturity 2039-01-06 YTM: 7.26 % [Restricted: 7.26 %] (Prob: 100.00 %) Yield to Worst : 7.2622 %
FFN.PR.A	SplitShare	3.29 %	Yield-to-Worst (at Bid) : 10.28 % Evaluated at bid price : 7.8600 Hard Maturity 2014-12-01 YTM: 10.28 % [Restricted: 10.28 %] (Prob: 100.00 %) Yield to Worst : 10.2752 %
TD.PR.P	Perpetual-Discount	3.37 %	Yield-to-Worst (at Bid) : 6.44 % Evaluated at bid price : 20.4500 Limit Maturity 2039-01-06 YTM: 6.44 % [Restricted: 6.44 %] (Prob: 100.00 %) Yield to Worst : 6.4379 %
BAM.PR.O	OpRet	3.48 %	Yield-to-Worst (at Bid) : 13.90 % Evaluated at bid price : 17.8500 Option Certainty 2013-06-30 YTM: 13.90 % [Restricted: 13.90 %] (Prob: 100.00 %) Yield to Worst : 13.9048 %
RY.PR.B	Perpetual-Discount	3.54 %	Yield-to-Worst (at Bid) : 6.29 % Evaluated at bid price : 19.0000 Limit Maturity 2039-01-06 YTM: 6.29 % [Restricted: 6.29 %] (Prob: 100.00 %) Yield to Worst : 6.2858 %
BMO.PR.H	Perpetual-Discount	3.83 %	Yield-to-Worst (at Bid) : 6.80 % Evaluated at bid price : 19.8100 Limit Maturity 2039-01-06 YTM: 6.80 % [Restricted: 6.80 %] (Prob: 100.00 %) Yield to Worst : 6.8044 %
TCA.PR.X	Perpetual-Discount	4.00 %	Yield-to-Worst (at Bid) : 6.37 % Evaluated at bid price : 43.9500 Call 2013-11-14 YTM: 8.67 % [Restricted: 8.67 %] (Prob: 6.75 %) Limit Maturity 2039-01-06 YTM: 6.37 % [Restricted: 6.37 %] (Prob: 93.25 %) Yield to Worst : 6.3721 %
FTN.PR.A	SplitShare	4.14 %	Yield-to-Worst (at Bid) : 8.11 % Evaluated at bid price : 8.5500 Hard Maturity 2015-12-01 YTM: 8.11 % [Restricted: 8.11 %] (Prob: 100.00 %) Yield to Worst : 8.1137 %
SBC.PR.A	SplitShare	4.21 %	Yield-to-Worst (at Bid) : 9.47 % Evaluated at bid price : 8.6600 Hard Maturity 2012-11-30 YTM: 9.47 % [Restricted: 9.47 %] (Prob: 100.00 %) Yield to Worst : 9.4662 %
CU.PR.A	Perpetual-Discount	4.26 %	Yield-to-Worst (at Bid) : 6.39 % Evaluated at bid price : 23.0000 Call 2011-03-31 YTM: 10.73 % [Restricted: 10.73 %] (Prob: 8.80 %) Call 2012-03-31 YTM: 8.99 % [Restricted: 8.99 %] (Prob: 4.18 %) Limit Maturity 2039-01-06 YTM: 6.39 % [Restricted: 6.39 %] (Prob: 87.01 %) Yield to Worst : 6.3914 %
FBS.PR.B	SplitShare	4.36 %	Yield-to-Worst (at Bid) : 9.50 % Evaluated at bid price : 8.8500 Hard Maturity 2011-12-15 YTM: 9.50 % [Restricted: 9.50 %] (Prob: 100.00 %) Yield to Worst : 9.4998 %
SLF.PR.A	Perpetual-Discount	4.41 %	Yield-to-Worst (at Bid) : 6.93 % Evaluated at bid price : 17.3000 Limit Maturity 2039-01-06 YTM: 6.93 % [Restricted: 6.93 %] (Prob: 100.00 %) Yield to Worst : 6.9337 %
ELF.PR.F	Perpetual-Discount	4.59 %	Yield-to-Worst (at Bid) : 8.14 % Evaluated at bid price : 16.4000 Limit Maturity 2039-01-06 YTM: 8.14 % [Restricted: 8.14 %] (Prob: 100.00 %) Yield to Worst : 8.1417 %
FIG.PR.A	InterestBearing	6.16 %	Yield-to-Worst (at Bid) : 11.70 % Evaluated at bid price : 7.7500 Hard Maturity 2014-12-31 YTM: 11.70 % [Restricted: 11.70 %] (Prob: 100.00 %) Yield to Worst : 11.7020 %
BAM.PR.M	Perpetual-Discount	6.21 %	Yield-to-Worst (at Bid) : 9.91 % Evaluated at bid price : 12.1500 Limit Maturity 2039-01-06 YTM: 9.91 % [Restricted: 9.91 %] (Prob: 100.00 %) Yield to Worst : 9.9133 %
BAM.PR.N	Perpetual-Discount	7.08 %	Yield-to-Worst (at Bid) : 9.95 % Evaluated at bid price : 12.1000 Limit Maturity 2039-01-06 YTM: 9.95 % [Restricted: 9.95 %] (Prob: 100.00 %) Yield to Worst : 9.9549 %
IAG.PR.A	Perpetual-Discount	7.11 %	Yield-to-Worst (at Bid) : 6.95 % Evaluated at bid price : 16.7200 Limit Maturity 2039-01-06 YTM: 6.95 % [Restricted: 6.95 %] (Prob: 100.00 %) Yield to Worst : 6.9478 %

