April 10, 2023

April 10th, 2023

Jobs, jobs, jobs (US Version)!

The economy in March continued its descent from dizzying heights, with employment growing at a healthy rate but one that nonetheless signifies employers are pulling back as steadily rising interest rates take their toll.

Employers added 236,000 jobs last month, the Labor Department reported on Friday, while the unemployment rate decreased to 3.5 percent, from 3.6 percent in February.

The range of industries beginning to fade has widened, as warehousing, retail, manufacturing, construction and financial activities — those more sensitive to borrowing costs — either lost jobs or stayed flat over the month.

  • Year-over-year growth in average hourly earnings slowed slightly in March, to 4.2 percent, a sign the Federal Reserve has been looking for as it seeks to quell inflation. The report reflected a labor market that is gently decelerating, a sign of the kind of soft economic landing that the Fed has been shooting for.
  • The U.S. labor force added nearly half a million workers in March and the share of Americans considered in their prime working age rose to 80.7 percent, the highest rate since 2001. So much for “nobody wants to work anymore.”
  • The report delivered welcome news for President Biden, who has said that the job market needed to cool to tame high inflation. But analysts warn that the outbreak of banking sector turmoil means that the coming months could bring a more rapid deceleration in hiring.
  • Bond yields jumped in response to the fresh data, as investors added to bets that interest rates would rise. Stock markets were closed on Friday for the Easter holiday but the bond market opened for a shortened session, during which yields continued to record unusually big swings.

So this year’s tussle is between the economists and the players! Who will win?

The Bank of Canada will keep its key interest rate steady at 4.50 per cent through 2023, according to most economists polled by Reuters, with an even smaller minority now expecting an interest-rate cut by year-end than a poll taken a month ago.

Markets still expect more than 50 basis points of cuts, pricing fuelled by fears last month over stresses in the U.S. and European banking sector, despite Canada’s economy and labour market performing better than expected.

In March, the BoC was the first major central bank to stop its aggressive hiking cycle and is on what it calls a conditional pause. So all 33 economists polled March 31-April 6 said it will hold its overnight rate at 4.50 per cent on April 12.

A majority of forecasters, 23 of 31, said the rate would remain unchanged for the rest of 2023. Only seven expected at least one 25-basis-point rate cut by end-year, down from 13 in a survey taken about a month ago.

The IMF has released its Global Financial Stability Report which includes a chapter on Geopolitics and Financial Fragmentation: Implications for Macro-Financial Stability:

Rising geopolitical tensions among major economies have intensified concerns about global economic and financial fragmentation, which could have potentially important implications for global financial stability. Fragmentation induced by geopolitical tensions could affect the cross-border allocation of capital, international payment systems, and asset prices. This could pose macro-financial stability risks by increasing banks’ funding costs, reducing their profitability, and lowering the provision of credit to the private sector. Greater financial fragmentation could also exacerbate capital flow and macro-financial volatility by limiting international risk diversification. Policymakers need to be aware of potential financial stability risks associated with a rise in geopolitical tensions and assess and quantify geopolitical shock transmission to financial institutions. Financial institutions may need to hold adequate capital and liquidity buffers against rising geopolitical risks. The global financial safety net also needs to be buttressed through adequate levels of international reserves held by countries, central bank liquidity swap arrangements, and precautionary credit lines from international financial institutions.

One grudge the private-school boys at the major dealers have against market-making hedge funds is that they pull their capital out of the market when things get hairy. So, it turns out, do private mortgage lenders:

Private mortgage lenders are refusing to renew loans to their existing borrowers, leaving indebted homeowners without a source of funding.

Canadian Mortgages Inc., CMLS Financial, New Haven Mortgage Corp. and individual private lenders are some of those who have turned down requests to renew some of their borrowers’ loans after home prices tanked over this past year.

This is taking place in areas where home prices have dropped significantly. That includes Owen Sound, Bowmanville, Orillia, Timmins, Hamilton and Brampton in Ontario and Prince Rupert in British Columbia.

Private lenders are nervous they won’t be able to recoup their capital if borrowers are unable to make their monthly payments. Private lending is typically determined using a metric called the loan-to-value (LTV) ratio, which measures how much the homeowner owes relative to the appraised value of the property.

Currently, many private lenders are only willing to lend up to 75 per cent of the property’s value – also known as an LTV ratio of 75 per cent. When home prices were soaring in 2021, private lenders were willing to offer loans with an LTV ratio of 90 per cent.

Now that home prices have dropped, that has increased the risk to the lender and they are no longer willing to renew loans. When borrowers try to renew their mortgage, the lender is either refusing to renew their loan or telling borrowers that their properties need to be reappraised. And when the property is reappraised, it has a much lower value.

The New York Fed has released its Survey of Consumer Expectations:

Inflation

  • Median inflation expectations increased by 0.5 percentage point at the one-year-ahead horizon to 4.7%, marking the first increase in the series since October 2022. Median inflation expectations increased by 0.1 percentage point at the three-year-ahead horizon to 2.8%, but decreased by 0.1 percentage point at the five-year-ahead horizon to 2.5%. The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) increased at all three horizons.
  • Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—increased at the one-year-ahead horizon, decreased at the three-year-ahead horizon, and remained unchanged at the five-year-ahead horizon.
  • Median home price growth expectations increased by 0.4 percentage point to 1.8% in March, remaining far below the 12-month trailing average of 3.0% as well as their pre-pandemic levels. The increase was most pronounced among respondents with no more than a high school education and for those who live in the Midwest Census region.
  • Median year-ahead expected price changes declined by 0.1 percentage point for gas (to 4.6%), 1.4 percentage point for food (to 5.9%), 0.1 percentage point for the cost of medical care (to 9.3%), and 0.2 percentage point for the cost of rent (to 9.2%). Median year-ahead expected cost of college education increased by 0.8 percentage point (to 8.9%). All commodity price expectations remain well above their pre-pandemic (March 2020) levels.

Labor Market

  • Median one-year-ahead expected earnings growth remained unchanged at 3.0% in March. The series has been moving between a narrow range of 2.8% to 3.0% since September 2021; March marked the fourth consecutive month it remained at 3.0%.
  • Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—increased by 1.3 percentage point to 40.7%. The increase was more pronounced for respondents with at least some college education, those between the ages of 40 and 60, and those with annual household incomes between $50k and $100k.
  • The mean perceived probability of losing one’s job in the next 12 months decreased by 0.4 percentage point to 11.4%. The mean probability of leaving one’s job voluntarily in the next 12 months also declined by 1.5 percentage point to 19.3%.
  • The mean perceived probability of finding a job (if one’s current job was lost) declined by 0.3 percentage point to 57.6% in March. The series has been moving between a narrow range of 57.2% to 58.2% since August 2022.

Something peculiar is happening at Emerge Canada Inc.:

Regulators have slapped the entire family of exchange-traded funds from Emerge Canada Inc. with a trading halt because the company has failed to find an auditor to review its financial statements.

Toronto-based Emerge revealed in mid-December that, nearly six weeks earlier, BDO Canada LLP had resigned as the auditors of the Emerge Funds. At the time, Emerge said it was “working expeditiously to appoint a successor auditor.”

Monday, Emerge acknowledged it has yet to find a new auditor. Lacking one, it failed to file audited annual financial statements for its funds by a March 31 deadline. As a result, the Ontario Securities Commission issued a cease-trade order on Thursday for all the Emerge funds.

In its December 14 filing, Emerge said BDO “resigned, on its own initiative” on Nov. 3. Emerge said BDO Canada LLP had no reservations in its reports for the Emerge Funds for the two most recently completed financial years, which were 2020 and 2021. Also, there no were no “reportable events,” which are types of disagreements with auditors or other accounting issues that are defined in securities law.

The next day, in a filing to all provincial securities regulators, BDO said “We agree with the statements made in the Change of Auditor Notice pertaining to our firm.”

And we should all Raise a glass to Bing Newcomb:

Mr. Newcomb, who co-founded the company E*Trade and wrote the computer code that made it work, died on Jan. 29 at his home in Palo Alto, Calif. He was 79.

In 1980, Mr. Newcomb and William A. Porter were introduced by a mutual friend at a Halloween party in Palo Alto. Mr. Porter, a onetime cowboy turned electronics whiz, had just purchased an Apple II personal computer, the company’s first model aimed at consumers. How, he wondered, could he and other individuals use the new technology to buy and sell stocks from home?

Mr. Newcomb, who had been working as a freelance computer programmer, hiring himself out to banks and other businesses that needed a guide to emerging digital technologies, provided the answers.

In 1982, with $15,000 in capital, the partners started TradePlus, one of the first electronic trading platforms. Its first trade was made on July 11, 1983, by a Michigan dentist.

By 1994, revenues had risen geometrically, from $850,000 only two years earlier to nearly $11 million. A business journal proclaimed the firm to be the fastest-growing private company in Silicon Valley. It went public as the E*Trade Group in 1996.

