Archive for November, 2014

November 21, 2014

Saturday, November 22nd, 2014

There is some thought that Canada’s inflation is normalizing:

Canada’s inflation rate accelerated faster than economists predicted in October, led by gasoline and clothing and suggesting the economy may be running hotter than the central bank had thought.

The consumer price index rose 2.4 percent compared with the same month a year earlier, Statistics Canada said from Ottawa. That’s faster than all 21 economists in a Bloomberg News survey predicted. The core rate that excludes eight volatile products accelerated to 2.3 percent, the strongest in almost three years.

Inflation has exceeded the Bank of Canada’s 2 percent target in five of the past six months, making it more difficult for Governor Stephen Poloz to argue temporary factors are driving price gains. Canada’s dollar rose the most in almost two months after today’s report as traders speculated the central bank may have to bring forward its timetable for raising borrowing costs.

Canada’s dollar strengthened 0.7 percent to C$1.1229 per U.S. dollar at 10:40 a.m. Toronto time. Two-year federal government bond yields rose to 1.07 percent from 1.05 percent.

Clothing and footwear price gains accelerated to 3.1 percent, from September’s 2 percent pace, as retailers offered fewer discounts, Statistics Canada said today.

Gasoline prices rose 0.6 percent in October from a year earlier. On a monthly basis, gasoline fell 4 percent in October, the fourth consecutive decline.

The next few inflation reports may show the gains in gasoline and clothing prices receding, Ferley said, citing a recent fall in fuel prices and a slower depreciation of Canada’s dollar that had boosted the cost of imported apparel. Today’s inflation gain was still broad enough to suggest price gains faster than Poloz expects, he said.

Food prices rose 2.8 percent in October, including a 12.4 percent surge for meat purchased at stores.

It was a positive day for the Canadian preferred share market, with PerpetualDiscounts winning 15bp, FixedResets flat and DeemedRetractibles up 7bp. Volatility was good, comprised entirely of FixedResets. Volume was a little 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 -0.1129 % 2,541.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.1129 % 4,023.7
Floater 2.97 % 3.07 % 58,507 19.50 4 -0.1129 % 2,701.8
OpRet 4.04 % -4.49 % 98,444 0.08 1 0.3773 % 2,760.1
SplitShare 4.27 % 4.03 % 48,635 3.78 5 0.2377 % 3,192.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3773 % 2,523.8
Perpetual-Premium 5.44 % -10.22 % 67,308 0.08 19 -0.0697 % 2,485.6
Perpetual-Discount 5.10 % 5.01 % 106,627 15.40 16 0.1474 % 2,685.1
FixedReset 4.17 % 3.55 % 174,850 4.48 74 0.0004 % 2,596.4
Deemed-Retractible 4.94 % -1.00 % 98,055 0.11 40 0.0662 % 2,615.3
FloatingReset 2.56 % -0.95 % 59,866 0.08 6 -0.1888 % 2,553.1
Performance Highlights
Issue Index Change Notes
MFC.PR.K FixedReset -1.11 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.01
Bid-YTW : 3.73 %
TRP.PR.A FixedReset 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 21.68
Evaluated at bid price : 22.07
Bid-YTW : 3.95 %
TRP.PR.C FixedReset 1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 21.80
Evaluated at bid price : 22.28
Bid-YTW : 3.51 %
FTS.PR.H FixedReset 1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 20.51
Evaluated at bid price : 20.51
Bid-YTW : 3.67 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.Z FixedReset 205,547 National sold three blocks to Nesbitt, two of 14,000 each and one of 11,900, all at 25.50; it also sold blocks of 18,900 and 25,000 to Scotia at 25.51. Scotia crossed 50,000 at 25.52 and Nesbitt crossed 10,000 at 25.54.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-24
Maturity Price : 25.00
Evaluated at bid price : 25.56
Bid-YTW : 3.47 %
ENB.PR.P FixedReset 57,023 Scotia crossed 43,200 at 24.41.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 23.00
Evaluated at bid price : 24.41
Bid-YTW : 4.03 %
ENB.PF.C FixedReset 56,385 TD crossed 38,200 at 25.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 23.21
Evaluated at bid price : 25.20
Bid-YTW : 4.08 %
TRP.PR.B FixedReset 41,221 Nesbitt crossed 32,500 at 19.01
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 3.79 %
ENB.PR.Y FixedReset 40,071 TD crossed 26,700 at 23.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 22.61
Evaluated at bid price : 23.60
Bid-YTW : 4.11 %
MFC.PR.L FixedReset 37,419 TD crossed 30,000 at 25.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-06-19
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 3.66 %
There were 27 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.M Perpetual-Discount Quote: 22.30 – 23.00
Spot Rate : 0.7000
Average : 0.4491

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-21
Maturity Price : 21.92
Evaluated at bid price : 22.30
Bid-YTW : 5.39 %

ELF.PR.H Perpetual-Premium Quote: 25.32 – 25.75
Spot Rate : 0.4300
Average : 0.2564

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-17
Maturity Price : 25.00
Evaluated at bid price : 25.32
Bid-YTW : 5.39 %

BAM.PF.F FixedReset Quote: 25.71 – 26.15
Spot Rate : 0.4400
Average : 0.2826

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.71
Bid-YTW : 4.02 %

PWF.PR.R Perpetual-Premium Quote: 26.31 – 26.72
Spot Rate : 0.4100
Average : 0.2536

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.31
Bid-YTW : 4.63 %

MFC.PR.K FixedReset Quote: 25.01 – 25.40
Spot Rate : 0.3900
Average : 0.2400

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-09-19
Maturity Price : 25.00
Evaluated at bid price : 25.01
Bid-YTW : 3.73 %

BMO.PR.R FloatingReset Quote: 25.48 – 25.85
Spot Rate : 0.3700
Average : 0.2419

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-20
Maturity Price : 25.50
Evaluated at bid price : 25.48
Bid-YTW : 0.48 %

S&P Revises Outlook on ENB to Negative

Saturday, November 22nd, 2014

Standard & Poor’s has announced:

  • •We are revising our outlook on Calgary, Alta.-based Enbridge Inc. and Enbridge Pipelines Inc. (EPI), and Toronto-based Enbridge Gas Distribution Inc. (EGD) to negative from stable.
  • •We are also affirming our ‘A-‘ corporate credit rating on the companies.
  • •The negative outlook on Enbridge reflects our assessment of weak forecast financial metrics at the parent level.
  • •We assess EPI and EGD to be “core” under our group rating methodology, so the negative outlook on the companies reflects that on Enbridge.