Volume Highlights
Issue	Index	Shares Traded	Notes
LBS.PR.A	SplitShare	111,572
BCE.PR.Z	FixedFloater	86,931
SLF.PR.B	Perpetual-Discount	61,463
CL.PR.B	Perpetual-Discount	49,100
RY.PR.N	FixedReset	46,510
W.PR.J	Perpetual-Discount	45,230
CM.PR.A	OpRet	43,975
SLF.PR.D	Perpetual-Discount	34,857
CM.PR.D	Perpetual-Discount	33,200
SLF.PR.C	Perpetual-Discount	30,746
RY.PR.F	Perpetual-Discount	28,900
BNA.PR.C	SplitShare	28,850
MFC.PR.A	OpRet	26,315
BNS.PR.M	Perpetual-Discount	24,625
BAM.PR.N	Perpetual-Discount	24,625
BMO.PR.J	Perpetual-Discount	24,572
BAM.PR.M	Perpetual-Discount	24,064
POW.PR.D	Perpetual-Discount	22,275
CM.PR.J	Perpetual-Discount	21,425
RY.PR.E	Perpetual-Discount	21,011
BNA.PR.A	SplitShare	20,700
PWF.PR.F	Perpetual-Discount	19,490
POW.PR.B	Perpetual-Discount	19,180
BNS.PR.L	Perpetual-Discount	18,200
WFS.PR.A	SplitShare	17,900
RY.PR.H	Perpetual-Discount	16,928
LFE.PR.A	SplitShare	16,300
CM.PR.E	Perpetual-Discount	16,300
TD.PR.O	Perpetual-Discount	15,828
IGM.PR.A	OpRet	15,819
RY.PR.D	Perpetual-Discount	15,724
FIG.PR.A	InterestBearing	15,511
CM.PR.G	Perpetual-Discount	15,320
PPL.PR.A	SplitShare	15,266
RY.PR.I	FixedReset	15,035
FBS.PR.B	SplitShare	14,816
BNS.PR.R	FixedReset	14,375
CM.PR.I	Perpetual-Discount	14,270
CM.PR.H	Perpetual-Discount	14,037
HSB.PR.C	Perpetual-Discount	13,480
SBN.PR.A	SplitShare	12,400
RY.PR.W	Perpetual-Discount	12,305
BNS.PR.O	Perpetual-Discount	12,300
BAM.PR.O	OpRet	12,222
GWO.PR.G	Perpetual-Discount	12,153
NA.PR.M	Perpetual-Discount	12,105
BAM.PR.B	Floater	11,911
PWF.PR.I	Perpetual-Discount	11,406
BMO.PR.N	FixedReset	10,700
BAM.PR.K	Floater	10,550
BCE.PR.C	FixedFloater	10,315
BNS.PR.N	Perpetual-Discount	10,015

MAPF

MAPF Performance: December 2008

Sometimes everything works.

There are times – such as June of this year – when everything goes wrong. The market doesn’t just behave in a manner differently from that expected by quantitative models, but differently from basic common sense. All you can do at such times is review your models, review your assumptions, review your application … and if everything seems all right, sit tight! It will happen occasionally; no permanent harm is done unless you’re a leveraged forced seller, as were the quants in August ’07.

But sometimes the market cooperates enthusiastically, being just inefficient enough to allow a trade to be put on and then snapping back to normalcy to allow a profitable reversal. That’s what happened in December:

Returns to December 31, 2008
Period	MAPF	Index	CPD according to Claymore
One Month	+17.05%	+6.39%	+7.08%
Three Months	+0.21%	-12.74%	-11.62%
One Year	-3.85%	-16.42%	-17.20%
Two Years (annualized)	-2.74%	-11.45%
Three Years (annualized)	+0.37%	-6.49%
Four Years (annualized)	+1.73%	-4.01%
Five Years (annualized)	+3.96%	-2.08%
Six Years (annualized)	+8.39%	-0.57%
Seven Years (annualized)	+7.33%	+0.12%
The Index is the BMO-CM “50”
CPD Returns are for the NAV and are after all fees and expenses.

Returns assume reinvestment of dividends, and are shown after expenses but before fees. Past performance is not a guarantee of future performance. You can lose money investing in Malachite Aggressive Preferred Fund or any other fund. For more information, see the fund’s main page.

All I can say is … don’t expect this every month, folks! My indices – and my records of external indices – go back to 1993-12-31; the worst month according to the HIMIPref™ PerpetualDiscount index and the “BMO-CM 50” was November, 2008. The best month in that period, by both measures, was December, 2008. The mood swing of the market exacerbated normal inefficiency and made huge bargains available that were promptly resold at ludicrous profit.

When it works, it really, really works!

The yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

Calculation of MAPF Sustainable Income Per Unit
Month	NAVPU	Portfolio Average YTW	Leverage Divisor	Securities Average YTW	Sustainable Income
June, 2007	9.3114	5.16%	1.03	5.01%	0.4665
September	9.1489	5.35%	0.98	5.46%	0.4995
December, 2007	9.0070	5.53%	0.942	5.87%	0.5288
March, 2008	8.8512	6.17%	1.047	5.89%	0.5216
June	8.3419	6.034%	0.952	6.338%	$0.5287
September	8.1886	7.108%	0.969	7.335%	$0.6006
December, 2008	8.0464	9.24%	0.992	9.166%	$0.7375
NAVPU is shown after quarterly distributions. “Portfolio YTW” includes cash (or margin borrowing), with an assumed interest rate of 0.00% “Securities YTW” divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings. “Sustainable Income” is the best available estimate of the fund’s dividend income per unit, before fees and expenses.

As discussed in the post MAPF Portfolio Composition: December 2008, the fund has positions in splitShares, which complicate the calculation greatly. Since the yield is, by and large, higher than that of the perpetuals despite the fact that the term is limited, the sustainability of the calculated “sustainable yield” is suspect, as discussed in August. Additionally, the calculated yield for the fixed-floater in the portfolio, BCE.PR.I, depends on the presumed value of Canada Prime (3.50%) and the percentage of Canada Prime paid on par value (100%); both of these figures may change.

However, if the entire portfolio except for the PerpetualDiscounts were to be sold and reinvested in these issues, the yield of the portfolio would be the 7.49% currently shown for the PerpetualDiscounts segment of the portfolio and the sustainable yield would be calculated as $8.0464 * 7.49% = $0.6027, significantly less than the figure calculated above, but still an increase from last month’s adjusted figure and continuing the long-term upward trend.

Additionally, the bulk of SplitShares held at month end were tendered for retraction; the remainder is almost entirely BNA.PR.C which does not mature until 2019, so the fat yield will be enjoyed for some time yet!

It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

the very good performance against the index
the long term increases in sustainable income per unit

As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance is due to constant exploitation of trading anomalies.

Trading in December was frenetic, with portfolio turnover of about 200%. Many of these trades were not just intra-sector, but intra-issuer; that is, between similar issues of the same issuer, notably the PerpetualDiscount issues of CM, BMO and SLF. These trades were, in aggregate, highly profitable.

Of interest is the position held in November of FFN.PR.A. Readers will remember that I mourned the fact that it had been unprofitable to month-end, but that sad situation was rectified in December:

A major trade was executed from PerpetualDiscounts into SplitShares when – against all reason – the split share with a short term maturity and well-buffered against default underperformed the PerpetualDiscount index. This trade – into FFN.PR.A; discussed in the post on portfolio composition – is not yet profitable, but I am confident that it will become so in the near future.