Mr. Newcomb, who had been the company’s chief system architect and vice president for research and development, retired with 2.4 million shares of the company in 1997, when the price per share was about $23.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -2.3967 % 2,270.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 -2.3967 % 4,353.8
Floater 9.93 % 9.90 % 40,160 9.64 2 -2.3967 % 2,509.1
OpRet 0.00 % 0.00 % 0 0.00 0 -0.1405 % 3,352.5
SplitShare 5.01 % 7.26 % 44,407 2.64 7 -0.1405 % 4,003.6
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.1405 % 3,123.8
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 -0.0270 % 2,761.8
Perpetual-Discount 6.18 % 6.21 % 54,153 13.60 34 -0.0270 % 3,011.6
FixedReset Disc 5.81 % 7.59 % 88,688 12.15 63 0.1308 % 2,121.3
Insurance Straight 6.09 % 6.14 % 73,735 13.70 19 -0.2087 % 2,955.0
FloatingReset 10.42 % 10.95 % 31,083 8.85 2 -0.8403 % 2,394.4
FixedReset Prem 6.93 % 6.46 % 285,741 12.96 1 0.1975 % 2,333.0
FixedReset Bank Non 0.00 % 0.00 % 0 0.00 0 0.1308 % 2,168.4
FixedReset Ins Non 6.00 % 7.54 % 70,333 12.04 11 -0.4430 % 2,298.9
Performance Highlights
Issue Index Change Notes
BN.PR.B Floater -4.92 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 11.60
Evaluated at bid price : 11.60
Bid-YTW : 10.26 %
CU.PR.F Perpetual-Discount -4.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 17.99
Evaluated at bid price : 17.99
Bid-YTW : 6.35 %
MFC.PR.K FixedReset Ins Non -3.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 17.70
Evaluated at bid price : 17.70
Bid-YTW : 7.54 %
CU.PR.C FixedReset Disc -2.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 18.35
Evaluated at bid price : 18.35
Bid-YTW : 7.47 %
FTS.PR.H FixedReset Disc -1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 12.45
Evaluated at bid price : 12.45
Bid-YTW : 8.33 %
SLF.PR.J FloatingReset -1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 14.65
Evaluated at bid price : 14.65
Bid-YTW : 10.20 %
PWF.PR.T FixedReset Disc -1.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 17.00
Evaluated at bid price : 17.00
Bid-YTW : 7.91 %
GWO.PR.R Insurance Straight -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 6.21 %
GWO.PR.S Insurance Straight -1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 21.15
Evaluated at bid price : 21.15
Bid-YTW : 6.27 %
PWF.PR.F Perpetual-Discount -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 21.25
Evaluated at bid price : 21.25
Bid-YTW : 6.20 %
CU.PR.I FixedReset Disc -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 22.09
Evaluated at bid price : 22.42
Bid-YTW : 7.17 %
TD.PF.L FixedReset Disc -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 22.68
Evaluated at bid price : 23.20
Bid-YTW : 6.75 %
BN.PF.D Perpetual-Discount -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 6.58 %
FTS.PR.F Perpetual-Discount -1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 20.56
Evaluated at bid price : 20.56
Bid-YTW : 6.05 %
BN.PF.G FixedReset Disc 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 14.75
Evaluated at bid price : 14.75
Bid-YTW : 9.33 %
TRP.PR.E FixedReset Disc 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 15.16
Evaluated at bid price : 15.16
Bid-YTW : 8.67 %
MFC.PR.Q FixedReset Ins Non 1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 18.81
Evaluated at bid price : 18.81
Bid-YTW : 7.56 %
BMO.PR.S FixedReset Disc 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 17.71
Evaluated at bid price : 17.71
Bid-YTW : 7.58 %
BN.PR.X FixedReset Disc 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 14.75
Evaluated at bid price : 14.75
Bid-YTW : 8.21 %
BIP.PR.E FixedReset Disc 1.30 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 21.07
Evaluated at bid price : 21.07
Bid-YTW : 7.27 %
TD.PF.C FixedReset Disc 1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 16.90
Evaluated at bid price : 16.90
Bid-YTW : 7.60 %
MIC.PR.A Perpetual-Discount 1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 20.90
Evaluated at bid price : 20.90
Bid-YTW : 6.52 %
PWF.PR.G Perpetual-Discount 1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 23.36
Evaluated at bid price : 23.65
Bid-YTW : 6.25 %
GWO.PR.P Insurance Straight 1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 21.86
Evaluated at bid price : 22.10
Bid-YTW : 6.15 %
TRP.PR.B FixedReset Disc 1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 10.70
Evaluated at bid price : 10.70
Bid-YTW : 9.18 %
TRP.PR.D FixedReset Disc 1.94 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 15.75
Evaluated at bid price : 15.75
Bid-YTW : 8.52 %
TRP.PR.C FixedReset Disc 2.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 11.40
Evaluated at bid price : 11.40
Bid-YTW : 8.90 %
BN.PF.F FixedReset Disc 2.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 16.17
Evaluated at bid price : 16.17
Bid-YTW : 8.94 %
BN.PR.N Perpetual-Discount 2.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 18.51
Evaluated at bid price : 18.51
Bid-YTW : 6.48 %
PWF.PR.L Perpetual-Discount 4.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 20.66
Evaluated at bid price : 20.66
Bid-YTW : 6.19 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.W FixedReset Disc 42,470 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 16.98
Evaluated at bid price : 16.98
Bid-YTW : 7.67 %
GWO.PR.H Insurance Straight 40,392 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 6.21 %
GWO.PR.G Insurance Straight 37,404 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 21.42
Evaluated at bid price : 21.68
Bid-YTW : 6.04 %
RY.PR.Z FixedReset Disc 36,265 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 17.30
Evaluated at bid price : 17.30
Bid-YTW : 7.58 %
TD.PF.L FixedReset Disc 22,111 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 22.68
Evaluated at bid price : 23.20
Bid-YTW : 6.75 %
SLF.PR.C Insurance Straight 21,721 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 18.95
Evaluated at bid price : 18.95
Bid-YTW : 5.92 %
There were 15 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.Q FixedReset Ins Non Quote: 18.81 – 22.50
Spot Rate : 3.6900
Average : 2.9888

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 18.81
Evaluated at bid price : 18.81
Bid-YTW : 7.56 %

TRP.PR.E FixedReset Disc Quote: 15.16 – 17.45
Spot Rate : 2.2900
Average : 1.6563

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 15.16
Evaluated at bid price : 15.16
Bid-YTW : 8.67 %

SLF.PR.D Insurance Straight Quote: 18.78 – 19.89
Spot Rate : 1.1100
Average : 0.6690

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 18.78
Evaluated at bid price : 18.78
Bid-YTW : 5.98 %

CM.PR.T FixedReset Disc Quote: 23.05 – 24.00
Spot Rate : 0.9500
Average : 0.5925

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 22.54
Evaluated at bid price : 23.05
Bid-YTW : 6.82 %

GWO.PR.H Insurance Straight Quote: 19.70 – 20.58
Spot Rate : 0.8800
Average : 0.5262

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 6.21 %

BMO.PR.W FixedReset Disc Quote: 16.98 – 18.00
Spot Rate : 1.0200
Average : 0.7482

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-10
Maturity Price : 16.98
Evaluated at bid price : 16.98
Bid-YTW : 7.67 %

MAPF Performance: March, 2023

April 7th, 2023

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close March 31, 2023, was $8.0788.

Performance was helped this month by the fund’s overweight holdings in FixedResets, which underperformed PerpetualDiscounts during the month (the Solactive Laddered Canadian Preferred Share Index returned -5.75% while TXPR, which includes a significant weight in Straight Preferreds, returned -3.74%). More particularly, TRP.PR.A [reversing last month] underperformed at -7.42%; as did BN.PR.R (-7.05%) and NA.PR.S (-6.03%). This was mitigated by good performance from MIC.PR.A (+4.76%) [reversing last month], PWF.PR.P (-1.45%) and BMO.PR.S (+2.35%) [small holdings are not considered for mention here].

There is still a pronounced ‘risk-off’ sentiment in the market, but I feel it is only a matter of time before investors start paying attention to the fundamental risk of these instruments compared to their eye-popping interest-equivalent yields.

FixedResets continue to yield more, in general, than PerpetualDiscounts; on March 31, I reported median YTWs of 7.41% and 6.22%, respectively, for these two indices. RY.PR.J is calculated by HIMIPref™ as having a yield of 7.41% at monthend; priced at 18.17, resetting 2025-5-24 at a spread of 274bp over GOC-5 (assumed to be constant at 2.93%) and currently paying 0.80 p.a. (3.20% annually). The next pay-date is 2023-5-24.

If we plug the above data into the yield calculator for resets (which is discussed here), we arrive at a quarterly annualized yield of 7.28% for RY.PR.J (this is quarterly compounded yield, not semi-annually as in HIMIPref™ there are also implementation differences). To take this down to 13bp below the PerpetualDiscount median index yield of 6.22% (to account for the calculation methodological differences), which is to say 6.09%, requires the assumption that GOC-5 will be 2.05% forever, as opposed the ‘constant rate’ assumption of 2.93%. Well … pays yer money and take yer chances, gents! Assiduous Readers with long memories will liken this to all the calculations of Break-even Rate Shock when the puzzle represented the same problem with a different sign!

Returns to March 31, 2023
Period MAPF TXPR*
Total Return
CPD – according to Blackrock
One Month -4.29% -3.74% N/A
Three Months +2.21% +2.27% N/A
One Year -19.46% -14.05% -14.42%
Two Years (annualized) -4.47% -4.15% N/A
Three Years (annualized) +18.72% +11.19% +10.55%
Four Years (annualized) +4.06% +2.09% N/A
Five Years (annualized) +0.22% +0.26% -0.31%
Six Years (annualized) +2.30% +1.11% N/A
Seven Years (annualized) +6.17% +3.85% N/A
Eight Years (annualized) +2.32% +1.19% N/A
Nine Years (annualized) +2.31% +0.94% N/A
Ten Years (annualized) +1.95% +0.60% +0.13%
Eleven Years (annualized) +2.68% +1.15%  
Twelve Years (annualized) +2.63% +1.42%  
Thirteen Years (annualized) +4.06% +2.16%  
Fourteen Years (annualized) +6.60% +3.47%  
Fifteen Years (annualized) +6.67% +2.22%  
Sixteen Years (annualized) +6.13%    
Seventeen Years (annualized) +6.09%    
Eighteen Years (annualized) +6.19%    
Nineteen Years (annualized) +6.18%    
Twenty Years (annualized) +7.66%    
Twenty-One Years (annualized) +7.10%    
Twenty-Two Years (annualized) +7.49%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
Figures for National Bank Preferred Equity Income Fund (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are -3.38%, +2.05% and -15.11%, respectively, according to Globe & Mail / Fundata after all fees & expenses. Three year performance is +12.68%; five year is +1.24%; ten year is +1.61%.

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are -3.46%, +2.10% & -14.97%, respectively. Three year performance is +13.48%, five-year is +0.14%, ten year is +1.38%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are -3.67%, +1.83% and -15.34% for one-, three- and twelve months, respectively. Three year performance is +13.37%; five-year is +0.21%; ten-year is +1.15%

Acccording to the fund’s fact sheet as of June 30, 2016, the fund’s inception date was October 30, 2015. I do not know how they justify this nonsensical statement, but will assume that prior performance is being suppressed in some perfectly legal manner that somebody at National considers ethical.

The last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) is -15.14% for the past twelve months. Two year performance is -4.15%, three year is +13.09%, five year is +0.09%, ten year is -0.44%
Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020.
Figures for BMO Preferred Share Fund (advisor series) according to BMO are -3.46%, +1.23% and -15.82% for the past one-, three- and twelve-months, respectively. Two year performance is -6.36%; three year is +10.00%; five-year is -2.12%.
Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are -11.43% for the past twelve months. The three-year figure is +12.36%; five years is +0.32%; ten-year is +0.79%
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are no longer available since the fund has merged with First Asset Preferred Share ETF (FPR).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are -3.0%, +3.5% and -13.6% for the past one, three and twelve months, respectively. Three year performance is +13.6%, five-year is -0.3%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are -3.34%, +1.87% and -14.83% for the past one, three and twelve months, respectively. Two year performance is -4.71%, three-year is +10.16%, five-year is -1.15%
Figures for the RBC Canadian Preferred Share ETF (RPF) as reported by Morningstar are -5.53%, -0.12% and -16.35% for the past one, three and twelve months, respectively. Three-year performance is +12.70%; five-year is -0.52%
Figures for the Dynamic Active Preferred Shares ETF (DXP) are -3.0%, +2.7% and -11.2% for the past one, three and twelve months, respectively. Three-year performance is +15.2%; five-year is +1.8%

The five-year Canada yield rocketted upwards, with the five-year Canada yield (“GOC-5”) crashing from 3.61% at February month-end to 2.93% at March month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 305bp as of 2023-3-29 (chart end-date 2023-3-10) :

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly from its 2021-11-10 low of 344bp to its current level of 698bp (as of 2023-3-29) … (chart end-date 2023-3-10):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -162bp (as of 2023-3-29) from its 2021-7-28 level of +170bp (chart end-date 2023-3-10):

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues, which is normal because there is a lot of noise in this inefficient market.