We view Enbridge’s financial risk profile as “significant.” The continuing large capital program to expand existing and build new liquids pipelines will continue to pressure financial metrics for the next several years. We forecast that financial metrics could dip below our 13% adjusted funds from operations (AFFO)-to-debt downgrade threshold under our forecast capital expenditures and financing plans. The company has brought large scale capital projects in service on time and on budget, and we expect this to continue. Financial policy has generally been credit supportive, although growing capital expenditures from new projects, and the parents support of subsidiary companies with internal equity financing, have shifted to what we believe is a more neutral stance.

The negative outlook on Enbridge reflects our view that forecast credit metrics appear to be weak, and more indicative of an “aggressive” financial risk policy than the current significant. The company has been working through an extremely large capital program in 2014, and while 2015-2016 capex is not as large, we still expect it to continue stressing financial metrics, leaving little room for larger capital programs, or potential delays to project in-service dates. We will continue to monitor Enbridge’s financial policy in the next year. The negative outlook on the subsidiaries reflects that on the parent.

Maintaining AFFO-to-debt below 13% would likely result in a downgrade. Deterioration in the business risk or a failure to deliver the capital program on time and budget could also result in a lower rating.

An outlook revision to stable would require AFFO-to-debt to stay above 13% consistently during our forecast period.

Enbridge Inc. is the issuer of (deep breath) ENB.PR.A (Straight Perpetual), ENB.PR.B, ENB.PR.D, ENB.PR.F, ENB.PR.H, ENB.PR.J, ENB.PR.N, ENB.PR.P, ENB.PR.T, ENB.PR.Y, ENB.PF.A, ENB.PF.C, ENB.PF.E and ENB.PF.G (FixedResets) and ENB.PR.U, ENB.PR.V, ENB.PF.U and ENB.PF.V (US-Pay FixedResets).

All told, I believe that total issuance comprises roughly 10% of the Canadian preferred share market, virtually all of which has come out since the issue of ENB.PR.B just over three years ago. A downgrade to junk would certainly make the market a bit more interesting for a while!

Brookfield Renewable Makes Significant Acquisition

Saturday, November 22nd, 2014

Brookfield Renewable Energy Partners L.P. has announced:

an agreement to acquire a 488 MW multi-technology renewable portfolio in Brazil from Energisa S.A. The transaction represents a total enterprise value of approximately $R2.4 billion (US$935 million), subject to working capital adjustments. The equity purchase price is $R1.4 billion (US$545 million), net of assumed long-term non-recourse debt. Brookfield Renewable will acquire and fund the transaction with its institutional partners and maintain an economic interest in the portfolio of approximately 40 percent.

The acquisition will be funded through available capital from Brookfield Renewable and its institutional partners. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close in the first quarter of 2015.

Brookfield Renewable Power Preferred Equity Inc. is a wholly owned subsidiary of Brookfield Renewable Energy Partners L.P., and is the issuer of record for BRF.PR.A, BRF.PR.C, BRF.PR.E and BRF.PR.F. The first two are FixedResets, the second two are Straight Perpetuals, all are tracked by HIMIPref™ and all are relegated to the Scraps index on credit concerns.

I have no idea why they issue these things through a subsidiary, quite frankly. At any rate, the guarantee is solid enough (sample language taken from BRF.PR.E prospectus dated 2013-1-22):

As described below, the Series 5 Shares will be guaranteed by the Partnership, Brookfield Renewable Energy L.P. (“BRELP”), Brookfield BRP Holdings (Canada) Inc. (“CanHoldco”) and BRP Bermuda Holdings I Limited (“Bermuda Holdco”, and collectively with the Partnership, BRELP and CanHoldco, the “Guarantors”).

Each Series 5 Share will be fully and unconditionally guaranteed, jointly and severally, by the Guarantors as to (i) the payment of dividends, as and when declared, (ii) the payment of amounts due on redemption of the Series 5 Shares, and (iii) the payment of the amounts due on the liquidation, dissolution and winding-up of the Corporation (the “Series 5 Guarantee”). As long as the declaration or payment of dividends on the Series 5 Shares are in arrears, the Guarantors will not make any distributions or pay any dividends on their respective equity securities or make any distributions or pay any dividends on securities of any successor entity to the Guarantors. The Series 5 Guarantee will be subordinated to all of the respective senior and subordinated debt of the Guarantors that is not expressly stated to be pari passu with or subordinate to the Series 5 Guarantee and will rank senior to the equity securities of the Guarantors. The Series 5 Guarantee will rank on a pro rata and pari passu basis with the obligations of the Guarantors under similar guarantees that may be provided by the Guarantors in respect of other Class A Preference Shares of the Corporation.

The rights, obligations and liabilities of a Guarantor pursuant to the Series 5 Guarantee will terminate upon the conveyance, distribution, transfer or lease of all or substantially all of its properties, securities and assets to another Guarantor. A Guarantor may not otherwise convey, distribute, transfer or lease all or substantially all of its properties, securities and assets to another person, unless the person which acquires the properties, securities and assets of such Guarantor assumes such Guarantor’s obligations under the Series 5 Guarantee.

There is no word from the credit agencies as yet regarding their perceptions of the deal, but it will be remembered that on November 4 I reported:

Brookfield’s aggressive approach to expansion has cost Brookfield Renewable Energy Partners L.P. it’s S&P ‘Positive’outlook:
  • •We are revising our outlook on Brookfield Renewable Energy Partners L.P. (BREP) to stable from positive.
  • •The outlook revision reflects our assessment of the amount of debt being maintained at the parent level in relation to parent-only cash flow that the partnership is generating.
  • •We are also affirming our ratings on BREP and subsidiaries Brookfield Renewable Power Preferred Equity Inc. and BRP Finance ULC, including our ‘BBB’ long-term corporate credit rating on BREP.


At the same time Standard & Poor’s affirmed its ratings on BREP and subsidiaries Brookfield Renewable Power Preferred Equity Inc. and BRP Finance ULC, including its ‘BBB’ long-term corporate credit rating on BREP.

The outlook revision reflects our view of the company’s ability to generate strong remittable cash flows from its holdings and its increased level of holding company (holdco) recourse debt. The company has articulated a policy of maintaining relatively low levels of leverage at the holdco level with leverage at the holdco used opportunistically for acquisitions with equity as market conditions allow. However, during the course of the year, the company has made a number of acquisitions that, although partially funded with new equity issuance, maintained a higher level of debt at the holdco. This has resulted in lower credit metrics.

The stable outlook reflects our expectation that BREP will continue to increase its parent-only cash flow while maintaining modest amounts of debt at the holding company as well as maintaining the highly contracted and well-diversified portfolio of generation assets.

We could raise the ratings if we believe that parent-only cash flow to debt will continue at or above 30% assuming the current quality of cash flow score of ‘4’.

