Market Action

January 28, 2016

The regulatory push to move trading jobs offshore is showing signs of success:

The $13.2 trillion Treasuries market is getting pushed around more by global developments, the [JPMorgan] analysts wrote in a note titled “24 hour party people redux: Global liquidity in U.S. Treasury futures.”

Sleep-deprived Wall Street traders aren’t the only ones who should care. It underscores the changing structure of a market where plenty of strange distortions are happening, the analysts said.

Bond dealers’ trading books are smaller than before the financial crisis, and new regulations are making it more expensive to facilitate trades and provide some types of overnight financing. On top of that, reserve managers at global central banks sold more U.S. debt to raise cash last year, which put more pressure on the balance sheets of the dealers handling that business, the analysts said.

As a result, more trading is happening in futures relative to cash Treasuries, according to the note, since futures transactions don’t require banks to use their balance sheets. For one 10-year Treasury futures contract, about 5 percent of its volume comes around the open of trading in Tokyo and more than 25 percent is traded around the open in London, the analysts said.

To my dismay, the NYT has endorsed a Tobin Tax:

A well-designed financial transaction tax — one that applies a tiny tax rate to an array of transactions and is split between buyers and sellers — would be a progressive way to raise substantial revenue without damaging the markets. A new study by researchers at the nonpartisan Tax Policy Center has found that a 0.1 percent tax rate could bring in $66 billion a year, with 40 percent coming from the top 1 percent of income earners and 75 percent from the top 20 percent. As the rate rises, however, traders would most likely curtail their activity. The tax could bring in $76 billion a year if it was set at 0.3 percent, but above that rate, trading would probably decrease and the total revenue raised would start to fall.

The burden of this tax would be concentrated at the top, because that’s where the ownership of financial assets is concentrated.

Critics also contend that a financial transaction tax would have damaging effects on trade volume, volatility and the ability of markets to determine asset prices. That is debatable, and setting the tax rate low at first, and raising it gradually, would help avoid potential damage. But the possibility of unintended consequences is not the real obstacle to a broad and prudent financial transaction tax. It is that a majority of lawmakers are not willing to challenge Wall Street’s power. Imposing the tax will take leadership from the next president.

My opposition to a Tobin tax was last discussed on December 29, 2015.

A link in Ken Kivenko’s Fund Observer led me to an exhortation from the Consumers Council of Canada, which led me to an OSC-commissioned report titled Current Practices for Risk Profiling in Canada And Review of Global Best Practices, which led me to a Morningstar paper titled Variable Risk Preference Bias:

The average monthly risk aversion scores from our dataset are shown in Figure 1 along with the S&P 500 Index to illustrate the relation between stock returns and risk aversion over time.

riskAversionAndIndexLevel
Click for Big

The OSC report claims that:

Guillemette and Finke (2014) find that the correlation between a popular risk tolerance assessment score and the S&P 500 was 0.90 (or nearly perfect) during the January 2007 through March 2009 bear market, but then only 0.01 between the remainder of 2009 and April 2012. A review of scores from a 3-question risk tolerance instrument given to employees participating in Morningstar’s Managed Account program shows a similar correlation between S&P values and measured risk tolerance.

So that was kind of interesting. But what made me laugh was the paragraph in the Morningstar report that read:

Differences in the method of compensation provided through share class structure may influence whether the advisor gains from de-biasing a client who is tempted to shift his or her portfolio to safety during an equity market decline. Class A shares compensate the advisor through the payment of an upfront load. Advisors may have an incentive to encourage a client to buy a safer fund (and pay a front-end load) when they feel more risk averse and then sell them another risky fund when their risk aversion declines after prices rise. This provides a disincentive to de-bias a client. Advisors who receive compensation through higher trail commissions (C shares) have no incentive to encourage a client to shift out of risky funds during a temporary increase in risk aversion. Higher trail compensation may provide a valuable de-biasing incentive since the advisor does not need to sell a new fund to receive compensation. We hypothesize that lower 12b-1 fees lead to an incentive for advisors not to de-bias clients since their compensation is increased by catering to investor variable risk preferences by selling them new funds. For example, if the stock market falls and the client becomes more risk averse, an advisor compensated through front-end commissions has a greater incentive to move that client into bonds than an advisor who receives more commissions on a trail basis.

Granted, this is in the context of a comparison between transaction-based and asset-based fees, but it still made me laugh. I don’t think that part will be cited in an OSC report any time soon! However, the Morningstar paper also led me to a paper published by the Chicago Fed titled From the Horse’s Mouth: How do Investor Expectations of Risk and Return Vary with Economic Conditions?:

Data obtained from monthly Gallup/UBS surveys from 1998-2007 and from a special supplement to the Michigan Surveys of Consumer Attitudes, run in 22 monthly surveys between 2000-2005, are used to analyze stock market beliefs and portfolio choices of household investors. We show that the key variables found to be positive predictors of actual stock returns in the asset-pricing literature are also highly correlated with investor’s reported expected returns, but with the opposite sign. Moreover, analysis of the micro data indicates that expectations of both risk and returns on stocks are strongly influenced by perceptions of economic conditions. In particular, when investors believe macroeconomic conditions are more expansionary, they tend to expect both higher returns and lower volatility. This is difficult to reconcile with the canonical view that expected returns on stocks rise during recessions to compensate household investors for increased exposure or sensitivity to macroeconomic risks. Finally, the relevance of these investors’ reported expectations is supported by the finding of a significant link between their expectations and portfolio choices. In particular, we show that portfolio equity positions tend to be higher for those respondents that anticipate higher expected returns or lower uncertainty.

So it’s all interesting and goes a long way towards providing comfort that the ‘people are selling because the market is down’ hypothesis has at least some basis in fact.

Here’s a good illustration about how empty-headed regulatory do-goodism can reduce civil liberties while inflating university costs:

The online admissions application for Auburn University appears simple, until you get to this question on Page 7:

“Have you ever been charged with or convicted of or pled guilty or nolo contendere to a crime other than a minor traffic offense, or are there any criminal charges now pending against you?”

Those who check “yes,” even though they have never been convicted of any crime, face extra scrutiny — a follow-up call from the admissions office asking for additional information, the university says.

“Lots of colleges and universities don’t like the fact that they feel like they have to ask these questions,” said Michael Reilly, the executive director of the American Association of Collegiate Registrars and Admissions Officers. “But they feel like they do, just because of how prominent some of these cases are of things like sexual assault on college campuses. And they feel like they need to do what they can to screen students.”

It was a very good day for the Canadian preferred share market, with PerpetualDiscounts winning 80bp, FixedResets up 64bp and DeemedRetractibles gaining 36bp. There are lots of winners in the Performance Highlights table! 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:

impVol_TRP_160128
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 17.25 to be $1.20 rich, while TRP.PR.C, resetting 2021-1-30 at +154, is $0.73 cheap at its bid price of 11.17.

impVol_MFC_160128
Click for Big

Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 17.25 to be 0.89 rich, while MFC.PR.F, resetting at +141bp on 2016-6-19, is bid at 11.74 to be 0.88 cheap.

impVol_BAM_160128
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 13.55 to be $1.69 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 17.61 and appears to be $1.10 rich.

impVol_FTS_160128
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 15.90, looks $0.38 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 15.50 and is $0.41 cheap.

pairs_FR_160128A
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.81%, with two outliers below -1.50%. There are no junk outliers.

