PrefBlog

The rate cut has caused increased concern over housing prices:

The move overrides concerns from real estate executives and some economists that lower rates will lead to increased borrowing, skyrocketing prices and put housing markets in Toronto and Vancouver at risk of a correction.

“The risks are growing. We get more of a speculative run-up in prices, especially in Vancouver and Toronto,” Robert Kavcic, senior economist at Bank of Montreal, said by phone after the rate announcement. “In the last six months, price activity has gotten heated, especially in those two markets. This would only reinforce that.”
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“It’s going to put more fuel on the fire for potentially people who may not really have the ability to buy real estate,” Ross McCredie, CEO of Sotheby’s International Realty Canada said in an interview July 8. “When they’re buying, the baseline is that interest rates are going to stay this low for a very long period of time. It’s a scary place to be a buyer.’

Toronto and Vancouver home prices have defied expectations. The average cost of purchasing a condo, townhouse or low-rise property in Toronto, Canada’s largest city, has jumped 38 percent in the five years to June, according to the Canadian Real Estate Association. Toronto sales reached a record in each of the last three months. In Vancouver, single-family home prices rallied 35 percent to C$1.1 million in June from June 2010.

… and there was an immediate effect on the dollar:

Commodity currencies slumped amid speculation an interest-rate cut from the Bank of Canada may augur more monetary stimulus by resource-producing nations.

The Canadian dollar fell to its lowest since 2009 as policy makers lowered borrowing costs to stimulate an economy struggling with the declining price of oil, its major export. The New Zealand and Australian currencies also tumbled to multi-year lows.
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Canada’s dollar, known as the loonie for the image of aquatic bird on the C$1 coin, slid as much as 1.8 percent.

The New Zealand dollar slumped as much as 1.7 percent while Australia’s currency lost as much as 1.3. South Africa’s rand, the Norwegian krone and Mexico’s peso also slid.

However, there is some encouraging news from the cult of the start-up:

It seems barely a week goes by without news of another Canadian startup scoring a huge venture capital financing deal. Preliminary data published today by Thomson Reuters backs that up: The venture capital scene is enjoying its biggest financing boom in over a decade.

Thomson Reuters said Tuesday the second quarter of 2015 was the best three-month period for VC investments in Canadian companies in 10 years. In fact, the last 12 months through June 30 rank as the best one-year period for VC investments into Canadian companies since 2002, when the country was at the dawn of a long, bleak stretch of relative quiet on the startup financing scene in Canada. Venture capital-backed companies raised $2.6-billion during the past 12 months, compared to $2.4-billion in calendar 2014 and less than $1.6-billion in each of 2011 and 2012.

Greater Toronto Area companies dominated the top five list of biggest disclosed VC deals in the first half of 2015, led by financial software firm Real Matters ($60-million raised), pharma company Northern Biologics ($36-million) and ex-Montreal e-commerce firm VarageSale ($34-million).

Assiduous Readers will remember that I attribute a great deal of the increase in Treasury volatility to the increased transparency that has come about with electronic trading and an increase in the use of exchange-traded futures contracts. So naturally, since the problem has been caused by increased transparency, the regulators want to solve the problem with increased transparency, but there is some pushback:

“It’s the market for U.S. government debt — how is there not more transparency in the trading and pricing we have today?” said Kevin McPartland, head of research for market structure and technology at Greenwich Associates, a Stamford, Connecticut-based financial-services consulting firm. “Of course, the next conversation that starts is about what impact that has on liquidity.”
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Michael Spencer, chief executive officer of interdealer broker ICAP Plc, warned this week about the potential for more volatility in Treasuries. He attributed the price swings to the scaling back of trading by Wall Street banks known as primary dealers and an increase in electronic trading.
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Some of the largest investors in company debt say too much transparency can hinder their ability to trade large blocks. AllianceBernstein Holding LP, BlackRock Inc. and Pacific Investment Management Co. urged regulators in a May letter to consider loosening time requirements for disclosing large transactions because the information could tip off rivals.

Turnover of interest-rate-linked securities in other markets that publicly report trades has surged. Trading in interest-rate futures has climbed 81 percent in the past 10 years. This year, a record $335 billion of the contracts has changed hands on average each day, according to CME Group Inc. data. The comparable figure for Treasuries is $430 billion.

One idea that keeps coming up is GDP-linked bonds:

This study proposes that the Government of Canada issue a new debt security, the “Trill,” which would essentially offer Canadian investors an equity stake in the Canadian economy. The Trill is so-named because its coupon payment would be one-trillionth of Canada’s GDP. Similar to shares issued by corporations paying a fraction of corporate earnings in dividends, the Trill would pay a fraction of the “earnings” of Canada. Coupon payments would rise and fall with the GDP.

For average investors, the Trill would be a useful new source of income, offering both exposure to income growth and protection against inflation. This security would also appeal to large institutional investors. Pension funds have a need to match their long-term liabilities with assets that can provide stable, long-term cash flows. Currently, a large part of fund assets are held in nominal fixed-coupon Government of Canada securities. These securities do not provide protection from inflation and the limited numbers of real return bonds the government issues do not provide exposure to income growth.