We could lower the rating if the partnership is unable to maintain parent-only cash flow to debt above 23% or if there is deterioration in the quality of cash flow score. This could result from acquisitions financed with substantially higher levels of holding-company debt or a material change in the partnership’s contractual profile.

DBRS Improves Trend On RON.PR.A To Stable

Friday, November 21st, 2014

DBRS has announced that it:

has today confirmed the Issuer Rating and Senior Unsecured Debt rating of RONA inc. (RONA or the Company) at BB (high) and the Preferred Share rating at Pfd-4 (high). The trends have been changed to Stable from Negative. The recovery rating on the Company’s Senior Unsecured Debt has been changed to RR3. The confirmation and trend change reflect improvement in the Company’s operating performance after three consecutive years of poor relative execution in an intense competitive environment. Positive trending same-store sales in the Company’s retail network (-3.4% in Q1, -0.7% in Q2 and +2.0% in Q3) as a result of changed merchandising strategies, the repositioning of the Reno-Depot and Totem banners, and the closure of 17 underperforming stores, combined with significant cost savings from recent reorganization efforts, to result in a notable improvement to EBITDA. The Company’s financial profile also improved at the end of F2013 and into F2014 as RONA used a portion of the proceeds from the sale of its Commercial and Professional division to reduce balance-sheet debt.

DBRS expects that RONA will continue to use free cash flow to increase shareholder returns. RONA’s credit risk profile will continue to strengthen within the current rating category if operating performance continues to improve (i.e., same-store sales growth and margin expansion), and key credit metrics remain in a range considered acceptable for the current rating (i.e., lease-adjusted debt-to-EBITDAR well below 4.0x and lease-adjusted EBITDA coverage above 4.5x) in the near-to medium-term.

As previously reported, RON.PR.A was downgraded to Pfd-4(high) [Trend Negative] by DBRS in March 2013, and to P-4(high) by S&P in April 2013. The issue was hammered after the first downgrade and has not recovered.

RON.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

XMF Warrants To Expire November 25

Friday, November 21st, 2014

On August 20, Quadravest announced:

M Split Corp. (the “Company”) is pleased to announce that it will be issuing Warrants to Capital and Class II Preferred shareholders as part of a series of changes that were approved by 99% of shareholders voting at the recent shareholders meeting held on May 14, 2014.

The issue of Warrants will be accomplished through a reorganization of shares which will occur prior to the opening of trading on the TSX on August 25, 2014 (the “effective date”).

The details are as follows:
Each holder of a Capital Share on the effective date will receive one Capital Share (2014), having the rights, privileges, restrictions and conditions approved by Shareholders at the 2014 Special Meeting, and one Warrant for each Capital Share held.
Each holder of a Class II Preferred Shares on the effective date will receive one Class II Preferred Share (2014), having the rights, privileges, restrictions and conditions approved at the 2014 Special Meeting, and one Warrant for each Class II Preferred Share held.
The Warrants will allow current Capital and Class II Preferred shareholders to increase their investment in the Company. Four Warrants will entitle the holder to purchase a Unit consisting of one Class I Preferred Share, one Class II Preferred Share and one Capital Share for a total subscription price of $8.15. The Warrants may be exercised on any business day commencing on August 26, 2014 and up until 5:00 p.m. (EST) on the expiry date of November 25, 2014.

The Class I Preferred Shares, Class II Preferred Shares and Capital Shares are listed on the Toronto Stock Exchange (“TSX”) under the symbols XMF.PR.B, XMF.PR.C and XMF.A, respectively. On August 19, 2014, the closing prices on the TSX of the Class I Preferred Shares, Class II Preferred Shares and Capital Shares were $5.35, $2.80 and $0.36, respectively. The Company has received conditional approval to list the Warrants on the TSX under the symbol XMF.WT effective August 25, 2014.

The reorganization of shares and issue of Warrants is a non-taxable event.

M Split invests in common shares of Manulife Financial Corporation, the largest life insurer in Canada offering financial products and wealth management services.

Additional information regarding the capital reorganization and Warrant offering is contained in the Management Information Circular dated April 11, 2014 as well as in the Information Statement dated August 18, 2014 which will be mailed to all Capital and Class II Preferred shareholders and will also be available on SEDAR at www.sedar.com.

They have now announced:

M Split Corp. (the “Company”) would like to provide an update on the Company’s outstanding warrants. The warrants can be exercised on any business day up until the expiry date of November 25, 2014 at 5:00 p.m. (EST).

Four Warrants plus the subscription price of $8.15 will entitle the holder to subscribe for one Unit. Each Unit consists of one Class I Preferred Share (XMF.PR.B), one Class II Preferred Share (XMF.PR.C) and one Capital Share (XMF.A) of the Company.

The subscription price is consistent with the combined recent trading prices of the Unit. Any warrants not exercised by November 25, 2014 will expire worthless.

Warrant holders should contact their advisors for more information on how to exercise their warrants in advance of the expiry date.

Warrant holders wishing to subscribe for additional shares above their allotment of warrants may do so by contacting their advisor.

The Company invests in common shares of Manulife Financial Corporation, the largest life insurer in Canada offering financial products and wealth management services.

The pending worthless expiration of the warrants isn’t much of a threat – the unit NAV was $7.85 on November 14, significantly below the $8.15 exercise price.

XMF.PR.A was last mentioned on PrefBlog when the 2010 Reorganization was completed. The 2014 Reorganization was merely a term extension, with the promise of this warrant offering.

YCM Warrants To Expire November 25

Friday, November 21st, 2014

On August 12, Quadravest announced:

Commerce Split (the “Company”) is pleased to announce it has today filed a Short Form Prospectus in each of the provinces of Canada relating to the issuance of Warrants, related to the recent Special Meeting of Shareholders. Shareholders voted 96% in favour of the proposals presented at the meeting including the issuance of Warrants. Warrants will allow current shareholders to increase their investment in the Company. Warrants will be issued to holders of Capital Shares on record at the close of business on August 25, 2014. Four Warrants plus the subscription price of $12.34 will entitle the holder to subscribe for one Unit. Each Unit consists of one Class I Preferred Share, one Class II Preferred Share and one Capital Share of the Company. The Warrants may be exercised on any business day commencing on August 26, 2014 and up until 5:00 p.m. (EST) on the expiry date of November 25, 2014.

The Class I Preferred Shares, Class II Preferred Shares and Capital Shares are listed on the Toronto Stock Exchange (the “TSX”) under the symbols YCM.PR.A, YCM.PR.B and YCM, respectively. On August 6, 2014, the closing prices on the TSX of the Class I Preferred Shares, Class II Preferred Shares and Capital Shares were $5.20, $5.15 and $1.91, respectively. The Company has applied to list the Warrants on the TSX, subject to approval.

