Archive for June, 2014

POW.PR.F Sinking Fund, Part 3

Monday, June 30th, 2014

Assiduous Readers of the post POW.PR.F Sinking Fund will remember that Power Corporation is required to make all reasonable efforts to purchase 80,000 shares of this issue every year, but have missed their target in each of the past three years.

In addition it will be remembered that this repurchase is not a “Normal Course Issuer Bid”, so there are no fancy rules of which I am aware that prohibit things like buying on an uptick, or whatever.

I have written them, pointing out that the offer price of POW.PR.F has not exceeded the sinking fund upper limit price of $50,00 on any occasion in the last three calendar years, and asking them to clarify the meaning of the word “reasonable”, but have not yet received a reply.

While waiting, I took four snapshots of the market for POW.PR.F today:

… one at 1:30pm …

POWPRF_630_130
Click for Big

… the second at 2:30pm …

POWPRF_630_230
Click for Big

… the third at 3:35pm …

POWPRF_630_335
Click for Big

… and the fourth at 3:55pm …

POWPRF_630_355
Click for Big

So, I will await their 14Q2 report with great interest, and if they have not met their 20,000 share per quarter quota again in the past quarter, I will ask them to clarify why these offers were not lifted.

I enjoy being a prick.

June 30, 2014

Monday, June 30th, 2014

The OSC says it can’t enforce OBSI compensation recommendations:

The Ontario Securities Commission (OSC) says that it does not have the authority to require dealers to comply with compensation recommendations from the Ombudsman for Banking Services and Investments (OBSI).

The OSC published the final version of its statement of priorities for the current fiscal year today, defending its commitment to investor protection and promising to hold a summit this fall to examine seniors’ issues. But it also declared that it couldn’t enforce OBSI’s recommendations even if it wanted to, without first amending securities legislation.

Responding to comments it received on a draft version of the statement, the OSC notes: “Some commenters have suggested that the OSC should compel payments to investors [when OBSI rules in their favour]. The OSC does not have this authority and would need legislation to expand its powers in order to force binding decisions.”

Still, the regulator reiterates its belief in the importance of having a single dispute-resolution service for investors. And it says: “The [Canadian Securities Administrators (CSA)] has committed to continue to work with OBSI to ensure it has the capacity to effectively discharge its mandate.”

Perhaps. But the threat of an investigation into procedures is a pretty big stick, regardless of the ethics of using it. We’ll see how this plays out.

Assiduous Reader JP brings to my attention an article about Australian Solar Power entitled Slash Australians’ power bills by beheading a duck at night. It seems they have an “afternoon chasm” in grid energy demand:

AustralianAfternoonChasm
Click for Big

Such a chasm is feared in California, as discussed on June 5. What I found interesting in the article – which talks mainly about reducing peak demand through battery storage in houses with solar panels and improved energy efficiency in those without – was the degree of hidden subsidies:

Indeed, the ENA – the national body representing electricity transmission and distribution businesses throughout Australia – has recently suggested that a power consumer without solar PV panels now pays about A$60 a year more to subsidise homes with solar PV panels, due to “under-recovery of network costs” during summer evening peak periods.

Even so, that A$60 a year cost is much smaller than the subsidy to users of air conditioners.

The Productivity Commission estimates that the installation of each air conditioner adds A$2500 to the capital cost of powerlines and power stations: costs that all power consumers have to cover.

Much of that extra equipment is used for only a few hours each year, mainly on hot summer evenings.

Note that the author is trying on a rhetorical trick by discussing the annual rate of the solar panel subsidy vs. the capital cost of the air conditioner subsidy. The A$60 annual subsidy to solar users is equal to A$4,140 present value if discounted at 3%, or A$1,200 if discounted at 5%, neatly bracketing the A$2,500 present value of the air conditioner subsidy in order to make arguments over discount rates more interesting.

Mind you, though, JP has a rejoinder:

Given your above analysis, the $ solar subsidy is not much different than the effective air conditioning subsidy. So if you are correct about present value, the author’s is factually incorrect when he writes: “[the] A$60 a year [solar] cost is much smaller than the subsidy to users of air conditioners”

I can’t given my limited math check your present value numbers — obviously present value of a flow of funds depends on length of flow — you fail to make explicit your estimate of a solar panel’s life expectancy / the life expectancy of the regulations guaranteeing the solar subsidy. My guess of a reasonable range is 20-40 years.

I question your >>rhetorical trick by discussing the annual rate of the solar panel subsidy vs. the capital cost of the air conditioner subsidy<< . I agree the "annual rate of a subsidy” is a very different measure than “the capital cost of a subsidy” and employing the two concepts in the same paragraph suggests either 1) lack of rigour, 2)laziness, or 3) an attempt to spin an argument. I suggest the author is guilty of 1) and 2) rather than 3). The author is not contrasting two unrelated and different subsides but I think implicitly suggesting that subsidy to solar over time increases the subsidy for air conditioners (peak power requirements as a % of total demand from big power plants increases as solar increases its penetration.) So its not “[annual] solar panel subsidy vs. the capital cost subsidy” but the combined subsidies resulting in >>the A$350 a year that households without air conditioners are being slugged to subsidise the bills of households running air conditioning at peak times.<< (I am unclear how the A$350 number is arrived at)

I was assuming the solar subsidy was to perpetuity. That may be wrong; but the life of the individual panel is not necessarily a factor in the calculation.

JP also passes along two older stories – one about negative power prices in the US:

Wind power has two advantages. Green energy laws in many states require utilities to buy wind energy under long-term contracts as part of their clean-energy goals and take that power even when they don’t need it. Wind farms also receive a federal tax credit of $22 for every megawatt-hour generated.

Thus, even when there is no demand for the power they produce, operators keep turbines spinning, sending their surplus to the grid because the tax credit assures them a profit.

On gusty days in the five states with the most wind power – – Texas, California, Iowa, Illinois and Oregon — this can flood power grids, causing prices to drop below zero during times when demand is light. Wholesale electricity during off-peak hours in Illinois has sold for an average price of $23.39 per megawatt hour since Jan. 1, after hitting a record low of -$41.08 on Oct. 11, the least since the Midwest Independent Transmission System Operator Inc. began sharing real-time pricing in 2005.

… and one about the pain in Spain:

In May [2013], the tariff deficit reached a whopping $34 billion.

What drove this deficit?

Overly generous renewable energy subsidies are at least partially to blame.

In 2007, Spain paid a premium of $556 per megawatt-hour for electricity that rooftop solar panels supplied to the electric grid, compared with an average $52 paid to competing coal- or gas-fired power plants. By 2012, a whopping $10.6 billion in subsidies were paid out to the renewable energy industry, rising by about 20% from the previous year, and covering more than one third of all electricity generated in Spain.