The BoC has published a discussion paper by Martin Brooke, Rhys Mendes, Alex Pienkowski and Eric Santor titled Sovereign Default and State-Contingent Debt:

The sovereign debt restructuring in Greece and the events surrounding the IMF-EU support packages for Ireland, Portugal and Cyprus have exposed fault lines in the existing practices for sovereign debt crisis resolution – perhaps most importantly, an overreliance on official sector liquidity support. This paper argues that the current approach is suboptimal for five main reasons: i) it increases the risk of moral hazard; ii) it incentivises short-term lending, which can increase the risk of liquidity crises; iii) it puts an inequitable amount of taxpayer resources at risk; iv) substantial official sector holdings of an insolvent sovereign’s debt can complicate negotiated debt writedowns; and, v) it can delay necessary reforms, thereby requiring larger policy adjustments to be implemented when action is eventually taken.
In response to these deficiencies, this paper argues that, for reasons of equity and efficiency, private creditors should play a greater role in risk-sharing and helping to resolve sovereign debt crises. We propose the introduction of two complementary types of state-contingent bonds – ‘sovereign cocos’ and ‘GDP-linked bonds’.

Sovereign cocos are bonds that would automatically extend in repayment maturity when a country receives official sector emergency liquidity assistance. This predictable and transparent means of bailing-in creditors would increase market discipline on sovereigns to prudently manage their debt, ex ante, thus reducing the incidence of crises. And, it would reduce the size of official sector support packages once a crisis has hit, as amortising debt would no longer need to be covered by program financing.

GDP-linked bonds are debt instruments that directly link principal and interest payments to the level of a country’s nominal GDP. They provide a natural complement to sovereign cocos. While sovereign cocos are primarily designed to tackle liquidity crises, GDP-linked bonds help reduce the likelihood of solvency crises. This is because GDP-linked bonds provide a form of ‘recession insurance’ that reduces principal and interest payments when a country is hit by a negative growth shock. This helps to both stabilise the debt-to-GDP ratio and increase a sovereign’s capacity to borrow at sustainable interest rates. While all countries might experience some benefit from the use of GDP-linked debt, economies with higher GDP growth volatility (such as emerging market economies) or countries where monetary policy is constrained (such as those in a monetary union) are likely to benefit most.

Should ‘sovereign Cocos’ ever be issued in the UK, it will be interesting to see whether UK investors would be permitted to buy them! But this is all by way of introduction, since there may be a new example of GDP-linkers:

As debt talks intensify between Ukraine and its creditors, securities that pay out if economic growth exceeds expectations will probably be on the agenda, echoing deals done by Argentina and Greece in the past decade.

Ukraine’s restructuring proposal includes a “value-recovery instrument,” the Finance Ministry said last month, while a person familiar with a bondholder plan submitted in May said it has a debt-for-equity swap element. Both securities feature interest payments linked to gross domestic product and are also referred to as GDP-linked warrants.

For most of the day it was looking as if the preferred share market was taking the rate cut in stride; then 2pm happened.

CPD

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ZPR

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It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 13bp, FixedResets down 47bp and DeemedRetractibles gaining 5bp. Floaters got whacked again. The Performance Highlights table is enormous again, stuffed full of FixedReset losers. Volume was average.

PerpetualDiscounts now yield 5.39%, equivalent to 7.01% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.1%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 290bp, a bit of a bounce-back from the 305bp reported July 8.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 21.98 to be $0.51 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.77 cheap at its bid price of 15.30.

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Most expensive is MFC.PR.F, resetting at +141bp on 2016-6-19, bid at 17.00 to be $1.02 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 20.59 to be $0.83 cheap.

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The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 19.85 to be $0.78 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 21.17 and appears to be $1.02 rich.

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FTS.PR.K, with a spread of +205bp, and bid at 21.19, looks $0.44 expensive and resets 2019-3-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 22.86 and is $0.28 cheap.

There is only one outlier; one of the junk pairs is below -1.00%.

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of 0.01% (which seems a little extreme!).

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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

Many will have heard of the recent attempt to justify the existence of the Senate, a report titledCountering the Terrorist Threat in Canada. This report has attracted some attention for its disgraceful recommendation that “The federal government work with the provinces and the Muslim communities to investigate the options that are available for the training and certification of imams in Canada”, but there was one point of great interest in the report that should be of interest to PrefBlog readers:

The Committee is concerned about the lack of prosecutions in the area of terrorist financing. The Committee learned that between 2009 and 2014, the Financial Transactions and Reports Analysis Centre of Canada identified 683 terrorist financing incidences and we have yet to have any prosecutions under the relevant sections of the criminal code.

Not surprising, really, since the purpose of the terrorist financing laws is to create the illusion of government oversight and create jobs for the otherwise unemployable.

Speaking of job creation for box-tickers:

The Ontario Ministry of Finance has circulated a new consultation document that proposes to overhaul the province’s system of oversight for financial advisers and planners as investors and people saving for retirement trade in a more risky, complex financial system.
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There is no general legal framework regulating the titles and designations of people offering financial planning, advice and services, leading to many professionals calling themselves planners or advisers. The Ontario finance ministry’s consultation document, released this month, said the absence of a framework raises questions about “proficiency, quality standards and potential conflicts of interest.”

Ontario is looking at a range of possible changes, including a new legal standard governing conflicts of interest, licensing and registration requirements, the regulation of titles, the possibility of a new oversight body, and a central registry of financial planners and advisers.

The SEC continues to protect the incompetent:

The U.S. Securities and Exchange Commission is looking into possible market manipulation over a fake news article that led to a brief spike in Twitter Inc. shares, said a person familiar with the matter.

Twitter rose more than 8 percent in the late morning after the appearance of the article, which claimed the company had received a takeover offer, before losing most of those gains within 20 minutes.

The report, which imitated the form of a Bloomberg News article, appeared on a site called bloomberg.market.

I was taken aback today by a report that Royal LePage is lobbying against a policy rate cut. Royal LePage?:

One of Canada’s major real estate firms is urging the Bank of Canada not to cut interest rates tomorrow.

Royal LePage says it’s worried that a cut in the central bank’s benchmark rate could “over-stimulate” already high-flying markets such as Toronto and Vancouver.