The Company invests in common shares of Canadian Imperial Bank of Commerce, a Canadian financial institution.

They have now announced:

Commerce Split (the “Company”) would like to provide an update on the Company’s outstanding warrants. The warrants can be exercised on any business day up until the expiry date of November 25, 2014 at 5:00 p.m. (EST).

Four Warrants plus the subscription price of $12.34 will entitle the holder to subscribe for one Unit. Each Unit consists of one Class I Preferred Share (YCM.PR.A), one Class II Preferred Share (YCM.PR.B) and one Capital Share (YCM) of the Company.

The subscription price for the warrant represents a discount of 1.1% to the net asset value as of November 15, 2014 and is consistent with recent combined trading prices. Therefore it may be beneficial for shareholders to exercise their warrants. Any warrants not exercised by November 25, 2014 will expire worthless.

Warrant holders should contact their advisors for more information on how to exercise their warrants in advance of the expiry date.

Warrant holders wishing to subscribe for additional shares above their allotment of warrants may do so by contacting their advisor.

The Company invests in common shares of Canadian Imperial Bank of Commerce, a Canadian financial institution.

Expiring worthless won’t be much of a loss. The last trade of the warrants was at $0.015. The NAV per unit was $12.48 on November 14, and the underlying CM shares closed at $104.45 that day compared to $104.80 today. So there’s a very small profit possible – relative to NAV – from exercise, provided one likes to buy mutual funds with a Base Management Expense Ratio of 1.92%. When one adds up the quotes (as of today) for each of the three elements of a unit (YCM, YCM.PR.A and YCM.PR.B) the total is 12.19-34, so exercise looks like a dubious proposition.

YCM.PR.A and YCM.PR.B were last mentioned on PrefBlog when they were created in a reorganization. With only about 2.6-million units outstanding, these issues are far too small to be tracked by HIMIPref™.

November 20, 2014

Thursday, November 20th, 2014

I briefly mentioned subsidized gasoline in Saudi Arabia on November 11. Here’s a report on subsidized electricity in India:

The villagers of Dharnai in northern India had been living without electricity for more than 30 years when Greenpeace installed a microgrid to supply reliable, low-cost solar power.

Then, within weeks of the lights flickering on in Dharnai’s mud huts, the government utility hooked up the grid — flooding the community with cheap power that undercut the fledgling solar network. While Greenpeace had come to Dharnai at Bihar’s invitation, the unannounced arrival of the state’s utility threatened to put it out of business.

It’s a scenario playing out at dozens of ventures across India’s hinterlands. Competition from state utilities, with their erratic yet unbeatably cheap subsidized power, is scuppering efforts to supply clean, modern energy in a country where more people die from inhaling soot produced by indoor fires than from smoking.

I mentioned a new round of bank-bashing yesterday, in connection with their commodities businesses. Could it be that this is related?:

Congressional scrutiny of Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS)’s commodities businesses is another strain for units that already saw revenue drop by two-thirds from peak years.

Goldman Sachs produced $1 billion of revenue from its commodities unit and investments in commodity businesses in 2012, down from $3.4 billion in 2009, according to a Senate Permanent Subcommittee on Investigations report released today on banks’ involvement in those markets. Morgan Stanley’s commodity revenue fell for four straight years, from $3 billion in 2008 to $912 million in 2012, according to the report.

It’s an ill wind that blows nobody any good:

Six years after Bernard Madoff’s fraud collapsed, the cost of liquidating his defunct investment advisory firm to repay thousands of victims has topped $1 billion, though the con man’s former customers aren’t footing the bill.

The fees, paid by the industry-backed Securities Investor Protection Corp., which is managing the case, have financed a team of lawyers who this week surpassed $10 billion in recoveries for victims, or almost 60 percent of the principal that vanished after Madoff’s arrest in December 2008.

Irving Picard, the bankruptcy lawyer who’s leading the effort as trustee for Madoff’s company, included the new fee total in an interim report posted today on his website. A bankruptcy judge in Manhattan regularly approves the fees, sometimes over the objections of victims’ groups.

“It’s obscene,” Helen Davis Chaitman, a lawyer representing some victims in the case, said in an e-mail about the fees. Chaitman, who has frequently challenged Picard in courts, said federal prosecutors recovered most of the cash for victims and Picard should pay out more than just principal.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 29bp, FixedResets up 16bp and DeemedRetractibles gaining 15bp. Volatility was low. 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 0.4819 % 2,544.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.4819 % 4,028.2
Floater 2.96 % 3.07 % 59,347 19.51 4 0.4819 % 2,704.8
OpRet 4.02 % -0.05 % 96,991 0.08 1 0.0392 % 2,749.7
SplitShare 4.28 % 4.15 % 50,639 3.78 5 -0.1977 % 3,184.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0392 % 2,514.3
Perpetual-Premium 5.43 % -9.57 % 66,989 0.09 19 -0.0349 % 2,487.3
Perpetual-Discount 5.11 % 5.00 % 106,883 15.41 16 0.2931 % 2,681.2
FixedReset 4.16 % 3.52 % 177,016 4.48 74 0.1614 % 2,596.4
Deemed-Retractible 4.94 % -0.99 % 97,129 0.11 40 0.1479 % 2,613.6
FloatingReset 2.56 % -7.47 % 58,385 0.08 6 0.0652 % 2,558.0
Performance Highlights
Issue Index Change Notes
TD.PR.R Deemed-Retractible 1.06 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-20
Maturity Price : 25.75
Evaluated at bid price : 26.63
Bid-YTW : -29.47 %
ENB.PR.H FixedReset 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-20
Maturity Price : 22.44
Evaluated at bid price : 23.14
Bid-YTW : 3.98 %
Volume Highlights
Issue Index Shares
Traded
Notes
FTS.PR.H FixedReset 182,489 Nesbitt crossed 168,200 at 20.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-20
Maturity Price : 20.25
Evaluated at bid price : 20.25
Bid-YTW : 3.72 %
ENB.PF.G FixedReset 126,281 RBC crossed blocks of 74,000 and 38,500 at 25.29.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-20
Maturity Price : 23.19
Evaluated at bid price : 25.21
Bid-YTW : 4.11 %
TRP.PR.A FixedReset 94,425 Scotia crossed 20,000 at 21.77.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-20
Maturity Price : 21.50
Evaluated at bid price : 21.82
Bid-YTW : 4.00 %
CU.PR.G Perpetual-Discount 78,606 Desjardins bought blocks of 36,500 and 12,100 from anonymous at 22.53. TD crossed 23,900 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-20
Maturity Price : 22.19
Evaluated at bid price : 22.50
Bid-YTW : 5.00 %
FTS.PR.M FixedReset 61,260 Nesbitt crossed 50,000 at 25.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-12-01
Maturity Price : 25.00
Evaluated at bid price : 25.43
Bid-YTW : 3.71 %
NA.PR.S FixedReset 56,425 TD bought blocks of 10,000 and 15,000 from National, both at 25.65.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-15
Maturity Price : 25.00
Evaluated at bid price : 25.65
Bid-YTW : 3.50 %
There were 34 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CGI.PR.D SplitShare Quote: 25.68 – 26.25
Spot Rate : 0.5700
Average : 0.4380