A recent report explained how Spain has sustained this massive deficit to date:

This debt derives from the financing of the difference between costs and revenues from regulated activities, accumulated in previous years. Most of the outstanding debt (66%) is held by FADE, the Deficit Securitization Fund for the Electricity System, the electricity firms hold 19% and third parties have 15%. The deficit was initially financed by the five largest electricity firms (Endesa, 44.16%; Iberdrola , 35.01%; Gas Natural Fenosa , 13.75%; Hidroeléctrica del Cantábrico, 6.08%; and E.On España, 1.00%), but the firms had transferred most of their deficit collection rights to FADE by the end of 2012. In 2012, FADE issued bonds for 9.9 billion euros at a cost for consumers of 5.617%.

Maybe the Spanish should declare sanctions and then enforce them:

The Federal Reserve on Monday announced a $508 million penalty against BNP Paribas, S.A., Paris, France–the largest penalty ever assessed by the agency–for violations of U.S. sanctions laws. The Federal Reserve also issued a joint cease and desist order with the Autorité de Contrôle et de Prudentiel et de Résolution (ACPR), the home country supervisor of BNP Paribas. The cease and desist order requires BNP Paribas to implement a program to ensure global compliance with U.S. sanctions laws. BNP Paribas continues to operate branches in New York, Chicago, and San Francisco, and an agency in Houston, all of which are covered by the enhanced policies and procedures required by the order.

These actions are taken in conjunction with actions by the Asset Forfeiture and Money Laundering Section of the Criminal Division of the Department of Justice, the Office of the U.S. Attorney for the Southern District of New York, the United States Department of Treasury’s Office of Foreign Assets Control (OFAC), the New York County District Attorney’s Office, and the New York Department of Financial Services for violations of U.S. sanctions laws and various New York State laws. The assessments issued by the agencies, including the Federal Reserve, total $8.9736 billion.

Holy Smokes! Government Motors is getting hammered!

GM Canada’s market share in the Greater Toronto Area plunged more than 50 per cent between 2008 and 2013, hitting just 5.6 per cent last year, according to the suit by 17 Toronto-area dealers. The list of dealers includes operators of some of the biggest GM dealerships in the country and some whose relationship with the company goes back to the 1920s.

Each of the Toronto area dealers reported new vehicle sales last year that were their lowest in the 2010-2013 period, and several of them are unprofitable, the statement of claim says.

The suit noted that GM Canada has more dealers in the Greater Toronto Area than any other manufacturer except Chrysler Canada Inc., and its dealers sold the smallest number of new vehicles of any of the major auto makers in the Canadian market.

GM dealers in the Toronto area sold an average of 531 vehicles last year, compared with 1,194 for the average Honda Canada Inc. dealer – a number that leads the market. Chrysler dealers sold 721 vehicles on average.

The BIS Annual Report includes a section titled Debt and the financial cycle: domestic and global:

Signals are mixed for advanced economies that did not see an outright crisis in recent years. Australia, Canada and the Nordic countries experienced large financial booms in the mid- to late 2000s. But the global and European debt crises dented these dynamics; asset prices fluctuated widely and corporate borrowing fell as global economic activity deteriorated. This pushed the medium-term financial cycle indicator on a downward trend, even though households in all these economies continued to borrow, albeit at a slower pace. But the strong increase in commodity prices in recent years prevented a lasting turn of the cycle, and over the last four quarters real property price and (total) credit growth in Australia and Canada has picked up to levels close to or in line with developments in large EMEs.

Credit-to-GDP gaps in many EMEs and Switzerland are well above the threshold that indicates potential trouble (Table IV.1). The historical record shows that credit-to-GDP gaps (the difference between the credit-to-GDP ratio and its long-term trend) above 10 percentage points have usually been followed by serious banking strains within three years.5 Residential property price gaps (the deviation of real residential property prices from their long-term trend) also point to risks: they tend to build up during a credit boom and fall two to three years before a crisis. Indeed, the Swiss authorities have reacted to the build-up of financial vulnerabilities by increasing countercyclical capital buffer requirements from 1% to 2% of risk-weighted positions secured by domestic residential property.

Debt service ratios send a less worrying signal. These ratios, which measure the share of income used to service debt (Box IV.B), remain low in many economies. Taken at face value, they suggest that borrowers in China are currently especially vulnerable. But rising rates would push debt service ratios in several other economies into critical territory (Table IV.1, last column). To illustrate, assume that money market rates rise by 250 basis points, in line with the 2004 tightening episode.6 At constant credit-to-GDP ratios, this would push debt service ratios in most of the booming economies above critical thresholds. Experience indicates that debt service ratios tend to remain low for long periods, only to shoot up rapidly one or two years before a crisis, typically in response to interest rate increases.7 Low values therefore do not necessarily mean that the financial system is safe.

There’s a really poorly produced table attached to the report as a JPG, which is just a blur to these old eyes. Interestingly, they also hint that regulation of asset allocation might be … convenient:

Finally, the sheer volume of assets managed by large asset management companies implies that their asset allocation decisions have significant and systemic implications for EME financial markets. For instance, a relatively small (5 percentage point) reallocation of the $70 trillion in assets managed by large asset management companies from advanced economies to EMEs would result in additional portfolio flows of $3.5 trillion. This is equivalent to 13% of the $27 trillion stock of EME bonds and equities. And the ratio could be significantly larger in smaller open economies. Actions taken by asset managers have particularly strong effects if they are correlated across funds. This could be because of top-down management of different portfolios, as is the case for some major bond funds, similar benchmarks or similar risk management systems (Chapter VI).

Can’t wait.

The Canadian preferred share market closed the quarter on a strong note, with PerpetualDiscounts winning 38bp, FixedResets up 11bp and DeemedRetractibles gaining 2bp. Volatility was above average, dominated by winners. Volume was pathetic, since those of us in the highest paid profession on earth can’t be bothered to show up for work immediately prior to a holiday; this gives us more time to sneer at the laziness of bartenders, waitresses and shop clerks.