Those are the two Canadian cities deemed the most frothy, with prices running up sharply as consumers add to already swollen debt levels in a low-rate environment.

“While the oil shock has been a troublesome drag on our economy this year, it seems premature to ring the recession alarm bells now, injecting further monetary stimulus,” said LePage chief executive officer Phil Soper.

SEC Commissioner Luis A. Aguilar sees an opportunity to hire more regulators:

Yesterday, staff members of the federal agencies that comprise the Interagency Working Group for Treasury Market Surveillance (“Working Group”)[3] issued a joint report concerning the so-called “flash crash” that occurred in the U.S. Treasury market on October 15, 2014 (the “Report”).
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First, the Commission should consider revising Regulation ATS to make it applicable to alternative trading systems that trade Treasuries exclusively.[54] In addition, the Commission should consider how Regulation ATS may need to be tailored to the activities of alternative trading systems that handle Treasuries. Currently, BrokerTec and eSpeed are the two electronic platforms that handle the majority of the dealer-to-dealer trade flow in on-the-run Treasuries.[55] I note that BrokerTec, which trades securities in addition to Treasuries, has filed a Form ATS with the Commission.[56]
• Second, in addition to expanding Reg ATS, the Commission should consider revising Regulation Systems Compliance and Integrity (Reg SCI) to make it applicable to trading platforms that handle Treasuries exclusively.[57] As the Report makes clear, the majority of dealer-to-dealer trading in the Treasury market is now driven by computer algorithms. In light of this new environment, it is appropriate for the Commission to examine whether additional safeguards are warranted to ensure that the technology used by these entities has sufficient integrity, capacity, safety, and resiliency.
• Third, the Report and other sources indicate that regulators presently lack a comprehensive source of trade data for the Treasury market.[58]
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• Fifth, the Commission, as well as the Working Group, should consider ways to enhance oversight of market participants in the Treasury market.[64] For example, some of the most active participants in the Treasury cash market are not registered with the Commission.[65] This hinders the Commission’s ability to monitor and regulate this market effectively. In the context of equity market reform, the Chair called last year for the staff to prepare a rule clarifying that high frequency traders are dealers, and must therefore register with the Commission.[66] In preparing that rule, the staff should consider how it can be made applicable to Treasury market participants, as well.

Meanwhile, in Chinese equities:

China’s stocks fell for a second day after better-than-expected economic data failed to boost investor confidence in the world’s worst-performing equity market over the past month.

The Shanghai Composite Index tumbled 4.2 percent to 3,758.50 at 1:36 p.m. local time. With 689 stocks halted on mainland exchanges and another 790 falling by the 10 percent daily limit, sellers were locked out of about 50 percent of the the Chinese market. The two-day losses pared the gauge’s rebound from its July 8 low to 7.7 percent.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 7bp, FixedResets gaining 2bp and DeemedRetractibles off 20bp. Floaters were smacked. The Performance Highlights table is as lengthy as we have come to expect. Volume was on the high side of average.

Regrettably, charts of Implied Volatility and Break-Even rates are not prepared today due to problems with the downloading of prices – a separate system from the download used for HIMIPref™ and I don’t have time to input the prices manually.

Looks like there’s another politicized white-washing on the way:

U.S. officials have concluded that high-frequency trading contributed to the Treasury market’s wild ride last October, a finding that will probably add to regulatory scrutiny of the industry.

While a soon-to-be-published government report won’t point to just one cause, it will cite speed traders as playing a key role, according to a person with direct knowledge of the study. Treasury yields plunged the most in five years on Oct. 15, 2014, before recovering, fueling a months-long debate over whether something has fundamentally changed in a $12.7 trillion market that most investors consider a safe haven.

One alteration is that almost half the trading in Treasuries is now electronic, according to a 2014 survey from financial research firm Greenwich Associates. Treasury Secretary Jacob J. Lew is among U.S. officials who’ve drawn a link between traders using computers to buy and sell securities at lightning-fast speeds, and changes in volatility and liquidity.

And yes, the report came out today and guess who’s being scapegoated?:

High-frequency trading firms are among the factors “driving markets toward smaller trade sizes,” according to Treasury official Antonio Weiss, a counselor to Lew. These firms are playing a much bigger role as market intermediaries, replacing banks and brokers that pulled back after suffering losses during the crisis, Weiss wrote Monday in a Wall Street Journal opinion piece.

The report details potential hazards from an increase in automated trading, such as risks to operations, liquidity, transmission and clearing activities. It said speed trading accounted for much of the imbalance in aggressive flows on Oct. 15. Automation can also give traders new tools to engage in unlawful conduct such as spoofing, the practice of placing and then canceling orders to give a misleading impression of the market.

The spike in trading volume and volatility coincided with bank-dealers exiting from the offer side of the cash market for brief periods, according to the report.

The report itself is titled Joint Staff Report: The U.S. Treasury Market on October 15, 2014. It’s very clearly biased against automated trading, skimming over the notion that a thin, brittle market is the logical and frequent consequence of increased transparency, but there was one thing I found interesting:

Around 9:39 ET, the sudden visibility of certain sell limit orders in the futures market seemed to have coincided with the reversal in prices. Recall that only 10 levels of order prices above and below the best bid and ask price are visible to futures market participants. Around 9:39 ET, with prices still moving higher, a number of previously posted large sell orders suddenly became visible in the order book above the current 30-year futures price (as well as in smaller size in 10-year futures). The sudden visibility of these sell orders significantly shifted the visible order imbalance in that contract, and it coincided with the beginning of the reversal of its price (the top of the price spike). Most of these limit orders were not executed, as the price did not rise to their levels.