pairs_FF_160128
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 5.30 % 6.43 % 19,181 16.17 1 -1.6154 % 1,473.5
FixedFloater 7.66 % 6.69 % 28,181 15.59 1 0.6494 % 2,595.0
Floater 4.65 % 4.79 % 72,305 15.86 4 2.5492 % 1,648.3
OpRet 0.00 % 0.00 % 0 0.00 0 -0.3275 % 2,684.9
SplitShare 4.92 % 6.90 % 81,025 2.71 6 -0.3275 % 3,141.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.3275 % 2,451.4
Perpetual-Premium 5.92 % 5.89 % 84,349 13.87 6 0.1146 % 2,494.6
Perpetual-Discount 5.86 % 5.91 % 101,914 14.00 33 0.7968 % 2,459.4
FixedReset 5.66 % 5.05 % 237,273 14.62 83 0.6386 % 1,823.6
Deemed-Retractible 5.29 % 5.78 % 134,694 6.95 34 0.3613 % 2,552.0
FloatingReset 2.98 % 4.67 % 58,561 5.57 13 0.1107 % 2,016.2
Performance Highlights
Issue Index Change Notes
TRP.PR.H FloatingReset -2.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 9.13
Evaluated at bid price : 9.13
Bid-YTW : 4.81 %
PWF.PR.A Floater -2.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 10.90
Evaluated at bid price : 10.90
Bid-YTW : 4.33 %
CCS.PR.C Deemed-Retractible -2.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.07
Bid-YTW : 7.54 %
GWO.PR.N FixedReset -2.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 11.90
Bid-YTW : 11.77 %
CIU.PR.C FixedReset -1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 10.39
Evaluated at bid price : 10.39
Bid-YTW : 5.14 %
BNS.PR.L Deemed-Retractible -1.63 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.61
Bid-YTW : 5.63 %
BAM.PR.E Ratchet -1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 25.00
Evaluated at bid price : 12.79
Bid-YTW : 6.43 %
FTS.PR.M FixedReset -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 17.44
Evaluated at bid price : 17.44
Bid-YTW : 4.94 %
PWF.PR.H Perpetual-Premium -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 23.71
Evaluated at bid price : 24.02
Bid-YTW : 6.01 %
MFC.PR.H FixedReset -1.44 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.22
Bid-YTW : 7.66 %
PVS.PR.C SplitShare -1.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 24.31
Bid-YTW : 6.89 %
CM.PR.Q FixedReset -1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 18.85
Evaluated at bid price : 18.85
Bid-YTW : 4.70 %
TD.PR.T FloatingReset -1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.82
Bid-YTW : 4.43 %
BNS.PR.B FloatingReset -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.01
Bid-YTW : 5.22 %
BNS.PR.D FloatingReset -1.13 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.42
Bid-YTW : 6.83 %
SLF.PR.H FixedReset 1.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.10
Bid-YTW : 10.72 %
RY.PR.E Deemed-Retractible 1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.00
Bid-YTW : 5.25 %
GWO.PR.I Deemed-Retractible 1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.71
Bid-YTW : 7.21 %
MFC.PR.F FixedReset 1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 11.74
Bid-YTW : 12.15 %
RY.PR.I FixedReset 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.41
Bid-YTW : 4.29 %
PWF.PR.E Perpetual-Discount 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 23.09
Evaluated at bid price : 23.35
Bid-YTW : 5.91 %
NA.PR.W FixedReset 1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 16.51
Evaluated at bid price : 16.51
Bid-YTW : 4.81 %
RY.PR.N Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 21.84
Evaluated at bid price : 22.18
Bid-YTW : 5.51 %
BAM.PF.H FixedReset 1.12 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 4.84 %
SLF.PR.C Deemed-Retractible 1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.74
Bid-YTW : 7.14 %
GWO.PR.G Deemed-Retractible 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.82
Bid-YTW : 6.60 %
TRP.PR.E FixedReset 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 17.25
Evaluated at bid price : 17.25
Bid-YTW : 4.82 %
TRP.PR.F FloatingReset 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 11.57
Evaluated at bid price : 11.57
Bid-YTW : 5.20 %
BMO.PR.M FixedReset 1.25 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.48
Bid-YTW : 3.93 %
TRP.PR.B FixedReset 1.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 10.00
Evaluated at bid price : 10.00
Bid-YTW : 5.13 %
TRP.PR.A FixedReset 1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 14.19
Evaluated at bid price : 14.19
Bid-YTW : 4.93 %
CU.PR.G Perpetual-Discount 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 19.20
Evaluated at bid price : 19.20
Bid-YTW : 5.97 %
HSE.PR.E FixedReset 1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 14.52
Evaluated at bid price : 14.52
Bid-YTW : 7.60 %
BIP.PR.A FixedReset 1.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 6.35 %
MFC.PR.N FixedReset 1.47 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.25
Bid-YTW : 8.54 %
NA.PR.S FixedReset 1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 17.06
Evaluated at bid price : 17.06
Bid-YTW : 4.83 %
HSE.PR.C FixedReset 1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 13.76
Evaluated at bid price : 13.76
Bid-YTW : 7.41 %
MFC.PR.C Deemed-Retractible 1.56 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.78
Bid-YTW : 7.19 %
CU.PR.F Perpetual-Discount 1.57 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 19.45
Evaluated at bid price : 19.45
Bid-YTW : 5.89 %
RY.PR.F Deemed-Retractible 1.57 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.97
Bid-YTW : 5.22 %
CU.PR.H Perpetual-Discount 1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 22.26
Evaluated at bid price : 22.55
Bid-YTW : 5.91 %
BMO.PR.Q FixedReset 1.59 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.56
Bid-YTW : 7.39 %
CU.PR.E Perpetual-Discount 1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 21.03
Evaluated at bid price : 21.03
Bid-YTW : 5.93 %
BAM.PR.N Perpetual-Discount 1.60 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 19.03
Evaluated at bid price : 19.03
Bid-YTW : 6.32 %
BNS.PR.C FloatingReset 1.61 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.07
Bid-YTW : 4.51 %
FTS.PR.H FixedReset 1.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 12.50
Evaluated at bid price : 12.50
Bid-YTW : 4.55 %
GWO.PR.Q Deemed-Retractible 1.68 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.98
Bid-YTW : 6.44 %
TD.PF.C FixedReset 1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 17.35
Evaluated at bid price : 17.35
Bid-YTW : 4.53 %
ELF.PR.G Perpetual-Discount 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 20.35
Evaluated at bid price : 20.35
Bid-YTW : 5.89 %
IFC.PR.C FixedReset 1.82 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.19
Bid-YTW : 9.41 %
BAM.PF.D Perpetual-Discount 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 19.51
Evaluated at bid price : 19.51
Bid-YTW : 6.36 %
MFC.PR.K FixedReset 1.88 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.25
Bid-YTW : 9.13 %
RY.PR.K FloatingReset 2.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.83
Bid-YTW : 4.76 %
CU.PR.D Perpetual-Discount 2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 20.97
Evaluated at bid price : 20.97
Bid-YTW : 5.95 %
MFC.PR.L FixedReset 2.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.55
Bid-YTW : 8.99 %
BAM.PR.M Perpetual-Discount 2.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 19.05
Evaluated at bid price : 19.05
Bid-YTW : 6.32 %
BAM.PF.F FixedReset 2.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 18.70
Evaluated at bid price : 18.70
Bid-YTW : 5.09 %
MFC.PR.J FixedReset 2.63 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.19
Bid-YTW : 8.70 %
BNS.PR.Q FixedReset 2.76 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.44
Bid-YTW : 4.19 %
NA.PR.Q FixedReset 2.93 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.85
Bid-YTW : 5.01 %
HSE.PR.A FixedReset 3.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 8.50
Evaluated at bid price : 8.50
Bid-YTW : 7.29 %
CIU.PR.A Perpetual-Discount 3.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 19.72
Evaluated at bid price : 19.72
Bid-YTW : 5.94 %
IFC.PR.A FixedReset 3.70 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.00
Bid-YTW : 10.74 %
BAM.PR.B Floater 4.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 9.93
Evaluated at bid price : 9.93
Bid-YTW : 4.80 %
BAM.PR.C Floater 4.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 9.85
Evaluated at bid price : 9.85
Bid-YTW : 4.84 %
BNS.PR.R FixedReset 4.44 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.51
Bid-YTW : 4.40 %
BAM.PR.K Floater 4.63 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 9.95
Evaluated at bid price : 9.95
Bid-YTW : 4.79 %
PWF.PR.P FixedReset 6.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 11.60
Evaluated at bid price : 11.60
Bid-YTW : 5.02 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.E FixedReset 112,233 Nesbitt crossed 75,000 at 25.45.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 23.28
Evaluated at bid price : 25.43
Bid-YTW : 5.16 %
TD.PF.G FixedReset 86,650 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 5.18 %
NA.PR.X FixedReset 81,645 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 23.09
Evaluated at bid price : 24.86
Bid-YTW : 5.59 %
RY.PR.M FixedReset 78,680 Nesbitt crossed 74,500 at 18.27.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 18.03
Evaluated at bid price : 18.03
Bid-YTW : 4.72 %
BAM.PF.C Perpetual-Discount 73,400 Scotia crossed 70,000 at 19.32.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 19.32
Evaluated at bid price : 19.32
Bid-YTW : 6.36 %
BMO.PR.S FixedReset 69,756 Nesbitt crossed 56,700 at 17.20.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 17.23
Evaluated at bid price : 17.23
Bid-YTW : 4.66 %
There were 30 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PF.E FixedReset Quote: 17.61 – 18.75
Spot Rate : 1.1400
Average : 0.7170

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 17.61
Evaluated at bid price : 17.61
Bid-YTW : 5.06 %

MFC.PR.M FixedReset Quote: 17.32 – 18.37
Spot Rate : 1.0500
Average : 0.6620

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.32
Bid-YTW : 8.55 %

TRP.PR.C FixedReset Quote: 11.17 – 12.10
Spot Rate : 0.9300
Average : 0.5588

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 11.17
Evaluated at bid price : 11.17
Bid-YTW : 5.08 %

TRP.PR.B FixedReset Quote: 10.00 – 10.70
Spot Rate : 0.7000
Average : 0.4075

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 10.00
Evaluated at bid price : 10.00
Bid-YTW : 5.13 %

TRP.PR.A FixedReset Quote: 14.19 – 14.90
Spot Rate : 0.7100
Average : 0.4527

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-28
Maturity Price : 14.19
Evaluated at bid price : 14.19
Bid-YTW : 4.93 %

MFC.PR.N FixedReset Quote: 17.25 – 17.96
Spot Rate : 0.7100
Average : 0.4724

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.25
Bid-YTW : 8.54 %

Issue Comments

DC.PR.C Will Be Extended

Dundee Corporation has announced:

that holders of First Preference Shares, Series 4 (the “Series 4 Preferred Shares”) earlier today approved the previously announced plan of arrangement (the “Arrangement”) of the Company pursuant to which each Series 4 Preferred Share will be exchanged for: (i) 0.7136 of a First Preference Share, Series 5 of the Company; and (i) 0.25 of a Class A subordinate voting share purchase warrant.

The Arrangement was approved at the special meeting, with 3,056,887 Series 4 Preferred Shares, representing 93.22% of the total votes cast at the meeting, voting in favour of the Arrangement and 222,393 Series 4 Preferred Shares, representing 6.78% of the total votes cast at the meeting, voting against it.

The Company intends to apply for the final order of the Ontario Superior Court of Justice (Commercial List) to approve the Arrangement on February 10, 2016. Assuming that court approval is obtained, the Arrangement is expected to be completed on or about February 12, 2016.

Dundee made an initial proposal in November that attracted some press coverage and an exhortation to consider exercising dissent rights. This led to reconsideration by Dundee despite a rather peculiar endorsement from a proxy advisor and led to a sweeter offer that attracted further commentary.

I would dearly love to know how much of a role the exorbitant proxy solicitation fees played. How many votes were actually cast by informed shareholders, vs. how many by mis-informed or under-informed holders pressured by their fee-hungry advisors … and how many were cast simply by the advisors themselves?

Anyway, I have set up a new security for this issue on HIMIPref™, which reflects the new dividend rate and new call schedule, but the old par value – since the issue will trade based on $17.84 par until the change is approved by the court and the new Series 5 shares start trading on the Exchange.