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 0.00 % 0.00 % 0 0.00 0 -0.0690 % 2,528.4
FixedFloater 4.32 % 3.59 % 30,348 18.16 1 0.0000 % 3,978.1
Floater 2.90 % 2.98 % 44,480 19.77 4 -0.0690 % 2,730.0
OpRet 4.36 % -15.90 % 21,363 0.09 2 0.1943 % 2,721.1
SplitShare 4.69 % 4.26 % 56,637 3.16 6 0.0324 % 3,124.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1943 % 2,488.2
Perpetual-Premium 5.52 % -2.05 % 81,127 0.08 17 0.0439 % 2,416.8
Perpetual-Discount 5.25 % 5.15 % 113,432 15.07 20 0.3793 % 2,567.3
FixedReset 4.43 % 3.59 % 200,643 6.66 78 0.1074 % 2,556.5
Deemed-Retractible 4.98 % 0.78 % 138,344 0.09 43 0.0167 % 2,545.8
FloatingReset 2.67 % 2.24 % 124,913 3.92 6 0.1120 % 2,506.9
Performance Highlights
Issue Index Change Notes
HSB.PR.D Deemed-Retractible -1.32 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-30
Maturity Price : 25.25
Evaluated at bid price : 25.50
Bid-YTW : -6.93 %
ELF.PR.H Perpetual-Discount 1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-17
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 5.49 %
BAM.PR.X FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-30
Maturity Price : 22.27
Evaluated at bid price : 22.73
Bid-YTW : 3.86 %
POW.PR.D Perpetual-Discount 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-30
Maturity Price : 24.02
Evaluated at bid price : 24.30
Bid-YTW : 5.15 %
FTS.PR.H FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-30
Maturity Price : 21.44
Evaluated at bid price : 21.44
Bid-YTW : 3.58 %
HSE.PR.A FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-30
Maturity Price : 22.64
Evaluated at bid price : 23.01
Bid-YTW : 3.66 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.I FixedReset 95,365 TD crossed blocks of 24,400 and 50,000, both at 25.30.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 3.33 %
BAM.PF.F FixedReset 79,400 Nesbitt crossed blocks of 50,000 and 22,000, both at 25.40.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 4.24 %
BNS.PR.P FixedReset 51,840 TD crossed 50,000 at 25.24.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-04-25
Maturity Price : 25.00
Evaluated at bid price : 25.21
Bid-YTW : 3.04 %
ENB.PF.C FixedReset 32,935 Nesbitt crossed 22,800 at 25.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-30
Maturity Price : 23.19
Evaluated at bid price : 25.21
Bid-YTW : 4.12 %
RY.PR.H FixedReset 30,800 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-30
Maturity Price : 23.26
Evaluated at bid price : 25.33
Bid-YTW : 3.66 %
BMO.PR.K Deemed-Retractible 27,062 TD crossed 26,000 at 26.12.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-30
Maturity Price : 25.75
Evaluated at bid price : 26.10
Bid-YTW : -5.21 %
There were 5 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PWF.PR.A Floater Quote: 19.82 – 20.39
Spot Rate : 0.5700
Average : 0.4320

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-30
Maturity Price : 19.82
Evaluated at bid price : 19.82
Bid-YTW : 2.67 %

BNS.PR.C FloatingReset Quote: 25.26 – 25.50
Spot Rate : 0.2400
Average : 0.1597

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : 2.56 %

ELF.PR.F Perpetual-Discount Quote: 24.10 – 24.33
Spot Rate : 0.2300
Average : 0.1823

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-30
Maturity Price : 23.85
Evaluated at bid price : 24.10
Bid-YTW : 5.50 %

ENB.PR.N FixedReset Quote: 24.95 – 25.11
Spot Rate : 0.1600
Average : 0.1133

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-30
Maturity Price : 23.19
Evaluated at bid price : 24.95
Bid-YTW : 4.07 %

W.PR.H Perpetual-Premium Quote: 25.01 – 25.36
Spot Rate : 0.3500
Average : 0.3045

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-30
Maturity Price : 25.00
Evaluated at bid price : 25.01
Bid-YTW : 2.27 %

VNR.PR.A FixedReset Quote: 25.68 – 25.87
Spot Rate : 0.1900
Average : 0.1468

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-10-15
Maturity Price : 25.00
Evaluated at bid price : 25.68
Bid-YTW : 3.78 %

The return of the 50-year bond

Friday, June 27th, 2014

Andrew Allentuck was kind enough to quote me in his piece The return of the 50-year bond:

U.S. pension fund regulation has put more weight on long bonds in pension fund portfolios, encouraging them to buy more long-dated government debt to match long-term liabilities. Canadian regulators are taking a similar course, notes James Hymas, president of Toronto-based Hymas Investment Management Inc. All of this has pushed up the prices of mid- to long-term bonds.

The reversion to historical interest rates, which parallel inflation, has to take place – someday. As Hymas explains: “The current situation of low bond yields, which barely cover inflation running at 1.5% per year, cannot last. Doing that with 50-year government debt is not prudent for anybody who does not need half a century’s worth of liquidity.”

June 27, 2014

Friday, June 27th, 2014

Nothing happened today.

It was another good day for the Canadian preferred share market, with PerpetualDiscounts gaining 3bp, FixedResets up 10bp and DeemedRetractibles winning 17bp. A lengthy Performance Highlights table is comprised entirely of winners. Volume was average.

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 0.00 % 0.00 % 0 0.00 0 -0.0827 % 2,530.2
FixedFloater 4.32 % 3.59 % 30,715 18.17 1 0.0000 % 3,978.1
Floater 2.90 % 2.98 % 44,578 19.77 4 -0.0827 % 2,731.9
OpRet 4.37 % -12.43 % 21,532 0.08 2 -0.0194 % 2,715.8
SplitShare 4.70 % 3.74 % 57,477 3.16 6 0.5547 % 3,123.2
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0194 % 2,483.3
Perpetual-Premium 5.52 % -0.68 % 80,932 0.08 17 0.2925 % 2,415.8
Perpetual-Discount 5.27 % 5.23 % 114,014 15.01 20 0.0322 % 2,557.6
FixedReset 4.44 % 3.67 % 203,250 4.66 78 0.1038 % 2,553.7
Deemed-Retractible 4.98 % 0.33 % 139,691 0.09 43 0.1713 % 2,545.4
FloatingReset 2.67 % 2.32 % 124,490 3.93 6 0.0647 % 2,504.1
Performance Highlights
Issue Index Change Notes
SLF.PR.H FixedReset 1.04 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 3.34 %
GWO.PR.R Deemed-Retractible 1.31 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.92
Bid-YTW : 5.37 %
HSB.PR.D Deemed-Retractible 1.57 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-27
Maturity Price : 25.25
Evaluated at bid price : 25.84
Bid-YTW : -22.33 %
MFC.PR.B Deemed-Retractible 1.70 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.31
Bid-YTW : 5.55 %
BNA.PR.C SplitShare 1.71 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.93
Bid-YTW : 4.50 %
W.PR.J Perpetual-Premium 1.85 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-27
Maturity Price : 25.00
Evaluated at bid price : 24.97
Bid-YTW : 3.73 %
W.PR.H Perpetual-Premium 1.90 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-27
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 2.21 %
Volume Highlights
Issue Index Shares
Traded
Notes
CM.PR.M FixedReset 142,179 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 0.19 %
MFC.PR.H FixedReset 108,910 RBC crossed 61,400 at 26.25. Nesbitt crossed 20,000 at 26.25 and 25,000 at 26.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.20
Bid-YTW : 2.81 %
ENB.PR.B FixedReset 84,404 RBC crossed 78,200 at 24.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-27
Maturity Price : 23.29
Evaluated at bid price : 24.72
Bid-YTW : 4.00 %
BAM.PF.B FixedReset 57,142 RBC crossed 46,400 at 25.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-27
Maturity Price : 23.18
Evaluated at bid price : 24.99
Bid-YTW : 4.13 %
BMO.PR.S FixedReset 56,183 RBC crossed 50,000 at 25.50.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 3.73 %
MFC.PR.L FixedReset 48,145 RBC crossed 40,000 at 25.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.11
Bid-YTW : 3.82 %
There were 31 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CIU.PR.C FixedReset Quote: 21.59 – 22.25
Spot Rate : 0.6600
Average : 0.4035