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 25.68
Bid-YTW : 3.49 %

SLF.PR.H FixedReset Quote: 25.64 – 25.95
Spot Rate : 0.3100
Average : 0.1896

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.64
Bid-YTW : 2.79 %

TD.PR.S FixedReset Quote: 25.68 – 26.08
Spot Rate : 0.4000
Average : 0.2919

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.68
Bid-YTW : 2.66 %

W.PR.J Perpetual-Premium Quote: 25.20 – 25.50
Spot Rate : 0.3000
Average : 0.2119

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-20
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 2.57 %

PWF.PR.H Perpetual-Premium Quote: 25.46 – 25.69
Spot Rate : 0.2300
Average : 0.1422

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-20
Maturity Price : 25.00
Evaluated at bid price : 25.46
Bid-YTW : -12.26 %

W.PR.H Perpetual-Premium Quote: 25.11 – 25.36
Spot Rate : 0.2500
Average : 0.1653

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-20
Maturity Price : 24.88
Evaluated at bid price : 25.11
Bid-YTW : 5.54 %

November 19, 2014

Wednesday, November 19th, 2014

Recent musings on an Ontario tax hike should focus attention on Japan’s woes:

Japanese Prime Minister Shinzo Abe is discovering that haste makes waste.

Trying to double his nation’s sales tax to 10 percent over an 18-month period has resulted in the fourth recession since 2008 and the need to postpone the increase’s second part planned for next October. With an election now pending, the levy may be on hold at 8 percent until 2017.

The lesson is that the increases proved too much, too soon, and baby steps may have been more prudent, with the initial 3 percentage-point boost equivalent to 60 percent of the original level. In contrast, the U.K.’s 2011 increase of 2.5 percentage points amounted to a much smaller 14 percent boost and didn’t generate a recession.

Coming up next …Greenspan’s Conundrum Redux!

When then-Federal Reserve Chairman Greenspan raised the benchmark overnight rate from 2004 to 2006, long-term borrowing costs failed to increase, thwarting his attempts to tighten credit and curb excesses that contributed to the worst financial crisis in 80 years.

“We wanted to control the federal funds rate, but ran into trouble because long-term rates did not, as they always had previously, respond to the rise in short-term rates,” Greenspan said in an interview last week. He called this a “conundrum” during congressional testimony in 2005.

The bond market is signaling that past may be prologue as Yellen’s Fed prepares to raise rates next year. The yield on the 10-year U.S. Treasury note has fallen 0.71 percentage point in 2014 even as the Fed wound down its bond-buying program and mapped out a strategy to raise the benchmark federal funds rate from near zero, where it has been since 2008.

The Fed does have one tool that Greenspan didn’t: a $4.49 trillion portfolio accumulated in three rounds of asset purchases. Selling some of those assets might provide a way to lift long-term rates if necessary, said Michael Gapen, senior U.S. economist at Barclays Plc in New York.

The sanctions on Russia are having some effect, even if some of the effects were unforeseen:

A recession is imminent, inflation is getting out of hand and the ruble and oil are in freefall, Economy Minister Alexei Ulyukayev told Putin, according to people who attended the meeting at the presidential mansion near Moscow in mid-October. Clearly, Ulyukayev concluded, sanctions need to be lifted.

At that, Putin recoiled. Do you, Alexei Valentinovich, he asked, using a patronymic, know how to do that? No, Vladimir Vladimirovich, Ulyukayev was said to reply, we were hoping you did. Putin said he didn’t know either and demanded options for surviving a decade of even more onerous sanctions, leaving the group deflated, the people said.

Days later, they presented Putin with two variants. To their surprise, he chose an initiative dubbed “economic liberalization,” aimed at easing the financial burden of corruption on all enterprises in the country, the people said. It was something they had championed for several years without gaining traction.

The policy, which Putin plans to announce during his annual address to parliament next month, calls for a crackdown on inspections and other forms of bureaucratic bullying that cost businesses tens of billions of dollars a year in bribes and kickbacks, the people said. It entails an order from the president to end predatory behavior, with prosecution being the incentive for compliance, they said.

There will be another round of bank bashing:

The biggest Wall Street banks have used their ownership of metal warehouses, oil tankers and other commodities businesses to gain unfair trading advantages and dominate markets, according to a U.S. Senate investigation.

In a 400-page report focused on Goldman Sachs Group Inc., Morgan Stanley (MS) and JPMorgan Chase & Co., a Senate panel said the firms have eroded what was once a strict line separating banking from commodities to the detriment of consumers and the financial system. The activity gives banks access to non-public information that could move markets and increases the likelihood that industrial accidents will spur taxpayer bailouts, the Permanent Subcommittee on Investigations found.

“We simply cannot allow a large powerful Wall Street bank the power to influence the price of a commodity essential to our economy,” Senator Carl Levin, who chairs the panel, told reporters in Washington today. He added that his staff “found substantial evidence that these activities expose major banks to catastrophic risks that are poorly understood.”

The controversy over banks’ involvement with commodities has spurred the Federal Reserve to review regulations and prompted some Wall Street firms to try to shed assets. Levin’s new findings include details on clients who entered into controversial aluminum transactions with Goldman Sachs and reveal that an employee questioned whether market-moving information could be passed on to traders.

In August [2013], a district judge dismissed a suit against the firm and others brought by aluminum consumers, saying that an increase in a price component of aluminum was “an unintended consequence of rational profit maximizing behavior rather than the product of conspiratorial design.”

It was a good day for the Canadian preferred share market, with PerpetualDiscounts gaining 3bp, FixedResets winning 14bp and DeemedRetractibles up 13bp. Volatility was nil. Volume was very low.

PerpetualDiscounts now yield 5.03%, equivalent to 6.54% interest at the standard equivalency factor of 1.3x. Long corporates yield about 4.2%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 235bp, unchanged from the November 5 report.