Post-Mortem on the FFN.PR.A Trade

Date	BMO.PR.H (see Note)	FFN.PR.A	FTN.PR.A	WFS.PR.A	BNA.PR.C
Nov 19	Sold 18.05	Bought 6.40
Nov 28 Closing Bid	17.02	5.63
Dec 8		Sold 7.00	Bought 6.91
Dec 10		Sold 7.25		Bought 7.90
Dec 12		Sold 7.00			Bought 8.65
Dec 31 Closing Bid	18.52	7.56	8.16	8.99	8.75
All trades were “scrappy”; that is, not performed on a one-issue-into-one-issue swap basis. This is particularly true of the purchase of FFN.PR.A; many issues were sold to cover the cost.

Readers will also remember the November 24 trade from WFS.PR.A to FBS.PR.B; to continue that table:

Post-Mortem WFS.PR.A to FBS.PR.B
Date	WFS.PR.A	FBS.PR.B
10/31	7.71 Yield: 16.57%	8.70 Yield: 9.99%
Trade, 11/24 Net of Commission	Sold 7.735	Bought 7.024
11/28	7.80 Yield: 16.59% No Dividends	7.49 Yield: 15.39% Earned Dividend $0.11875
Trade Dec 8	Bought 8.06	Sold 8.18
Note that trades were not performed on a one-to-one swap basis and that prices reflect a best-effort to show an average. Trade detail will be published in the coming year

2008 has been a tumultuous year, with declines in prices unparalleled in recent memory. The fund has not escaped unscathed, but has greatly outperformed its benchmark while remaining fully invested at all times. Enormous volatility in the market aggravated the normal inefficiency, particularly in the third quarter and provided the fund with ample opportunites for favourable trading.

And now we will see what 2009 brings…

New Issues

New Issue: Royal Bank Fixed-Reset 6.25%+419

Royal Bank has announced:

a domestic public offering of $200 million of Non-Cumulative, 5 year rate reset Preferred Shares Series AP.

The bank will issue 8.0 million Preferred Shares Series AP priced at $25 per share and holders will be entitled to receive non-cumulative quarterly fixed dividend for the initial period ending February 24, 2014 in the amount of $1.5625 per share, to yield 6.25% annually. The bank has granted the Underwriters an option, exercisable in whole or in part, to purchase up to an additional 3.0 million Preferred Shares at the same offering price.

Subject to regulatory approval, on or after February 24, 2014, the bank may redeem the Preferred Shares Series AP in whole or in part at par. Thereafter, the dividend rate will reset every five years at a rate equal to 4.19% over the 5 year Government of Canada bond yield. Holders of Preferred Shares Series AP will, subject to certain conditions, have the right to convert all or any part of their shares to non-cumulative floating rate preferred shares Series AQ (the “Preferred Shares Series AQ”) on February 24, 2014 and on February 24 every five years thereafter.

Holders of the Preferred Shares Series AQ will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.19%. Holders of Preferred Shares Series AQ will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series AP on February 24, 2019 and on February 24 every five years thereafter.

The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is January 14, 2009.

January 14 will be a busy day! The new NA 6.60%+463 and TD 6.25%+437 issues will also be settling then.

Index Construction / Reporting

Index Performance: December 2008

Performance of the HIMIPref™ Indices for December, 2008, was:

Total Return
Index	Performance December 2008	Three Months to December 31, 2008
Ratchet	-22.78%	-45.03
FixFloat	-15.60%	-39.36%
Floater	+34.20%	-42.10%
OpRet	+1.96%	-4.72%
SplitShare	+18.39%	-8.76%
Interest	+2.00%	-28.19%
PerpetualPremium	+10.68%*	-15.00%*
PerpetualDiscount	+10.68%	-12.72%%
FixedReset	+4.11%	-11.59%
* The last member of the PerpetualPremium index was transferred to PerpetualDiscount at the October rebalancing; subsequent performance figures are set equal to the PerpetualDiscount index
Funds (see below for calculations)
CPD	+9.21%	-11.51%
DPS.UN	+5.65%	-16.82%
Index
BMO-CM 50	+6.39%	-12.74%

Claymore has published NAV and distribution data for its exchange traded fund (CPD) and I have derived the following table:

CPD Return, 1- & 3-month, to December, 2008
Date	NAV	Distribution	Return for Sub-Period	Monthly Return
Sept 30	16.21
October 31	15.04	0.00		-7.22%
November 28, 2008	13.37	0.00		-11.10%
Dec 24	12.92	0.2135	-1.77%	+7.28%
Dec 31	14.11		+9.21%	+7.28%
Quarterly Return				-11.51%

The DPS.UN NAV for December 31 has been published so we may calculate the December returns (approximately!) for this closed end fund. Unfortunately, they did not publish their NAV on their December distribution’s ex-date, so things are a little hairy this month:

DPS.UN NAV Return, December-ish 2008
Date	NAV	Distribution	Return for period
Estimated November Ending Stub			+3.80%
November 26, 2008	14.53
December 24, 2008	14.43		-0.69%
December 29, 2008	14.69 *	0.30	+3.87% *
December 31, 2008	15.64		+6.47%
Estimated December Return			+5.65%
* CPD had a NAV of $12.92 on December 24 and $13.52 on December 29. Return for this period for CPD was therefore +3.87%. Assuming equality of returns, then DPS.UN would have had a NAV of 14.99 before payment of the $0.30 dividend.
CPD had a NAV of $12.88 on November 26 and $13.37 on November 28. The estimated November month-end stub period return for CPD was therefore +3.80%, which is subtracted from the DPS.UN period return to estimate a return for the month.
The October return for DPS.UN’s NAV is therefore the product of four period returns, -3.80%, -0.69%, +3.87%, +6.47%, to arrive at an estimate for the calendar month of +5.65%

Now, to see the DPS.UN quarterly NAV approximate return, we refer to the calculations for October and November:

DPS.UN NAV Returns, three-month-ish to end-October-ish, 2008
October-ish	-9.56%
November-ish	-12.95%
December-ish	+5.65%
Three-months-ish	-16.82%

Interesting External Papers

Benjamin Graham et al. on Preferred Stocks

A query regarding Graham’s position on preferred stock came to my attention, so I looked it up:

Certain general observations should be made here on the subject of preferred stocks. Really good preferred stocks can and do exist, but they are good in spite of their investment form, which is an inherently bad one. The typical preferred shareholder is dependent for his safety on the ability and desire of the company to pay dividends on its common stock. Once the common dividends are omitted, or even in danger, his own position becomes precarious, for the directors are under no obligation to continue paying him unless they also pay on the common. On the other hand, the typical preferred stock carries no share in the company’s profits beyond the fixed dividend rate. Thus the preferred holder lacks both the legal claim of the bondholder (or creditor) and the profit possibilities of a common shareholder (or partner).