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-27
Maturity Price : 21.30
Evaluated at bid price : 21.59
Bid-YTW : 3.54 %

PWF.PR.A Floater Quote: 19.99 – 20.40
Spot Rate : 0.4100
Average : 0.2806

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-27
Maturity Price : 19.99
Evaluated at bid price : 19.99
Bid-YTW : 2.64 %

GWO.PR.I Deemed-Retractible Quote: 22.66 – 23.09
Spot Rate : 0.4300
Average : 0.3112

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.66
Bid-YTW : 5.72 %

W.PR.H Perpetual-Premium Quote: 25.00 – 25.37
Spot Rate : 0.3700
Average : 0.2546

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-27
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 2.21 %

POW.PR.D Perpetual-Discount Quote: 24.04 – 24.39
Spot Rate : 0.3500
Average : 0.2372

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-27
Maturity Price : 23.77
Evaluated at bid price : 24.04
Bid-YTW : 5.20 %

W.PR.J Perpetual-Premium Quote: 24.97 – 25.30
Spot Rate : 0.3300
Average : 0.2450

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-27
Maturity Price : 25.00
Evaluated at bid price : 24.97
Bid-YTW : 3.73 %

June 26, 2014

Thursday, June 26th, 2014

The trouble with financial crises is that they’re boring. Originally, crises with global implications all came from the UK. Then they all came from the US. Nobody else had the size of capital and global connections to transmit mistakes to other countries. However, there is some hope that the next crisis will come from China:

China’s chief auditor discovered 94.4 billion yuan ($15.2 billion) of loans backed by falsified gold transactions, adding to signs of possible fraud in commodities financing deals.

Twenty-five bullion processors made a combined profit of more than 900 million yuan by using the loans to take advantage of the difference between onshore and offshore interest rates, and the appreciation of Chinese currency, according a report on the National Audit Office’s website. China is the biggest producer and consumer of gold.

Public security authorities are also probing alleged fraud at Qingdao Port where the same stockpiles of copper and aluminum may have been pledged multiple times as collateral for loans. As much as 1,000 tons of gold may be tied up in financing deals in China, in which commodities including metals and agricultural products are used to get credit amid restrictions on lending, according to World Gold Council estimates through 2013.

A recent lawsuit illustrates the total intellectual bankruptcy of the money management industry:

Schneiderman’s case is the boldest initiative and may open fissures in the decade-old defense of U.S. equity markets that has been championed by brokerages and traders. In their version of the story, dark pools serve as havens for institutional investors tired of seeing orders to buy and sell stocks front-run on public exchanges. According to Schneiderman, institutions may not have been much safer on Barclays’ platform.

“There’s going to be a significant amount more scrutiny on routing practices at dark pools, and I think you’re going to see more oversight,” said Larry Tabb, chief executive officer of Tabb Group LLC.

Barclays was so bent on lifting its private trading venue to the upper ranks of Wall Street dark pools that it falsified marketing materials to hide how much high-frequency traders were buying and selling, the complaint said.

Seeking to reassure customers that their stock orders wouldn’t be picked off by predatory counterparts, Barclays touted a system designed to keep that from happening called liquidity profiling, according to the complaint. Marketing material including charts purported to show that very little of the trading within the dark pool was “aggressive” and that operating there was safe for institutions.

“The representations were false,” according to the complaint. The chart and accompanying statements obscured the trading taking place in Barclays’ dark pool. Senior Barclays personnel de-emphasized the presence of high-frequency traders and left out reference to one of the largest and most toxic participants, it said.

Um … who cares? If your order is filled, it’s filled. If it ain’t, it ain’t. Only morons care about the identity of their counterparty. “Sorry, Mr. Smith, your portfolio underperformed the benchmark by 500bp, but on the positive side, we traded only with retired Sunday School teachers.”

You don’t choose a broker on the basis of its marketing materials, for God’s sake. You make a choice based on execution. But maybe I’m just old fashioned.

Here’s a good reason to pay cash – always:

You may soon get a call from your doctor if you’ve let your gym membership lapse, made a habit of picking up candy bars at the check-out counter or begin shopping at plus-sized stores.

That’s because some hospitals are starting to use detailed consumer data to create profiles on current and potential patients to identify those most likely to get sick, so the hospitals can intervene before they do.

Information compiled by data brokers from public records and credit card transactions can reveal where a person shops, the food they buy, and whether they smoke. The largest hospital chain in the Carolinas is plugging data for 2 million people into algorithms designed to identify high-risk patients, while Pennsylvania’s biggest system uses household and demographic data. Patients and their advocates, meanwhile, say they’re concerned that big data’s expansion into medical care will hurt the doctor-patient relationship and threaten privacy.

I told you guys this was coming! I told you! But does anybody ever listen to me? No.

Could it be that Putin’s policies are creating Soviet Union Redux:

State enterprises now account for more than half of the economy, up from 30 percent when Putin came to power at the end of 1999, according to BNP Paribas SA. (BNP) As the bureaucracy swelled during that period, Russia emerged as the world’s most corrupt major economy. It ranks alongside Pakistan and Nicaragua at 127th, out of 176 nations, by Transparency International, down from 82nd in 2000.

With Russia’s $2 trillion economy stagnating, fixed investment falling and the U.S. and the EU warning of a tougher round of sanctions over the pro-Russian revolt in eastern Ukraine, Putin’s solution is a list of proposals revealed in May that involve a greater role for the state. He ordered the central bank to set up long-term financing for manufacturers and called for rules to force “systemically important” companies to move their registrations inside Russia.

On the other hand, there are sufficient interconnections to keep things interesting:

Western companies are already wrestling with the thorny problem of complying with existing curbs on dealings with a limited number of wealthy Putin allies and their businesses, many of which have murky ownership structures and bases in tax havens. Now, the U.S. Chamber of Commerce and the National Association of Manufacturers have taken out full-page ads in The New York Times, Wall Street Journal and Washington Post to decry the prospect of unilateral sanctions that would only hurt U.S. companies in foreign markets, while benefiting their competitors.

Indeed, 83 per cent of economists polled by Bloomberg now think Washington will steer clear of stronger sanctions, compared with 66 per cent a month earlier. And 96 per cent expect no further action from the European Union.