Meanwhile, HFT traders are eagerly wooed by exchanges:

Despite the often explosive debate over this kind of trading in the U.S., bourses in Mexico, Turkey, South Africa and beyond are trying to lure HFT types to boost business.

The message is clear: whatever the perceived risks, algorithmic robot traders — algobots — are marching steadily across the globe.

“We are welcoming foreign investors, and that includes HFT firms,” says Muammer Cakir, managing director at Borsa Istanbul.
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The Tokyo Stock Exchange is taking similar steps. TSE officials last month visited New York to let the HFT industry know about upgrades due in September to its Arrowhead trading engine. Arrowhead already matches orders more than 1,000 times faster than was possible five years ago.
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In Mexico, the bourse is trying to attract more high-frequency traders to boost volumes, said Luis Carballo, the top information technology official at the Bolsa Mexicana de Valores SAB, which operates the exchange.
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JSE Ltd., the company that operates the Johannesburg Stock Exchange, opened a co-location facility in May 2014 that cut the time it takes for data to travel from a trader to its servers and back to 150 microseconds, from 2,550 microseconds. Stock transactions rose 19 percent last year at the exchange and in October it had a record month, with daily average volume close to 400,000, about a third higher than its previous best.
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Perhaps the last big obstacle to high-frequency trading achieving global dominance is China, where tight government rules, a stamp duty on stock trades and market inefficiency have so far kept out the algobots. There may be signs of opening up, though: Doug Cifu, CEO of Virtu Financial Inc., one of the world’s biggest computer trading firms, said on an earnings call in May that Virtu was having “very significant preliminary discussions” about entering the Chinese markets.

It proved to be a quiet day overall for the Canadian preferred share market, with PerpetualDiscounts gaining 2bp, FixedResets off 7bp and DeemedRetractibles down 16bp, but the Performance Highlights table demonstrates that volatility on the issue level remains very high. Volume was average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 21.76 to be $0.27 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.39 cheap at its bid price of 15.80.

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Most expensive is MFC.PR.F, resetting at +141bp on 2016-6-19, bid at 17.02 to be $0.95 rich, while MFC.PR.L, resetting at +216bp on 2019-6-19, is bid at 20.61 to be $0.59 cheap.

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The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 20.03 to be $0.84 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 21.26 and appears to be $0.88 rich.

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FTS.PR.K, with a spread of +205bp, and bid at 21.21, looks $0.38 expensive and resets 2019-3-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 22.66 and is $0.31 cheap.

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The change of scale on the chart means there are no outliers today!

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of exactly 0.00% (which seems a little extreme!).

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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

So the Canadian jobs number wasn’t as bad as expected, because we’re all working for the government:

Canadian employment fell by 6,400 in June on the biggest decline in part-time work in more than four years, sustaining the view the economy is losing steam and may require another jolt of stimulus from the central bank.

The unemployment rate remained at 6.8 percent for a fifth month, Statistics Canada said Friday in Ottawa. Part-time work fell 71,200, exceeding the 64,800 gain in full-time work. Quebec posted a decline of 33,300, the most since May 2005.
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Private companies cut 26,300 workers, tempering gains in public-sector employment, which rose by 42,200.

Meanwhile, Yellen continues to expect a Fed hike:

Federal Reserve Chair Janet Yellen, speaking after weeks of financial-market turmoil over China and Greece, maintained her call for an interest-rate increase this year as the U.S. economy improves.

“I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy,” Yellen said in her first public remarks since the June meeting of the Federal Open Market Committee.

Yellen added a note of caution, saying that “the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step.” In her only mention of Greece in a 14-page speech delivered Friday in Cleveland, she identified that nation’s debt crisis as one cause of uncertainty.

And worrying about Greece is, like, getting old, you know?

Stock investors got jolted in a zigzag week, with plunges around the world giving way to the biggest rallies in at least three years for China and Europe.

Spurred by optimism on Greece, the Stoxx Europe 600 Index climbed 4.3 percent on Thursday and Friday, erasing earlier losses with the biggest two-day advance since 2011. The Shanghai Stock Exchange Composite Index jumped 11 percent in two sessions, the most in almost seven years, while the Standard & Poor’s 500 Index added 1.2 percent Friday to wipe out a weekly decline.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 19bp, FixedResets gaining 45bp and DeemedRetractibles down 21bp. Floaters bounced back from yesterday‘s downdraft. The Performance Highlights table is again very lengthy, but skewed towards positive returns this time. Volume was extremely high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 21.80 to be $0.35 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.42 cheap at its bid price of 15.76.

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The fit is horrible today, and Implied Volatility has dropped precipitously.

Most expensive is MFC.PR.F, resetting at +141bp on 2016-6-19, bid at 16.96 to be $1.25 rich, while MFC.PR.N, resetting at +230bp on 2020-3-19, and which has a very low bid that does not seem reflective of market conditions (see the Performance Highlights Table) is bid at 20.61 to be $1.17 cheap.

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The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 20.00 to be $0.85 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 21.07 and appears to be $0.70 rich.

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FTS.PR.K, with a spread of +205bp, and bid at 21.50, looks $0.35 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 21.31 and is $0.33 cheap.

The calculated level of implied volatility declined today, but is still higher than I would expect; reversion to a lower level will imply underperformance of the lower-spread issues.

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The change of scale on the chart means there are no outliers today!

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.02% (which seems a little extreme!).