These weaknesses in the legal position of preferred stocks tend to come to the fore recurrently in periods of depression. Only a small percentage of all preferred issues are so strongly entrenched as to maintain an unquestioned investment status through all vicissitudes.

Experience teaches that the time to buy preferred stocks is when their price is unduly depressed by temporary adversity. (At such times they may be well suited to the aggressive investor but too unconventional for the defensive investor.)

In other words, they should be bought on a bargain basis or not at all.
…
Another peculiarity in the general position of preferred stocks deserves mention. They have a much better tax status for corporation buyers than for individual investors. Corporations pay income tax on only 15% of the income they receive in dividends, but on the full amount of their ordinary interest income. Since the 1972 corporate rate is 48%, this means that $100 received as preferred-stock dividends is taxed only $7.20, whereas $100 received as bond interest is taxed $48. On the other hand, individual investors pay exactly the same tax on preferred-stock investments as on bond interest, except for a recent minor exemption. Thus, in strict logic, all investment-grade preferred stocks should be bought by corporations, just as all tax-exempt bonds should be bought by investors who pay income tax.

In the last paragraph, Mr. Graham recognizes that tax differences are important – very important! Using his figures the equivalency ratio within a corporation is a stunning 1.9x – in other words, it took $1.90 in interest to provide the same after tax income as $1.00 in dividends. For an individual, the equivalency ratio was 1:1.

It seems quite clear to me that under these conditions there will be very little left on the table for individual investors – Mr. Graham’s target audience – after corporations have picked through the offerings.

Other than this, the passage is sorely lacking in numeric analysis and opinion based on specific fact. Mr. Graham acknowledges that there is some price – some yield – at which a preferred share becomes superior to a given bond, but does not provide any analytical framework that will allow an interested reader to determine how that price – that yield – might be determined.

The market has changed dramatically since the early ’70’s. Besides the taxation differences between US-then and Canada-now already noted, there are regulatory elements in play that make preferred shares an attractive way to raise capital for banks and some utilities.

However, my main objection to the passage is that it is too rigidly doctrinaire. The world as presented is black and white, with safety on one side and profit on the other. In fact, the real world contains many shades of grey, which are ignored.

The revised edition cited contains further commentary by Jason Zweig:

Preferred shares are a worst-of-both-worlds investment. They are less secure than bonds, since they have only a secondary claim on a company’s assets if it goes bankrupt. And they offer less profit potential than common stocks do, since companies typically “call” (or forcibly buy back) their preferred shares when interest rates drop or their credit rating improves. Unlike the interest payments on most of its bonds, an issuing company cannot deduct preferred dividend payments from its corporate tax bill. Ask yourself: If this company is healthy enough to deserve my investment, why is it paying a fat dividend on its preferred stock instead of issuing bonds and getting a tax break? The likely answer is that the company is not healthy, the market for its bonds is glutted, and you should approach its preferred shares as you would approach an unrefrigerated dead fish.

For all his colourful language, Mr. Zweig shows lamentable ignorance of bank regulation; this is perhaps partly due to his exclusive focus on the American market, in which dividends are taxable to an investor at the same rate as interest; hence the market is much less vibrant in the US than in Canada.

I will certainly agree with Mr. Zweig’s emphasis on the undesirability of call features – but a call is simply another element of investment risk, to be calculated and incorporated when determining the value of an asset.

I will note that according to his biography, Mr. Zweig is a journalist, not an analyst or portfolio manager. It is therefore not possible to gauge the value of his opinions by reference to his results.

Market Action

January 5, 2009

American corporates were on fire today amidst a dramatic steepening in Treasuries; the 2-30 spread widened 26bp. Canadian 2-30s steepened as well, but only by 12bp; a mere bagatelle.

Jon Danielsson has an interesting essay on VoxEU : The myth of the riskometer:

There is a widely held belief that financial risk is easily measured – that we can stick some sort of riskometer deep into the bowels of the financial system and get an accurate measurement of the risk of complex financial instruments. Such misguided belief in this riskometer played a key role in getting the financial system into the mess it is in.
…
One of the biggest problems leading up to the crisis was the twin belief that risk could be modelled and that complexity was good. Certainly the regulators who made risk sensitivity the centrepiece of the Basel 2 Accord believed this.

Under Basel 2, bank capital is risk-sensitive. What that means is that a financial institution is required to measure the riskiness of its assets, and the riskier the assets the more capital it has to hold. At a first glance, this is a sensible idea, after all why should we not want capital to reflect riskiness? But there are at least three main problems: the measurement of risk, procyclicality (see Danielsson et. al 2001), and the determination of capital.

To have risk-sensitive capital we need to measure risk, i.e. apply the riskometer. In the absence of accurate risk measurements, risk-sensitive bank capital is at best meaningless and at worst dangerous.

Risk-sensitive capital can be dangerous because it gives a false sense of security.
…
The unreliability of capital calculations becomes especially visible when we compare standard capital calculations under international standards with the American leverage ratio. The leverage ratio limits the capital to assets ratio of banks and is therefore a much more conservative measure of capital than the risk-based capital of Basel 2. Because it is more conservative, it is much harder to manipulate.
…
As Philipp Hildebrand (2008) of the Swiss National Bank recently observed “Looking at risk-based capital measures, the two large Swiss banks were among the best-capitalised large international banks in the world. Looking at simple leverage, however, these institutions were among the worst-capitalised banks”

I take issue with the description of the leverage ratio as inherently conservative. Its virtue is simplicity, full stop.

Another glorious day for preferreds amidst continued heavy volume. It’s nice to see.