However, the normally moderate correlations between Issue Reset Spread and three-month performance have disappeared again in this month’s check:

There were no significant correlations for either the Pfd-2 Group or the Pfd-3 Group for 1-Month performance against term-to-reset, despite the massive change in the GOC-5 yield from 3.61% to 2.93%) during the period. A slightly smaller change in the other direction led to significant corellations last month:

… and for three-month performance, there were again no correlations for either the Pfd-2 Group or the Pfd-3 Group; here, the change in GOC-5 was from 3.37% to 2.93%:

It should be noted that to some extent such a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August PrefLetter.

I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in about two years. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2023-03-10).

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW
Leverage
Divisor
Securities
Average
YTW
Capital
Gains
Multiplier
Sustainable
Income
per
current
Unit
June, 2007 9.3114 5.16% 1.03 5.01% 1.3240 0.3524
September 9.1489 5.35% 0.98 5.46% 1.3240 0.3773
December, 2007 9.0070 5.53% 0.942 5.87% 1.3240 0.3993
March, 2008 8.8512 6.17% 1.047 5.89% 1.3240 0.3938
June 8.3419 6.034% 0.952 6.338% 1.3240 $0.3993
September 8.1886 7.108% 0.969 7.335% 1.3240 $0.4537
December, 2008 8.0464 9.24% 1.008 9.166% 1.3240 $0.5571
March 2009 $8.8317 8.60% 0.995 8.802% 1.3240 $0.5872
June 10.9846 7.05% 0.999 7.057% 1.3240 $0.5855
September 12.3462 6.03% 0.998 6.042% 1.3240 $0.5634
December 2009 10.5662 5.74% 0.981 5.851% 1.1141 $0.5549
March 2010 10.2497 6.03% 0.992 6.079% 1.1141 $0.5593
June 10.5770 5.96% 0.996 5.984% 1.1141 $0.5681
September 11.3901 5.43% 0.980 5.540% 1.1141 $0.5664
December 2010 10.7659 5.37% 0.993 5.408% 1.0298 $0.5654
March, 2011 11.0560 6.00% 0.994 5.964% 1.0298 $0.6403
June 11.1194 5.87% 1.018 5.976% 1.0298 $0.6453
September 10.2709 6.10%
Note
1.001 6.106% 1.0298 $0.6090
December, 2011 10.0793 5.63%
Note
1.031 5.805% 1.0000 $0.5851
March, 2012 10.3944 5.13%
Note
0.996 5.109% 1.0000 $0.5310
June 10.2151 5.32%
Note
1.012 5.384% 1.0000 $0.5500
September 10.6703 4.61%
Note
0.997 4.624% 1.0000 $0.4934
December, 2012 10.8307 4.24% 0.989 4.287% 1.0000 $0.4643
March, 2013 10.9033 3.87% 0.996 3.886% 1.0000 $0.4237
June 10.3261 4.81% 0.998 4.80% 1.0000 $0.4957
September 10.0296 5.62% 0.996 5.643% 1.0000 $0.5660
December, 2013 9.8717 6.02% 1.008 5.972% 1.0000 $0.5895
March, 2014 10.2233 5.55% 0.998 5.561% 1.0000 $0.5685
June 10.5877 5.09% 0.998 5.100% 1.0000 $0.5395
September 10.4601 5.28% 0.997 5.296% 1.0000 $0.5540
December, 2014 10.5701 4.83% 1.009 4.787% 1.0000 $0.5060
March, 2015 9.9573 4.99% 1.001 4.985% 1.0000 $0.4964
June, 2015 9.4181 5.55% 1.002 5.539% 1.0000 $0.5217
September 7.8140 6.98% 0.999 6.987% 1.0000 $0.5460
December, 2015 8.1379 6.85% 0.997 6.871% 1.0000 $0.5592
March, 2016 7.4416 7.79% 0.998 7.805% 1.0000 $0.5808
June 7.6704 7.67% 1.011 7.587% 1.0000 $0.5819
September 8.0590 7.35% 0.993 7.402% 1.0000 $0.5965
December, 2016 8.5844 7.24% 0.990 7.313% 1.0000 $0.6278
March, 2017 9.3984 6.26% 0.994 6.298% 1.0000 $0.5919
June 9.5313 6.41% 0.998 6.423% 1.0000 $0.6122
September 9.7129 6.56% 0.998 6.573% 1.0000 $0.6384
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
December, 2019 8.0900 6.03% 0.995 6.060% 1.0000 $0.4903
March 5.5596 7.04% 1.006 6.998% 1.0000 $0.3891
June 6.3568 6.10% 0.9900 6.162% 1.0000 $0.3917
September 7.2852 5.32% 1.00 5.320% 1.0000 $0.3876
December, 2020 8.3947 4.46% 0.999 4.464% 1.0000 $0.3747
March, 2021 9.6473 4.48% 0.996 4.498% 1.0000 $0.4339
June 10.3712 3.92% 0.985 3.980% 1.0000 $0.4127
September 10.7572 4.08% 1.017 4.012% 1.0000 $0.4316
December, 2021 10.7432 4.31% 0.999 4.314% 1.0000 $0.4635
March, 2022 10.5040 5.53% 1.004 5.508% 1.0000 $0.5786
June 9.3115 7.04% 0.993 7.090% 1.0000 $0.6672
September 8.4093 8.10% 0.997 8.124% 1.0000 $0.6916
December, 2022 7.9921 8.47% 0.996 8.504% 1.0000 $0.6796
March, 2023 8.0788 7.90% 0.997 7.924% 1.0000 $0.6401
NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains.
Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00%
The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99
Securities YTW divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings.
The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested.
Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator (definition refined in May, 2011). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

The same reasoning is also applied to FixedResets from these issuers, other than explicitly defined NVCC from banks.

In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0.
Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. From February to September 2012, yields on these issues have been set to zero. All YLO issues held were sold in October 2012.

These calculations were performed assuming constant contemporary GOC-5 and 3-Month Bill rates, as follows:

Canada Yields Assumed in Calculations
Month-end GOC-5 3-Month Bill
September, 2015 0.78% 0.40%
December, 2015 0.71% 0.46%
March, 2016 0.70% 0.44%
June 0.57% 0.47%
September 0.58% 0.53%
December, 2016 1.16% 0.47%
March, 2017 1.08% 0.55%
June 1.35% 0.69%
September 1.79% 0.97%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September 1.41% 1.66%
December, 2019 1.68% 1.68%
March, 2020 0.57% 0.21%
June 0.37% 0.21%
September 0.35% 0.14%
December, 2020 0.42% 0.08%
March, 2021 0.94% 0.09%
June 0.93% 0.13%
September 1.07% 0.13%
December, 2021 1.31% 0.16%
March, 2022 2.44% 0.53%
June 3.24% 2.11%
September 3.45% 3.60%
December, 2022 3.37% 4.35%
March, 2023 2.93% 4.44%

BEP.PR.M To Reset To 6.050%

April 6th, 2023

Brookfield Renewable Partners L.P. has announced:

that it has determined the fixed distribution rate on its Class A Preferred Limited Partnership Units, Series 13 (“Series 13 Units”) (TSX: BEP.PR.M) for the five years commencing May 1, 2023 and ending April 30, 2028.

Series 13 Units and Series 14 Units

If declared, the fixed quarterly distributions on the Series 13 Units during the five years commencing May 1, 2023 will be paid at an annual rate of 6.05% ($0.378125 per unit per quarter).

Holders of Series 13 Units have the right, at their option, exercisable not later than 5:00 p.m. (Toronto time) on April 17, 2023, to reclassify all or part of their Series 13 Units, on a one-for-one basis, into Class A Preferred Limited Partnership Units, Series 14 (“Series 14 Units”), effective April 30, 2023.

The quarterly floating rate distributions on the Series 14 Units will be paid at an annual rate, calculated for each quarter, of 3.00% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly distribution in respect of the May 1, 2023 to July 31, 2023 distribution period for the Series 14 Units, if declared, will be $0.466743 per unit, payable on July 31, 2023.

Holders of Series 13 Units are not required to elect to reclassify all or any part of their Series 13 Units into Series 14 Units.

As provided in the unit conditions of the Series 13 Units, (i) if Brookfield Renewable determines that there would be fewer than 1,000,000 Series 13 Units outstanding after April 30, 2023, all remaining Series 13 Units will be automatically reclassified into Series 14 Units on a one-for-one basis effective April 30, 2023; or (ii) if Brookfield Renewable determines that there would be fewer than 1,000,000 Series 14 Units outstanding after April 30, 2023, no Series 13 Units will be reclassified into Series 14 Units. There are currently 10,000,000 Series 13 Units outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series 14 Units effective upon reclassification. Listing of the Series 14 Units is subject to Brookfield Renewable fulfilling all the listing requirements of the TSX and, upon approval, the Series 14 Units will be listed on the TSX under the trading symbol “BEP.PR.N”.

BEP.PR.M was issued as a FixedReset 5.00%+300M500 ROC that commenced trading 2018-1-16 after being announced 2018-01-09. The issue has been tracked by HIMIPref™ but relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

Thanks to Assiduous Reader CanSiamCyp for bringing this to my attention!

April 6, 2023

April 6th, 2023

Jobs, jobs, jobs!

The Canadian economy added more jobs than expected in March and the unemployment rate remained near a record low for a fourth straight month, data on Thursday showed, a sign of economic resilience ahead of a central bank policy meeting next week.

The economy gained a net 34,700 jobs, almost entirely in the private sector, and the unemployment rate held steady at 5.0 per cent, Statistics Canada reported.

Thursday’s jobs figures as well as robust GDP data released last week are likely to complicate the central bank’s plans to avoid further rate moves. The average hourly wage for permanent employees rose 5.2 per cent in March on a year-over-year basis, down from 5.4 per cent in February.

The bank’s next rate decision is due on Wednesday.

The employment gains last month were driven by the services sector, which added a net 75,500 jobs, mostly in transportation and warehousing as well as support services. Those additions more than offset the decline of 40,900 jobs in the goods sector, which was dragged down by job losses in construction as well as natural resources.

The New York Fed has updated the Global Supply Chain Pressure Index:

  • Global supply chain pressures decreased again in March, falling from .28 to 1.06 standard deviations below the index’s historical average.
  • There were significant downward contributions by many of the factors, with the largest negative contributions from European Area delivery times, European Area backlogs, and Taiwanese purchases.
  • The GSCPI’s recent movements suggest that global supply chain conditions have largely normalized after experiencing temporary setbacks around the turn of the year.

BIS has released a working paper titled Big techs and the credit channel of monetary policy:

Focus
Big techs are lending to small and medium-sized enterprises and vendors on their e-commerce platforms, thus encroaching on financial markets. These changes in financial intermediation could affect monetary policy transmission in at least two ways. First, the business model of big techs depends on using vast amounts of data instead of collateral to solve agency problems between borrowers and lenders. By using machine learning and big data to generate credit scores, big techs can assess a company’s creditworthiness more accurately than traditional credit bureau ratings can. As a result, this may decrease the relevance of the “collateral channel” and, simultaneously, increase the responsiveness of credit to changes in firms’ business conditions. Second, the threat of reputational damage, or of being excluded from the e-commerce platform, serves as an extra-legal but highly effective means of contract enforcement for big tech firms.