Vital statistics are:

DC.PR.C Operating Retractible YTW SCENARIO
Maturity Type : Option Certainty
Maturity Date : 2019-06-30
Maturity Price : 17.84
Evaluated at bid price : 15.95
Bid-YTW : 11.66 %

I had previously estimated that a coupon of 13% would be required in order for the issue to trade at around par, which was later revised to 11%-12%. So far it looks like I was about right.

Market Action

January 27, 2016

Today’s big news was the FOMC release:

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.

Given the economic outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

The important part was the emphasis on global conditions:

The FOMC said Wednesday it is “closely monitoring global economic and financial developments” while “assessing their implications for the labor market and inflation, and for the balance of risks to the outlook” in their statement after a two-day meeting in Washington.

That was a soft back-pedal from December when they said risks were “balanced,” and some economists said it makes an interest-rate hike at the next FOMC meeting in March less likely, while not precluding it. The FOMC left the target for their benchmark rate unchanged at 0.25 percent to 0.5 percent.

fedMarchOdds
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… and the markets were volatile:

U.S. stocks retreated as the Federal Reserve signaled that financial-market turmoil may pose risks to its outlook for the U.S. economy, while largely maintaining its policy stance. The dollar extended losses versus the euro, while two-year Treasuries rose.

The Standard & Poor’s 500 Index sank as the Fed said it is “closely monitoring” developments from China to Europe as well as oil for any adverse impact on the U.S. economy. Apple Inc. and Boeing Co. plunged on disappointing results as the two accounted for more than half of the Dow Jones Industrial Average’s 223-point slide. Yields on two-year Treasury notes fell a third day, as the Fed kept benchmark rates unchanged and said any future hikes would be gradual. Oil rose past $32 a barrel, and gold gained.

The S&P 500 fell 1.1 percent to 1,882.95 as of 4 p.m. in New York, and is headed for a January loss of 7.9 percent, the most since May 2010, with anxiety over global growth wiping as much as $2.4 trillion from the value of U.S. equities this year.

In Canada, Bombardier Inc.’s shares fell below C$1, the latest blow for the iconic Canadian manufacturer as it buckles under $9 billion in debt. The nation’s equity benchmark advanced 0.3 percent as energy producers and banks climbed.

Treasuries recovered from their weakest levels of the day. Led by shorter maturities, yields retreated from their Wednesday highs as stocks fell following the Fed’s decision to keep its target range at 0.25 percent to 0.5 percent, as predicted by Wall Street analysts.

The Fed also emphasized that its policy on inflation is symmetrical:

As part of its annual organizational meeting actions, the Federal Open Market Committee reaffirmed its “Statement on Longer-Run Goals and Monetary Policy Strategy,” with a revision to clarify that it views its inflation objective as symmetric, and with an updated reference to participants’ estimates of the longer-run normal unemployment rate in the most recent Summary of Economic Projections (December 2015).

Voting against was James Bullard, who agreed the Committee’s inflation goal is symmetric, but believed the amended language is not sufficiently focused on expected future deviations of inflation from the goal.

Meanwhile, there’s a move afoot to increase the paperwork inherent in giving advice:

Canada’s mutual fund regulator is looking into whether fees charged by fund companies – such as management fees – should be included in regulatory changes that will provide investors with greater transparency concerning the cost of financial advice and of their investments.

The changes, known as the second phase of the client relationship model (CRM2), are slated for July 16, 2016, and currently do not include the costs imposed by mutual fund managers.

The focus of CRM2 is to provide disclosure of the cost of advice rather than the overall cost of an investment product. Currently – under CRM2 rules – the Mutual Fund Dealers Association will require wealth management companies to provide each investor with an annual summary of charges paid by the investor and compensation received by the firm.

Although the changes have yet to come into effect, the MFDA received feedback from financial advisers, investment dealers, fund companies and investor advocates asking to consider expanding the reporting rules to require disclosure of the other costs of owning investment funds that are not paid to the investment firm – or the financial adviser – such as management fees, fund operating costs, redemption fees and short-term trading fees.

This will help build on the biggest regulatory success story in Canadian history:

In 2000, banks controlled 23 per cent of all Canadian long-term mutual fund assets, with independents controlling 64 per cent. By the end of 2015, the banks had more than doubled their market share to nearly 50 per cent.

The banks have an enormous advantage: distribution through their branch networks. They have also been building – and buying – fund manufacturing businesses. In many cases, they now control which funds are created and where they are sold.

So buy GICs, people! They’re FREE!

Meanwhile, bond investors aren’t getting away with much:

While not as pronounced as the rout in global equity markets, losses are beginning to pile up in the bond market too. The average spread over benchmark government yields for highly rated debt has widened to 1.83 percentage points, the most in three years, from 1.18 percentage points in March, according to Bank of America Merrill Lynch indexes. Investors lost 0.2 percent on global corporate bonds in 2015, snapping a string of annual gains that averaged 7.9 percent over the previous six years, the data show.

Debt at global companies rated by Standard & Poor’s reached three times earnings before interest, tax, depreciation and amortization in 2015, the highest in data going back to 2003 and up from 2.8 times last year, according to the ratings company. Total debt at listed companies in China, the world’s second-largest economy, has climbed to the highest level in three years, according to data compiled by Bloomberg.

corporateDebtToEarnings
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Best of all, there are high hopes that soon all those pesky non-banks will be gone:

Bombardier class B shares sank below $1 in Toronto trading Wednesday, less than half the price of its $2.21-a-share equity offering a year ago. The drop raises the possibility the company will be ejected from Canada’s main S&P/TSX stock index. To be eligible for inclusion in the index, which is reviewed quarterly, a security has to have a minimum volume-weighted average price of $1 over the past three months and must represent a minimum weight of 0.05 per cent of the index.

Tomorrow is the long awaited vote on the murky DC.PR.C Exchange Offer. One must carefully guard against human propensity to form patterns from unconnected events … but Dundee just raised a bunch of cash:

Euro Pacific Canada (“Euro Pacific”) and Dundee Securities Ltd., have entered into a definitive agreement, in which Euro Pacific will acquire Dundee Goodman Private Wealth (“DGPW”), a division of Dundee Securities Ltd. Upon completion of this transaction 78 investment advisors and related support teams will move from DGPW to Euro Pacific. Approximately $3.5 billion of investible client assets will also be transferred to Euro Pacific. Euro Pacific will also acquire Dundee Securities’ separately managed account program as well as employees related to its fixed income, foreign exchange and insurance businesses. DGPW and Euro Pacific are both members of the Investment Industry Regulatory Organization of Canada (“IIROC”) and the Canadian Investor Protection Fund (“CIPF”).

Transaction Highlights:

•Increases Euro Pacific Assets Under Management and Administration to approximately $4.2 billion;
•Euro Pacific triples in size to 100 investment advisors along with related support staff and adds offices in Toronto, Montreal, Ottawa, Calgary, Vancouver and Victoria;
•Advances Dundee’s focus of growing its alternative asset management and private investment counsel business lines;
•Dundee and Euro Pacific will enter into a distribution agreement for future differentiated products; and
•The transaction is expected to result in approximately $40 million of additional liquidity and ongoing cost savings to Dundee, which will support strategic priorities.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 27bp, FixedResets up 14bp and DeemedRetractibles gaining 12bp. The Performance Highlights table is its usual jolly self. Volume was above average.

PerpetualDiscounts now yield 5.96%, equivalent to 7.75% at the standard equivalency factor of 1.3x. Long corporates now yield about 4.25% (maybe a little more) so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 350bp, a slight (and perhaps spurious) decline from the 355bp reported January 13. Incredibly elevated!

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:

impVol_TRP_160127
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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 17.05 to be $1.12 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.70 cheap at its bid price of 18.05.

impVol_MFC_160127
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Most expensive is MFC.PR.M, resetting at +236bp on 2019-12-19, bid at 17.33 to be 0.89 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 17.55 to be 0.90 cheap.

impVol_BAM_160127
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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 13.45 to be $1.72 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 17.69 and appears to be $1.24 rich.

impVol_FTS_160127
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FTS.PR.K, with a spread of +205bp, and bid at 15.84, looks $0.36 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 15.40 and is $0.50 cheap.

pairs_FR_160127A
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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.52%, with one outlier below -1.50% and one above +0.50%. There is one junk outlier below -1.50% and two above +0.50%.