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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

What causes high tuition? The same thing that drives high house prices, according to David O. Lucca, Taylor Nadauld, and Karen Shen of the New York Fed:

When students fund their education through loans, changes in student borrowing and tuition are interlinked. Higher tuition costs raise loan demand, but loan supply also affects equilibrium tuition costs—for example, by relaxing students’ funding constraints. To resolve this simultaneity problem, we exploit detailed student-level financial data and changes in federal student aid programs to identify the impact of increased student loan funding on tuition. We find that institutions more exposed to changes in the subsidized federal loan program increased their tuition disproportionately around these policy changes, with a sizable pass-through effect on tuition of about 65 percent. We also find that Pell Grant aid and the unsubsidized federal loan program have pass-through effects on tuition, although these are economically and statistically not as strong. The subsidized loan effect on tuition is most pronounced for expensive, private institutions that are somewhat, but not among the most, selective.

Bloomberg provides estimates of R&D spending by country for the period 2007-12:

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Way to go, Canada! Significantly below the world average while our biggest trading partner is well above the world average! That’s what I call an economic action plan!

The CD Howe Institute has published Mortgage Insurance as a Macroprudential Tool: Dealing with the Risk of a Housing Market Crash in Canad:

Our recommendations:

• • Redesign the government backstop to focus on events that include a severe housing crash along with rising unemployment. The backstop should be organized as a standalone fund that accumulates reserves in advance of a housing crisis up to a target level and has the capacity to borrow against future revenue if needed.
• • The Financial Institutions Supervisory Committee (FISC) should oversee the backstop fund, particularly its pricing policy, accumulation of reserves and target level for reserves.
• • Mortgage insurance backstop should be available only for the residential ownership market.
  
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  I can’t say I’m particularly impressed. To me, the most insidious part of government insurance is the bloating of bank balance sheets as illustrated by their chart above. The reduction of the risk-weight assigned to mortgages when they are government insured has contributed to this bloating, but this effect is not discussed in their paper.

  Separately, they are calling for no BoC rate cuts, with a slow rise to 1.00% (from 0.75%) over the next year, but there are some dissenting doves:

  While the majority of Council members called for the overnight rate target to stay at 0.75 percent next week and in September, four called for the Bank of Canada to cut its target to 0.50 percent next week and hold it there in September. By January 2016, five members called for 0.75 percent and three for 0.50 percent, while three called for an increase to 1.00 percent. By July 2016, three members called for 0.75 percent and one for 0.50 percent, with the majority of members calling for an increase (four looking for 1.00 percent and three for 1.25 percent).

  The split between members favouring no change and those favouring a cut, and the gradual pace of increases envisioned even by those favouring rate hikes over the coming year, reflected disappointment about recent Canadian growth, and concern that the disinflationary output gap in the Canadian economy will take time to close. Several members commented on divergent indicators, and although Labour Force Survey measures of employment growth are inevitably volatile, more than one member suggested that Friday’s employment figures should affect the Bank’s interest-rate decision.

  Meanwhile the IMF has cut growth projections:

  In its quarterly World Economic Outlook update released Thursday morning, the IMF forecast that Canada’s real gross domestic product would grow just 1.5 per cent this year, down sharply from 2.2 per cent in its April outlook. It’s the third successive quarter that the global financial body has reduced its 2015 forecast for Canada, and by far its most drastic reduction – reflecting mounting evidence that the Canadian economy dramatically underperformed expectations in the second quarter of the year.

  Thomson Reuters Corporation, proud issuer of TRI.PR.B, was confirmed at Pfd-3(high) by DBRS:

  DBRS Limited (DBRS) has confirmed Thomson Reuters Corporation’s (Thomson Reuters or the Company) Issuer Rating as well as its Unsecured Medium-Term Notes and Unsecured Debentures ratings at BBB (high). DBRS has also confirmed Thomson Reuters’ Commercial Paper rating at R-2 (high) and its Preferred Shares rating at Pfd-3 (high). All trends are Stable. The ratings continue to reflect the Company’s well-entrenched market position, the diverse nature of its customer base and its strong free cash flow-generating capacity. The rating confirmations also consider intensifying competition, the need for constant innovation and the risks associated with the Company’s ongoing acquisitions and divestitures.
  …
  Going forward, DBRS expects that revenue growth will be flat in 2015 as continued weakness in the Financial & Risk segment is likely to offset modest growth across all other divisions. DBRS expects the Company to complete its legacy product and platform migrations in 2015 that are likely to position Financial & Risk to return to a positive growth path in 2016. EBITDA margins are expected to be constrained (around 27%) in 2015 as the Company’s revenue growth from migration of key products and platforms in Financial & Risk is likely to be temporarily curbed by the pricing dynamics of new offerings.

  As recorded in the publication The Dreadful Story of the Preferred Share Market, there was once an investor who hoped the market would be on fire today:

  
  Click for Big

  Editor’s Note: This story is adapted from The Dreadful Story of the Matches, part of the excellent StruwwelPeter; a collection of cautionary tales for children.

  Managing Editor’s Note: If you liked “The Producers” or other such mockery, you will also enjoy StruwwelHitler, which is not available on-line but can be purchased from Amazon. It’s hilarious 1940 British propaganda.

  Publisher’s note: Hitler and Nazism should be mocked more often. I often think we’re doing ourselves a disservice by demonizing Hitler, for all that he’s the top western candidate from the twentieth century. By demonizing him, we’re separating ourselves from him and we would do better to remember that he was, at bottom, just another politician; one who was able to expose and exploit the demon that resides in all of us to some extent. Golding got it right in Lord of the Flies; but of course there are relatively few people alive today who knew him mainly from newsreels and newspapers of the thirties.

  President’s note: All of this moral philosophy is a whole lot more fun than looking at the preferred share market’s returns, I assure you!