Contribution
We view big tech credit through the lens of a model where big techs facilitate matching on the e-commerce platform and extend loans. While bank credit is backed by collateral, big techs reinforce credit repayment by threatening to exclude borrowers from the platform. The most significant difference between big tech credit and bank credit lies in the borrowers’ cost of default. If a firm defaults on bank credit, it loses its collateral, usually real estate. In contrast, if a company defaults on big tech credit, it loses access to the e-commerce platform, thereby jeopardising future profits.

Findings
We find that, first, an improvement in big techs’ matching efficiency on the e-commerce platform raises the value for firms of trading on the platform and accessing big tech credit. Higher future profits ease financing constraints and increase firms’ production, driving aggregate output closer to the efficient level. Second, the response of credit and output to a monetary policy shock depends on how sensitive the firms’ opportunity cost of default on big tech credit (ie the stream of future profits from operating on the big tech platform) is compared with the cost of defaulting on bank credit (ie the value of physical collateral). In our baseline calibration, the introduction of big tech credit mitigates the initial responses of aggregate credit and output to a monetary shock. However, it increases the persistence of the effect of monetary policy on the macroeconomy. Third, big techs’ macroeconomic efficiency gains are limited by the distortionary nature of the fees collected from their users.

Abstract
We document some stylized facts on big tech credit and rationalize them through the lens of a model where big techs facilitate matching on the e-commerce platform and extend loans. The big tech reinforces credit repayment with the threat of exclusion from the platform, while bank credit is secured against collateral. Our model suggests that: (i) a rise in big techs’ matching efficiency increases the value for firms of trading on the platform and the availability of big tech credit; (ii) big tech credit mitigates the initial response of output to a monetary shock, while increasing its persistence; (iii) the efficiency gains generated by big techs are limited by the distortionary fees collected from users.

Our paper aims to shed some light on the effects of big techs’ entry into finance on the macroeconomy and on monetary policy transmission. We develop a model that can replicate two key empirical facts about big techs. First, using macro data for China and the US, and extending previous evidence based on Chinese micro data, we show that big tech credit does not react to changes in asset prices and local economic conditions, unlike bank credit. Second, we use local projections to shed light on the importance of the physical collateral channel relative to the network collateral channel for the transmission of monetary policy. Key drivers of the strength of these channels is the sensitivity of commercial property prices and e-commerce sales to monetary policy. We show that commercial property prices respond more strongly than e-commerce sales to a monetary policy shock, although less persistently.

The crucial difference between big tech credit and bank credit relates to borrowers’ opportunity cost of default. Firms that default on bank credit lose their collateral (real estate). In contrast, those that default on big tech credit lose access to big techs’ e-commerce platform, and hence their future profits. An incentive compatible contract thus limits the total amount of credit to the sum of physical and network collateral. Nominal wages are sticky, and monetary policy affects the real economy. When search frictions in the goods markets and credit frictions in the financial markets are set to zero, the model collapses to the basic New Keynesian model with sticky wages.3

We obtain three sets of results. First, an expansion in big techs, as captured by an increase in matching efficiency on the commerce platform, raises the value for firms of trading in the platform and the availability of big tech credit. This in turn relaxes financing constraints and increases firms’ production, driving aggregate output closer to the efficient level. Second, the reaction of credit and output to a monetary policy shock crucially depends on the sensitivity of firms’ opportunity cost of default on big tech credit (the stream of future profits from operating on the big tech platform) compared to that of defaulting on bank credit (the value of physical collateral). In our baseline calibration, the introduction of big tech credit mitigates the initial responses of aggregate credit and output to a monetary shock, but increases the persistence of the effect of monetary policy on the macroeconomy. Third, big techs’ macroeconomic efficiency gains are limited by the distortionary nature of the fees collected from their users.

AIMCo beat its benchmarks:

Alberta Investment Management Corp. reported a 3.4-per-cent loss last year as falling values for publicly traded stocks and bonds outweighed strong returns from investments in infrastructure and renewable resources.

AIMCo’s 2022 returns were still 1.8-per-cent higher than its internal benchmark in spite of the loss, demonstrating how difficult it was to be an investor last year as high inflation and rapid interest-rate increases shook global markets. Like many of its peers, AIMCo suffered from a rare simultaneous dive in public equities and fixed income markets, which make up a large share of the plan’s assets.

Aimia is facing a shareholder revolt:

Mithaq Capital SPC, a family office based in Saudi Arabia that owns nearly 20 per cent of Toronto-based Aimia, announced plans Thursday to vote against the re-election of the company’s entire board of directors.

In a statement, Mithaq said it has lost confidence in the board and the management team, and that “it would be in the best interests of Aimia to reconstitute the board.”

The reasons underlying Mithaq’s opposition “include concerns previously raised with Aimia regarding capital allocation decisions relating to acquisitions,” the statement said.

Mithaq is not planning to nominate any replacement candidates and declined to comment further on what exactly motivated it, though Aimia has recently made its two largest acquisitions since pivoting away from loyalty programs.

In January, Aimia bought Tufropes Pvt. Ltd. for $253-million. India-based Tufropes makes synthetic fibre ropes and netting for the aquaculture and maritime industries. Then last month, the company paid $332-million for Italian chemical company Giovanni Bozzetto SpA.

Mithaq has amassed a significant portion of its stake in Aimia very recently. While the family office holds 19.9 per cent of Aimia’s outstanding common shares, that figure was only 12.6 per cent as of Feb 1.

Over the course of its transformation, Aimia’s work force has shrunk dramatically to about 20 people as of late 2020 from roughly 450. In its most recent quarter, Aimia reported a net loss of $23.3-million, which was roughly 60-per-cent wider than the $14.6-million loss the company reported during the same period a year earlier.

… and the company is fighting back:

Hours later, the company fired back, alleging what Mithaq really wanted was for Aimia to support its own investments.

“Many of the investments [Mithaq] recommended would have resulted in substantial losses to Aimia (including one target that subsequently filed for bankruptcy),” the company said in a statement released early Thursday afternoon.

Aimia also said Mithaq had “previously lobbied the company to invest in public securities, including some in which they hold an interest.” An unnamed former insider of an Amia affiliate – who the company claimed was recently terminated for allegedly misusing confidential information – lobbied alongside Mithaq for those investments, the statement said.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.6160 % 2,325.7
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.6160 % 4,460.7
Floater 9.69 % 9.74 % 56,991 9.78 2 -0.6160 % 2,570.7
OpRet 0.00 % 0.00 % 0 0.00 0 0.1223 % 3,357.2
SplitShare 5.01 % 7.07 % 46,234 2.65 7 0.1223 % 4,009.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1223 % 3,128.2
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.1536 % 2,762.6
Perpetual-Discount 6.18 % 6.19 % 55,355 13.61 34 0.1536 % 3,012.4
FixedReset Disc 5.81 % 7.52 % 92,174 12.23 63 -0.2347 % 2,118.6
Insurance Straight 6.07 % 6.11 % 71,023 13.76 19 0.1264 % 2,961.2
FloatingReset 10.29 % 9.98 % 26,723 9.58 2 0.6428 % 2,414.7
FixedReset Prem 6.94 % 6.42 % 282,543 13.01 1 0.6362 % 2,328.4
FixedReset Bank Non 0.00 % 0.00 % 0 0.00 0 -0.2347 % 2,165.6
FixedReset Ins Non 5.97 % 7.17 % 71,251 12.36 11 0.3032 % 2,309.2
Performance Highlights
Issue Index Change Notes
PWF.PR.L Perpetual-Discount -4.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 19.68
Evaluated at bid price : 19.68
Bid-YTW : 6.50 %
BN.PF.F FixedReset Disc -3.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 15.75
Evaluated at bid price : 15.75
Bid-YTW : 9.07 %
BN.PR.N Perpetual-Discount -2.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 6.66 %
BN.PF.J FixedReset Disc -2.47 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 21.43
Evaluated at bid price : 21.70
Bid-YTW : 7.12 %
BIP.PR.E FixedReset Disc -2.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 20.80
Evaluated at bid price : 20.80
Bid-YTW : 7.27 %
BMO.PR.S FixedReset Disc -1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 17.51
Evaluated at bid price : 17.51
Bid-YTW : 7.57 %
TRP.PR.B FixedReset Disc -1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 10.53
Evaluated at bid price : 10.53
Bid-YTW : 9.18 %
PWF.PR.G Perpetual-Discount -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 23.01
Evaluated at bid price : 23.28
Bid-YTW : 6.34 %
BN.PR.B Floater -1.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 12.20
Evaluated at bid price : 12.20
Bid-YTW : 9.74 %
TRP.PR.F FloatingReset -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 14.85
Evaluated at bid price : 14.85
Bid-YTW : 10.90 %
BN.PF.A FixedReset Disc -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 18.10
Evaluated at bid price : 18.10
Bid-YTW : 8.20 %
SLF.PR.C Insurance Straight -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 18.85
Evaluated at bid price : 18.85
Bid-YTW : 5.95 %
RY.PR.S FixedReset Disc -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 19.98
Evaluated at bid price : 19.98
Bid-YTW : 6.80 %
BN.PF.G FixedReset Disc -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 14.60
Evaluated at bid price : 14.60
Bid-YTW : 9.32 %
MFC.PR.K FixedReset Ins Non 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 18.34
Evaluated at bid price : 18.34
Bid-YTW : 7.17 %
GWO.PR.S Insurance Straight 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 21.46
Evaluated at bid price : 21.46
Bid-YTW : 6.17 %
IFC.PR.A FixedReset Ins Non 1.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 17.39
Evaluated at bid price : 17.39
Bid-YTW : 6.89 %
FTS.PR.H FixedReset Disc 1.44 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 12.70
Evaluated at bid price : 12.70
Bid-YTW : 8.06 %
CU.PR.D Perpetual-Discount 1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 20.10
Evaluated at bid price : 20.10
Bid-YTW : 6.18 %
BN.PF.H FixedReset Disc 1.89 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 8.10 %
IFC.PR.G FixedReset Ins Non 2.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 7.06 %
PWF.PR.F Perpetual-Discount 2.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 21.50
Evaluated at bid price : 21.50
Bid-YTW : 6.12 %
SLF.PR.J FloatingReset 2.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 14.90
Evaluated at bid price : 14.90
Bid-YTW : 9.98 %
CU.PR.F Perpetual-Discount 4.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 18.81
Evaluated at bid price : 18.81
Bid-YTW : 6.07 %
BN.PF.D Perpetual-Discount 6.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 6.50 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.K FixedReset Disc 88,050 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 19.65
Evaluated at bid price : 19.65
Bid-YTW : 7.08 %
PWF.PR.H Perpetual-Discount 49,100 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 22.66
Evaluated at bid price : 22.90
Bid-YTW : 6.28 %
TRP.PR.D FixedReset Disc 41,726 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 15.45
Evaluated at bid price : 15.45
Bid-YTW : 8.57 %
FTS.PR.M FixedReset Disc 40,140 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 16.63
Evaluated at bid price : 16.63
Bid-YTW : 8.08 %
NA.PR.S FixedReset Disc 39,800 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 16.94
Evaluated at bid price : 16.94
Bid-YTW : 7.83 %
RY.PR.Z FixedReset Disc 37,333 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 17.20
Evaluated at bid price : 17.20
Bid-YTW : 7.52 %
There were 14 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.Q FixedReset Ins Non Quote: 18.60 – 22.50
Spot Rate : 3.9000
Average : 2.2200