These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly
Index	Mean Current Yield (at bid)	Median YTW	Median Average Trading Value	Median Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	7.06 %	7.78 %	31,123	13.22	2	1.0136 %	871.0
FixedFloater	7.68 %	7.54 %	151,533	13.11	8	1.6567 %	1,330.8
Floater	5.55 %	5.46 %	33,780	14.76	4	6.8556 %	1,098.4
OpRet	5.39 %	4.74 %	127,549	4.04	15	0.6173 %	1,986.9
SplitShare	6.19 %	9.71 %	74,672	4.18	15	1.8315 %	1,795.0
InterestBearing	7.40 %	14.26 %	46,687	0.93	2	2.0962 %	1,912.3
Perpetual-Premium	0.00 %	0.00 %	0	0.00	0	1.6519 %	1,529.3
Perpetual-Discount	6.97 %	7.13 %	237,532	12.42	71	1.6519 %	1,408.4
FixedReset	5.90 %	4.95 %	762,978	15.05	18	-0.0880 %	1,800.3

Issue	Index	Change	Notes
TD.PR.P	Perpetual-Discount	-4.29 %	Yield-to-Worst (at Bid) : 6.67 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 20.10 Probability of Maturity : 100.00 % Recursions 1
BAM.PR.O	OpRet	-3.95 %	Yield-to-Worst (at Bid) : 14.83 % Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 2
SBC.PR.A	SplitShare	-3.93 %	Yield-to-Worst (at Bid) : 10.69 % Maturity Type : Hard Maturity Maturity Date : 2012-11-30 Maturity Price : 10.00 Probability of Maturity : 100.00 % Recursions 2
SLF.PR.E	Perpetual-Discount	-3.83 %	Yield-to-Worst (at Bid) : 7.43 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 15.31 Probability of Maturity : 100.00 % Recursions 1
BCE.PR.A	FixedFloater	-3.73 %	Yield-to-Worst (at Bid) : 7.33 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 1
TD.PR.C	FixedReset	-3.40 %	Yield-to-Worst (at Bid) : 5.08 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 24.35 Probability of Maturity : 68.12 % Recursions 1
RY.PR.N	FixedReset	-2.63 %	Yield-to-Worst (at Bid) : 5.56 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 25.46 Probability of Maturity : 53.20 % Recursions 1
TD.PR.A	FixedReset	-2.33 %	Yield-to-Worst (at Bid) : 4.78 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 22.18 Probability of Maturity : 91.19 % Recursions 1
GWO.PR.G	Perpetual-Discount	-2.02 %	Yield-to-Worst (at Bid) : 7.13 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 18.41 Probability of Maturity : 100.00 % Recursions 1
BCE.PR.C	FixedFloater	-2.02 %	Yield-to-Worst (at Bid) : 7.54 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 1
BCE.PR.S	Ratchet	-1.83 %	Yield-to-Worst (at Bid) : 7.78 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 1
NA.PR.N	FixedReset	-1.80 %	Yield-to-Worst (at Bid) : 5.11 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 21.25 Probability of Maturity : 100.00 % Recursions 1
BNA.PR.C	SplitShare	-1.78 %	Yield-to-Worst (at Bid) : 19.39 % Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 2
RY.PR.H	Perpetual-Discount	-1.37 %	Yield-to-Worst (at Bid) : 6.90 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 20.82 Probability of Maturity : 100.00 % Recursions 1
RY.PR.I	FixedReset	-1.32 %	Yield-to-Worst (at Bid) : 4.71 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 22.36 Probability of Maturity : 89.88 % Recursions 1
PWF.PR.M	FixedReset	-1.19 %	Yield-to-Worst (at Bid) : 5.42 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 24.85 Probability of Maturity : 61.44 % Recursions 1
NA.PR.M	Perpetual-Discount	-1.18 %	Yield-to-Worst (at Bid) : 7.29 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 21.00 Probability of Maturity : 100.00 % Recursions 1
GWO.PR.J	FixedReset	-1.00 %	Yield-to-Worst (at Bid) : 5.34 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 24.70 Probability of Maturity : 63.44 % Recursions 1
BMO.PR.L	Perpetual-Discount	1.02 %	Yield-to-Worst (at Bid) : 7.13 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 20.71 Probability of Maturity : 100.00 % Recursions 1
IAG.PR.C	FixedReset	1.03 %	Yield-to-Worst (at Bid) : 5.70 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 24.45 Probability of Maturity : 66.78 % Recursions 1
ALB.PR.A	SplitShare	1.05 %	Yield-to-Worst (at Bid) : 15.61 % Maturity Type : Hard Maturity Maturity Date : 2011-02-28 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 2
TD.PR.S	FixedReset	1.10 %	Yield-to-Worst (at Bid) : 4.38 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 22.10 Probability of Maturity : 91.53 % Recursions 1
BNS.PR.P	FixedReset	1.12 %	Yield-to-Worst (at Bid) : 4.61 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 22.43 Probability of Maturity : 88.82 % Recursions 1
CM.PR.D	Perpetual-Discount	1.13 %	Yield-to-Worst (at Bid) : 7.31 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 19.75 Probability of Maturity : 100.00 % Recursions 1
CM.PR.R	OpRet	1.15 %	Yield-to-Worst (at Bid) : 4.52 % Maturity Type : Soft Maturity Maturity Date : 2013-04-29 Maturity Price : 25.15 Probability of Maturity : 70.66 % Recursions 2
ELF.PR.F	Perpetual-Discount	1.16 %	Yield-to-Worst (at Bid) : 8.52 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 15.68 Probability of Maturity : 100.00 % Recursions 1
TD.PR.O	Perpetual-Discount	1.17 %	Yield-to-Worst (at Bid) : 6.53 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 18.98 Probability of Maturity : 100.00 % Recursions 1
POW.PR.C	Perpetual-Discount	1.19 %	Yield-to-Worst (at Bid) : 7.14 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 20.45 Probability of Maturity : 100.00 % Recursions 1
TD.PR.R	Perpetual-Discount	1.24 %	Yield-to-Worst (at Bid) : 6.74 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 21.22 Probability of Maturity : 100.00 % Recursions 1
POW.PR.D	Perpetual-Discount	1.29 %	Yield-to-Worst (at Bid) : 7.27 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.31 Probability of Maturity : 100.00 % Recursions 1
CM.PR.A	OpRet	1.29 %	Yield-to-Worst (at Bid) : -15.68 % Maturity Type : Soft Maturity Maturity Date : 2011-07-30 Maturity Price : 25.00 Probability of Maturity : 63.75 % Recursions 2
CM.PR.I	Perpetual-Discount	1.32 %	Yield-to-Worst (at Bid) : 6.99 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 16.87 Probability of Maturity : 100.00 % Recursions 1
TD.PR.M	OpRet	1.33 %	Yield-to-Worst (at Bid) : 4.13 % Maturity Type : Soft Maturity Maturity Date : 2013-10-30 Maturity Price : 25.00 Probability of Maturity : 71.57 % Recursions 2
LBS.PR.A	SplitShare	1.37 %	Yield-to-Worst (at Bid) : 10.14 % Maturity Type : Hard Maturity Maturity Date : 2013-11-29 Maturity Price : 10.00 Probability of Maturity : 100.00 % Recursions 2
BNS.PR.O	Perpetual-Discount	1.57 %	Yield-to-Worst (at Bid) : 6.77 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 20.75 Probability of Maturity : 100.00 % Recursions 1
BNS.PR.J	Perpetual-Discount	1.58 %	Yield-to-Worst (at Bid) : 6.60 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 19.96 Probability of Maturity : 100.00 % Recursions 1
CM.PR.E	Perpetual-Discount	1.60 %	Yield-to-Worst (at Bid) : 7.15 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 19.66 Probability of Maturity : 100.00 % Recursions 1
STW.PR.A	InterestBearing	1.65 %	Yield-to-Worst (at Bid) : 14.26 % Maturity Type : Hard Maturity Maturity Date : 2009-12-31 Maturity Price : 10.00 Probability of Maturity : 100.00 % Recursions 2
ENB.PR.A	Perpetual-Discount	1.65 %	Yield-to-Worst (at Bid) : 5.79 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 23.69 Probability of Maturity : 72.97 % Recursions 1
DFN.PR.A	SplitShare	1.66 %	Yield-to-Worst (at Bid) : 7.08 % Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Probability of Maturity : 100.00 % Recursions 2
PWF.PR.L	Perpetual-Discount	1.69 %	Yield-to-Worst (at Bid) : 7.46 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.50 Probability of Maturity : 100.00 % Recursions 1
PWF.PR.G	Perpetual-Discount	1.76 %	Yield-to-Worst (at Bid) : 7.46 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 20.26 Probability of Maturity : 100.00 % Recursions 1
PWF.PR.H	Perpetual-Discount	1.79 %	Yield-to-Worst (at Bid) : 7.42 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 19.85 Probability of Maturity : 100.00 % Recursions 1
CU.PR.B	Perpetual-Discount	1.82 %	Yield-to-Worst (at Bid) : 6.80 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 22.23 Probability of Maturity : 91.71 % Recursions 1
TCA.PR.X	Perpetual-Discount	1.83 %	Yield-to-Worst (at Bid) : 6.65 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 42.26 Probability of Maturity : 100.00 % Recursions 1
RY.PR.F	Perpetual-Discount	1.86 %	Yield-to-Worst (at Bid) : 6.46 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.52 Probability of Maturity : 100.00 % Recursions 1