pairs_FF_160127
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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 5.21 % 6.33 % 20,027 16.30 1 1.6537 % 1,497.7
FixedFloater 7.71 % 6.73 % 28,687 15.54 1 -1.0442 % 2,578.3
Floater 4.77 % 5.01 % 73,237 15.47 4 1.5897 % 1,607.3
OpRet 0.00 % 0.00 % 0 0.00 0 0.3917 % 2,693.7
SplitShare 4.90 % 6.74 % 77,690 2.72 6 0.3917 % 3,152.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3917 % 2,459.4
Perpetual-Premium 5.92 % 5.92 % 87,378 13.96 6 0.4741 % 2,491.7
Perpetual-Discount 5.91 % 5.96 % 102,059 13.97 33 -0.2657 % 2,440.0
FixedReset 5.69 % 5.10 % 235,170 14.64 83 0.1390 % 1,812.0
Deemed-Retractible 5.31 % 5.86 % 130,509 6.95 34 0.1222 % 2,542.8
FloatingReset 2.98 % 4.80 % 59,349 5.57 13 0.1601 % 2,014.0
Performance Highlights
Issue Index Change Notes
BAM.PF.F FixedReset -4.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 18.25
Evaluated at bid price : 18.25
Bid-YTW : 5.22 %
MFC.PR.J FixedReset -3.85 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.75
Bid-YTW : 9.06 %
BIP.PR.B FixedReset -3.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 21.85
Evaluated at bid price : 22.30
Bid-YTW : 6.25 %
BAM.PR.R FixedReset -2.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 13.45
Evaluated at bid price : 13.45
Bid-YTW : 5.74 %
CIU.PR.A Perpetual-Discount -2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 19.10
Evaluated at bid price : 19.10
Bid-YTW : 6.14 %
BNS.PR.B FloatingReset -1.98 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.25
Bid-YTW : 5.01 %
ELF.PR.G Perpetual-Discount -1.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 20.00
Evaluated at bid price : 20.00
Bid-YTW : 5.99 %
BAM.PF.G FixedReset -1.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 18.41
Evaluated at bid price : 18.41
Bid-YTW : 5.20 %
BAM.PR.M Perpetual-Discount -1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 18.61
Evaluated at bid price : 18.61
Bid-YTW : 6.47 %
MFC.PR.I FixedReset -1.60 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.84
Bid-YTW : 8.47 %
PWF.PR.P FixedReset -1.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 10.93
Evaluated at bid price : 10.93
Bid-YTW : 5.33 %
FTS.PR.I FloatingReset -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 10.34
Evaluated at bid price : 10.34
Bid-YTW : 4.68 %
TD.PF.C FixedReset -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 17.06
Evaluated at bid price : 17.06
Bid-YTW : 4.61 %
BNS.PR.R FixedReset -1.32 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.51
Bid-YTW : 5.21 %
PWF.PR.E Perpetual-Discount -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 22.83
Evaluated at bid price : 23.11
Bid-YTW : 5.97 %
BAM.PR.N Perpetual-Discount -1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 18.73
Evaluated at bid price : 18.73
Bid-YTW : 6.43 %
BAM.PF.D Perpetual-Discount -1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 19.16
Evaluated at bid price : 19.16
Bid-YTW : 6.48 %
GWO.PR.P Deemed-Retractible -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.50
Bid-YTW : 6.39 %
RY.PR.M FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 18.05
Evaluated at bid price : 18.05
Bid-YTW : 4.71 %
RY.PR.F Deemed-Retractible -1.09 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.60
Bid-YTW : 5.52 %
RY.PR.I FixedReset -1.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.17
Bid-YTW : 4.48 %
BAM.PR.G FixedFloater -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 25.00
Evaluated at bid price : 12.32
Bid-YTW : 6.73 %
MFC.PR.H FixedReset -1.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.50
Bid-YTW : 7.45 %
BAM.PF.A FixedReset -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 18.56
Evaluated at bid price : 18.56
Bid-YTW : 5.10 %
BAM.PF.B FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 17.66
Evaluated at bid price : 17.66
Bid-YTW : 5.00 %
TD.PR.Y FixedReset 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.30
Bid-YTW : 4.26 %
POW.PR.D Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 21.17
Evaluated at bid price : 21.17
Bid-YTW : 5.96 %
BNS.PR.Q FixedReset 1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.81
Bid-YTW : 4.69 %
FTS.PR.H FixedReset 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 12.30
Evaluated at bid price : 12.30
Bid-YTW : 4.63 %
PWF.PR.I Perpetual-Premium 1.11 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-26
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : -13.83 %
RY.PR.P Perpetual-Discount 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 23.55
Evaluated at bid price : 23.87
Bid-YTW : 5.49 %
BMO.PR.Q FixedReset 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.51
Bid-YTW : 7.68 %
BAM.PR.K Floater 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 9.51
Evaluated at bid price : 9.51
Bid-YTW : 5.02 %
TD.PR.T FloatingReset 1.24 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.09
Bid-YTW : 4.20 %
BNS.PR.D FloatingReset 1.25 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.63
Bid-YTW : 6.62 %
FTS.PR.M FixedReset 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 17.72
Evaluated at bid price : 17.72
Bid-YTW : 4.86 %
SLF.PR.D Deemed-Retractible 1.29 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.43
Bid-YTW : 7.35 %
SLF.PR.B Deemed-Retractible 1.39 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.85
Bid-YTW : 6.78 %
RY.PR.L FixedReset 1.44 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.60
Bid-YTW : 4.11 %
IAG.PR.G FixedReset 1.59 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.20
Bid-YTW : 7.34 %
IFC.PR.C FixedReset 1.60 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.90
Bid-YTW : 9.67 %
BNS.PR.Z FixedReset 1.64 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.60
Bid-YTW : 7.48 %
BAM.PR.E Ratchet 1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 25.00
Evaluated at bid price : 13.00
Bid-YTW : 6.33 %
IGM.PR.B Perpetual-Premium 1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 23.98
Evaluated at bid price : 24.44
Bid-YTW : 6.05 %
SLF.PR.I FixedReset 1.74 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.95
Bid-YTW : 8.89 %
SLF.PR.E Deemed-Retractible 1.77 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.66
Bid-YTW : 7.25 %
PWF.PR.A Floater 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 11.15
Evaluated at bid price : 11.15
Bid-YTW : 4.23 %
SLF.PR.A Deemed-Retractible 1.96 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.87
Bid-YTW : 6.71 %
NA.PR.W FixedReset 2.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 16.34
Evaluated at bid price : 16.34
Bid-YTW : 4.86 %
PVS.PR.B SplitShare 2.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 23.60
Bid-YTW : 6.74 %
TRP.PR.B FixedReset 2.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 9.87
Evaluated at bid price : 9.87
Bid-YTW : 5.20 %
BAM.PR.C Floater 2.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 9.44
Evaluated at bid price : 9.44
Bid-YTW : 5.06 %
CU.PR.C FixedReset 2.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 17.05
Evaluated at bid price : 17.05
Bid-YTW : 4.73 %
BMO.PR.M FixedReset 2.77 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.40
Bid-YTW : 4.16 %
VNR.PR.A FixedReset 2.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 16.45
Evaluated at bid price : 16.45
Bid-YTW : 5.52 %
TD.PR.S FixedReset 3.07 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.50
Bid-YTW : 3.91 %
TRP.PR.H FloatingReset 3.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 9.39
Evaluated at bid price : 9.39
Bid-YTW : 4.68 %
TRP.PR.C FixedReset 4.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 11.22
Evaluated at bid price : 11.22
Bid-YTW : 5.06 %
PWF.PR.T FixedReset 4.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 20.45
Evaluated at bid price : 20.45
Bid-YTW : 3.99 %
Volume Highlights
Issue Index Shares
Traded
Notes
SLF.PR.A Deemed-Retractible 98,602 RBC bought 26,100 from Desjardins at 21.71 and another 10,000 from TD at 22.00.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.87
Bid-YTW : 6.71 %
NA.PR.X FixedReset 96,928 >Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 23.10
Evaluated at bid price : 24.87
Bid-YTW : 5.59 %
RY.PR.O Perpetual-Discount 78,130 TD bought three blocks of 10,000 each from RBC, all at 21.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 21.58
Evaluated at bid price : 21.90
Bid-YTW : 5.58 %
BMO.PR.W FixedReset 57,258 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 16.89
Evaluated at bid price : 16.89
Bid-YTW : 4.69 %
CU.PR.C FixedReset 55,539 Scotia crossed blocks of 25,000 and 16,100, both at 16.73.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 17.05
Evaluated at bid price : 17.05
Bid-YTW : 4.73 %
TD.PF.G FixedReset 48,550 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.45
Bid-YTW : 5.18 %
There were 40 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CIU.PR.A Perpetual-Discount Quote: 19.10 – 20.25
Spot Rate : 1.1500
Average : 0.7867

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 19.10
Evaluated at bid price : 19.10
Bid-YTW : 6.14 %

BNS.PR.R FixedReset Quote: 22.51 – 23.80
Spot Rate : 1.2900
Average : 1.0317

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.51
Bid-YTW : 5.21 %

RY.PR.F Deemed-Retractible Quote: 23.60 – 24.20
Spot Rate : 0.6000
Average : 0.3537

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.60
Bid-YTW : 5.52 %

RY.PR.P Perpetual-Discount Quote: 23.87 – 24.65
Spot Rate : 0.7800
Average : 0.5734

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 23.55
Evaluated at bid price : 23.87
Bid-YTW : 5.49 %

BIP.PR.B FixedReset Quote: 22.30 – 22.87
Spot Rate : 0.5700
Average : 0.3806

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-27
Maturity Price : 21.85
Evaluated at bid price : 22.30
Bid-YTW : 6.25 %

SLF.PR.C Deemed-Retractible Quote: 20.51 – 21.10
Spot Rate : 0.5900
Average : 0.4012

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.51
Bid-YTW : 7.29 %

Issue Comments

TXT.PR.A To Be Extended

Strathbridge Asset Management has announced:

Top 10 Split Trust (the “Fund”) announced today that pursuant to the Fund’s trust agreement, the term of the Fund is being extended automatically for an additional five year period beyond the March 31, 2016 termination date to March 31, 2021. The automatic extension was approved by unitholders of the Fund at a meeting held on March 21, 2011. In connection with the automatic extension of the term, holders of Capital Units and Preferred Securities have a special retraction right (“Special Retraction Right”) to permit holders of such securities to retract such securities on March 31, 2016 on the terms on which such securities would have been redeemed or repaid had the term of the Fund not been extended.

Retraction payments for Capital Units and Preferred Securities tendered pursuant to the Special Retraction Right will be made no later than 10 business days following the retraction date of March 31, 2016, provided that such securities have been surrendered for retraction on or prior to 5:00 p.m. (Toronto time) on March 18, 2016. If more Capital Units than Preferred Securities are retracted under the Special Retraction Right, the Fund will redeem Preferred Securities on a pro rata basis to ensure an equal number of Capital Units and Preferred Securities remain outstanding. Conversely, if more Preferred Securities than Capital Units are retracted under the Special Retraction Right, the Fund will consolidate the Capital Units on a basis to ensure an equal number of Capital Units and Preferred Securities remain outstanding. Notice of such retraction or consolidation, as the case may be, will be made via press release on or before March 22, 2016.

The Fund is an investment trust designed to provide unitholders with exposure to the six largest Canadian banks and four largest Canadian life insurance companies. Preferred Security distributions of $0.78125 per security per annum are paid quarterly for a yield of 6.25% on the $12.50 issue price. Capital Unit distributions are calculated and paid each calendar quarter based on 7.5% per annum of the net asset value of the Capital Unit.