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 18.60
Evaluated at bid price : 18.60
Bid-YTW : 7.55 %

BN.PF.C Perpetual-Discount Quote: 18.82 – 20.70
Spot Rate : 1.8800
Average : 1.1675

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 18.82
Evaluated at bid price : 18.82
Bid-YTW : 6.50 %

PWF.PR.L Perpetual-Discount Quote: 19.68 – 21.13
Spot Rate : 1.4500
Average : 0.9146

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 19.68
Evaluated at bid price : 19.68
Bid-YTW : 6.50 %

PWF.PR.T FixedReset Disc Quote: 17.28 – 19.27
Spot Rate : 1.9900
Average : 1.4624

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 17.28
Evaluated at bid price : 17.28
Bid-YTW : 7.68 %

GWO.PR.I Insurance Straight Quote: 18.65 – 19.90
Spot Rate : 1.2500
Average : 0.8201

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 18.65
Evaluated at bid price : 18.65
Bid-YTW : 6.08 %

GWO.PR.T Insurance Straight Quote: 21.05 – 22.40
Spot Rate : 1.3500
Average : 0.9774

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-06
Maturity Price : 21.05
Evaluated at bid price : 21.05
Bid-YTW : 6.17 %

The Woes of BPO

April 5th, 2023

So BPO preferreds got hammered again today, with losses of about 10% of market value and will doubtless dominate the list of new 52-week lows reported in the Globe tomorrow, as they have done for the past two weeks.

So, what’s going on?

It seems to have started with a SEC filing by Brookfield DTLA Fund Office Trust Investor Inc.:

Subsidiaries of Brookfield DTLA Fund Office Trust Investor Inc. (the “Company”) have secured loans of $465.0 million on Gas Company Tower, comprised of a $350.0 million mortgage loan, a $65.0 million mezzanine loan and a $50.0 million junior mezzanine loan (collectively, the “Gas Company Tower Loans”). There is $465.0 million currently outstanding under the Gas Company Tower Loans. The initial maturity date of the Gas Company Tower Loans was February 9, 2023, with three one-year extension options. The Company did not exercise the option to extend the maturity of the loans and therefore, on February 9, 2023, the Gas Company Tower Loans matured, and an Event of Default (as defined in the underlying loan agreements) has occurred and is continuing. The lenders may exercise their remedies under the loans, including foreclosing on Gas Company Tower. As of the date of this filing, the lenders have not exercised any of their remedies under the Gas Company Tower Loans

Other Subsidiaries of the Company have secured loans of $318.6 million on 777 Tower, comprised of a $268.6 million mortgage loan and a $50.0 million mezzanine loan (collectively, the “777 Tower Loans”). There is $288.9 million currently outstanding under the 777 Tower Loans. The Company did not obtain an Interest Rate Protection Agreement (as defined in the underlying loan agreements) which constitutes an Event of Default (as defined in the underlying loan agreements). Wells Fargo Bank, National Association, as Administrative Agent for the lenders under the mortgage loan, has notified the relevant subsidiary of the Company that defaults and potential defaults have occurred under the loan and that the lenders have the right to exercise their remedies under the 777 Tower Loans, including, without limitation, declaring the debt to be immediately due and payable and foreclosing on 777 Tower. As a result of the default under the mortgage loan, an Event of Default (as defined in the underlying loan agreements) has occurred and is continuing under the mezzanine loan. As of the date of this filing, the lenders have not exercised any of their remedies under the 777 Tower Loans.

This was picked up by Business Insider in a 2023-3-30 story later syndicated to Yahoo:

Gas Company Tower was once a gleaming model of downtown America’s ascendancy. Located squarely in Los Angeles’ central business district, the 52-story skyscraper has a strong pedigree. It’s home to a collection of major corporate tenants, including the Southern California Gas Company, the white-shoe law firm Sidley Austin, and Deloitte, one of the Big Four accounting firms. Its owner, Brookfield, is an $800 billion investment firm known for its blue-chip portfolio of real-estate assets. The tower’s lobby even had a Hollywood cameo when it was featured in the opening shot of the 1994 film “Speed.”

More recently, though, the glassy office property has become an example of the alarming financial turmoil that is engulfing once-bedrock real-estate assets. Brookfield disclosed in a February filing that a subsidiary it controls had defaulted on $753.9 million worth of debt tied to the tower and another nearby office building — one of the largest since the great financial crisis. But as Brookfield grapples with its lenders, it’s also facing a potential exodus of the building’s most visible occupants.

The Southern California Gas Company, the Gas Company Tower’s namesake tenant, is in the market to relocate its 360,000 square feet at the property. Sidley Austin, which has about 136,000 square feet in the 1991-vintage building, is also prowling the market for new space, according to two people with knowledge of both tenants’ real-estate decision-making. Spokespeople for Sidley and Brookfield declined to comment. A spokesperson for the Southern California Gas Company did not reply to a request for comment.

This report was further fleshed out by RealDeal:

Brookfield has admitted one of its trophy office towers in Downtown L.A. has lost a quarter of its value, thanks to L.A.’s new transfer taxes.

The investment firm wrote down the value of its 45-story office tower at 355 South Grand Avenue — the South Tower of the Wells Fargo Center — by $111 million, according to an annual report released by Brookfield’s entity that owns six office buildings and one retail center in Downtown L.A.

The publicly traded fund, called Brookfield DTLA Fund Office Trust Investor, blamed the writedown on Measure ULA — the City of L.A.’s new transfer tax that will take 5.5 percent from all commercial and residential sales that trade for more than $10 million, according to its report.

The writedown marks the first time Brookfield has drastically cut the value of one of its Downtown L.A. holdings, which have been affected by the dual triggers of high vacancy rates and high interest rates.

The connection is explained by another helpful SEC filing:

This information statement (“Information Statement”) is being furnished by Brookfield DTLA Fund Office Trust Investor Inc., a Maryland corporation (the “Company”, “we”, “our” or “us”), in connection with the Annual Meeting

As of the Record Date, Brookfield DTLA Holdings LLC, a Delaware limited liability company (“DTLA Holdings”, and together with its affiliates excluding the Company and its subsidiaries, the “Manager”), was the holder of all of the issued and outstanding shares of Common Stock.

DTLA Holdings is an indirect partially- owned subsidiary of Brookfield Property Partners L.P. (“BPY”), one of the world’s premier real estate companies and a subsidiary of Brookfield Asset Management Inc. (“Brookfield Asset Management” or “BAM”), a leading global alternative asset manager with approximately $750 billion in assets under management. DTLA Holdings is entitled to vote on the election of five directors, the ratification of the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm and on each other matter properly presented at the Annual Meeting. As of the Record Date, there were 1,000 shares of Common Stock outstanding.

DTLA has a balance sheet that is … interesting. Negative equity for the common shareholder, just barely outweighed by the ‘mezzanine equity’ of the preferred shares issued by the company, and 2.3-billion in debt secured by assets with a stated value of 2.5-billion. Succinctly:

Brookfield DTLA’s business requires continued access to adequate cash to fund its liquidity needs. The amount of cash Brookfield DTLA currently generates from its operations is not sufficient to cover its investing and financing activities, including upcoming debt obligations, leasing costs and capital expenditures, without issuing additional debt or equity, resulting in “negative cash burn,” and there can be no assurance that the amount of Brookfield DTLA’s negative cash burn will decrease. If Brookfield DTLA’s operating cash flows and capital are not sufficient to cover its operating costs or to repay its indebtedness as it comes due, we may issue additional debt and/or equity, including to affiliates of Brookfield DTLA, which issuances could further adversely impact the amount of funds available to Brookfield DTLA for any purpose, including for dividends or other distributions to holders of its capital stock, including the Series A preferred stock. Given the uncertainty in the economy, current office leasing volume and volatile financial markets created by the continued rise in interest rates and the Company’s upcoming debt maturities, management believes that access to liquidity will be challenging and is planning accordingly. We are also working to proactively address challenges to our long-term liquidity position. However, if uncertainty in the economy and financial and leasing markets do not improve, or the Company is not able to find additional sources of liquidity, the property-owning subsidiary debt obligors may not be able to successfully refinance the debt obligations when they fall due, which could result in foreclosure on the encumbered properties.

A mess, and now the company has announced:

Brookfield DTLA Fund Office Trust Investor Inc. (the “Company”) announced today that its board of directors (the “Board”) has approved the voluntary delisting of the Company’s 7.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (the “Preferred Shares”) from the New York Stock Exchange (the “NYSE”). The Board believes that its decision to delist and deregister the Preferred Shares will better enable the Company to maximize value for all stakeholders, including the holders of the Preferred Shares. The Company also gave notice to the NYSE of its intent to voluntarily delist the Preferred Shares and to withdraw the registration of the Preferred Shares with the Securities and Exchange Commission (the “SEC”). The Preferred Shares are currently listed on the NYSE under the symbol “DTLA-P.”

The delisting and deregistration of the Preferred Shares will not have any impact on the terms or conditions of the Preferred Shares, including the dividends payable on the Preferred Shares and the rights granted to holders of the Preferred Shares to appoint two directors to the Board under certain circumstances. After the delisting and deregistration of the Preferred Shares, the Company intends to continue to make unaudited annual and quarterly financial statements available to investors. The Company also will seek to have the Preferred Shares quoted on the Pink Sheets Electronic Quotation Service (the “Pink Sheets”) in the OTC Pink Limited Information marketplace, although it cannot provide any assurance that any broker-dealer will make a market in the Preferred Shares, which is a requirement for Pink Sheet quotation.

So it’s a mess, but misery loves company and there’s a lot of love in the air:

The humdrum business of renting out offices and stores is suddenly in the spotlight as property experts and economists warn that growing problems in U.S. commercial real estate could trigger a new financial crisis.

Among the people raising alarms is Scott Rechler, chief executive officer of RXR Realty, a large property manager in New York, and a director of the Federal Reserve Bank of New York.

In a Twitter thread last week, Mr. Rechler warned that US$1.5-trillion in commercial real estate debt will mature over the next three years. Most of it was taken out when interest rates were near zero.

Somewhat similarly Neil Shearing, group chief economist at Capital Economics, warned that a “doom loop” could emerge in which falling commercial real estate values feed back into the U.S. banking system, choking off lending and creating further declines in commercial property prices.

Still, it’s far from certain that the worst case will materialize.

