There was a respite from the losses today:
Stocks on Wall Street were unsteady on Wednesday, dropping slightly after rebounding from back-to-back losses this week that had wiped more than 6 percent off the S&P 500.
…
Oil prices edged lower. West Texas intermediate, the American benchmark, dipped under $50 a barrel. Brent crude, the international benchmark, was under $55 a barrel at 12 p.m.The yield on the 10-year Treasury note fell even further on Wednesday after closing at a record low of 1.335 percent on Tuesday, a sign that investors expect growth in the United States to slow.
PerpetualDiscounts now yield 5.27%, equivalent to 6.85% interest at the standard equivalency factor of 1.3x. Long corporates now yield 3.00%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has widened dramatically to 385bp from the 360bp reported February 19.
HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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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 | 0.6670 % | 2,003.4 |
FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.6670 % | 3,676.2 |
Floater | 6.11 % | 6.36 % | 50,633 | 13.29 | 4 | 0.6670 % | 2,118.6 |
OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0914 % | 3,480.2 |
SplitShare | 4.79 % | 4.23 % | 46,995 | 4.12 | 6 | -0.0914 % | 4,156.1 |
Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0914 % | 3,242.7 |
Perpetual-Premium | 5.56 % | 1.31 % | 61,274 | 0.09 | 12 | -0.0394 % | 3,066.3 |
Perpetual-Discount | 5.20 % | 5.27 % | 68,137 | 15.03 | 24 | -0.1450 % | 3,363.1 |
FixedReset Disc | 5.65 % | 5.40 % | 178,465 | 14.74 | 64 | -0.2112 % | 2,123.7 |
Deemed-Retractible | 5.12 % | 5.24 % | 80,806 | 14.83 | 27 | -0.1174 % | 3,271.4 |
FloatingReset | 6.25 % | 6.31 % | 64,212 | 13.44 | 3 | -0.3057 % | 2,425.4 |
FixedReset Prem | 5.07 % | 3.52 % | 126,798 | 1.41 | 22 | 0.0940 % | 2,662.8 |
FixedReset Bank Non | 1.93 % | 3.48 % | 87,047 | 1.88 | 3 | 0.0272 % | 2,750.9 |
FixedReset Ins Non | 5.49 % | 5.34 % | 100,764 | 14.81 | 22 | 0.1659 % | 2,154.3 |
Performance Highlights | |||
Issue | Index | Change | Notes |
EMA.PR.C | FixedReset Disc | -2.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 17.61 Evaluated at bid price : 17.61 Bid-YTW : 5.80 % |
CM.PR.Y | FixedReset Disc | -1.74 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 22.93 Evaluated at bid price : 24.27 Bid-YTW : 5.05 % |
TD.PF.J | FixedReset Disc | -1.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 19.40 Evaluated at bid price : 19.40 Bid-YTW : 5.30 % |
BAM.PR.N | Perpetual-Discount | -1.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 21.98 Evaluated at bid price : 22.21 Bid-YTW : 5.42 % |
EMA.PR.E | Perpetual-Discount | -1.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 22.09 Evaluated at bid price : 22.09 Bid-YTW : 5.13 % |
PWF.PR.Q | FloatingReset | -1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 12.92 Evaluated at bid price : 12.92 Bid-YTW : 6.31 % |
SLF.PR.A | Deemed-Retractible | -1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 22.49 Evaluated at bid price : 22.75 Bid-YTW : 5.29 % |
BIP.PR.A | FixedReset Disc | -1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 19.80 Evaluated at bid price : 19.80 Bid-YTW : 6.14 % |
HSE.PR.C | FixedReset Disc | -1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 16.91 Evaluated at bid price : 16.91 Bid-YTW : 6.72 % |
BAM.PR.R | FixedReset Disc | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 14.70 Evaluated at bid price : 14.70 Bid-YTW : 6.02 % |
HSE.PR.E | FixedReset Disc | -1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 17.80 Evaluated at bid price : 17.80 Bid-YTW : 6.87 % |
MFC.PR.F | FixedReset Ins Non | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 12.19 Evaluated at bid price : 12.19 Bid-YTW : 5.34 % |
TRP.PR.F | FloatingReset | 1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 13.68 Evaluated at bid price : 13.68 Bid-YTW : 6.59 % |
PWF.PR.P | FixedReset Disc | 1.48 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 13.03 Evaluated at bid price : 13.03 Bid-YTW : 5.42 % |
HSE.PR.A | FixedReset Disc | 1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 10.91 Evaluated at bid price : 10.91 Bid-YTW : 6.80 % |
NA.PR.C | FixedReset Disc | 1.59 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 21.38 Evaluated at bid price : 21.71 Bid-YTW : 5.35 % |