TXT.PR.A is not tracked by HIMIPref™ since it’s such a small issue – only 1,376,799 shares out according to the Exchange.

Issue Comments

BNS Downgraded to Baa2(hyb) by Moody's

Moody’s Investors Service has announced:

Today, Moody’s Investors Service downgraded the long term debt and deposit ratings of Bank of Nova Scotia (BNS) and its subsidiaries to Aa3 from Aa2, its long term counterparty risk assessment to Aa2(cr) from Aa1(cr) and its baseline credit assessment to a2 from a1. Moody’s also downgraded BNS’s senior unsecured shelf and deposit note program ratings to (P)Aa3 from (P)Aa2 and subordinate shelf ratings to (P)A3 from (P)A2. Subordinated debt and non-cumulative preferred share obligations are also downgraded according to Moody’s standard notching convention. Meanwhile Moody’s affirmed BNS’s Prime-1 short-term deposit rating, short-term Counterparty Risk Assessment and other short term ratings. The outlook for all BNS ratings is negative, reflecting Moody’s view that the balance of risk related to government support has shifted to the downside.

Moody’s said the ratings change was prompted by Bank of Nova Scotia (BNS) having taken significant measures to increase its profitability that signal a fundamental shift away from the bank’s traditionally low risk appetite. This risk positioning was a key part of the rationale for what had been its superior credit standing. While the bank’s strategic actions are intended to enhance current profitability — BNS reports the lowest domestic net interest margin of the six largest Canadian banks — in Moody’s view, they increase the prospect of future incremental credit losses.

Over the last two years, in accordance with its strategic initiatives, BNS has accelerated the growth in its credit card and auto finance portfolios — both of which are particularly prone to deterioration during an economic downturn and exhibit higher defaults and loss severities than mortgage portfolios. In addition, the bank has made a series of acquisitions away from its strong domestic franchise towards higher-growth but less stable international markets. BNS has aspirations to continue to grow its international earnings, which in Moody’s view adds to bondholder risk.

Moody’s believes it is likely that BNS’s increased risk tolerance and strategic imperative to increase profitability by shifting the asset mix towards higher yielding categories of consumer credit, both domestically and in international operations, will persist.

This takes the preferred share rating down to Baa2(hyb). The downgrade should not be the biggest surprise in the world since Moody’s placed the bank on Review-Negative in November, 2015.

Affected issues are: BNS.PR.A, BNS.PR.B, BNS.PR.C, BNS.PR.D, BNS.PR.E, BNS.PR.L, BNS.PR.M, BNS.PR.N, BNS.PR.O, BNS.PR.P, BNS.PR.Q, BNS.PR.R, BNS.PR.Y and BNS.PR.Z.

Market Action

January 26, 2016

Bloomberg published a graph showing how common negative yields have become:

negativeYields
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There was a good chunk of pension de-risking done by Sun Life:

Two Canadian pension plans are teaming up to buy about $530-million of annuities, in a creative deal to transfer investment, longevity and inflation risk to an insurance company.

The two defined-benefit pension plans, owned by companies that did not want to be named, have struck the joint annuity agreement with Sun Life Financial Inc. despite having no other relation to each other. The advantage of banding together and doing the transaction at the same time was more than $20-million dollars in savings combined as Sun Life balanced the inflation exposure of the two plans.

Sun Life began working with both companies separately in early 2015, and the insurer noticed that they had different inflation formulas. “One plan sponsor promised to increase benefits when inflation was low. The other promised to increase benefits when inflation was high,” said Brent Simmons, senior managing director for defined-benefits at Sun Life, adding that both promises are tricky to buy proper asset management strategies for.

Annuities for pension plans are part of a strategy known as “pension de-risking” in industry parlance, and they are a way of reducing long-term risks and ratcheting down income volatility for defined-benefit pension plans. These sorts of transactions became commonplace in the United States several years ago, and the U.K. has also been a leader with £19-billion ($38-billion) in de-risking deals last year. Canada’s market is still developing.

Two significant de-risking annuity deals in Canada include a $150-million deal by the Canadian Wheat Board in 2013, and a $500-million deal with an unnamed Canadian company done by Industrial Alliance Insurance and Financial Services Inc. last year.

Meanwhile, Canadian retail is moving to cash:

Canadians are holding a record $75-billion in cash amid an “ocean of fear” about investing in the markets, a new study finds.

That means they could miss out on billions in payback, warns the study released today by Canadian Imperial Bank of Commerce economists Benjamin Tal and Royce Mendes.

And here’s a stunning figure from the report: The extra money accounts for about 10 per cent of all personal liquid assets in the country.

This angst isn’t new. It obviously came about during the 1987 crash, and again in 2001 and then again during the financial crisis.

excessCash
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deposits
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Sadly, it appears there will be no more entertainment from Silver Bullion Trust:

Silver Bullion Trust (“SBT” or the “Trust”) (symbol: TSX – SBT.UN (C$) and SBT.U (US$)) today announced that SBT Unitholders voted to approve amendments to SBT’s Amended and Restated Declaration of Trust dated July 9, 2009 (the “DOT”), in order to permit its conversion from a closed-end fund to a silver-bullion exchange traded fund (the “ETF Conversion”) at a special meeting of Unitholders held earlier today in Toronto.

As soon as possible, Purpose Investments Inc. will become the new manager and trustee of the Trust once the amendments to the DOT are signed and the bullion holdings will be administered by Silver Administrators Limited, SBT’s current administrator.

It was a modestly negative day for the Canadian preferred share market, with PerpetualDiscounts down 25bp, FixedResets gaining 8bp and DeemedRetractibles off 15bp. The Performance Highlights table shows a fair bit of movement below the placid surface. Volume was on the low side of 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:

impVol_TRP_160126
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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 17.06 to be $1.27 rich, while TRP.PR.C, resetting 2021-1-30 at +154, is $0.92 cheap at its bid price of 10.77.

impVol_MFC_160126
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Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 17.10 to be 0.78 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 17.57 to be 1.11 cheap.

impVol_BAM_160126
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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 13.80 to be $1.57 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 17.69 and appears to be $1.04 rich.

impVol_FTS_160126
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FTS.PR.K, with a spread of +205bp, and bid at 15.75, looks $0.40 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 15.31 and is $0.45 cheap.

pairs_FR_160126
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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.35%, with one outlier below -1.50%. Note the range of the y-axis has changed. There is one junk outlier below -1.50% and two above +0.50%.

