PrefBlog

PerpetualDiscounts now yield 6.58%, equivalent to 8.55% interest at the standard equivalency factor of 1.3x. Long corporates have been hammered in the past week to yield 5.56%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has declined to 300bp from the 320bp reported October 12.

TXPR closed at 559.12, up 0.99% on the day. Volume today was 1.52-million, fourth-highest of the past 21 trading days.

CPD closed at 11.21, up 0.81% on the day. Volume was 130,720, near the median of the past 21 trading days.

ZPR closed at 9.36, up 0.21% on the day. Volume was 232,310, near the median of the past 21 trading days.

Five-year Canada yields were down to 3.53% today.

TXPR closed at 553.64, up 0.92% on the day. Volume today was 1.27-million, near the median of the past 21 trading days.

CPD closed at 11.12, up 2.11% on the day. Volume was 181,620, fourth-highest of the past 21 trading days.

ZPR closed at 9.34, up 2.52% on the day. Volume was 214,210, near the median of the past 21 trading days.

Five-year Canada yields were down slightly to 3.64% today.

DBRS published a commentary on gilts:

Pressures have continued to mount in the UK government bond market. To a large extent this reflects concerns over the current incongruence between fiscal and monetary policies in the UK, with the market volatility exacerbated by liability-driven investment (LDI) funds. UK gilts have again come under pressure in less than a month, with another sell-off and yield spike, following the governor of the Bank of England’s (BoE) confirmation that the temporary emergency support adopted in September would end on 14th October as planned. The sell-off of gilts took place despite additional interventions by the BoE on 10th and 11th October. We see with some concern how the BoE interventions this week initially failed to contain market pressures.

We highlight the risk that volatility in the gilt market could turn more long lasting. Persistent pressures and dysfunction could pose risks to the UK’s financial stability. Financial instability would ultimately have adverse consequences for the financial flexibility of the UK government. We see both the health of the pension fund sector – as one of the main holders of government bonds – and the efficient functioning of the gilt market, as key for the financial flexibility of the UK government.

While we see with concern the ongoing pressures in the gilt market and the liquidity issues in the pension fund sector, we expect the BoE to continue to address potential risks to financial stability, preventing liquidity issues turning into solvency problems at a systemic level. That said, we continue to monitor market and policy developments. We would see with great concern a situation in which the BoE measures fail to prevent contagion from the stresses in pension funds to other financial market participants.

Key Highlights
• The inconsistency between fiscal and monetary policies remains a concern, posing risks for policy credibility.
• If pressures in the gilt market prove persistent, financial stability risks could emerge.
• Financial stability risks could have adverse consequences for the financial flexibility of the UK government. The efficient functioning of the gilt market remains crucial.

My understanding is that Truss’ leadership is now a laughingstock on deathwatch.

TXPR closed at 548.21, down 1.38% on the day. Volume today was 1.51-million, tied for third-highest of the past 21 trading days.

That’s below all-time low for the TXPR price index, barring the depths of the COVID Catastrophe:

The prior non-COVID low close was reached on 2016-1-18, with TXPR at 549.26. This is wild. And at a time when widespread and substantial dividend increases are as certain as anything ever gets in this wicked world! We can argue about how widespread and how substantial, but really!

CPD closed at 10.95, down 1.00% on the day. Volume was 99,270, near the median of the past 21 trading days.

ZPR closed at 9.16, down 1.19% on the day. Volume was 230,090, well above the median of the past 21 trading days.

Five-year Canada yields were up slightly to 3.62% today.

US inflation numbers came in high:

Prices continued to climb at a brutally rapid pace in September, with a key inflation index increasing at the fastest rate in 40 years, bad news for the Federal Reserve as it struggles to wrestle the cost of living back under control.

Overall inflation climbed 8.2 percent over the year through September, according to the latest Consumer Price Index report on Thursday, a slight moderation from August but more than what economists had expected.

Even more worrisome, underlying inflation trends are headed in the wrong direction. After stripping out fuel and food — which are volatile and removed to get a better sense of the trajectory — prices climbed 6.6 percent over the year through September. That was the quickest rate since 1982.
…
While wages are not climbing quickly enough to keep up with inflation, they are rising much more rapidly than is typical. Average hourly earnings for rank-and-file workers climbed 5.8 percent over the year through September. Those pay gains hovered around 2 percent or 3 percent in the decade leading up to the pandemic.

It is not just service costs increasing. Grocery bills were up across the board in September, with increases in the cost of fruit, vegetables and bakery products. The price of apples rose 5 percent from the previous month, while lettuce gained 6.8 percent and flour 2 percent.

Meanwhile, there was good fiscal news in Ottawa:

Parliamentary Budget Officer Yves Giroux says in a new report that this year’s federal budget deficit is on pace to come in at $25.8-billion, which would be a significant improvement over the $52.8-billion estimate in the Liberal government’s April budget.

The independent officer of Parliament released an economic and fiscal outlook Thursday. The report updates projections for federal spending and revenue in light of the latest economic data and federal spending announcements, including the Liberals’ recently announced $4.6-billion affordability plan aimed at assisting low-income Canadians with higher costs of living.

While higher inflation and a relatively strong economy have boosted federal tax revenues above previous projections, higher interest rates are also forcing Ottawa to spend more to service the higher debt load that built up during the COVID-19 pandemic.

“Despite the projected decline in the budgetary deficit, public debt charges are projected to more than double from their 2020-21 level (of $20.4-billion), reaching $47.6-billion in 2027-28 due to higher interest rates and the additional accumulation of debt,” the report states.

Well, we can hope that this windfall revenue doesn’t immediately get spent, but I don’t advise counting on it. Never mind the fact that fiscal policy is currently diametrically opposed to monetary policy – we are all Albertans now. If you got it, spend it! Politicians of all stripes will be quick to bleat that the debt to GDP ratio is going down (or is at least projected to) – but nobody in their right mind considers that impressive. If a COVID-level public spending emergency explodes next week, do we have the financial capacity to cope with it? I doubt it – but nobody’s talking about the pain it will take to regain that flexibility. Pain requires the immediate prospect of a failed bond auction, like in 1994.

TXPR closed at 555.87, down 0.81% on the day. Volume today was 2.00-million, highest of the past 21 trading days.

That’s close to an all-time low for the TXPR price index, barring the depths of the COVID Catastrophe:

… but on 2016-1-18, TXPR closed at 549.26. Well, not much more to go until we sink below that low point!

CPD closed at 11.06, down 0.45% on the day. Volume was 84,920, near the median of the past 21 trading days.

ZPR closed at 9.27, down 0.32% on the day. Volume was 267,320, fourth-highest of the past 21 trading days.

Five-year Canada yields were down to 3.60% today.

PerpetualDiscounts now yield 6.60%, equivalent to 8.58% interest at the standard equivalency factor of 1.3x. Long corporates have been hammered in the past week to yield 5.39% (I’m suspicious about this number, especially since it’s precisely equal to the “Distribution Yield”), so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has eased to 320bp from the 340bp reported October 5.