For one thing, the commercial real estate sector is made up of several distinct subsectors. While office and retail landlords are struggling, some other areas, such as industrial properties, have held up just fine, while still others, such as hotel properties, are actually seeing conditions improve as the economy reopens and travel resumes.

Taken as a whole, the commercial real estate sector doesn’t look so bad. Delinquent mortgages – that is, those on which payments have been overdue for at least 30 days – are rising in number, but the statistics are still a long way from panic levels.

In February, 3.12 per cent of U.S. commercial mortgages were delinquent, according to data tracker Trepp Inc. That is slightly higher than the 2.98 per cent recorded six months earlier but far below the record 10.34 per cent recorded in July, 2012.

OK, so the owners are keeping their mortgages current – for now – but some of them will be struggling to do so. And meanwhile:

Slate Office REIT is slashing its monthly distribution by 70 per cent, making it Canada’s second publicly traded office building owner to cut its payout in the span of three weeks as vacancies rise and higher interest rates bite.

Slate, which owns office properties in Canada and the United States but derives half of its operating income from the Greater Toronto Area and Atlantic Canada, slashed its distribution to 1 cent per unit monthly from 3.3 cents after a strategic review. Slate’s units, which trade on the Toronto Stock Exchange, dropped 25 per cent Wednesday and are down 43 per cent this year.

True North Commercial, which owns office properties across Canada but focuses on Ontario, slashed its own distribution by 50 per cent in mid-March. The REIT is run by Daniel Drimmer, one of Canada’s largest property owners through a mix of private and publicly traded businesses. Like Slate, True North’s unit price also tanked after the decision and its units are now down 45 per cent this year.

Higher interest rates have weighed on most real estate investment trusts because they carry mortgages often amounting to between 50 per cent and 60 per cent of their property values. Like homeowners, REITs usually only face higher rates when their mortgages come up for renewal. But some, such as Slate, had sizable exposure to variable-rate mortgages.

Me, I blame millennials:

Canada’s downtown office vacancy rate reached 19 per cent in March, with Toronto and Vancouver driving the trend as the shift to hybrid work pushes more businesses to give up office space.

The level of vacancies was nearly double the 10.8 per cent in downtown markets before the start of the pandemic, according to new data from commercial real estate firm Altus Group. The 19-per-cent vacancy rate was a record high since 2003 when Altus started collecting data. It surpasses other tumultuous periods in the office market, including the oil price crash in 2014 when energy companies cut jobs and slashed their corporate offices.

Three years after governments required workers to stay at home to stop COVID-19 from spreading, employees have embraced remote work and are shunning workweeks of five days in the office. That is particularly the case for tech workers who generally have had more freedom to work from home.

“Less people are coming in and less space is needed,” said Colin Scarlett, executive vice-president with commercial real estate firm Colliers in Vancouver. “Employees don’t believe they need to be in the office. As a result, the employer has been delicate on the return to the office.”

So am I pushing the panic button here? First of all, take a look at the most recent affirmation of BPO’s & BPY’s rating by DBRS:

The ratings continue to be supported by (1) the Partnership’s robust access to liquidity of $4.7 billion, consisting of $2.0 billion in cash and cash equivalents and $2.7 billion available on credit facilities at December 31, 2021; (2) financial flexibility afforded by nonrecourse mortgage debt and no unsecured maturities until July 2023 when the CAD 500 million Series 1 Senior Unsecured Notes come due; (3) DBRS Morningstar’s view of implicit support from BAM; (4) BPY’s market position as a preeminent global real estate company; and (5) high-quality assets, particularly its Core Office segment, with long-term leases in place and large, recognizable investment-grade-rated tenants. The ratings continue to be constrained by BPY’s weak financial risk assessment as reflected by both its highly leveraged balance sheet and low EBITDA interest coverage (1.28x at the last 12 months ended December 31, 2021); a riskier retail leasing profile in terms of lease maturities and counterparty risk relative to BPY’s Core Office segment; a higher-risk opportunistic Limited Partnership Investments segment composed primarily of hotel, office, retail, and alternative assets; and DBRS Morningstar’s assessment of the unmitigated structural subordination of the Senior Unsecured Debt at the BPP level relative to a material amount of debt at its operating subsidiaries.

DBRS Morningstar would consider a negative rating action should BPY’s operating environment fail to improve as expected such that total debt-to-EBITDA remains above 16.0x, on a sustained basis, all else equal, or if DBRS Morningstar changes its views on the level and strength of implicit support provided by BAM. On the other hand, DBRS Morningstar would consider a positive rating action should DBRS Morningstar’s outlook for BPY’s total debt-to-EBITDA improve to 13.0x or better.

Trouble is, that affirmation is just over a year old now, and much has changed in the interest rate world since then. On a better note, S&P performed an Annual Review For Brookfield Property Partners L.P. dated 2023-2-1 and took no action.

Meanwhile BPY’s balance sheet still looks reasonable, with limited partners supplying about 8.1-billion in equity; total equity, including preferred shares and non-controlling interests, is 41.7-billion supporting 112-billion in assets. The limited partners actually recorded a small loss in 2022, as the available net income was scooped up by the non-controlling interests, but in 2022 there were substantial net sales of assets, net payments of debt and an increase in cash.

So, I’m concerned but I’m not panicking. One of Brookfield’s great strengths is actually being shown off by the DTLA problem: a lot of the debt is secured by the properties with no recourse to the company and – as may be shown by the DTLA situation – they are not averse to cutting their losses on a given investment and sending jingle-mail to the mortgage holders.

Affected issues are BPO.PR.A, BPO.PR.C, BPO.PR.E, BPO.PR.G, BPO.PR.I, BPO.PR.N, BPO.PR.P, BPO.PR.R, BPO.PR.T, BPO.PR.W, BPO.PR.X and BPO.PR.Y.

Updatd, 2023-4-6: Those fortunate enough to have a copy of the August, 2022, PrefLetter on hand will have noted that as of 2022-7-29, CPD had a weight of about 3.8% in BPO preferreds. It’s actually more than that, since my analysis ignored the “Brookfield Property Preferred Pref”, BPYP.PR.A, with a portfolio weight of 1.50% (massive!), since it is a US-Pay issue and shouldn’t be in the TXPR index at all, according to me. As of 2023-4-5, this issue had a portfolio weight of 1.44%, so the total BPO weight in CPD is over 5% (before recent markdowns, anyway!). I consider this level of holding to be imprudent for an issuer of this credit quality, but then I consider the total level of Pfd-3 holdings in CPD to be imprudent. It’s not their fault, they’re reflecting the market, just like they’re supposed to do … but the market remains distorted by the issuance boom of ten-odd years ago, when a lot of companies that should not have been able to come to market … did.

The September, 2020, edition of PrefLetter reveals that ZPR held a weight of about 2.8% in BPO – also imprudently high, according to me, but better. ZPR does not hold BPYP.PR.A.

An Assiduous Reader writes in and says, in part:

but sometimes have to do a deeper dive into financials

– to have discovered that BPO had so much variable AND lumpy maturities within this dreaded “window” of high short rates (curve likely rightly assuming rates will settle back into 3s a year out) was a total shock
– how could they have been so stupid with all the warning signs of an imminent big move up in rates?
– especially when parent, BN, maintains a debt/cap of only 17% and its ALL termed out to 13 year average?
– why would BN have been so well prepared but left BPO in such a vulnerable spot

20 years of brainwashing participants into believing the “sub 2” environment would persist in perpetuity really got the better of a lot of people!

Fair enough, but as I am very fond of pointing out, it takes two to make a market. I’m not sure if a substantially longer term would be possible for commercial mortgages, or just how a hedging programme might work, or how such hedging might be viewed by investors in BPY/BPO. It’s not my field.

Some digging has indicated that American commercial mortgages generally have a much shorter term than the 30-year standard for residential mortgages, with terms greater than ten years being relatively hard to find, but I have been unable to locate any solid data. If anybody can find such data, let me know!

Update #2, 2023-4-5: Oddly, the BPYP.PR.A US-Pay issue mentioned above has done considerably better than BPO.PR.N – to take an example – in the year-to-date:

April 5, 2023

April 5th, 2023

TXPR closed at 542.00, down 0.72% on the day. Volume today was 1.19-million, slightly above the median of the past 21 trading days.

CPD closed at 10.82, down 0.28% on the day. Volume was 54,850, below the median of the past 21 trading days.

ZPR closed at 8.88, down 0.45% on the day. Volume was 92,420, third-lowest of the past 21 trading days.

Five-year Canada yields down slightly to 2.90% today.

The Globe claims this is all due to recession fears:

The TSX, S&P 500 and the Nasdaq ended lower on Wednesday after a growing wave of weak economic data deepened worries that the Federal Reserve’s rapid interest rate hikes might tip the U.S. economy into a recession.

Driving the recession fears, the ADP National Employment report showed U.S. private employers hired far fewer workers than expected in March. That followed Tuesday’s weak job openings data.

As well, the Institute for Supply Management’s survey showed the services sector slowed more than expected last month on cooling demand, while a measure of prices paid by services businesses fell to a near three-year low.

Earlier this week data showed falling factory orders and soft manufacturing activity.

Reflecting worries about the economy and recent turmoil in the banking sector, interest rate futures imply 61% odds that the Fed will cut interest rates from current levels by the end of its July meeting, according to CME Group’s Fedwatch tool.

Money markets are currently pricing in only a 16% chance the Bank of Canada will cut interest rates at its April 12 meeting, but they are fully pricing in at least a quarter-point cut by September, according to Refinitiv Eikon data late Wednesday.

Gabriel Makhlouf, Governor of the Central Bank of Ireland and Member of the Governing Council of the European Central Bank, gave a speech titled Staying the course: monetary policy to avoid persistentinflation:

To achieve this, the Governing Council decided last month to increase the three key ECB interest rates by 50 basis points. The interest rate applied to our Deposit Facility is now at 3 per cent, up from minus 0.5 per cent last July. This represents a significant tightening of the monetary policy stance, commensurate with the challenges to price stability we have been facing.

The scale and pace of interest rate increases – up 3.5 percentage points in just nine months – is unprecedented. For comparison, previous rate hiking cycles in the euro area in 1999-2000 and 2005-07 saw rates rise by 2.25 and 2 percentage points over a 13 and 21 month period, respectively.

The euro area economy slowed in the fourth quarter of 2022, with economic growth stagnant in the face of falling private domestic demand. High inflation, prevailing uncertainties and tighter financing conditions dented private consumption and investment, which fell by 0.9 per cent and 3.6 per cent respectively. However, the ECB staff March macroeconomic projections envisage a recovery in the next few quarters as supply conditions improve further, confidence recovers, and firms work off large order backlogs. Rising nominal wages and falling energy prices will partly offset the loss of purchasing power that many households are experiencing as a result of high inflation. This, in turn, will support consumer spending.

Looking ahead, with record low unemployment expected to hold steady at 6.7 per cent, the ECB staff’s current projections embed a significant degree of real wage catch-up, with wages returning to 2022 levels in real terms by end2025. Nominal wage growth projections of 5.0, 4.4 and 3.6 per cent in 2023, 2024 and 2025 are significantly above historic averages.