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 -0.3390 % 2,532.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.3390 % 4,008.9
Floater 2.98 % 3.08 % 59,597 19.48 4 -0.3390 % 2,691.8
OpRet 4.02 % 0.26 % 95,527 0.08 1 0.0000 % 2,748.7
SplitShare 4.27 % 4.03 % 50,348 3.78 5 0.1240 % 3,190.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,513.4
Perpetual-Premium 5.43 % -9.72 % 62,059 0.09 19 0.0903 % 2,488.2
Perpetual-Discount 5.12 % 5.03 % 99,991 15.38 16 0.0343 % 2,673.3
FixedReset 4.17 % 3.57 % 178,994 4.55 74 0.1360 % 2,592.2
Deemed-Retractible 4.95 % -0.54 % 97,471 0.11 40 0.1323 % 2,609.7
FloatingReset 2.56 % -6.10 % 58,697 0.08 6 0.1109 % 2,556.3
Performance Highlights
Issue Index Change Notes
No individual gains or losses exceeding 1%!
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.S FixedReset 139,500 Scotia crossed 85,000 at 25.51. RBC crossed blocks of 25,000 and 20,500 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 3.52 %
FTS.PR.M FixedReset 115,815 Scotia crossed 100,000 at 25.35.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-12-01
Maturity Price : 25.00
Evaluated at bid price : 25.44
Bid-YTW : 3.70 %
TD.PF.A FixedReset 79,190 Scotia crossed 25,000 at 25.54. Jacob Securities (who?) crossed 50,000 at 25.56.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.53
Bid-YTW : 3.49 %
TRP.PR.B FixedReset 51,467 RBC crossed blocks of 12,100 and 25,000, both at 19.00.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-19
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 3.79 %
TD.PF.B FixedReset 38,924 Nesbitt crossed 25,000 at 25.45.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.38
Bid-YTW : 3.51 %
NA.PR.W FixedReset 23,620 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-19
Maturity Price : 23.24
Evaluated at bid price : 25.31
Bid-YTW : 3.65 %
There were 19 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
NEW.PR.D SplitShare Quote: 32.65 – 33.65
Spot Rate : 1.0000
Average : 0.8547

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 32.07
Evaluated at bid price : 32.65
Bid-YTW : 2.17 %

BAM.PR.M Perpetual-Discount Quote: 22.01 – 22.33
Spot Rate : 0.3200
Average : 0.2334

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-19
Maturity Price : 21.66
Evaluated at bid price : 22.01
Bid-YTW : 5.46 %

GWO.PR.N FixedReset Quote: 21.50 – 21.79
Spot Rate : 0.2900
Average : 0.2069

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.50
Bid-YTW : 4.77 %

MFC.PR.G FixedReset Quote: 26.10 – 26.44
Spot Rate : 0.3400
Average : 0.2611

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-19
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 2.59 %

TD.PR.R Deemed-Retractible Quote: 26.35 – 26.64
Spot Rate : 0.2900
Average : 0.2173

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-19
Maturity Price : 25.75
Evaluated at bid price : 26.35
Bid-YTW : -18.30 %

ENB.PR.B FixedReset Quote: 24.75 – 25.00
Spot Rate : 0.2500
Average : 0.1813

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-19
Maturity Price : 23.37
Evaluated at bid price : 24.75
Bid-YTW : 3.89 %

November 18, 2014

Tuesday, November 18th, 2014

There are some interesting trends in bond markets:

The influence of high-frequency traders in the Treasury market is growing. About 60 percent of Treasury securities trades are expected to be transacted on electronic platforms by the end of next year, an increase from 40 percent in 2013, according to Tabb Group LLC, a New York-based research firm. Of those trades, 10 percent were executed by robots in 2010, a share that will probably grow to 20 percent next year, according to Tabb.

New rules adopted after the 2008 credit crunch are also part of the new normal. Global guidelines called Basel III, instituted by the Bank for International Settlements in Basel, Switzerland, require banks to hold more cash in reserve for assets such as bonds they keep on their balance sheets.

Partly in compliance with the regulations, the 22 primary dealers authorized to trade directly with the Fed reduced their U.S. government debt holdings to $46.3 billion at the end of October from a record high $146 billion in October 2013, Fed data show. While they still hold inventory, they’re allocating less to opportunistically buying big clumps of bonds and then slowly selling them, a process known as market-making.

Hedge funds have filled the vacuum created by the retreat of the big banks. On the morning of Oct. 15, the turmoil in Treasuries echoed in the trading of junk bonds. As $8 billion was being wiped out in that global market, Toronto hedge-fund manager Philip Mesman fielded e-mails from U.S. bankers clamoring for him to buy their customers’ holdings.

Investors were unloading the debt of the riskiest companies, forcing exchange-traded funds and mutual funds to sell. Before Basel III and the Volcker Rule, which limits the ability of U.S. banks to trade on their own accounts, dealers would’ve bought the bonds themselves and held them until finding someone to take them. Instead they were forwarding the “sell” messages to firms they knew had quick access to cash.

The size of German bund futures that can go through the market at one time without moving the price has fallen 46 percent to 784 contracts as of Oct. 17, from this year’s peak of 1,450 contracts in April, according to JPMorgan. The average over the past four years was 920 contracts.

Yay! More regulation! The 2014 Ontario Economic Outlook and Fiscal Review states:

The government is also undertaking a review of the regulation of financial planning. An expert committee will be appointed to look at more tailored regulation of financial advisers and financial planners.

Only through increased regulation will Granny be able to get financial advice from a reliable and knowledgeable source: her friendly neighborhood bank teller, who will be pleased to sell her an index linked GIC.

There will be no fast-track for Keystone:

The U.S. Senate refused to approve TransCanada Corp. (TRP)’s $8 billion Keystone XL pipeline after years of a political fight over jobs, climate change and energy security.

The vote was 59-41 with 60 required for passage in the Democratic-led Senate. Republicans have said they will try again next year after their party takes control of the chamber. House Speaker John Boehner and Senate Republican leader Mitch McConnell say passage of a Keystone measure is a top priority.