pairs_FF_160126
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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 5.28 % 6.43 % 20,369 16.11 1 -1.1538 % 1,473.4
FixedFloater 7.63 % 6.66 % 28,978 15.63 1 0.7282 % 2,605.5
Floater 4.85 % 5.05 % 74,218 15.41 4 -0.3831 % 1,582.2
OpRet 0.00 % 0.00 % 0 0.00 0 -0.2094 % 2,683.2
SplitShare 4.92 % 7.12 % 78,662 2.71 6 -0.2094 % 3,139.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.2094 % 2,449.8
Perpetual-Premium 5.95 % 5.91 % 88,581 13.97 6 -0.1488 % 2,480.0
Perpetual-Discount 5.89 % 5.91 % 101,704 13.99 33 -0.2510 % 2,446.5
FixedReset 5.70 % 5.04 % 239,250 14.57 83 0.0787 % 1,809.5
Deemed-Retractible 5.31 % 5.86 % 127,971 6.95 34 -0.1462 % 2,539.7
FloatingReset 2.98 % 4.72 % 61,161 5.57 13 0.2497 % 2,010.8
Performance Highlights
Issue Index Change Notes
TRP.PR.C FixedReset -4.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 10.77
Evaluated at bid price : 10.77
Bid-YTW : 5.27 %
BAM.PR.Z FixedReset -3.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 17.80
Evaluated at bid price : 17.80
Bid-YTW : 5.39 %
NA.PR.W FixedReset -3.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 16.01
Evaluated at bid price : 16.01
Bid-YTW : 4.96 %
BAM.PR.X FixedReset -2.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 12.25
Evaluated at bid price : 12.25
Bid-YTW : 5.54 %
TRP.PR.B FixedReset -2.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 9.66
Evaluated at bid price : 9.66
Bid-YTW : 5.32 %
VNR.PR.A FixedReset -2.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 16.00
Evaluated at bid price : 16.00
Bid-YTW : 5.68 %
PWF.PR.T FixedReset -2.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 19.53
Evaluated at bid price : 19.53
Bid-YTW : 4.18 %
POW.PR.D Perpetual-Discount -2.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 20.95
Evaluated at bid price : 20.95
Bid-YTW : 6.02 %
BAM.PF.B FixedReset -2.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 17.48
Evaluated at bid price : 17.48
Bid-YTW : 5.05 %
PWF.PR.P FixedReset -2.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 11.10
Evaluated at bid price : 11.10
Bid-YTW : 5.25 %
GWO.PR.O FloatingReset -2.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 11.25
Bid-YTW : 11.91 %
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 : 15.65
Bid-YTW : 9.89 %
PVS.PR.E SplitShare -1.87 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-10-31
Maturity Price : 25.00
Evaluated at bid price : 23.11
Bid-YTW : 7.12 %
BNS.PR.Z FixedReset -1.82 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.30
Bid-YTW : 7.78 %
PWF.PR.A Floater -1.79 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 10.95
Evaluated at bid price : 10.95
Bid-YTW : 4.31 %
POW.PR.A Perpetual-Discount -1.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 23.38
Evaluated at bid price : 23.67
Bid-YTW : 5.96 %
GWO.PR.L Deemed-Retractible -1.57 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.51
Bid-YTW : 6.03 %
TD.PR.S FixedReset -1.51 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.80
Bid-YTW : 4.47 %
BAM.PF.E FixedReset -1.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 17.69
Evaluated at bid price : 17.69
Bid-YTW : 5.04 %
BMO.PR.M FixedReset -1.43 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.77
Bid-YTW : 4.66 %
SLF.PR.J FloatingReset -1.29 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 11.50
Bid-YTW : 11.80 %
CU.PR.C FixedReset -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 16.60
Evaluated at bid price : 16.60
Bid-YTW : 4.86 %
POW.PR.G Perpetual-Discount -1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 23.36
Evaluated at bid price : 23.82
Bid-YTW : 5.91 %
POW.PR.B Perpetual-Discount -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 22.41
Evaluated at bid price : 22.67
Bid-YTW : 5.94 %
TRP.PR.F FloatingReset -1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 11.37
Evaluated at bid price : 11.37
Bid-YTW : 5.29 %
BAM.PR.E Ratchet -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 25.00
Evaluated at bid price : 12.85
Bid-YTW : 6.43 %
IFC.PR.A FixedReset -1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.40
Bid-YTW : 11.37 %
MFC.PR.H FixedReset 1.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.70
Bid-YTW : 7.31 %
TD.PF.E FixedReset 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 19.85
Evaluated at bid price : 19.85
Bid-YTW : 4.57 %
RY.PR.H FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 17.41
Evaluated at bid price : 17.41
Bid-YTW : 4.52 %
BNS.PR.R FixedReset 1.29 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.81
Bid-YTW : 4.96 %
PVS.PR.D SplitShare 1.34 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2021-10-08
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 7.28 %
BAM.PR.R FixedReset 1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 13.80
Evaluated at bid price : 13.80
Bid-YTW : 5.60 %
BNS.PR.A FloatingReset 1.40 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.40
Bid-YTW : 4.41 %
CCS.PR.C Deemed-Retractible 1.41 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.55
Bid-YTW : 7.20 %
BMO.PR.Y FixedReset 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 19.27
Evaluated at bid price : 19.27
Bid-YTW : 4.63 %
RY.PR.M FixedReset 1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 18.25
Evaluated at bid price : 18.25
Bid-YTW : 4.66 %
RY.PR.I FixedReset 1.61 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.42
Bid-YTW : 4.27 %
FTS.PR.M FixedReset 1.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 4.92 %
NA.PR.Q FixedReset 1.78 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.30
Bid-YTW : 5.47 %
IAG.PR.G FixedReset 1.89 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.90
Bid-YTW : 7.55 %
RY.PR.J FixedReset 1.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 18.52
Evaluated at bid price : 18.52
Bid-YTW : 4.71 %
RY.PR.Z FixedReset 2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 4.44 %
SLF.PR.G FixedReset 2.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 12.94
Bid-YTW : 10.76 %
TD.PF.D FixedReset 2.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 4.66 %
HSE.PR.G FixedReset 2.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 15.10
Evaluated at bid price : 15.10
Bid-YTW : 7.29 %
SLF.PR.H FixedReset 2.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.10
Bid-YTW : 10.71 %
SLF.PR.I FixedReset 2.40 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.66
Bid-YTW : 9.13 %
TD.PF.A FixedReset 2.95 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 17.11
Evaluated at bid price : 17.11
Bid-YTW : 4.61 %
BNS.PR.B FloatingReset 3.19 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.68
Bid-YTW : 4.64 %
Volume Highlights
Issue Index Shares
Traded
Notes
NA.PR.X FixedReset 146,614 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 23.06
Evaluated at bid price : 24.77
Bid-YTW : 5.61 %
TD.PF.G FixedReset 88,726 Recent new issue.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-30
Maturity Price : 25.00
Evaluated at bid price : 25.36
Bid-YTW : 5.26 %
RY.PR.Q FixedReset 76,204 Desjardins crossed 10,700 at 25.47.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 23.29
Evaluated at bid price : 25.46
Bid-YTW : 5.17 %
BMO.PR.S FixedReset 70,795 Nesbitt crossed 12,500 at 17.55.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 17.46
Evaluated at bid price : 17.46
Bid-YTW : 4.69 %
GWO.PR.F Deemed-Retractible 68,245 Desjardins crossed 45,400 at 25.15; Nesbitt crossed 21,300 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2016-02-25
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 3.71 %
BAM.PR.X FixedReset 67,200 TD crossed 50,000 at 12.55.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 12.25
Evaluated at bid price : 12.25
Bid-YTW : 5.54 %
There were 28 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.O FloatingReset Quote: 11.25 – 20.25
Spot Rate : 9.0000
Average : 5.9189

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 11.25
Bid-YTW : 11.91 %

BNS.PR.C FloatingReset Quote: 21.65 – 22.73
Spot Rate : 1.0800
Average : 0.6508

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.65
Bid-YTW : 4.86 %

IAG.PR.G FixedReset Quote: 18.90 – 19.77
Spot Rate : 0.8700
Average : 0.6118

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.90
Bid-YTW : 7.55 %

TRP.PR.G FixedReset Quote: 17.90 – 18.65
Spot Rate : 0.7500
Average : 0.4990

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 17.90
Evaluated at bid price : 17.90
Bid-YTW : 5.26 %

BAM.PR.Z FixedReset Quote: 17.80 – 18.64
Spot Rate : 0.8400
Average : 0.6271

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 17.80
Evaluated at bid price : 17.80
Bid-YTW : 5.39 %

W.PR.H Perpetual-Discount Quote: 22.00 – 22.47
Spot Rate : 0.4700
Average : 0.3051

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-26
Maturity Price : 21.75
Evaluated at bid price : 22.00
Bid-YTW : 6.30 %

Market Action

January 25, 2016

The oil crash is being compared to subprime, in appearance if not in effect:

One year ago, analysts at Bank of America Merrill Lynch drew a parallel between the subprime mortgage crash and the disorderly fall in the price of oil.

Led by Chris Flanagan, a veteran of the securitization space, the team drew attention to Markit’s ABX Index, better known as the mother of all synthetic subprime credit indexes.

Fast-forward to today and the BofAML analysts provide an update to their previous thesis, which was that the downward spiral in the price of oil was shaping up to look a lot like the negative trend that engulfed the subprime space circa the year 2007.

Given that both housing and oil prices were fueled to spectacular heights in the two periods by massive credit expansion, it’s probably more than just coincidence that the respective “bubble” bursting patterns are so similar.

Lower prices beget accelerated selling, as asset owners need to raise cash. It could be margin calls or it could be producer selling needs, it doesn’t really matter: the selling becomes inevitable and turns into forced selling.

oil_subprime
Click for Big

But all that’s boring. What’s really cool is advances in 3D Printing Technology:

Orbital ATK (NYSE: OA), a global leader in aerospace and defense technologies, announced today that it has successfully tested a 3D-printed hypersonic engine combustor at NASA Langley Research Center. The combustor, produced through an additive manufacturing process known as powder bed fusion (PBF), was subjected to a variety of high-temperature hypersonic flight conditions over the course of 20 days, including one of the longest duration propulsion wind tunnel tests ever recorded for a unit of this kind. Analysis confirms the unit met or exceeded all of the test requirements.

One of the most challenging parts of the propulsion system, a scramjet combustor, houses and maintains stable combustion within an extremely volatile environment. The tests were, in part, to ensure that the PBF-produced part would be robust enough to meet mission objectives.

“Additive manufacturing opens up new possibilities for our designers and engineers,” said Pat Nolan, Vice President and General Manager of Orbital ATK’s Missile Products division of the Defense Systems Group. “This combustor is a great example of a component that was impossible to build just a few years ago. This successful test will encourage our engineers to continue to explore new designs and use these innovative tools to lower costs and decrease manufacturing time.”

The test at Langley was an important opportunity to challenge Orbital ATK’s new combustor design, made possible only through the additive manufacturing process. Complex geometries and assemblies that once required multiple components can be simplified to a single, more cost-effective assembly. However, since the components are built one layer at a time, it is now possible to design features and integrated components that could not be easily cast or otherwise machined.

And not just that … now there’s some muttering about 4-D Printing:

Now, scientists say they recently developed innovative 4D-printing methods that involve 3D-printing items that are designed to change shape after they are printed.

“Other active research teams exploring 4D printing require multiple materials printed together, with one material that stays rigid while another changes shape and acts like a hinge,” said study co-senior author Jennifer Lewis, a materials scientist at Harvard University.

The researchers wanted to create 4D-printed structures that were created more simply, from one kind of material instead of several. They sought inspiration from nature, looking at plants, whose tendrils, leaves and flowers can respond to environmental factors such as light and touch. For instance, “pinecones can open and close depending on their degree of hydration — how wet they are,” Lewis told Live Science.

Plant structures largely consist of fibers of a material known as cellulose. Lewis and her colleagues devised 3D-printed structures made of stiff cellulose fibers embedded in a soft hydrogel, the same kind of material from which soft contact lenses are made. This hydrogel swells up when immersed in water.

The researchers can control the directions in which these fibers are oriented within the printed structures. In turn, the orientations of these fibers control the way in which these structures swell when they are immersed in water, much like how cellulose fibers control the way plants flex because of pressure exerted by fluids inside them, the researchers said. In essence, the scientists can use the orientation of cellulose fibers in the structures to program how the objects change shape.

The scientists found that they could make the structures they created shift into cone, saddle, ruffle and spiral shapes minutes after they were soaked in water. They had flat sheets bend and twist into complex 3D structures resembling orchids and calla lilies.

What a completely fascinating time to be alive!