For wage developments, much will depend on ongoing levels of labour market tightness. While the number of job vacancies in the euro area have started to recede gradually since the turn of this year, the number of job openings relative to unemployed remains at a historic high. Meanwhile, despite the weaker PMI (Purchasing Managers’ Index) data we saw towards the end of 2022, employment expectations remained in significant positive territory (Chart 2, left panel). This suggests that some degree of labour hoarding is taking place, likely reflecting firms’ expectations of a transitory weakness in demand, as well as their ability to absorb higher costs through increased mark-ups (a point I will return to).

There is potential for profit margins to absorb some of this near-term higher wage growth. As Chart 3 shows, labour costs have not risen by anything close to the same extent as profits in most sectors. For some sectors, the gap between growth in unit profits and unit labour costs during 2022 is very large, for example in agriculture, manufacturing and contact intensive services.

While price and wage-setting will contain a backward-looking element, especially after a supply-driven surge in inflation, it is important that the forward-looking component remains close to our inflation target in order to avoid an entrenchment of higher inflation in expectations amongst the public. So far, there has been no indication that expectations have become de-anchored from our inflation target. This is true for both survey and market-based measures of longer-term inflation expectations.

Huw Pill, Chief Economist and Executive Director for Monetary Analysis of the Bank of England, gave a speech titled Inflation persistence and monetary policy:

In this speech Huw Pill discusses the outlook for the economy, including how lower energy prices might push down on inflation in the short term, but could also boost demand and therefore impact inflation in the medium term. He stresses that the MPC must continue to monitor how these external shocks to inflation might become embedded in the economy, and therefore risk persistently high domestically driven inflation. He goes into detail about the Monetary Policy Committee’s role in controlling inflation, and the potential impact of its recent significant increases to interest rates. He outlines how the Monetary Policy Committee carefully assesses the impact of interest rate rises that have yet to feed through, with the need to address current inflationary pressures.

Let me start with some stark and uncomfortable facts. Annual UK CPI inflation was 10.4% in February. That is unacceptably high. The Bank of England’s Monetary Policy Committee (MPC) is committed to returning inflation to its 2% target on a sustainable basis.

The MPC has tightened monetary policy over the past eighteen months to achieve the 2% inflation target. Bank Rate has been increased from its effective lower bound of 0.1% to today’s level of 4.25%. Quantitative easing (QE) has been halted and replaced with a programme of quantitative tightening (QT), involving the sale of gilts and corporate bonds held as a result of the Bank’s earlier asset purchase schemes.[1] And the MPC’s communication about the outlook for monetary policy has shifted significantly.

For data series that exhibit ‘mean reversion’ – in other words series that return to some average level after being shocked away from it – persistence is typically understood in terms of how long it takes to get back to that average level.[7]

Given the MPC’s mandate, CPI inflation will revert to 2% over time. But it is taking longer to return to target than was originally expected, and longer than is desirable. From a policy perspective, we want to understand why this persistence in inflation has emerged. In thinking about that, it is helpful to distinguish between different sources of persistence.[8]

One reason for inflation to have risen above target is that there have been a series of inflationary shocks to the economy, each of which was transitory in itself but – by dint of coming one after the other and operating in the same direction – led to greater persistence in headline inflation overall.

I label this a form of extrinsic inflation persistence.

Such an account resonates with the way the MPC has described the inflation process over the past couple of years.[9] Inflation first rose on account of bottlenecks in international goods markets that emerged from the interaction of disruption to global supply chains and changes in the pattern of consumer demand, both stemming from the lockdowns triggered by the onset of the Covid pandemic. Then, just as these bottlenecks were easing as the pandemic receded, UK energy prices rose dramatically following the Russian invasion of Ukraine and the resulting dramatic increase in wholesale European natural gas prices. And now, just as those wholesale gas prices have fallen substantially in recent months, we are seeing another inflationary impulse coming from rises in food prices driven, at least in part, by unexpectedly weak crop yields in southern Europe and north Africa.[10]

Understood in this way, the persistence of UK inflation is largely a manifestation of ‘bad luck’ – a ‘series of unfortunate events’. It reflects a sequence of fundamentally transitory shocks – each of which monetary policy can do little about, for reasons I have already explained – that have cumulated through time into a more long-lasting elevation of headline inflation.

There is much truth in that narrative. But we have to guard against complacency in interpreting recent inflation developments in this way. I recognise that this is potentially both a self-serving and an incomplete view of recent inflation developments in the UK.

For one thing, we need to assess whether the surprises we have been confronted with over recent years could have been anticipated by better analysis and research: for example, could we have forecast the vulnerabilities in global supply chains once the pandemic had struck? Or could we have foreseen the dynamics in food prices given agricultural
ommodity prices? These challenges deserve further research – although it is naïve to believe that there are easy solutions to such formidable analytical problems.

And – in particular, from today’s perspective – we should recognise that persistent deviations of inflation from target, even if stemming from what are fundamentally a series of transitory inflation shocks, might prompt changes in behaviour that generate more long lasting inflationary dynamics.

For example, we might see a shift in long-term inflation expectations or the emergence of ‘second round effects’ in price setting behaviour that threaten to create momentum in inflation even after the original impulse has receded.[11]

This naturally leads to what I label intrinsic persistence in headline inflation. Rather than being driven by a series of external shocks, greater intrinsic inflation persistence emerges when the economy’s response to the same fundamental inflationary shock changes in a way that implies headline inflation takes longer to return to target.

Of course, the evolution of inflation persistence against the background of the terms of trade
shock stemming from Russia’s invasion of Ukraine is only one of many challenges facing monetary policy makers at present. It needs to be seen in the context of other economic disturbances, not least the recent turmoil in the financial sector. We have been told by our colleagues in the Financial Policy Committee that the UK financial system remains robust and resilient. Nonetheless, those of us on the MPC need to remain vigilant to signs of tightening financial conditions and be prepared to respond to the macro implications of any dislocation to credit markets to the extent that they influence the outlook for inflation.

And Rogers got downgraded two notches:

DBRS Limited (DBRS Morningstar) resolved the Under Review with Negative Implications status of Rogers Communications Inc.’s (Rogers or the Company) by downgrading the Issuer Rating and Senior Unsecured Notes rating to BBB (low) from BBB (high). All trends are Stable. The resolution of the Under Review status reflects the completion of the $26 billion acquisition of Shaw Communications Inc. (the Shaw transaction) concurrently with the divestiture of Shaw’s Freedom Mobile to Videotron Ltd. (the Freedom transaction), a wholly owned subsidiary of Quebecor Media Inc. (not rated by DBRS Morningstar). The rating downgrades reflect the increase in gross leverage required to finance the Shaw transaction and anticipated challenges related to network, cultural, and operations integration amid an intensely competitive landscape, while acknowledging the long-term competitive benefits for Rogers as it enhances its national footprint and competitive positioning, particularly in Western Canada. The Stable trends reflect DBRS Morningstar’s expectation of a multiyear deleveraging path toward the Company’s long-term leverage target, as earnings are expected to benefit from a strong market position of the combined entity.

PerpetualDiscounts now yield 6.22%, equivalent to 8.09% interest at the standard equivalency factor of 1.3x. Long corporates yielded 5.06% on 2023-3-31 and since then the closing price has changed from 15.14 to 15.19, an increase of 33bp in price, with a Duration of 12.36 (BMO doesn’t specify whether this is Macaulay or Modified Duration; I will assume Modified) which implies a decrease in yield of about 3bp since 3/31 to 5.03%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has remained constant at about 305bp since reported March 29.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 2.2250 % 2,340.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 2.2250 % 4,488.4
Floater 9.63 % 9.62 % 59,092 9.88 2 2.2250 % 2,586.7
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0245 % 3,353.1
SplitShare 5.01 % 7.11 % 48,038 2.66 7 -0.0245 % 4,004.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0245 % 3,124.4
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 -0.9982 % 2,758.3
Perpetual-Discount 6.19 % 6.22 % 57,275 13.62 34 -0.9982 % 3,007.8
FixedReset Disc 5.80 % 7.53 % 91,501 12.24 63 -0.6327 % 2,123.5
Insurance Straight 6.08 % 6.12 % 70,640 13.76 19 -0.2906 % 2,957.4
FloatingReset 10.36 % 10.77 % 29,719 8.99 2 -0.3707 % 2,399.3
FixedReset Prem 6.99 % 6.46 % 280,583 12.96 1 -0.5929 % 2,313.6
FixedReset Bank Non 0.00 % 0.00 % 0 0.00 0 -0.6327 % 2,170.7
FixedReset Ins Non 5.98 % 7.24 % 71,272 12.27 11 -0.9475 % 2,302.2
Performance Highlights
Issue Index Change Notes
BN.PF.D Perpetual-Discount -7.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 17.77
Evaluated at bid price : 17.77
Bid-YTW : 6.96 %
BN.PF.H FixedReset Disc -5.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 20.61
Evaluated at bid price : 20.61
Bid-YTW : 8.25 %
CU.PR.F Perpetual-Discount -4.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 17.99
Evaluated at bid price : 17.99
Bid-YTW : 6.35 %
BIP.PR.F FixedReset Disc -3.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 7.81 %
CU.PR.I FixedReset Disc -2.58 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 22.25
Evaluated at bid price : 22.65
Bid-YTW : 7.03 %
GWO.PR.N FixedReset Ins Non -2.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 11.94
Evaluated at bid price : 11.94
Bid-YTW : 8.02 %
IFC.PR.G FixedReset Ins Non -2.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 19.40
Evaluated at bid price : 19.40
Bid-YTW : 7.21 %
BN.PF.A FixedReset Disc -2.40 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 18.30
Evaluated at bid price : 18.30
Bid-YTW : 8.11 %
MIC.PR.A Perpetual-Discount -2.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 20.60
Evaluated at bid price : 20.60
Bid-YTW : 6.61 %
NA.PR.S FixedReset Disc -2.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 16.99
Evaluated at bid price : 16.99
Bid-YTW : 7.80 %
PWF.PR.F Perpetual-Discount -2.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 21.05
Evaluated at bid price : 21.05
Bid-YTW : 6.25 %
BIP.PR.B FixedReset Disc -2.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 21.45
Evaluated at bid price : 21.45
Bid-YTW : 8.38 %
BN.PF.B FixedReset Disc -1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 16.15
Evaluated at bid price : 16.15
Bid-YTW : 8.68 %
BN.PF.I FixedReset Disc -1.46 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 19.56
Evaluated at bid price : 19.56
Bid-YTW : 8.30 %
GWO.PR.T Insurance Straight -1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 20.90
Evaluated at bid price : 20.90
Bid-YTW : 6.21 %
PWF.PR.T FixedReset Disc -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 17.15
Evaluated at bid price : 17.15
Bid-YTW : 7.74 %
PWF.PR.P FixedReset Disc -1.28 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 12.62
Evaluated at bid price : 12.62
Bid-YTW : 8.01 %
GWO.PR.S Insurance Straight -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 21.21
Evaluated at bid price : 21.21
Bid-YTW : 6.24 %
NA.PR.E FixedReset Disc -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 19.71
Evaluated at bid price : 19.71
Bid-YTW : 7.06 %
MFC.PR.J FixedReset Ins Non -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 21.52
Evaluated at bid price : 21.84
Bid-YTW : 6.47 %
BN.PR.Z FixedReset Disc -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 19.70
Evaluated at bid price : 19.70
Bid-YTW : 7.69 %
GWO.PR.M Insurance Straight -1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 23.04
Evaluated at bid price : 23.31
Bid-YTW : 6.26 %
MFC.PR.I FixedReset Ins Non -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 22.12
Evaluated at bid price : 22.69
Bid-YTW : 6.53 %
MFC.PR.Q FixedReset Ins Non -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 18.55
Evaluated at bid price : 18.55
Bid-YTW : 7.56 %
CM.PR.Q FixedReset Disc -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 17.91
Evaluated at bid price : 17.91
Bid-YTW : 7.46 %
CM.PR.T FixedReset Disc -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 22.46
Evaluated at bid price : 22.95
Bid-YTW : 6.77 %
PWF.PR.O Perpetual-Discount -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 22.66
Evaluated at bid price : 22.90
Bid-YTW : 6.34 %
BN.PR.B Floater 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 12.35
Evaluated at bid price : 12.35
Bid-YTW : 9.62 %
GWO.PR.R Insurance Straight 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 19.85
Evaluated at bid price : 19.85
Bid-YTW : 6.10 %
TRP.PR.D FixedReset Disc 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 15.45
Evaluated at bid price : 15.45
Bid-YTW : 8.57 %
TD.PF.M FixedReset Disc 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 23.49
Evaluated at bid price : 23.95
Bid-YTW : 6.70 %
TRP.PR.B FixedReset Disc 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 10.68
Evaluated at bid price : 10.68
Bid-YTW : 9.05 %
BN.PR.K Floater 3.45 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 12.00
Evaluated at bid price : 12.00
Bid-YTW : 9.90 %
CU.PR.C FixedReset Disc 5.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 7.14 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.C FixedReset Disc 125,725 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 16.77
Evaluated at bid price : 16.77
Bid-YTW : 7.56 %
BMO.PR.T FixedReset Disc 47,000 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 16.96
Evaluated at bid price : 16.96
Bid-YTW : 7.61 %
NA.PR.S FixedReset Disc 31,850 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 16.99
Evaluated at bid price : 16.99
Bid-YTW : 7.80 %
RY.PR.J FixedReset Disc 31,434 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 18.05
Evaluated at bid price : 18.05
Bid-YTW : 7.53 %
TD.PF.K FixedReset Disc 31,203 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 19.65
Evaluated at bid price : 19.65
Bid-YTW : 7.08 %
PWF.PR.H Perpetual-Discount 24,800 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 22.66
Evaluated at bid price : 22.90
Bid-YTW : 6.28 %
There were 13 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.E FixedReset Disc Quote: 14.95 – 17.45
Spot Rate : 2.5000
Average : 1.4127