President Barack Obama has opposed legislation approving the Keystone project, saying it would bypass a review being conducted by the State Department. He didn’t say whether he would sign or veto the bill if it reached his desk.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 27bp, FixedResets up 14bp and DeemedRetractibles gaining 8bp. Volatility was minimal. Volume was 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 0.1131 % 2,540.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.1131 % 4,022.5
Floater 2.97 % 3.07 % 61,909 19.50 4 0.1131 % 2,701.0
OpRet 4.02 % 0.12 % 95,901 0.08 1 0.0000 % 2,748.7
SplitShare 4.25 % 4.02 % 52,423 3.74 5 0.0157 % 3,186.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,513.4
Perpetual-Premium 5.44 % -8.50 % 64,131 0.09 19 0.0123 % 2,485.9
Perpetual-Discount 5.12 % 5.03 % 100,661 15.39 16 0.2701 % 2,672.4
FixedReset 4.17 % 3.53 % 173,008 4.54 74 0.1438 % 2,588.7
Deemed-Retractible 4.96 % -0.91 % 96,292 0.12 40 0.0820 % 2,606.3
FloatingReset 2.56 % -0.95 % 59,559 0.08 6 -0.0326 % 2,553.5
Performance Highlights
Issue Index Change Notes
MFC.PR.F FixedReset 1.56 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.75
Bid-YTW : 4.35 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.A FixedReset 88,480 Scotia crossed blocks of 15,000 at 21.75 and 41,000 at 21.71.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-18
Maturity Price : 21.45
Evaluated at bid price : 21.75
Bid-YTW : 4.01 %
NA.PR.S FixedReset 70,450 Nesbitt crossed 60,000 at 25.71.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-15
Maturity Price : 25.00
Evaluated at bid price : 25.70
Bid-YTW : 3.45 %
MFC.PR.C Deemed-Retractible 68,516 Scotia crossed blocks of 50,000 and 12,900, both at 23.45.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.41
Bid-YTW : 5.45 %
GWO.PR.H Deemed-Retractible 61,907 Nesbitt crossed 59,800 at 24.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.75
Bid-YTW : 5.09 %
NA.PR.W FixedReset 58,140 Scotia bought 20,000 from National at 25.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-18
Maturity Price : 23.22
Evaluated at bid price : 25.23
Bid-YTW : 3.67 %
BNS.PR.N Deemed-Retractible 41,802 TD crossed 35,000 at 26.05.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-01-28
Maturity Price : 25.50
Evaluated at bid price : 25.88
Bid-YTW : -1.19 %
There were 24 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
ELF.PR.G Perpetual-Discount Quote: 22.65 – 23.07
Spot Rate : 0.4200
Average : 0.2969

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-18
Maturity Price : 22.29
Evaluated at bid price : 22.65
Bid-YTW : 5.28 %

FTS.PR.F Perpetual-Discount Quote: 24.55 – 24.85
Spot Rate : 0.3000
Average : 0.2120

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-18
Maturity Price : 24.09
Evaluated at bid price : 24.55
Bid-YTW : 4.98 %

BAM.PR.M Perpetual-Discount Quote: 22.00 – 22.21
Spot Rate : 0.2100
Average : 0.1384

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-18
Maturity Price : 21.65
Evaluated at bid price : 22.00
Bid-YTW : 5.46 %

PWF.PR.P FixedReset Quote: 22.65 – 22.93
Spot Rate : 0.2800
Average : 0.2129

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-18
Maturity Price : 22.03
Evaluated at bid price : 22.65
Bid-YTW : 3.50 %

BAM.PR.N Perpetual-Discount Quote: 22.00 – 22.19
Spot Rate : 0.1900
Average : 0.1307

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-18
Maturity Price : 22.00
Evaluated at bid price : 22.00
Bid-YTW : 5.48 %

SLF.PR.B Deemed-Retractible Quote: 24.55 – 24.73
Spot Rate : 0.1800
Average : 0.1249

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.55
Bid-YTW : 5.14 %

November 17, 2014

Monday, November 17th, 2014

To my astonishment, it looks like there is an adult on the buy-side:

Oeyvind Schanke, head of asset strategies at Norway’s $860 billion sovereign wealth fund, has worked out how to dodge traders in the U.S. trying to profit on his orders by leaving no pattern for them to track.

Investors who want to pre-empt trades by the world’s biggest sovereign-wealth fund and act on that information to make a profit — a practice known as front running — won’t have much success, he said.

“We’ve done a lot to try and avoid leaving those patterns,” Schanke said in a Nov. 14 interview at the Oslo headquarters of the fund. “We’re trading less using algorithmic trading now than we did some years ago and are doing much more trading in large block sizes to avoid pattern-reading.”

Incredible. He had a problem (though why the media insists on calling it “front-running” is beyond me); he sat and thought about it; he tried something new; it’s working. This is probably the most amazing advancement in institutional money management since the invention of the client lunch. CFA Level 27. This guy should get the next three Nobel Prizes in Economics, at least. He’s awesome.

BIS has published a paper by Michael Brei and Leonardo Gambacorta titled The leverage ratio over the cycle:

This paper analyses how the Basel III leverage ratio (Tier 1 capital/exposure) behaves over the cycle. The analysis proposes a setup to test for the cyclical properties of bank capital ratios, taking into account structural shifts in banks’ behaviour during the global financial crisis and its aftermath. Using a large data set covering international banks headquartered in 14 advanced economies for the period 1995-2012, we find that the Basel III leverage ratio is significantly more countercyclical than the risk weighted regulatory capital ratio: it is a tighter constraint for banks in booms and a looser constraint in recessions.

To universal surprise, the G-20 decided to encourage growth:

Group of 20 leaders agreed to take measures that would boost their economies by a collective $2 trillion by 2018 as they battle patchy growth and the threat of a European recession.

Citing risks from financial markets and geopolitical tensions, the leaders said the global economy is being held back by lackluster demand, according to their communique following a two-day summit that ended yesterday in Brisbane. The group submitted almost 1,000 individual policy changes designed to lift growth and said they would hold each other to account to ensure they are implemented.

But what else could they do, given the recession in Japan?

Less than 24 hours after heads of state gathering in Brisbane, Australia, agreed to take measures that would boost their economies by a collective $2 trillion by 2018, the Cabinet Office delivered news in Tokyo that Japan’s gross domestic product unexpectedly shrank an annualized 1.6 percent in the three months through September, the second straight contraction.

Disappointment is becoming routine for the global economy, with the International Monetary Fund last month cutting its 2014 world-growth outlook for the sixth time since January 2013. Weaker expansion stands to add pressure on policy makers including European Central Bank President Mario Draghi who are already pushing the limits of monetary stimulus and governments that are reluctant to increase spending.

Will Canadian interest rates rise in the short term (which is to say, five years)? I think so; they’re ridiculously low right now, have been for five years and are distorting the housing market. But not by much. The strength isn’t there.

Deutsche Bank AG is getting out of the kitchen:

Deutsche Bank AG will stop trading most credit-default swaps tied to individual companies, exiting a business that new banking regulations have made costlier, according to a spokeswoman.

The lender will instead focus on transactions in corporate bonds, while maintaining trading in the more active market for credit swaps tied to benchmark indexes, Michele Allison, a spokeswoman for the Frankfurt-based bank, said today. The firm also will continue trading swaps tied to emerging-market borrowers and distressed companies, she said.

Deutsche Bank is exiting a part of the market that shrank to less than $11 trillion from $32 trillion before the financial crisis, data from the Bank for International Settlements show. Dealing in credit swaps, which have been blamed for exacerbating the 2008 financial crisis, has become more expensive for lenders like Deutsche Bank as regulators across the U.S. and Europe require banks to hold more capital to back trades, reducing the returns for shareholders.