RY.PR.E	Perpetual-Discount	1.96 %	Yield-to-Worst (at Bid) : 6.46 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.70 Probability of Maturity : 100.00 % Recursions 1
SBN.PR.A	SplitShare	1.97 %	Yield-to-Worst (at Bid) : 6.73 % Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Probability of Maturity : 100.00 % Recursions 2
CM.PR.H	Perpetual-Discount	2.04 %	Yield-to-Worst (at Bid) : 7.09 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.00 Probability of Maturity : 100.00 % Recursions 1
W.PR.H	Perpetual-Discount	2.06 %	Yield-to-Worst (at Bid) : 7.99 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.35 Probability of Maturity : 100.00 % Recursions 1
TD.PR.Y	FixedReset	2.06 %	Yield-to-Worst (at Bid) : 4.60 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 21.71 Probability of Maturity : 94.06 % Recursions 1
CL.PR.B	Perpetual-Discount	2.12 %	Yield-to-Worst (at Bid) : 7.28 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 21.70 Probability of Maturity : 100.00 % Recursions 1
BAM.PR.H	OpRet	2.24 %	Yield-to-Worst (at Bid) : 12.86 % Maturity Type : Soft Maturity Maturity Date : 2012-03-30 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 2
IAG.PR.A	Perpetual-Discount	2.36 %	Yield-to-Worst (at Bid) : 7.45 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 15.61 Probability of Maturity : 100.00 % Recursions 1
BCE.PR.R	FixedFloater	2.41 %	Yield-to-Worst (at Bid) : 7.73 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 1
RY.PR.D	Perpetual-Discount	2.45 %	Yield-to-Worst (at Bid) : 6.37 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.95 Probability of Maturity : 100.00 % Recursions 1
MFC.PR.C	Perpetual-Discount	2.57 %	Yield-to-Worst (at Bid) : 6.34 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.95 Probability of Maturity : 100.00 % Recursions 1
POW.PR.B	Perpetual-Discount	2.59 %	Yield-to-Worst (at Bid) : 7.09 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 19.00 Probability of Maturity : 100.00 % Recursions 1
FIG.PR.A	InterestBearing	2.67 %	Yield-to-Worst (at Bid) : 13.00 % Maturity Type : Hard Maturity Maturity Date : 2014-12-31 Maturity Price : 10.00 Probability of Maturity : 100.00 % Recursions 2
PWF.PR.E	Perpetual-Discount	2.70 %	Yield-to-Worst (at Bid) : 7.41 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 19.00 Probability of Maturity : 100.00 % Recursions 1
TRI.PR.B	Floater	2.73 %	Yield-to-Worst (at Bid) : 5.46 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 11.30 Probability of Maturity : 100.00 % Recursions 1
HSB.PR.C	Perpetual-Discount	2.82 %	Yield-to-Worst (at Bid) : 7.22 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.85 Probability of Maturity : 100.00 % Recursions 1
WFS.PR.A	SplitShare	2.84 %	Yield-to-Worst (at Bid) : 9.71 % Maturity Type : Hard Maturity Maturity Date : 2011-06-30 Maturity Price : 10.00 Probability of Maturity : 100.00 % Recursions 2
BCE.PR.I	FixedFloater	2.99 %	Yield-to-Worst (at Bid) : 7.55 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 1
NA.PR.K	Perpetual-Discount	3.10 %	Yield-to-Worst (at Bid) : 7.36 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 20.28 Probability of Maturity : 100.00 % Recursions 1
GWO.PR.I	Perpetual-Discount	3.16 %	Yield-to-Worst (at Bid) : 7.26 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 15.66 Probability of Maturity : 100.00 % Recursions 1
TCA.PR.Y	Perpetual-Discount	3.23 %	Yield-to-Worst (at Bid) : 6.45 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 42.87 Probability of Maturity : 94.43 % Recursions 1
PWF.PR.K	Perpetual-Discount	3.35 %	Yield-to-Worst (at Bid) : 7.20 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.58 Probability of Maturity : 100.00 % Recursions 1
BCE.PR.G	FixedFloater	3.39 %	Yield-to-Worst (at Bid) : 7.42 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 1
CM.PR.K	FixedReset	3.45 %	Yield-to-Worst (at Bid) : 4.90 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 21.95 Probability of Maturity : 89.08 % Recursions 1
BNS.PR.N	Perpetual-Discount	3.54 %	Yield-to-Worst (at Bid) : 6.42 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 20.50 Probability of Maturity : 100.00 % Recursions 1
CU.PR.A	Perpetual-Discount	3.57 %	Yield-to-Worst (at Bid) : 6.66 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 21.78 Probability of Maturity : 94.25 % Recursions 1
BNS.PR.M	Perpetual-Discount	3.76 %	Yield-to-Worst (at Bid) : 6.39 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.66 Probability of Maturity : 100.00 % Recursions 1
NA.PR.L	Perpetual-Discount	3.84 %	Yield-to-Worst (at Bid) : 7.27 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.02 Probability of Maturity : 100.00 % Recursions 1
BCE.PR.Y	Ratchet	4.04 %	Yield-to-Worst (at Bid) : 7.82 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 1
BCE.PR.Z	FixedFloater	4.11 %	Yield-to-Worst (at Bid) : 8.13 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 1
CIU.PR.A	Perpetual-Discount	4.14 %	Yield-to-Worst (at Bid) : 7.50 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 15.61 Probability of Maturity : 100.00 % Recursions 1
LFE.PR.A	SplitShare	4.24 %	Yield-to-Worst (at Bid) : 7.28 % Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Probability of Maturity : 100.00 % Recursions 2
BNS.PR.L	Perpetual-Discount	4.29 %	Yield-to-Worst (at Bid) : 6.27 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 18.00 Probability of Maturity : 100.00 % Recursions 1
BAM.PR.I	OpRet	4.35 %	Yield-to-Worst (at Bid) : 11.03 % Maturity Type : Soft Maturity Maturity Date : 2013-12-30 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 2
POW.PR.A	Perpetual-Discount	4.41 %	Yield-to-Worst (at Bid) : 7.18 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 19.64 Probability of Maturity : 100.00 % Recursions 1
BMO.PR.M	FixedReset	4.46 %	Yield-to-Worst (at Bid) : 4.33 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 22.45 Probability of Maturity : 88.92 % Recursions 1
W.PR.J	Perpetual-Discount	4.63 %	Yield-to-Worst (at Bid) : 8.01 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 17.61 Probability of Maturity : 100.00 % Recursions 1
FBS.PR.B	SplitShare	4.69 %	Yield-to-Worst (at Bid) : 11.13 % Maturity Type : Hard Maturity Maturity Date : 2011-12-15 Maturity Price : 10.00 Probability of Maturity : 100.00 % Recursions 2
BAM.PR.N	Perpetual-Discount	4.73 %	Yield-to-Worst (at Bid) : 10.67 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 11.30 Probability of Maturity : 100.00 % Recursions 1
PWF.PR.I	Perpetual-Discount	4.74 %	Yield-to-Worst (at Bid) : 7.40 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 20.76 Probability of Maturity : 100.00 % Recursions 1
DF.PR.A	SplitShare	5.10 %	Yield-to-Worst (at Bid) : 7.76 % Maturity Type : Hard Maturity Maturity Date : 2014-12-01 Maturity Price : 10.00 Probability of Maturity : 100.00 % Recursions 2
ELF.PR.G	Perpetual-Discount	5.43 %	Yield-to-Worst (at Bid) : 8.11 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 14.76 Probability of Maturity : 100.00 % Recursions 1
BAM.PR.B	Floater	5.74 %	Yield-to-Worst (at Bid) : 5.99 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 10.31 Probability of Maturity : 100.00 % Recursions 1
BAM.PR.J	OpRet	5.83 %	Yield-to-Worst (at Bid) : 10.90 % Maturity Type : Soft Maturity Maturity Date : 2018-03-30 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 2
PPL.PR.A	SplitShare	6.59 %	Yield-to-Worst (at Bid) : 8.36 % Maturity Type : Hard Maturity Maturity Date : 2012-12-01 Maturity Price : 10.00 Probability of Maturity : 100.00 % Recursions 2
PWF.PR.A	Floater	6.67 %	Yield-to-Worst (at Bid) : 5.17 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 12.00 Probability of Maturity : 100.00 % Recursions 1
BAM.PR.M	Perpetual-Discount	7.42 %	Yield-to-Worst (at Bid) : 10.53 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 11.44 Probability of Maturity : 100.00 % Recursions 1
BAM.PR.G	FixedFloater	9.65 %	Yield-to-Worst (at Bid) : 10.26 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 25.00 Probability of Maturity : 100.00 % Recursions 1
PWF.PR.F	Perpetual-Discount	11.24 %	Yield-to-Worst (at Bid) : 6.81 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 19.70 Probability of Maturity : 100.00 % Recursions 1
BAM.PR.K	Floater	13.15 %	Yield-to-Worst (at Bid) : 5.88 % Maturity Type : Limit Maturity Maturity Date : 2039-01-05 Maturity Price : 10.50 Probability of Maturity : 100.00 % Recursions 1