“There is no sense in seeking sanctions which would harm the EU as much as Russia,” Czech State Secretary for European Affairs Tomas Prouza declared.

Bullard is sounding rather like a hawk:

Federal Reserve Bank of St. Louis President James Bullard predicted the central bank will raise interest rates starting in the first quarter of 2015, sooner than most of his colleagues think, as unemployment falls and inflation quickens.

Asked about his forecast for the timing of the first interest-rate increase since 2006, he said: “I’ve left mine at the end of the first quarter of next year.”

“The Fed (FDTR) is closer to its goal than many people appreciate,” Bullard said today in an interview with Fox Business Network. “We’re really pretty close to normal.”

Bullard predicted the jobless rate may fall below 6 percent and inflation rise near 2 percent by the end of this year.

If his forecasts bear out, “you’re basically going to be right at target on both dimensions possibly later this year,” Bullard said. “That’s shocking, and I don’t think markets, and I’m not sure policy makers, have really digested that that’s where we are.”

It was another positive day for the Canadian preferred share market, with PerpetualDiscounts winning 12bp, FixedResets up 8bp and DeemedRetractibles gaining 2bp. Volatility was average. Volume was above average.

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 0.00 % 0.00 % 0 0.00 0 0.3598 % 2,532.3
FixedFloater 4.32 % 3.59 % 28,940 18.17 1 0.9170 % 3,978.1
Floater 2.90 % 2.97 % 44,444 19.79 4 0.3598 % 2,734.1
OpRet 4.37 % -12.58 % 22,419 0.08 2 0.0194 % 2,716.3
SplitShare 4.72 % 4.06 % 58,336 3.16 6 -0.1439 % 3,106.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0194 % 2,483.8
Perpetual-Premium 5.53 % -1.35 % 80,718 0.09 17 -0.0809 % 2,408.7
Perpetual-Discount 5.26 % 5.25 % 114,610 14.98 20 0.1202 % 2,556.7
FixedReset 4.45 % 3.68 % 204,092 4.80 78 0.0776 % 2,551.1
Deemed-Retractible 4.98 % -0.28 % 140,668 0.09 43 0.0204 % 2,541.0
FloatingReset 2.66 % 2.31 % 120,668 3.87 6 0.0658 % 2,502.5
Performance Highlights
Issue Index Change Notes
MFC.PR.B Deemed-Retractible -2.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.92
Bid-YTW : 5.75 %
BNA.PR.C SplitShare -1.45 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.51
Bid-YTW : 4.92 %
W.PR.J Perpetual-Premium -1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-26
Maturity Price : 24.60
Evaluated at bid price : 24.86
Bid-YTW : 5.74 %
BAM.PR.B Floater 1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-26
Maturity Price : 17.51
Evaluated at bid price : 17.51
Bid-YTW : 2.99 %
BAM.PR.X FixedReset 1.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-26
Maturity Price : 22.11
Evaluated at bid price : 22.50
Bid-YTW : 3.99 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.K FixedReset 486,751 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.39
Bid-YTW : 0.20 %
ENB.PF.C FixedReset 208,951 Nesbitt crossed 50,000 at 25.14; Scotia crossed 75,000 at the same price. Desjardins crossed 50,000 at 25.15.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-26
Maturity Price : 23.17
Evaluated at bid price : 25.15
Bid-YTW : 4.19 %
RY.PR.H FixedReset 163,470 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-26
Maturity Price : 23.24
Evaluated at bid price : 25.28
Bid-YTW : 3.73 %
MFC.PR.H FixedReset 160,518 Scotia crossed 25,000 at 26.20; TD crossed 30,000 at 26.20. RBC crossed 68,500 at 26.25, and Scotia crossed another 25,000 at 26.22.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.11
Bid-YTW : 2.94 %
MFC.PR.J FixedReset 102,000 Scotia crossed two blocks of 50,000 each, both at 25.83.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.79
Bid-YTW : 3.13 %
SLF.PR.H FixedReset 82,859 RBC crossed 80,000 at 25.15.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.04
Bid-YTW : 3.81 %
There were 38 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.H Deemed-Retractible Quote: 23.80 – 24.33
Spot Rate : 0.5300
Average : 0.2984

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.80
Bid-YTW : 5.48 %

CIU.PR.A Perpetual-Discount Quote: 22.76 – 23.20
Spot Rate : 0.4400
Average : 0.2870

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-26
Maturity Price : 22.48
Evaluated at bid price : 22.76
Bid-YTW : 5.09 %

GWO.PR.M Deemed-Retractible Quote: 26.20 – 26.54
Spot Rate : 0.3400
Average : 0.2034

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-03-31
Maturity Price : 26.00
Evaluated at bid price : 26.20
Bid-YTW : 4.51 %

MFC.PR.B Deemed-Retractible Quote: 22.92 – 23.37
Spot Rate : 0.4500
Average : 0.3290

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.92
Bid-YTW : 5.75 %

BNA.PR.C SplitShare Quote: 24.51 – 24.85
Spot Rate : 0.3400
Average : 0.2217

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 24.51
Bid-YTW : 4.92 %

GWO.PR.R Deemed-Retractible Quote: 23.61 – 24.00
Spot Rate : 0.3900
Average : 0.2754

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.61
Bid-YTW : 5.53 %

NEW.PR.D Reaches Significant Premium on First Day Out

Thursday, June 26th, 2014

Scotia Managed Companies has announced:

NewGrowth Corp. (the “Company”) is pleased to announce that is has completed its public offering of Class B preferred shares, series 3 (“Preferred Shares”) and Class A capital shares (“Capital Shares”), raising $91,796,616 through the issuance of 2,644,235 Preferred Shares and 165,000 Capital Shares at a price per share of $32.07 and $42.40, respectively. In addition, the Company has redeemed all of its outstanding Class B preferred shares, series 2. The Preferred Shares and Capital Shares were offered to the public on a best efforts basis by a syndicate of agents led by Scotiabank which included CIBC, TD Securities Inc., BMO Capital Markets, National Bank Financial Inc., Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Burgeonvest Bick Securities Limited, Desjardins Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.

NewGrowth Corp. is a mutual fund corporation created to invest its assets in common shares of selected large capitalization Canadian companies (the “Portfolio Shares”) with growth potential and an attractive dividend yield in order to generate dividend income for holders of its preferred shares and to enable the holders of the Company’s Capital Shares to participate in any capital appreciation in the Portfolio Shares.

\

NEW.PR.D is a SplitShare, 4.15%, maturing 2019-6-26. Regrettably, it is redeemable every June 26 until maturity at par; this adds a certain amount of risk to secondary market trading, as the asymmetry of potential returns is increased. This issue has been rated Pfd-2 by DBRS.

The issue will be tracked by HIMIPref™ and has been assigned to the SplitShare subindex.