Among measures that regulators have enacted since the crisis is requiring large swaths of credit swaps to be backed by clearinghouses, which are capitalized by banks and require traders to set aside collateral, or margin, to cover losses if they can’t make good on the transactions. Much of the market, where the privately negotiated trades have typically been done over phone calls and e-mails, is also being shifted to electronic systems.

The regulatory crackdown pushed some of Wall Street’s most profitable credit derivatives and corporate-bond traders to less-regulated hedge funds. One trio of Deutsche Bank credit traders departed the bank’s New York office for hedge funds in 2011 and 2012 after making a combined $1 billion for the firm during the two preceding years, people with direct knowledge of the situation said in a 2012 Bloomberg News story.

Brookfield Investments, proud issuer of BRN.PR.A (which trades by appointment only and is not tracked by HIMIPref™) has been confirmed at Pfd-2(low) by DBRS:

The rating continues to be based on the strength of Brookfield Investments’ owner (Brookfield Asset Management Inc. or BAM: rated A (low), Stable trend by DBRS), as well as the Company’s relatively stable portfolio of real estate and asset management investments, with strong asset and dividend coverage. The rating remains limited by Brookfield Investments’ exposure to the volatility of overall capital markets, concentration of investments in the real estate sector, lack of investment restrictions and the relative illiquidity of unlisted investments.

Overall asset coverage (based on market values) for the Senior Preferred Shares increased to 17.49 times (x), for the six-month period ending June 30, 2014 (H1 2014), from 14.60x a year earlier. This was mainly due to an increase in investment values, particularly the Company’s investment in Brookfield Property Partners (BPY). That said, Brookfield Investments’ portfolio continues to have a high degree of exposure to the real estate sector. The Company also reduced its investment in Western Forest Products Inc. (Western) by disposing of 26 million shares in January 2014. As at Q2 2014, the Company had a 12.0% ownership interest in Western. As a result of the aforementioned portfolio changes, the Company’s exposure to real estate investments was 67.3% (on a market value basis as at Q2 2014). Specifically, BPY represents 55.7% of the Company’s investment portfolio on a market value basis. This should continue to support overall market values and provide stable dividends going forward. DBRS believes that asset coverage of 17.49x for the Senior Preferred Shares (based on market values in H1 2014) and dividend coverage of 12.45x are strong for the current rating category and provide a good level of downside protection. In terms of future investments, DBRS expects the Company will focus on stable, income-producing assets, such as preferred or common shares in real estate and power sectors.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 18bp, FixedResets off 1bp and DeemedRetractibles gaining 4bp. Volatility was average. Volume was 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 0.5117 % 2,537.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.5117 % 4,018.0
Floater 2.97 % 3.07 % 62,485 19.51 4 0.5117 % 2,698.0
OpRet 4.02 % -0.01 % 96,908 0.08 1 0.0000 % 2,748.7
SplitShare 4.25 % 3.99 % 53,139 3.75 5 -0.0079 % 3,186.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,513.4
Perpetual-Premium 5.44 % -8.19 % 64,295 0.08 19 0.0986 % 2,485.6
Perpetual-Discount 5.14 % 5.04 % 101,191 15.32 16 0.1751 % 2,665.2
FixedReset 4.18 % 3.58 % 172,666 4.55 74 -0.0076 % 2,585.0
Deemed-Retractible 4.96 % -0.53 % 95,212 0.12 40 0.0405 % 2,604.1
FloatingReset 2.56 % -2.84 % 61,593 0.08 6 0.0326 % 2,554.3
Performance Highlights
Issue Index Change Notes
TRP.PR.C FixedReset -1.80 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-17
Maturity Price : 21.50
Evaluated at bid price : 21.85
Bid-YTW : 3.59 %
FTS.PR.K FixedReset -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-17
Maturity Price : 23.23
Evaluated at bid price : 25.04
Bid-YTW : 3.53 %
TRP.PR.B FixedReset 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-17
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 3.79 %
SLF.PR.G FixedReset 1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.60
Bid-YTW : 4.80 %
Volume Highlights
Issue Index Shares
Traded
Notes
NA.PR.S FixedReset 191,369 Nesbitt crossed blocks of 150,000 shares, 12,900 and 25,000, all at 25.71.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-15
Maturity Price : 25.00
Evaluated at bid price : 25.66
Bid-YTW : 3.48 %
POW.PR.G Perpetual-Premium 90,795 Scotia crossed blocks of 15,100 shares, 25,000 and 50,000, all at 26.75.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-04-15
Maturity Price : 26.00
Evaluated at bid price : 26.75
Bid-YTW : 4.35 %
TRP.PR.B FixedReset 74,748 National bought blocks of 11,000 and 10,000 from RBC, both at 19.00, and another 10,000 from TD at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-17
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 3.79 %
ENB.PF.C FixedReset 64,825 RBC crossed 50,000 at 25.13.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-17
Maturity Price : 23.19
Evaluated at bid price : 25.14
Bid-YTW : 4.09 %
BMO.PR.Q FixedReset 59,216 TD crossed 25,000 at 24.64 and bought 10,000 from Nesbitt at the same price.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 3.17 %
HSB.PR.D Deemed-Retractible 59,125 Desjardins crossed 56,800 at 25.20.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.22
Bid-YTW : 3.18 %
There were 23 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
POW.PR.A Perpetual-Premium Quote: 25.60 – 25.96
Spot Rate : 0.3600
Average : 0.2372

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-12-17
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : -16.46 %

MFC.PR.L FixedReset Quote: 25.10 – 25.41
Spot Rate : 0.3100
Average : 0.1976

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 3.84 %

MFC.PR.G FixedReset Quote: 26.15 – 26.49
Spot Rate : 0.3400
Average : 0.2454

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-12-19
Maturity Price : 25.00
Evaluated at bid price : 26.15
Bid-YTW : 2.49 %

MFC.PR.I FixedReset Quote: 26.18 – 26.55
Spot Rate : 0.3700
Average : 0.2772

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-09-19
Maturity Price : 25.00
Evaluated at bid price : 26.18
Bid-YTW : 2.94 %

PWF.PR.R Perpetual-Premium Quote: 26.31 – 26.58
Spot Rate : 0.2700
Average : 0.1844

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 26.31
Bid-YTW : 4.62 %

BAM.PF.E FixedReset Quote: 25.10 – 25.35
Spot Rate : 0.2500
Average : 0.1813

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-11-17
Maturity Price : 23.17
Evaluated at bid price : 25.10
Bid-YTW : 4.07 %