Issue	Index	Shares Traded	Notes
BAM.PR.H	OpRet	229,415
FBS.PR.B	SplitShare	213,658
MFC.PR.A	OpRet	171,715
GWO.PR.F	Perpetual-Discount	147,661
BCE.PR.I	FixedFloater	126,919
BNA.PR.C	SplitShare	117,350
ALB.PR.A	SplitShare	111,572
RY.PR.N	FixedReset	88,280
LBS.PR.A	SplitShare	74,540
NA.PR.L	Perpetual-Discount	64,380
PWF.PR.I	Perpetual-Discount	64,000
BAM.PR.M	Perpetual-Discount	50,550
BAM.PR.O	OpRet	35,385
POW.PR.D	Perpetual-Discount	34,250
BMO.PR.J	Perpetual-Discount	33,640
DF.PR.A	SplitShare	31,410
GWO.PR.J	FixedReset	28,250
NA.PR.K	Perpetual-Discount	28,008
WFS.PR.A	SplitShare	27,484
TD.PR.M	OpRet	27,200
BAM.PR.B	Floater	26,988
SLF.PR.C	Perpetual-Discount	25,882
TD.PR.C	FixedReset	24,650
TD.PR.A	FixedReset	23,860
LFE.PR.A	SplitShare	22,800
NA.PR.M	Perpetual-Discount	21,890
GWO.PR.I	Perpetual-Discount	21,114
CM.PR.H	Perpetual-Discount	20,700
SLF.PR.D	Perpetual-Discount	19,150
BNS.PR.M	Perpetual-Discount	18,006
BMO.PR.N	FixedReset	17,935
BCE.PR.F	FixedFloater	17,500
MFC.PR.B	Perpetual-Discount	16,575
RY.PR.H	Perpetual-Discount	16,100
CM.PR.D	Perpetual-Discount	16,075
SLF.PR.E	Perpetual-Discount	15,790
RY.PR.E	Perpetual-Discount	15,350
RY.PR.A	Perpetual-Discount	14,572
NA.PR.N	FixedReset	14,250
IGM.PR.A	OpRet	14,132
HSB.PR.C	Perpetual-Discount	14,100
PPL.PR.A	SplitShare	13,500
GWO.PR.H	Perpetual-Discount	13,472
BNS.PR.Q	FixedReset	13,224
CM.PR.G	Perpetual-Discount	13,100
CM.PR.P	Perpetual-Discount	12,975
SLF.PR.A	Perpetual-Discount	12,695
POW.PR.B	Perpetual-Discount	11,900
GWO.PR.G	Perpetual-Discount	11,050
BNS.PR.N	Perpetual-Discount	10,600
PWF.PR.J	OpRet	10,252
BNS.PR.O	Perpetual-Discount	10,236
SLF.PR.B	Perpetual-Discount	10,000