NEW.PR.D traded 34,250 shares today in a range of 32.10-40 before closing at 32.30-75, 26×3. Vital statistics are:

NEW.PR.D SplitShare YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.30
Bid-YTW : 3.44 %

OSFI’s Zelmer Advocates Increased Micro-Management

Thursday, June 26th, 2014

Mark Zelmer gave a speech touting OSFI at the C.D. Howe Institute Housing Policy Conference titled OSFI is on the Case: Promoting Prudent Lending in Housing Finance:

But, by same token, it is clear that the ability of the household sector as a whole to absorb major shocks is less now than it was a decade ago. Moreover, with interest rates near record low levels, there is not much scope for interest rates in Canada or the United States to fall further – something that helped people weather storms in the past. Governor Poloz recently noted in his testimony before the Senate that the Bank of Canada continues to expect a soft landing for the housing market and Canada’s household debt-to-income ratio to stabilize.Footnote 2 But he also acknowledged that imbalances in the housing sector remain elevated and could pose a significant risk should economic conditions deteriorate.

So from a prudential perspective, the environmental risks associated with lending to households are higher now than in the past. With interest rates expected to remain exceptionally low and household indebtedness high, these risks are likely to remain elevated for the foreseeable future.

Well, in the first place, he disingenuously declines to acknowledge the fact that from the banks’ perspective, a huge proportion of their mortgage debt is just as credit-worthy as Canada bonds, given that it’s insured by CMHC. This is the chief imprudence in the current situation and, I believe, the primary source of whatever bubble there might be in the housing market.

He then tries to insert a little revisionist history into the equation:

You may wonder what more a prudential supervisor really needs to do if lenders and private mortgage insurers are well capitalized. But in stress situations, creditors and investors often lose confidence in these institutions before they run out of capital. Recall that some financial institutions lost access to funding markets in the midst of the global financial crisis even though they were reporting healthy regulatory capital ratios at the time. Sitting back and relying on capital is not enough for either financial institutions or prudential supervisors.

Yes, and I also recall that numerous financial institutions went bust even though they were reporting healthy regulatory capital ratios. So let’s not have any more nonsense about healthy regulatory capital ratios.

In the wake of the global financial crisis, many observers are suggesting that bank regulators need to think about their tool kit and employ macro‑prudential tools like changes in loan‑to‑value limits to lean against rising environmental risks. But at OSFI we believe it makes more sense to promote prudent lending all of the time. Hence, the 80 per cent loan‑to‑value limit on conventional mortgages enshrined in the federal legislation; and, where necessary, deep dives like the ones I just described in the current environment.

Conveniently, none of these observers are named or cited, so we can’t check up on this. But the bit about ‘prudent lending’ is a little odd: is he saying that extending a mortgage is imprudent even when it carries a 100% government guarantee?

By the same token, let me note the focus in the B-20 and B-21 guidelines on governance and risk management principles. Such principles are meant to stand the test of time. They do not lend themselves to hard limits that one can vary in response to changing economic and financial conditions.

Frankly, OSFI generally prefers to take a principles-based approach in setting our regulatory and supervisory expectations. Hard limits like the 65 per cent LTV limit on Home Equity Lines of Credit (HELOCs) are more the exception than the rule. The key advantage of a principles-based approach is that it provides us the flexibility we need to tailor supervisory expectations to the situation at hand. This avoids safe harbours and compliance mentalities that breed complacency on the part of regulated entities, not to mention supervisors. Instead, principles help to underscore the point that regulated institutions are expected to use judgment and apply the guidelines to the situations they face on the ground within their own organizations.

And this is exactly the problem: the last thing we need is more herd mentality and nod-and-wink regulation; we know where that got us with Manulife in Canada and other institutions in other places.

All his points about high consumer debt-to-income ratios and so on is not an indicator of the need for principles-based regulation; it is indicative of a need for a counter-cyclical capital buffer. Why don’t we see any interest, let alone any research, into a counter-cyclical capital requirement based on debt-to-income? Funded by, but certainly not executed by, OSFI – we know what happens when those guys pretend to be academics.

At the end of the day, mortgage lenders and insurers must accept that they are responsible for the loans they are granting and insuring, and thus the risks they are running.

Ha! No they ain’t, buddy. The Feds are responsible for CMHC losses … no moral hazard there, no sir, not one bit!

Update: On a related note, Mark Gilbert of Bloomberg writes about Mark Carney’s Central Bank Mission Creep:

No matter how Governor Mark Carney dresses it up, the Bank of England’s decision today to impose caps on mortgage lending amounts to an explicit effort by the central bank to manage asset prices.

Today, he said: “We don’t target house prices, we care about indebtedness. We think that price dynamics in the housing market are going to slow in about a year as incomes pick up.”

There was also a half-buried message in today’s press conference about the central bank’s reluctance to raise interest rates for fear of missing its target of getting inflation back up to an annual pace of 2 percent. By imposing restrictions on lenders, “monetary policy does not need to be diverted to address a sector-specific risk in the housing market,” Carney said. In other words, if Carney can cool the housing market with tighter controls on mortgages, he can keep rates lower for longer.

June 25, 2014

Wednesday, June 25th, 2014

The first quarter in the US was worse than we thought:

The U.S. economy contracted in the first quarter by the most since the depths of the last recession as consumer spending cooled.

Gross domestic product fell at a 2.9 percent annualized rate, more than forecast and the worst reading since the same three months in 2009, after a previously reported 1 percent drop, the Commerce Department said today in Washington. It marked the biggest downward revision from the agency’s second GDP estimate since records began in 1976. The revision reflected a slowdown in health care spending.

The revision reflected a drop in spending tied to health care services. The Bureau of Economic Analysis had estimated that major provisions of President Obama’s signature health care law would boost outlays. A quarterly services survey released this month showed the assumptions were too optimistic. Outlays for health spending actually slowed in the first quarter, subtracting 0.16 percentage point from GDP. The Commerce Department previously estimated those outlays added 1 percentage point to GDP.

Naturally, the US government wants Treasury debt to be unaffected by corporate-like inventory constraints:

  • •The Volcker Rule bars banks from “proprietary trading” in credit.
  • •But it allows proprietary trading in rates products such as Treasury and agency bonds.
  • •So Citi set up a prop desk to trade agency bonds, managing over $1 billion of Citi’s money.
  • •It’s run by a woman named Anna Raytcheva, who lost billions of dollars trading agency bonds during the financial crisis.

Obviously, some people are scandalized because people are scandalized by everything related to the Volcker Rule. And because the Volcker Rule is light on coherence. For instance, why does the Volcker Rule allow prop trading in rates? Well:

Lawmakers sought the flexibility to finance government spending and didn’t see the trading as particularly risky, said Barney Frank, who as a Massachusetts congressman helped draft the 2010 Dodd-Frank Act that mandated the Volcker Rule.