  The Canadian preferred share market got whacked again today, with PerpetualDiscounts down 137bp, FixedResets losing 175bp and DeemedRetractibles off 35bp. Floaters got destroyed – for those who are keeping track, this means that total return since January 6, 2010 has been negative, although there’s a long way to go yet before we hit the depths of the Credit Crunch. As one might guess, the Performance Highlights table is enormous, with five issues losing over 5% on the day – a figure that is normally indicative of a reporting or quotation problem, as opposed to a market problem. Volume was extremely high.

  Who knows how much longer this will last? The market was reasonably firm in the afternoon after a precipitous morning decline, as shown by the chart of CPD for the day:

  
  Click for Big

  … but now I suspect that people are selling simply because the market has gone down. With long corporates still yielding about 3.95%, the Seniority Spread is at about 300bp, which makes PerpetualDiscounts look cheap … and yet TD came out with a new issue today!

  For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

  Remember that all rich /cheap assessments are:
  » based on Implied Volatility Theory only
  » are relative only to other FixedResets from the same issuer
  » assume constant GOC-5 yield
  » assume constant Implied Volatility
  » assume constant spread

  Here’s TRP:

  
  Click for Big

  TRP.PR.B, which resets 2020-6-30 at +128, is bid at 14.56 to be $0.36 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.50 cheap at its bid price of 15.55.

  
  Click for Big

  Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

  Most expensive is MFC.PR.F, resetting at +141bp on 2016-6-19, bid at 17.00 to be $0.94 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 20.50 to be $0.94 cheap.

  
  Click for Big

  The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 19.96 to be $0.92 cheap. BAM.PR.X, resetting at +180bp 2017-6-30 is bid at 16.47 and appears to be $0.76 rich.

  
  Click for Big

  FTS.PR.K, with a spread of +205bp, and bid at 21.24, looks $0.48 expensive and resets 2019-3-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 22.40 and is $0.44 cheap.

  Note that there has been a very sharp rise in calculated implied volatility lately; that is that the lower-spread issues strongly outperformed their higher-spread siblings. The current calculated level of implied volatility is currently unreasonably high; reversion to a lower level will imply underperformance of the lower-spread issues.

  
  Click for Big

  I’ve had to change the scale on the chart since so many of the break-even rates went negative today!

  Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.02% (which seems a little extreme!). On the junk side, one of the six pairs is an outlier, with an implied rate exceeding 1.00%.

  
  Click for Big

  Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

  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	-6.9710 %	1,961.7
  FixedFloater	0.00 %	0.00 %	0	0.00	0	-6.9710 %	3,429.9
  Floater	3.95 %	3.98 %	59,130	17.50	3	-6.9710 %	2,085.4
  OpRet	0.00 %	0.00 %	0	0.00	0	0.4324 %	2,760.7
  SplitShare	4.61 %	4.90 %	68,816	3.22	3	0.4324 %	3,235.4
  Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.4324 %	2,524.4
  Perpetual-Premium	5.51 %	3.74 %	66,320	0.08	13	-0.2673 %	2,513.4
  Perpetual-Discount	5.42 %	5.35 %	92,475	14.84	21	-1.3662 %	2,643.0
  FixedReset	4.70 %	3.82 %	219,660	16.10	88	-1.7469 %	2,238.3
  Deemed-Retractible	5.02 %	3.68 %	106,150	0.79	34	-0.3477 %	2,623.0
  FloatingReset	2.53 %	3.18 %	56,355	6.07	10	-1.3034 %	2,278.2