It was a good solid day for the Canadian preferred share market, with PerpetualDiscounts up 22bp, FixedResets winning 39bp and DeemedRetractibles gaining 21bp. The relatively calm numbers mask a lot of churn on the Performance Highlights table, though! Volume was well below 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:

impVol_TRP_160125
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 17.14 to be $1.18 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.76 cheap at its bid price of 18.03.

impVol_MFC_160125
Click for Big

Most expensive is MFC.PR.M, resetting at +236bp on 2019-12-19, bid at 17.31 to be 0.80 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 17.60 to be 1.01 cheap.

impVol_BAM_160125
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 13.61 to be $1.91 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 17.95 and appears to be $1.13 rich.

impVol_FTS_160125
Click for Big

FTS.PR.K, with a spread of +205bp, and bid at 15.75, looks $0.46 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 15.43 and is $0.26 cheap.

pairs_FR_160125
Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.43%, with two outliers below -1.00%. There are five junk outliers below -1.00%.

pairs_FF_160125
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 5.21 % 6.35 % 20,645 16.20 1 1.1673 % 1,490.6
FixedFloater 7.69 % 6.71 % 30,026 15.58 1 -0.7229 % 2,586.6
Floater 4.83 % 5.08 % 74,139 15.36 4 -0.1240 % 1,588.3
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1464 % 2,688.8
SplitShare 4.91 % 6.77 % 78,359 2.72 6 -0.1464 % 3,146.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1464 % 2,455.0
Perpetual-Premium 5.94 % 5.90 % 91,758 13.99 6 -0.2294 % 2,483.7
Perpetual-Discount 5.88 % 5.89 % 101,901 14.07 33 0.2162 % 2,452.6
FixedReset 5.71 % 5.02 % 242,324 14.71 83 0.3861 % 1,808.1
Deemed-Retractible 5.31 % 5.80 % 132,504 6.96 34 0.2115 % 2,543.5
FloatingReset 2.99 % 4.86 % 62,285 5.57 13 -0.0936 % 2,005.8
Performance Highlights
Issue Index Change Notes
GWO.PR.O FloatingReset -4.17 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 11.50
Bid-YTW : 11.62 %
SLF.PR.J FloatingReset -3.00 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 11.65
Bid-YTW : 11.62 %
HSE.PR.A FixedReset -2.69 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 8.32
Evaluated at bid price : 8.32
Bid-YTW : 7.44 %
BAM.PR.C Floater -2.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 9.20
Evaluated at bid price : 9.20
Bid-YTW : 5.19 %
SLF.PR.I FixedReset -2.46 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.27
Bid-YTW : 9.46 %
PVS.PR.D SplitShare -2.43 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2021-10-08
Maturity Price : 25.00
Evaluated at bid price : 21.71
Bid-YTW : 7.56 %
TD.PF.A FixedReset -2.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 16.62
Evaluated at bid price : 16.62
Bid-YTW : 4.75 %
BAM.PR.B Floater -2.29 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 9.40
Evaluated at bid price : 9.40
Bid-YTW : 5.08 %
BNS.PR.D FloatingReset -1.88 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.26
Bid-YTW : 6.98 %
BNS.PR.B FloatingReset -1.59 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.01
Bid-YTW : 5.21 %
VNR.PR.A FixedReset -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 16.41
Evaluated at bid price : 16.41
Bid-YTW : 5.53 %
BAM.PF.F FixedReset -1.39 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 19.18
Evaluated at bid price : 19.18
Bid-YTW : 4.95 %
PWF.PR.O Perpetual-Premium -1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 23.95
Evaluated at bid price : 24.46
Bid-YTW : 5.94 %
BNS.PR.P FixedReset -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.42
Bid-YTW : 4.20 %
CU.PR.I FixedReset -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 23.18
Evaluated at bid price : 25.01
Bid-YTW : 4.45 %
BAM.PR.X FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 12.61
Evaluated at bid price : 12.61
Bid-YTW : 5.37 %
BAM.PF.G FixedReset -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 18.66
Evaluated at bid price : 18.66
Bid-YTW : 5.13 %
GWO.PR.L Deemed-Retractible 1.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.90
Bid-YTW : 5.80 %
RY.PR.N Perpetual-Discount 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 21.82
Evaluated at bid price : 22.15
Bid-YTW : 5.52 %
BNS.PR.A FloatingReset 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.09
Bid-YTW : 4.67 %
PVS.PR.C SplitShare 1.06 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 24.70
Bid-YTW : 5.94 %
TD.PR.Z FloatingReset 1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 4.35 %
BNS.PR.C FloatingReset 1.12 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.65
Bid-YTW : 4.86 %
RY.PR.W Perpetual-Discount 1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 22.22
Evaluated at bid price : 22.50
Bid-YTW : 5.44 %
RY.PR.O Perpetual-Discount 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 21.96
Evaluated at bid price : 22.24
Bid-YTW : 5.50 %
BAM.PR.E Ratchet 1.17 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 25.00
Evaluated at bid price : 13.00
Bid-YTW : 6.35 %
NA.PR.W FixedReset 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 16.55
Evaluated at bid price : 16.55
Bid-YTW : 4.79 %
CIU.PR.C FixedReset 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 10.59
Evaluated at bid price : 10.59
Bid-YTW : 5.04 %
MFC.PR.H FixedReset 1.30 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.50
Bid-YTW : 7.45 %
BAM.PR.R FixedReset 1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 13.61
Evaluated at bid price : 13.61
Bid-YTW : 5.67 %
CM.PR.O FixedReset 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 17.24
Evaluated at bid price : 17.24
Bid-YTW : 4.67 %
BAM.PF.E FixedReset 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 17.95
Evaluated at bid price : 17.95
Bid-YTW : 4.96 %
MFC.PR.K FixedReset 1.59 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 15.95
Bid-YTW : 9.38 %
FTS.PR.G FixedReset 1.71 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 15.43
Evaluated at bid price : 15.43
Bid-YTW : 4.93 %
TRP.PR.D FixedReset 1.74 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 16.39
Evaluated at bid price : 16.39
Bid-YTW : 4.99 %
CM.PR.Q FixedReset 1.81 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 19.11
Evaluated at bid price : 19.11
Bid-YTW : 4.63 %
BMO.PR.M FixedReset 2.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.10
Bid-YTW : 4.39 %
BAM.PR.K Floater 2.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 9.40
Evaluated at bid price : 9.40
Bid-YTW : 5.08 %
TD.PF.F Perpetual-Discount 2.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 21.87
Evaluated at bid price : 22.21
Bid-YTW : 5.53 %
PWF.PR.A Floater 2.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 11.15
Evaluated at bid price : 11.15
Bid-YTW : 4.23 %
TRP.PR.C FixedReset 2.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 11.24
Evaluated at bid price : 11.24
Bid-YTW : 5.05 %
BAM.PR.T FixedReset 2.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 14.80
Evaluated at bid price : 14.80
Bid-YTW : 5.32 %
TRP.PR.E FixedReset 2.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 17.14
Evaluated at bid price : 17.14
Bid-YTW : 4.84 %
BAM.PR.Z FixedReset 2.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 18.45
Evaluated at bid price : 18.45
Bid-YTW : 5.20 %
TD.PF.C FixedReset 2.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 4.54 %
PWF.PR.S Perpetual-Discount 2.99 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 20.65
Evaluated at bid price : 20.65
Bid-YTW : 5.85 %
RY.PR.K FloatingReset 3.31 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.55
Bid-YTW : 4.99 %
RY.PR.I FixedReset 3.36 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.05
Bid-YTW : 4.57 %
BIP.PR.B FixedReset 3.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 22.22
Evaluated at bid price : 22.90
Bid-YTW : 6.07 %
TRP.PR.B FixedReset 4.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 9.93
Evaluated at bid price : 9.93
Bid-YTW : 5.17 %
BAM.PF.B FixedReset 4.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 17.89
Evaluated at bid price : 17.89
Bid-YTW : 4.93 %
BAM.PF.A FixedReset 4.90 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 18.83
Evaluated at bid price : 18.83
Bid-YTW : 5.02 %
Volume Highlights
Issue Index Shares
Traded
Notes
NA.PR.X FixedReset 298,282 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 23.05
Evaluated at bid price : 24.72
Bid-YTW : 5.62 %
RY.PR.Q FixedReset 82,192 TD crossed 15,900 at 25.40; Scotia crossed 40,000 at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 23.25
Evaluated at bid price : 25.35
Bid-YTW : 5.20 %
BMO.PR.S FixedReset 62,563 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 17.42
Evaluated at bid price : 17.42
Bid-YTW : 4.70 %
BNS.PR.Z FixedReset 46,222 RBC crossed 40,000 at 18.65.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.64
Bid-YTW : 7.44 %
RY.PR.J FixedReset 27,691 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 18.16
Evaluated at bid price : 18.16
Bid-YTW : 4.80 %
RY.PR.Z FixedReset 27,661 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 17.15
Evaluated at bid price : 17.15
Bid-YTW : 4.53 %
There were 20 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CCS.PR.C Deemed-Retractible Quote: 21.25 – 23.15
Spot Rate : 1.9000
Average : 1.1381

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.25
Bid-YTW : 7.41 %

TD.PF.A FixedReset Quote: 16.62 – 17.55
Spot Rate : 0.9300
Average : 0.6834

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 16.62
Evaluated at bid price : 16.62
Bid-YTW : 4.75 %

BAM.PF.F FixedReset Quote: 19.18 – 19.99
Spot Rate : 0.8100
Average : 0.6465

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-01-25
Maturity Price : 19.18
Evaluated at bid price : 19.18
Bid-YTW : 4.95 %

BMO.PR.Q FixedReset Quote: 18.25 – 19.00
Spot Rate : 0.7500
Average : 0.5936

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.25
Bid-YTW : 7.94 %

BNS.PR.B FloatingReset Quote: 21.01 – 21.44
Spot Rate : 0.4300
Average : 0.2771

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.01
Bid-YTW : 5.21 %

BMO.PR.M FixedReset Quote: 23.10 – 23.88
Spot Rate : 0.7800
Average : 0.6312

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.10
Bid-YTW : 4.39 %

Issue Comments

ALB.PR.B To Be Refunded

On 2015-10-8, The Bank of Nova Scotia announced:

Allbanc Split Corp. II (the “Company”) announced today that its Board of Directors has approved a proposal to reorganize the Company. Scotiabank has been retained to advise the Company on the reorganization which will permit holders of Capital Shares to extend their investment in the Company beyond the scheduled redemption date of February 28, 2016 for an additional five years. The Preferred Shares will be redeemed on the same terms originally contemplated in their share provisions. Holders of Capital Shares who do not wish to extend their investment and all holders of Preferred Shares will have their shares redeemed on February 28, 2016.