“To the extent the instruments being traded are completely secure, some of the rationale for the rule disappears,” Frank, a Democrat, said in a phone interview.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts up 9bp, FixedResets winning 12bp and DeemedRetractibles gaining 6bp. Volatility was well above average and dominated by winning FixedResets. Volume was above average, with the highlights dominated by RY issues for some reason; the top two are both extremely likely to be called in August, for what that’s worth.

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 0.00 % 0.00 % 0 0.00 0 0.7528 % 2,523.2
FixedFloater 4.36 % 3.61 % 29,246 18.08 1 0.6925 % 3,941.9
Floater 2.91 % 2.99 % 44,680 19.74 4 0.7528 % 2,724.3
OpRet 4.37 % -12.73 % 22,611 0.08 2 0.0000 % 2,715.8
SplitShare 4.82 % 4.50 % 60,733 4.09 5 0.1196 % 3,110.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,483.3
Perpetual-Premium 5.52 % -1.05 % 81,512 0.08 17 0.0916 % 2,410.7
Perpetual-Discount 5.26 % 5.24 % 115,928 15.00 20 0.0943 % 2,553.7
FixedReset 4.45 % 3.68 % 204,507 6.66 78 0.1206 % 2,549.1
Deemed-Retractible 4.98 % 0.52 % 141,673 0.10 43 0.0584 % 2,540.5
FloatingReset 2.66 % 2.32 % 121,003 3.87 6 0.0395 % 2,500.8
Performance Highlights
Issue Index Change Notes
BAM.PR.X FixedReset -2.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-25
Maturity Price : 21.83
Evaluated at bid price : 22.11
Bid-YTW : 4.07 %
BAM.PR.C Floater 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-25
Maturity Price : 17.51
Evaluated at bid price : 17.51
Bid-YTW : 2.99 %
FTS.PR.G FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-25
Maturity Price : 23.12
Evaluated at bid price : 24.70
Bid-YTW : 3.74 %
BAM.PR.B Floater 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-25
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 3.03 %
CIU.PR.C FixedReset 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-25
Maturity Price : 21.42
Evaluated at bid price : 21.42
Bid-YTW : 3.60 %
IFC.PR.C FixedReset 1.45 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.93
Bid-YTW : 2.49 %
PWF.PR.T FixedReset 1.67 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.14
Bid-YTW : 3.29 %
IFC.PR.A FixedReset 1.75 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.41
Bid-YTW : 3.96 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.T FixedReset 440,249 RBC crossed one block of 275,000 shares and two of 75,000 each, all at 25.38. TD crossed 11,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 25.36
Bid-YTW : 0.81 %
RY.PR.X FixedReset 406,928 TD crossed blocks of 248,000 shares, 27,000 and 121,800, all at 25.38.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 1.05 %
RY.PR.H FixedReset 202,641 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-25
Maturity Price : 23.22
Evaluated at bid price : 25.21
Bid-YTW : 3.74 %
RY.PR.B Deemed-Retractible 102,657 Nesbitt crossed 100,000 at 25.58.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-08-24
Maturity Price : 25.25
Evaluated at bid price : 25.56
Bid-YTW : -0.33 %
TD.PR.K FixedReset 97,062 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.39
Bid-YTW : 0.19 %
RY.PR.Z FixedReset 93,604 Scotia crossed 89,600 at 25.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-25
Maturity Price : 23.31
Evaluated at bid price : 25.45
Bid-YTW : 3.68 %
There were 40 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.X FixedReset Quote: 22.11 – 22.58
Spot Rate : 0.4700
Average : 0.3122

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-25
Maturity Price : 21.83
Evaluated at bid price : 22.11
Bid-YTW : 4.07 %

IFC.PR.C FixedReset Quote: 25.93 – 26.24
Spot Rate : 0.3100
Average : 0.2189

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.93
Bid-YTW : 2.49 %

HSE.PR.A FixedReset Quote: 22.78 – 23.05
Spot Rate : 0.2700
Average : 0.1993

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-25
Maturity Price : 22.43
Evaluated at bid price : 22.78
Bid-YTW : 3.78 %

TD.PR.Z FloatingReset Quote: 25.15 – 25.33
Spot Rate : 0.1800
Average : 0.1132

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 2.58 %

TD.PR.S FixedReset Quote: 25.15 – 25.34
Spot Rate : 0.1900
Average : 0.1262

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 3.31 %

GWO.PR.P Deemed-Retractible Quote: 25.41 – 25.62
Spot Rate : 0.2100
Average : 0.1496

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 5.22 %

June 24, 2014

Tuesday, June 24th, 2014

Looks like we’ve entered the Even Greater Moderation:

Expectations for price swings in the dollar-yen currency pair fell to a record as signs of an uneven U.S. economic recovery fueled bets the Federal Reserve will keep borrowing costs at unprecedented lows.

Three-month implied volatility in dollar-yen was at 5.795 percent at 6:46 a.m. in London after declining to 5.715 percent, the lowest level since Bloomberg began compiling the data in December 1995.

The SEC has demanded a test of small-stock tick-sizes to see whether a larger tick-size improves liquidity of these stocks:

The experiment was sought by exchange operators including Nasdaq OMX Group Inc. (NDAQ) and Intercontinental Exchange Inc. (ICE), which have seen their share of trading fall as private platforms such as dark pools have taken 37 percent of total share volume, according to data compiled by Bloomberg. The test will prevent trading outside the exchanges unless a competing venue or broker offers a significantly better price or size lot to investors, according to an order posted on the SEC’s website.

Other features of the program, which will last one year, will strictly test the impact of rolling back penny pricing in stocks of smaller-cap companies. Under that experiment, the shares of companies with market values under $5 billion will only be quoted in five-cent increments.

Supporters of the test say it will encourage market makers that facilitate trading to buy and sell more shares and create conditions that would persuade more companies to go public. The SEC has been considering the experiment for more than a year as some lawmakers in Congress have pushed legislation to force a change.

Regrettably, other tests have not been announced – repealing Sarbanes-Oxley for these companies, for instance, or reducing capital requirements for market-makers who are banks, or actually increasing maker-taker exchange pricing for these issues.

Manulife Financial, proud issuer of MFC.PR.A, MFC.PR.B, MFC.PR.C, MFC.PR.E, MFC.PR.F, MFC.PR.G, MFC.PR.H, MFC.PR.I, MFC.PR.J, MFC.PR.K and MFC.PR.L, has been confirmed at Pfd-2(high) by DBRS:

DBRS has today confirmed the ratings on Manulife Financial Corporation (Manulife or the Company) and its affiliates, including The Manufacturers Life Insurance Company, its primary operating company. The rating on the Senior Unsecured Notes issued by Manulife Finance Holdings Limited has been discontinued due to repayment. All trends are Stable.