  Performance Highlights
  Issue	Index	Change	Notes
  BAM.PR.B	Floater	-7.25 %	This is reasonably accurate; the low for the day was equal to the close at 12.95, with most of the last twenty-five trades being a few pennies above 13.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 12.79 Evaluated at bid price : 12.79 Bid-YTW : 3.92 %
  BAM.PR.C	Floater	-7.06 %	This is also reasonable, as late-afternoon weakness took almost all of the last twenty-five trades of the day to or below 12.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 12.50 Evaluated at bid price : 12.50 Bid-YTW : 4.01 %
  BAM.PR.K	Floater	-6.59 %	Reasonable, given that the low was also the close for the day at 12.82, although there were few trades in the afternoon when the price of Floaters (see above) simply collapsed. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 12.61 Evaluated at bid price : 12.61 Bid-YTW : 3.98 %
  NA.PR.S	FixedReset	-5.46 %	Nothing wrong with the closing bid of 21.98; a lot of trades in the late afternoon were well below this figure, with a low for the day of 21.76. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.68 Evaluated at bid price : 21.98 Bid-YTW : 3.76 %
  ENB.PR.N	FixedReset	-5.42 %	Yep, there were lots of trades in the last two minutes near the closing bid of 17.45, and the low for the day was 17.22. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 17.45 Evaluated at bid price : 17.45 Bid-YTW : 5.12 %
  ENB.PR.P	FixedReset	-4.83 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 16.95 Evaluated at bid price : 16.95 Bid-YTW : 5.10 %
  TD.PF.A	FixedReset	-4.76 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 3.80 %
  NA.PR.W	FixedReset	-4.73 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 20.96 Evaluated at bid price : 20.96 Bid-YTW : 3.82 %
  MFC.PR.K	FixedReset	-4.65 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.50 Bid-YTW : 5.82 %
  ENB.PR.Y	FixedReset	-4.60 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 16.60 Evaluated at bid price : 16.60 Bid-YTW : 5.10 %
  BAM.PR.M	Perpetual-Discount	-4.56 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 19.90 Evaluated at bid price : 19.90 Bid-YTW : 6.02 %
  BAM.PF.E	FixedReset	-4.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.07 Evaluated at bid price : 21.07 Bid-YTW : 4.28 %
  RY.PR.Z	FixedReset	-4.49 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.38 Evaluated at bid price : 21.69 Bid-YTW : 3.67 %
  MFC.PR.J	FixedReset	-4.14 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.40 Bid-YTW : 4.44 %
  BAM.PF.D	Perpetual-Discount	-4.06 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 20.57 Evaluated at bid price : 20.57 Bid-YTW : 6.01 %
  CU.PR.E	Perpetual-Discount	-3.91 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.78 Evaluated at bid price : 23.11 Bid-YTW : 5.35 %
  RY.PR.H	FixedReset	-3.89 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.25 Evaluated at bid price : 21.25 Bid-YTW : 3.81 %
  BAM.PR.N	Perpetual-Discount	-3.85 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 5.99 %
  BAM.PF.C	Perpetual-Discount	-3.79 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 6.03 %
  CU.PR.D	Perpetual-Discount	-3.78 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.81 Evaluated at bid price : 23.14 Bid-YTW : 5.35 %
  ENB.PR.T	FixedReset	-3.71 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 17.15 Evaluated at bid price : 17.15 Bid-YTW : 5.06 %
  VNR.PR.A	FixedReset	-3.66 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.66 Evaluated at bid price : 22.10 Bid-YTW : 4.12 %
  BAM.PF.B	FixedReset	-3.62 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 19.96 Evaluated at bid price : 19.96 Bid-YTW : 4.49 %
  BAM.PF.G	FixedReset	-3.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.91 Evaluated at bid price : 22.39 Bid-YTW : 4.27 %
  BAM.PR.R	FixedReset	-3.48 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 18.05 Evaluated at bid price : 18.05 Bid-YTW : 4.41 %
  HSE.PR.E	FixedReset	-3.46 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.39 Evaluated at bid price : 23.17 Bid-YTW : 4.70 %
  TRP.PR.A	FixedReset	-3.37 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 18.94 Evaluated at bid price : 18.94 Bid-YTW : 3.74 %
  TD.PF.E	FixedReset	-3.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.81 Evaluated at bid price : 24.11 Bid-YTW : 3.69 %
  BAM.PR.X	FixedReset	-3.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 16.47 Evaluated at bid price : 16.47 Bid-YTW : 4.22 %
  PWF.PR.P	FixedReset	-3.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 17.13 Evaluated at bid price : 17.13 Bid-YTW : 3.50 %
  TD.PF.B	FixedReset	-3.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.21 Evaluated at bid price : 21.21 Bid-YTW : 3.76 %
  TRP.PR.F	FloatingReset	-3.01 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 18.04 Evaluated at bid price : 18.04 Bid-YTW : 3.40 %
  HSE.PR.C	FixedReset	-2.96 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.07 Evaluated at bid price : 22.61 Bid-YTW : 4.46 %
  IFC.PR.A	FixedReset	-2.91 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.00 Bid-YTW : 6.49 %
  ENB.PR.H	FixedReset	-2.79 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 15.70 Evaluated at bid price : 15.70 Bid-YTW : 4.97 %
  ENB.PR.F	FixedReset	-2.73 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 16.75 Evaluated at bid price : 16.75 Bid-YTW : 5.13 %
  ENB.PF.C	FixedReset	-2.73 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 18.19 Evaluated at bid price : 18.19 Bid-YTW : 5.10 %
  SLF.PR.H	FixedReset	-2.71 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.10 Bid-YTW : 5.79 %
  MFC.PR.M	FixedReset	-2.59 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.48 Bid-YTW : 5.48 %
  ENB.PF.E	FixedReset	-2.40 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 18.30 Evaluated at bid price : 18.30 Bid-YTW : 5.10 %
  SLF.PR.I	FixedReset	-2.36 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.03 Bid-YTW : 4.16 %
  BNS.PR.D	FloatingReset	-2.26 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.06 Bid-YTW : 3.48 %
  IAG.PR.G	FixedReset	-2.25 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.30 Bid-YTW : 4.15 %
  BAM.PR.T	FixedReset	-2.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 4.25 %
  TD.PF.C	FixedReset	-2.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.09 Evaluated at bid price : 21.09 Bid-YTW : 3.77 %
  IFC.PR.C	FixedReset	-2.13 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.02 Bid-YTW : 5.15 %
  ENB.PR.D	FixedReset	-2.13 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 16.54 Evaluated at bid price : 16.54 Bid-YTW : 4.99 %
  BMO.PR.T	FixedReset	-2.11 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.32 Evaluated at bid price : 21.32 Bid-YTW : 3.78 %
  SLF.PR.C	Deemed-Retractible	-2.11 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.30 Bid-YTW : 6.00 %
  ENB.PF.A	FixedReset	-2.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 18.22 Evaluated at bid price : 18.22 Bid-YTW : 5.09 %
  CM.PR.Q	FixedReset	-2.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.86 Evaluated at bid price : 24.20 Bid-YTW : 3.58 %
  MFC.PR.L	FixedReset	-2.00 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.02 Bid-YTW : 5.59 %
  BNS.PR.B	FloatingReset	-1.99 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.19 Bid-YTW : 3.37 %
  BAM.PF.F	FixedReset	-1.98 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.21 Evaluated at bid price : 22.80 Bid-YTW : 4.16 %
  ENB.PF.G	FixedReset	-1.91 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 18.44 Evaluated at bid price : 18.44 Bid-YTW : 5.10 %
  GWO.PR.I	Deemed-Retractible	-1.90 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.77 Bid-YTW : 5.77 %
  TRP.PR.G	FixedReset	-1.82 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.88 Evaluated at bid price : 24.30 Bid-YTW : 3.78 %
  MFC.PR.G	FixedReset	-1.79 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.75 Bid-YTW : 3.95 %
  PWF.PR.T	FixedReset	-1.76 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.93 Evaluated at bid price : 24.07 Bid-YTW : 3.35 %
  TRP.PR.C	FixedReset	-1.58 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 15.55 Evaluated at bid price : 15.55 Bid-YTW : 3.76 %
  BMO.PR.S	FixedReset	-1.57 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.62 Evaluated at bid price : 21.90 Bid-YTW : 3.75 %
  SLF.PR.B	Deemed-Retractible	-1.51 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.53 Bid-YTW : 5.65 %
  SLF.PR.E	Deemed-Retractible	-1.48 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.66 Bid-YTW : 5.84 %
  HSE.PR.A	FixedReset	-1.46 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 15.55 Evaluated at bid price : 15.55 Bid-YTW : 4.17 %
  BMO.PR.W	FixedReset	-1.45 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.10 Evaluated at bid price : 21.10 Bid-YTW : 3.79 %
  BAM.PF.A	FixedReset	-1.43 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.73 Evaluated at bid price : 22.00 Bid-YTW : 4.33 %
  SLF.PR.D	Deemed-Retractible	-1.33 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.31 Bid-YTW : 5.99 %
  TD.PR.Z	FloatingReset	-1.30 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.45 Bid-YTW : 3.16 %
  PWF.PR.L	Perpetual-Discount	-1.25 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 24.21 Evaluated at bid price : 24.50 Bid-YTW : 5.20 %
  CM.PR.O	FixedReset	-1.18 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.41 Evaluated at bid price : 21.74 Bid-YTW : 3.72 %
  SLF.PR.G	FixedReset	-1.15 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.40 Bid-YTW : 7.32 %
  PWF.PR.R	Perpetual-Premium	-1.13 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2020-04-30 Maturity Price : 25.25 Evaluated at bid price : 25.46 Bid-YTW : 5.20 %
  MFC.PR.H	FixedReset	-1.12 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2017-03-19 Maturity Price : 25.00 Evaluated at bid price : 25.51 Bid-YTW : 3.52 %
  CU.PR.F	Perpetual-Discount	-1.12 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.67 Evaluated at bid price : 22.00 Bid-YTW : 5.16 %
  RY.PR.K	FloatingReset	-1.12 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.93 Bid-YTW : 3.17 %
  BNS.PR.A	FloatingReset	-1.11 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.95 Bid-YTW : 3.18 %
  BNS.PR.Y	FixedReset	-1.07 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.26 Bid-YTW : 3.69 %
  BMO.PR.R	FloatingReset	-1.05 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.60 Bid-YTW : 3.12 %
  RY.PR.J	FixedReset	-1.02 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.85 Evaluated at bid price : 24.15 Bid-YTW : 3.59 %
  PVS.PR.B	SplitShare	1.02 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 24.77 Bid-YTW : 4.78 %
  HSE.PR.G	FixedReset	1.05 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.84 Evaluated at bid price : 24.15 Bid-YTW : 4.47 %
  GWO.PR.N	FixedReset	1.09 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.70 Bid-YTW : 7.03 %
  FTS.PR.M	FixedReset	1.82 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.94 Evaluated at bid price : 22.40 Bid-YTW : 3.83 %