TD.PF.D | FixedReset Disc | 1.80 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 19.20 Evaluated at bid price : 19.20 Bid-YTW : 5.27 % |
MFC.PR.R | FixedReset Ins Non | 1.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 23.24 Evaluated at bid price : 24.20 Bid-YTW : 5.15 % |
Volume Highlights | |||
Issue | Index | Shares Traded |
Notes |
IFC.PR.I | Perpetual-Premium | 56,650 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 24.63 Evaluated at bid price : 25.03 Bid-YTW : 5.42 % |
TD.PF.M | FixedReset Disc | 36,470 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 22.93 Evaluated at bid price : 24.26 Bid-YTW : 4.98 % |
SLF.PR.J | FloatingReset | 34,894 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 12.54 Evaluated at bid price : 12.54 Bid-YTW : 6.14 % |
TRP.PR.A | FixedReset Disc | 30,300 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 14.19 Evaluated at bid price : 14.19 Bid-YTW : 5.81 % |
TD.PF.I | FixedReset Disc | 29,500 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2050-02-26 Maturity Price : 20.77 Evaluated at bid price : 20.77 Bid-YTW : 5.20 % |
EMA.PR.H | FixedReset Prem | 28,900 | YTW SCENARIO Maturity Type : Call Maturity Date : 2023-08-15 Maturity Price : 25.00 Evaluated at bid price : 25.30 Bid-YTW : 4.60 % |
There were 24 other index-included issues trading in excess of 10,000 shares. |
Wide Spread Highlights | ||
Issue | Index | Quote Data and Yield Notes |
BMO.PR.S | FixedReset Disc | Quote: 17.25 – 17.57 Spot Rate : 0.3200 Average : 0.1922 YTW SCENARIO |
CCS.PR.C | Deemed-Retractible | Quote: 23.62 – 24.03 Spot Rate : 0.4100 Average : 0.2861 YTW SCENARIO |
EMA.PR.E | Perpetual-Discount | Quote: 22.09 – 22.50 Spot Rate : 0.4100 Average : 0.2937 YTW SCENARIO |
BAM.PR.R | FixedReset Disc | Quote: 14.70 – 15.08 Spot Rate : 0.3800 Average : 0.2671 YTW SCENARIO |
PWF.PR.G | Perpetual-Premium | Quote: 25.24 – 25.50 Spot Rate : 0.2600 Average : 0.1590 YTW SCENARIO |
SLF.PR.E | Deemed-Retractible | Quote: 21.70 – 21.98 Spot Rate : 0.2800 Average : 0.1819 YTW SCENARIO |
MFC.PR.N To Reset At 3.675%
February 22nd, 2020Manulife Financial Corporation has announced (on February 19):
MFC.PR.N is a FixedReset, 3.80%+230, that commenced trading 2014-12-3 after being announced 2014-11-26. The company provided notice of extension 2020-2-3. It is tracked by HIMIPref™ and is assigned to the FixedReset – Insurance non-NVCC subindex.
The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., MFC.PR.N and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.
We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated). Inspection of the graph and the overall average break-even rates for extant pairs will provide a guide for estimating the break-even rate for the pair now under consideration assuming, of course, that enough conversions occur so that the pair is in fact created.
Click for Big
The market has little enthusiasm for floating rate product; the implied rates until the next interconversion are generally well below the current 3-month bill rate as the averages for investment-grade and junk issues are at +0.84% and +1.71% (ignoring the outlier AIM.PR.A / AIM.PR.B, which Exchanges 2020-3-31), respectively. Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.
The breakeven rate for the junk pairs has been relatively high recently; I confess I’m not quite sure what to make of it.
Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.
If we plug in the current bid price of the MFC.PR.N FixedReset, we may construct the following table showing consistent prices for its soon-may-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:
Price if Implied Bill
is equal to
Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to trade below the price of their FixedReset counterparts, MFC.PR.N. Therefore, it seems likely that I will recommend that holders of MFC.PR.N continue to hold the issue and not to convert, but I will wait until it’s closer to the March 4 notification deadline before making a final pronouncement. I will note that once the conversion period has passed it may be a good trade to swap one issue for the other in the market once both elements of each pair are trading and you can – hopefully – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.
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