The ratings reflect the Company’s strong position in a number of geographic and product markets, including Canada and the fast-growing Asian market through the Manulife brand, and in the United States through the John Hancock brand. The Company is also well diversified by customer, distribution channel and product line. Risk management policies and procedures are rigourous, giving rise to a high-quality asset portfolio, though legacy issues associated with the Company’s policy liabilities continue to be a potential source of adverse reserve development given the macroeconomic and regulatory environments. While DBRS regards Manulife’s reduction of market-related risks over the past few years as having been critical to maintaining the Company’s high rating, it also notes that with unexceptional financial risk metrics, under DBRS’s methodology it is the Company’s franchise strength and business that provide most of the rating strength.

It was a mixed day for the Canadian preferred share market, with PerpatualDiscounts down 19bp, FixedResets up 9bp and DeemedRetractibles gaining 1bp. Volatility was a little more than usual, heavily skewed towards winning FixedResets. Volume was very low.

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 0.00 % 0.00 % 0 0.00 0 0.5185 % 2,504.3
FixedFloater 4.39 % 3.64 % 28,725 18.03 1 1.0733 % 3,914.8
Floater 2.93 % 3.02 % 45,055 19.66 4 0.5185 % 2,704.0
OpRet 4.37 % -12.88 % 22,215 0.08 2 0.1557 % 2,715.8
SplitShare 4.82 % 4.50 % 56,226 4.09 5 0.0080 % 3,106.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1557 % 2,483.3
Perpetual-Premium 5.51 % -1.92 % 82,567 0.08 17 0.0762 % 2,408.5
Perpetual-Discount 5.27 % 5.24 % 112,025 15.00 20 -0.1905 % 2,551.3
FixedReset 4.45 % 3.69 % 205,566 6.66 78 0.0896 % 2,546.0
Deemed-Retractible 4.98 % 1.23 % 141,528 0.17 43 0.0148 % 2,539.0
FloatingReset 2.66 % 2.25 % 111,025 3.87 6 0.1846 % 2,499.8
Performance Highlights
Issue Index Change Notes
BAM.PR.M Perpetual-Discount -1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 21.28
Evaluated at bid price : 21.28
Bid-YTW : 5.61 %
ENB.PR.D FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 23.22
Evaluated at bid price : 24.83
Bid-YTW : 3.94 %
BAM.PR.G FixedFloater 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 21.91
Evaluated at bid price : 21.66
Bid-YTW : 3.64 %
BAM.PR.C Floater 1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 17.33
Evaluated at bid price : 17.33
Bid-YTW : 3.02 %
CIU.PR.C FixedReset 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 21.12
Evaluated at bid price : 21.12
Bid-YTW : 3.65 %
BAM.PR.X FixedReset 2.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 22.19
Evaluated at bid price : 22.61
Bid-YTW : 3.96 %
Volume Highlights
Issue Index Shares
Traded
Notes
ENB.PF.C FixedReset 221,485 RBC crossed 50,000 at 25.13; Nesbitt crossed 65,000 at 25.14; TD crossed 80,000 at 25.13.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 23.16
Evaluated at bid price : 25.12
Bid-YTW : 4.19 %
BNS.PR.K Deemed-Retractible 155,730 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-07-24
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : 0.77 %
TRP.PR.A FixedReset 105,705 Desjardins crossed 99,200 at 23.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 22.37
Evaluated at bid price : 23.22
Bid-YTW : 3.80 %
BMO.PR.S FixedReset 83,525 Scotia crossed 70,000 at 25.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 3.76 %
BAM.PF.F FixedReset 64,615 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.28
Bid-YTW : 4.34 %
RY.PR.H FixedReset 40,230 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 23.21
Evaluated at bid price : 25.18
Bid-YTW : 3.74 %
There were 19 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.H FixedReset Quote: 26.27 – 26.70
Spot Rate : 0.4300
Average : 0.2570

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.27
Bid-YTW : 2.70 %

ENB.PR.H FixedReset Quote: 23.70 – 24.14
Spot Rate : 0.4400
Average : 0.2783

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 22.70
Evaluated at bid price : 23.70
Bid-YTW : 3.96 %

CU.PR.G Perpetual-Discount Quote: 22.07 – 22.53
Spot Rate : 0.4600
Average : 0.3189

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 21.77
Evaluated at bid price : 22.07
Bid-YTW : 5.13 %

GWO.PR.L Deemed-Retractible Quote: 25.59 – 25.94
Spot Rate : 0.3500
Average : 0.2355

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-31
Maturity Price : 25.25
Evaluated at bid price : 25.59
Bid-YTW : 5.18 %

BAM.PR.B Floater Quote: 17.10 – 17.43
Spot Rate : 0.3300
Average : 0.2163

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 17.10
Evaluated at bid price : 17.10
Bid-YTW : 3.06 %

BAM.PR.K Floater Quote: 17.15 – 17.44
Spot Rate : 0.2900
Average : 0.1952

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-06-24
Maturity Price : 17.15
Evaluated at bid price : 17.15
Bid-YTW : 3.06 %

BNS.PR.K Called For Redemption

Tuesday, June 24th, 2014

Scotiabank has announced:

that it intends to exercise its right to redeem all outstanding Non-cumulative Preferred Shares Series 13 of Scotiabank (the “Preferred Shares Series 13”) on July 29, 2014 at a price equal to $25.00 per share, together with all declared and unpaid dividends. Formal notice will be issued to shareholders in accordance with the share conditions.

The redemption has been approved by the Office of the Superintendent of Financial Institutions and will be financed out of the general funds of Scotiabank.

On May 26, 2014, the Board of Directors of Scotiabank approved a quarterly dividend of $0.30 per Series 13 Share. This will be the final dividend on the Series 13 Shares and will be paid in the usual manner on July 29, 2014 to shareholders of record at the close of business on July 2, 2014, as previously announced. After July 29, 2014, the Series 13 Shares will cease to be entitled to dividends.

Is this the beginning of a wave of redemptions of bank DeemedRetractibles? Probably not, unless the banks want to pay a premium. I confess to some surprise that Scotia didn’t come up with a shareholder vote to change the terms of this issue; or alternatively, set up an exchange offer. Be that as it may, bank DeemedRetractibles with higher coupons are:

Bank DeemedRetractibles
Coupon > $1.20 p.a.
Ticker Annual Dividend First Par Call
NA.PR.M 1.5000 2017-5-15
BMO.PR.L 1.4500 2017-5-25
TD.PR.R 1.4000 2017-4-30
TD.PR.Q 1.4000 2017-1-31
BNS.PR.O 1.4000 2017-4-26
BNS.PR.N 1.3125 2017-1-27
BMO.PR.K 1.3125 2016-11-25
TD.PR.P 1.3125 2016-11-1
HSB.PR.C 1.2750 2014-6-30
HSB.PR.D 1.2500 2014-12-31
NA.PR.L 1.2125 Current
TD.PR.O 1.2125 2014-10-31