  Volume Highlights
  Issue	Index	Shares Traded	Notes
  BMO.PR.S	FixedReset	223,171	RBC crossed six blocks totalling 145,200 shares, all at 21.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.62 Evaluated at bid price : 21.90 Bid-YTW : 3.75 %
  TD.PF.D	FixedReset	146,020	Desjardins crossed 29,700 at 24.10; RBC crossed blocks of 50,000 and 25,000 at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.77 Evaluated at bid price : 24.00 Bid-YTW : 3.62 %
  TRP.PR.D	FixedReset	131,131	RBC Crossed three blocks of 25,000 each, all at 21.55. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.31 Evaluated at bid price : 21.31 Bid-YTW : 3.88 %
  FTS.PR.M	FixedReset	82,714	RBC crossed blocks of 23,800 at 24,500, both at 22.85. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.94 Evaluated at bid price : 22.40 Bid-YTW : 3.83 %
  CM.PR.O	FixedReset	79,049	RBC crossed 46,700 at 21.65. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.41 Evaluated at bid price : 21.74 Bid-YTW : 3.72 %
  RY.PR.Z	FixedReset	70,757	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 21.38 Evaluated at bid price : 21.69 Bid-YTW : 3.67 %
  There were 70 other index-included issues trading in excess of 10,000 shares.

  Wide Spread Highlights
  Issue	Index	Quote Data and Yield Notes
  MFC.PR.K	FixedReset	Quote: 20.50 – 22.64 Spot Rate : 2.1400 Average : 1.2800 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.50 Bid-YTW : 5.82 %
  SLF.PR.I	FixedReset	Quote: 24.03 – 24.90 Spot Rate : 0.8700 Average : 0.5897 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.03 Bid-YTW : 4.16 %
  TRP.PR.F	FloatingReset	Quote: 18.04 – 18.82 Spot Rate : 0.7800 Average : 0.5253 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 18.04 Evaluated at bid price : 18.04 Bid-YTW : 3.40 %
  PWF.PR.P	FixedReset	Quote: 17.13 – 17.70 Spot Rate : 0.5700 Average : 0.3623 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 17.13 Evaluated at bid price : 17.13 Bid-YTW : 3.50 %
  SLF.PR.H	FixedReset	Quote: 20.10 – 20.75 Spot Rate : 0.6500 Average : 0.4463 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.10 Bid-YTW : 5.79 %
  RY.PR.J	FixedReset	Quote: 24.15 – 24.75 Spot Rate : 0.6000 Average : 0.4000 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-09 Maturity Price : 22.85 Evaluated at bid price : 24.15 Bid-YTW : 3.59 %