The reorganization will involve (i) the extension of the originally scheduled redemption date, (ii) a special retraction right to enable holders of Capital Shares to retract their shares as originally contemplated should they not wish to extend their investment and (iii) the issuance of new preferred shares in order to provide continuing leverage for the Capital Shares. The Company may also offer additional Capital Shares at the time of the preferred share offering.

A special meeting of holders of the Capital Shares will be called to consider and vote upon the proposed reorganization. Details of the proposed reorganization will be outlined in an information circular to be prepared and delivered to holders of Capital Shares in connection with the special meeting and will be available on www.sedar.com. Implementation of the proposed reorganization will also be subject to applicable regulatory approval including the Toronto Stock Exchange.

Allbanc Split Corp. II is a mutual fund corporation created to hold a portfolio of publicly listed common shares of selected Canadian chartered banks. Capital Shares and Preferred Shares of Allbanc Split Corp. II are listed for trading on The Toronto Stock Exchange under the symbols ALB and ALB.PR.B respectively.

On 2015-10-27, they announced:

A special meeting of holders of the Capital Shares has now been called and will be held on December 11, 2015 to consider and vote upon the proposed reorganization. Details of the proposed reorganization will be outlined in an information circular to be prepared and delivered to holders of Capital Shares of record on November 5, 2015 in connection with the special meeting. Implementation of the proposed reorganization will also be subject to applicable regulatory approval including the Toronto Stock Exchange.

On 2015-12-11, they announced:

Allbanc Split Corp. II (the “Company”) announced today that holders of its Class A Capital Shares (“Capital Shares”) have overwhelmingly approved a share capital reorganization (the “Reorganization”) allowing holders of Capital Shares, at their option, to retain their investment in the Company after the redemption date of February 26, 2016. The Reorganization will permit holders of Capital Shares to extend their investment in the Company beyond the redemption date of February 26, 2016 for an additional five years. The Class B Preferred Shares, Series 1 will be redeemed on the same terms originally contemplated in their share provisions on February 26, 2016. In order to maintain the leveraged “split share” structure of the Company, the Company expects to create and issue a new series of Class B preferred shares on or about February 26, 2016.

… and on 2015-12-30, they announced:

Allbanc Split Corp. II (the “Company”) announced today that the final condition required to extend the term of the Company for an additional five years to February 28, 2021, has been met as holders of approximately 85% of Class A Capital Shares (“Capital Shares”) have elected to extend. Holders of Capital Shares previously approved the extension of the term of the Company provided a minimum of 1,000,000 Capital Shares remain outstanding after giving effect to the special retraction right (the “Special Retraction Right”).

Under the Special Retraction Right, 243,022 Capital Shares were tendered to the Company for payment on February 26, 2016. The holders of the remaining 1,375,134 Capital Shares will continue to enjoy the benefits of a leveraged participation in the capital appreciation of the Company’s portfolio while potentially deferring any capital gains tax liability which would
otherwise be realized on the redemption of their Capital Shares.

The Company’s Class B Preferred Shares, Series 1 will be redeemed by the Company on February 26, 2016 in accordance with the redemption provisions at a price per share equal to the lesser of $21.80 and the Net Asset Value per Unit. In order to maintain the leveraged “split share” structure of the Company, the Company intends to create and issue a new series of Class B Preferred Shares to be called the Series 2 Preferred Shares, which are expected to be issued immediately following
this redemption.

A provisional rating of Pfd-2(low) has been assigned by DBRS to the new issue:

The initial downside protection available to the holders of the Preferred Shares is expected to be greater than 54% (after offering expenses). Downside protection available to the Pre¬ferred Shares consists of the NAV of the Capital Shares. Upon maturity, the holders of the Preferred Shares will be en¬titled to the value of the Portfolio Shares, up to the face value of the Preferred Shares, in priority to the holders of the Capital Shares. The holders of the Capital Shares will be entitled to the distribu¬tion in the excess of dividend income on the Portfolio Shares beyond what is required to pay the holders of the Preferred Shares, as well as all capital appreciation.

The provisional Pfd-2 (low) rating of the Preferred Shares is primarily based on the expected level of downside protection and dividend coverage available to holders of the Preferred Shares, as well as the credit quality and consistency of dividend distributions of the Portfolio holdings.

Details of the refunding issue will be reported when available.

Issue Comments

CBU.PR.A Redeemed On Schedule

On December 14, 2015, CI Financial announced:

First Asset CanBanc Split Corp. (the “Fund”) announces that all of the issued and outstanding Preferred Shares (TSX: CBU.PR.A) and Class A Shares (TSX: CBU) of the Fund will be redeemed by the Fund on January 15, 2016 (the “Redemption Date”) as scheduled.

The redemption price payable by the Fund for a Preferred Share on the Redemption Date will be equal to the lesser of (i) $10.00 plus any accrued and unpaid distributions thereon, and (ii) the net asset value (“NAV”) of the Fund on the Redemption Date divided by the total number of Preferred Shares then outstanding.

The redemption price payable by the Fund for a Class A Share on the Redemption Date will be equal to the greater of (i) the NAV per Unit on that date minus the sum of $10.00 plus any accrued and unpaid distributions per share on the Preferred Shares then outstanding, and (ii) nil. A “Unit” is a notional unit consisting of one Preferred Share and one Class A Share.

NAV per Unit was $42.39 as at December 11, 2015.

Redemption proceeds will be paid on or before January 22, 2016. Shareholders are not required to take any action in connection with the above redemptions.

… and on January 18, 2016, they further announced:

First Asset CanBanc Split Corp. (the “Fund”) announces that the Fund completed the redemption of all of the issued and outstanding Preferred Shares and Class A Shares on January 15, 2016 (the “Redemption Date”).

Each Preferred Share will receive $10.0268 per share, and each Class A Share will receive $30.1588 per share. These proceeds will be paid on or before January 22, 2016 to the beneficial holders of such shares through CDS Clearing and Depository Services Inc. Shareholders need not take any action to receive the final redemption proceeds.

HIMIPref™ did not track this issue; according to the last financials (SEDAR, First Asset CanBanc Split Corp. Aug 31 2015 21:16:09 ET Interim financial statements/report – English PDF 348 K) the total assets of the fund amounted to $15.4-million of which, according to the second press release, only about one-quarter was due to the preferred shareholders. But I thought I should post this for completeness’ sake.

New Issues

New Issue: Empire Life FixedReset, 5.75%+499

The Empire Life Insurance Company has announced:

a Canadian public offering of Non-Cumulative Rate Reset Preferred Shares, Series 1 (the “Series 1 Preferred Shares”). Empire Life will issue 5.2 million Series 1 Preferred Shares priced at $25 per share to raise gross proceeds of $130 million. The offering will be underwritten on a bought deal basis by a syndicate of underwriters co-led by Scotia Capital Inc., CIBC World Markets Inc. and TD Securities Inc. Empire Life has granted the underwriters an option to purchase up to an additional 780,000 Series 1 Preferred Shares exercisable at any time up to a period of 30 days from the date of closing.

Holders of Series 1 Preferred Shares will be entitled to receive fixed non-cumulative quarterly dividends yielding 5.75% annually, as and when declared by the Board of Directors of Empire Life, for the initial period ending on and including April 17, 2021. Thereafter, the dividend rate will be reset every five years at a rate equal to the 5-year Government of Canada bond yield plus 4.99%.

Holders of Series 1 Preferred Shares will have the right, at their option, to convert their shares into Non-Cumulative Floating Rate Preferred Shares, Series 2 (“Series 2 Preferred Shares”), subject to certain conditions, on April 17, 2021 and on April 17 every five years thereafter. Holders of the Series 2 Preferred Shares will be entitled to receive non-cumulative quarterly floating dividends, as and when declared by the Board of Directors of Empire Life, at a rate equal to the three-month Government of Canada Treasury Bill yield plus 4.99%.

Empire Life intends to use the net proceeds from the offering for regulatory capital and general corporate purposes.

The offering is expected to close on February 16, 2016, subject to regular closing conditions.

On a pro forma basis, after giving effect to the preferred share issue (but assuming no exercise of the over-allotment option), the Company estimates that, as at September 30, 2015, its MCCSR would have increased from 202% to 220%.

“This is a very positive development for Empire Life,” said Mark Sylvia, President and Chief Executive Officer of Empire Life. “This offering will further build on our solid capital base with additional financing that increases our ability to compete and achieve our business goals.”

The issue has been assigned a provisional Pfd-2 rating by DBRS:

DBRS Limited (DBRS) has today provisionally rated The Empire Life Insurance Company’s (Empire Life or the Company) Non-Cumulative Rate Reset Preferred Shares, Series 1 (Series 1 Preferred Shares) at Pfd-2 with a Stable trend.

The DBRS assigned Preferred Shares rating is in accordance with Empire Life’s Financial Strength Rating of “A.”

Empire Life intends to use the net proceeds from the sale of the Series 1 Preferred Shares for regulatory capital and general corporate purposes.

The rating is consistent with DBRS’s Preferred Share and Hybrid Criteria for Corporate Issuers.

As this issue is from an insurer and there is no provision for conversion into common shares at the option of the issuer, I consider this to be subject to my Deemed Retraction policy; accordingly I have placed a maturity entry dated 2025-1-31 at par in the call schedule of this instrument for analytical purposes. Note that this approach is due to analysis and there is no contractual provision in the terms of issue for any such maturity.

As this is the first issue from Empire Life, it is not possible to run a self-consistent Implied Volatility analysis, but comparison with the MFC series shows that the issue is not out of line … but remember that in this series Implied Volatility is extremely high – so high as to be an indicator that there is a degree of directionality in the valuation of MFC issues. In addition, it is obvious that the new issue is well out of the range of Issue Reset Spreads covered by the MFC issues … so take this chart with a grain of salt!

impVol_MFC_EL_160125
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