New Issues

New Issue: National Bank Fixed-Reset 6.60%+463

National Bank has announced:

that it has entered into an agreement with a group of underwriters led by National Bank Financial Inc. for an issue on a bought deal basis of 5 million non-cumulative 5-year rate reset first preferred shares series 24 (the “Series 24 Preferred Shares”), at a price of $25.00 per share, to raise gross proceeds of $125 million.

National Bank has also granted the underwriters an option to purchase, on the same terms, up to an additional 3 million Series 24 Preferred Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing. The maximum gross proceeds raised under the offering will be $200 million should this option be exercised in full.

The Series 24 Preferred Shares will yield 6.60% annually, payable quarterly, as and when declared by the Board of Directors of National Bank, for the initial period ending February 15, 2014. The first of such dividends, if declared, shall be payable on May 15, 2009. Thereafter, the dividend rate will reset every five years at a level of 463 basis points over the then 5-year Government of Canada bond yield.

Holders of the Series 24 Preferred Shares will have the right to convert their shares into an equal number of non-cumulative floating rate first preferred shares series 25 (the “Series 25 Preferred Shares”), subject to certain conditions, on February 15, 2014, and on February 15th every five years thereafter. Holders of the Series 25 Preferred Shares will be entitled to receive quarterly floating dividends, as and when declared by the Board of Directors of National Bank, equal to the 90-day Government of Canada Treasury Bill rate plus 463 basis points.

The net proceeds of the offering will be used for general corporate purposes and are expected to qualify as Tier 1 capital for National Bank. The expected closing date is on or about January 14, 2009. National Bank intends to file in Canada a prospectus supplement to its December 5, 2008 base shelf prospectus in respect of this issue.

National Bank will make an application to list the Series 24 Preferred Shares and the Series 25 Preferred Shares as of the closing date on the Toronto Stock Exchange.

New Issues

New Issue: TD Fixed-Reset 6.25%+437

TD Bank has announced:

that it has entered into an agreement with a group of underwriters led by TD Securities Inc. for an issue of 7 million non-cumulative 5-Year Rate Reset Class A Preferred Shares, Series AE (the Series AE Shares), carrying a face value of $25.00 per share, to raise gross proceeds of $175 million. TDBFG intends to file in Canada a prospectus supplement to its January 11, 2007 base shelf prospectus in respect of this issue.

TDBFG has also granted the underwriters an option to purchase, on the same terms, up to an additional 3 million Series AE Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing. The maximum gross proceeds raised under the offering will be $250 million should this option be exercised in full.

The Series AE Shares will yield 6.25% annually, payable quarterly, as and when declared by the Board of Directors of TDBFG, for the initial period ending April 30, 2014. Thereafter, the dividend rate will reset every five years at a level of 437 basis points over the then five-year Government of Canada bond yield.

Holders of the Series AE Shares will have the right to convert their shares into non-cumulative Floating Rate Class A Preferred Shares, Series AF (the Series AF Shares), subject to certain conditions, on April 30, 2014, and on April 30th every five years thereafter. Holders of the Series AF Shares will be entitled to receive quarterly floating dividends, as and when declared
by the Board of Directors of TDBFG, equal to the three-month Government of Canada Treasury bill yield plus 437 basis points.

The issue is anticipated to qualify as Tier 1 capital for TDBFG and the expected closing date is January 14, 2009. TDBFG will make an application to list the Series AE Shares as of the closing date on the Toronto Stock Exchange.

Update, 2009-1-6: Later on January 5, TD announced:

that as a result of strong investor demand for its domestic public offering of non-cumulative 5-Year Rate Reset Class A Preferred Shares, Series AE (the Series AE Shares), the size of the offering has been increased to 9 million shares. The gross proceeds of the offering will now be $225 million. TDBFG intends to file in Canada a prospectus supplement to its January 11, 2007 base shelf prospectus in respect of this issue.

and on January 6, TD announced:

that a group of underwriters led by TD Securities Inc. has exercised the option to purchase an additional 3 million non-cumulative 5-Year Rate Reset Class A Preferred Shares, Series AE (the Series AE Shares) carrying a face value of $25.00 per share. This brings the total issue announced on January 5, 2009, and expected to close January 14, 2009, to 12 million shares and gross
proceeds raised under the offering to $300 million. TDBFG will file in Canada a prospectus supplement to its January 11, 2007 short form base shelf prospectus in respect of this issue.

PrefBlog

Month: January 2009

January 7, 2009

New Issue: BNS Fixed-Reset 6.25%+414

January 6, 2008 2009

MAPF Performance: December 2008

New Issue: Royal Bank Fixed-Reset 6.25%+419

Index Performance: December 2008

Benjamin Graham et al. on Preferred Stocks

January 5, 2009

New Issue: National Bank Fixed-Reset 6.60%+463

New Issue: TD Fixed-Reset 6.25%+437

Archives

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