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 14.95
Evaluated at bid price : 14.95
Bid-YTW : 8.68 %

BN.PF.D Perpetual-Discount Quote: 17.77 – 19.25
Spot Rate : 1.4800
Average : 0.8602

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 17.77
Evaluated at bid price : 17.77
Bid-YTW : 6.96 %

BN.PF.H FixedReset Disc Quote: 20.61 – 21.80
Spot Rate : 1.1900
Average : 0.8565

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 20.61
Evaluated at bid price : 20.61
Bid-YTW : 8.25 %

CU.PR.E Perpetual-Discount Quote: 19.97 – 23.72
Spot Rate : 3.7500
Average : 3.4827

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 19.97
Evaluated at bid price : 19.97
Bid-YTW : 6.22 %

BIP.PR.F FixedReset Disc Quote: 19.01 – 19.84
Spot Rate : 0.8300
Average : 0.5667

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 7.81 %

PWF.PR.F Perpetual-Discount Quote: 21.05 – 21.67
Spot Rate : 0.6200
Average : 0.3970

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-05
Maturity Price : 21.05
Evaluated at bid price : 21.05
Bid-YTW : 6.25 %

MAPF Portfolio Composition : March 2023

April 4th, 2023

Turnover plummetted to 5% in March, and was zero in the latter half of the month. With volatility and nervousness due to worries about financial stability, spreads were wide; in addition, high trading volumes in the past two months have left the portfolio in a highly optimized condition.

Sectoral distribution of the MAPF portfolio on March 31, 2023, were:

MAPF Sectoral Analysis 2023-3-31
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 0% N/A N/A
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 6.2% 6.69% 12.98
Fixed-Reset Discount 75.5% 7.86% 11.93
Insurance – Straight 0% N/A N/A
FloatingReset 0% N/A N/A
FixedReset Premium 0% N/A N/A
FixedReset Bank non-NVCC 0% N/A N/A
FixedReset Insurance non-NVCC 4.2% 7.88% 12.43
Scraps – Ratchet 0% N/A N/A
Scraps – FixedFloater 0% N/A N/A
Scraps – Floater 0% N/A N/A
Scraps – OpRet 0% N/A N/A
Scraps – SplitShare 1.0% 10.51% 1.59
Scraps – PerpPrem 0% N/A N/A
Scraps – PerpDisc 0% N/A N/A
Scraps – FR Discount 6.9% 9.29% 10.86
Scraps – Insurance Straight 0% N/A N/A
Scraps – FloatingReset 0% N/A N/A
Scraps – FR Premium 0% N/A N/A
Scraps – Bank non-NVCC 0% N/A N/A
Scraps – Ins non-NVCC 5.8% 7.94% 12.25
Cash +0.3% 0.00% 0.00
Total 100% 7.89% 11.82
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices.
DeemedRetractibles were comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 in the case of banks or normally in the case of insurers and insurance holding companies, in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis and IAIS Says No To DeemedRetractions for the recent change in policy with respect to insurers.

Note that the estimate for the time this will become effective for insurers and insurance holding companies was extended by three years in April 2013, due to the delays in OSFI’s providing clarity on the issue and by a further five years in December, 2018; the estimate was eliminated in November. However, the distinctions are being kept because it is useful to distinguish insurance issues from others.

The name of this subindex has been changed to “Insurance Straight” as of November, 2020

Calculations of resettable instruments are performed assuming a constant GOC-5 rate of 2.93%, a constant 3-Month Bill rate of 4.44% and a constant Canada Prime Rate of 6.70%

The “total” reflects the un-leveraged total portfolio (i.e., cash is included in the portfolio calculations and is deemed to have a duration and yield of 0.00.). MAPF will often have relatively large cash balances, both credit and debit, to facilitate trading. Figures presented in the table have been rounded to the indicated precision.

Credit distribution is:

MAPF Credit Analysis 2023-3-31
DBRS Rating MAPF Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 46.4%
Pfd-2 24.9%
Pfd-2(low) 20.5%
Pfd-3(high) 3.4%
Pfd-3 2.2%
Pfd-3(low) 1.2%
Pfd-4(high) 1.2%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0%
Pfd-5 0%
Cash +0.3%
Totals will not add precisely due to rounding.
A position held in INE.PR.A is not rated by DBRS nor by S&P, but has been included as “Pfd-4(high)” in the above table on the basis of its last S&P rating of P-4(high) and its BB rating from Fitch. A “BB” rating would normally map to Pfd-3, but the company’s disdain for the two major preferred share agencies makes me nervous.

Liquidity Distribution is:

MAPF Liquidity Analysis 2023-3-31
Average Daily Trading MAPF Weighting
<$50,000 27.5%
$50,000 – $100,000 17.7%
$100,000 – $200,000 46.6%
$200,000 – $300,000 6.9%
>$300,000 1.0%
Cash +0.3%
Totals will not add precisely due to rounding.

The distribution of Issue Reset Spreads is:

Range MAPF Weight
<100bp 0%
100-149bp 10.0%
150-199bp 17.5%
200-249bp 60.0%
250-299bp 2.9%
300-349bp 2.0%
350-399bp 0%
400-449bp 0%
450-499bp 0%
500-549bp 0%
550-599bp 0%
>= 600bp 0%
Undefined 7.5%

Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.

Range MAPF Weight
Currently Floating 0%
0-1 Year 0%
1-2 Years 58.6%
2-3 Years 20.5%
3-4 Years 10.4%
4-5 Years 3.0%
5-6 Years 0%
>6 Years 0%
Not Floating Rate 7.5%

MAPF is, of course, Malachite Aggressive Preferred Fund, a “unit trust” managed by Hymas Investment Management Inc. Further information and links to performance, audited financials and subscription information are available the fund’s web page. The fund may be purchased directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a prospectus This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission). Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.

April 4, 2023

April 4th, 2023

BIS has released a paper by Claudio Borio, Marco Jacopo Lombardi, James Yetman and Egon Zakrajšek titled The two-regime view of inflation:

Focus

The global surge of inflation that started in 2021 took most observers by surprise. While unforeseen shocks played a key role, the surprise also highlighted limitations of the analytical frameworks typically used to understand and forecast inflation.

Contribution

This study provides a new view of the inflation process. It characterises the process as two regimes – a low- and a high-inflation regime – with self-reinforcing transitions from the low- to the high-inflation one. The value added of this view is to highlight those elements that standard models downplay and to draw new implications for monetary policy.

Findings

First, inflation tends to be self-stabilising in a low-inflation regime but loses that property as it shifts to the high-inflation one. This reflects systematic differences in the co-movement of individual prices and in the behaviour of wage and price setters that determines them. As inflation increases above very low levels, it becomes a more focal point for workers and firms. This increases the likelihood of wage-price spirals.

Second, monetary policy has a smaller impact on inflation in a low-inflation regime, where individual price changes co-move little. It also operates through a quite narrow set of sectoral prices, typically in the services sectors that are more sensitive to economic activity.

As a result, when inflation has settled at a low level, monetary policy can afford to accept moderate, even if persistent, deviations from narrowly defined inflation targets. But it has to respond in a timely and forceful way when transitions to a high-inflation regime threaten.

Abstract

This study provides a view of the inflation process that is complementary to the one captured in standard models, such as those based on the Phillips curve. It characterises the process as two regimes – a low- and a high-inflation regime – with self-reinforcing transitions from the low- to the high-inflation one. The study documents the stylised facts describing the two regimes and the transitions between them based on disaggregated price dynamics and the joint behaviour of wages and prices. Two implications for monetary policy stand out. First, the desirability of conducting monetary policy in a flexible manner in a low-inflation regime, tolerating moderate, even if persistent, deviations from narrowly defined targets. Second, the importance of being pre-emptive when the risk of a transition to the high-inflation regime increases, even though assessing this transition in real time remains challenging.

BIS has also released a Committee on the Global Financial System paper from a Working Group co-chaired by Margarita Delgado (Banco de España) and Toni Gravelle (Bank of Canada) titled Central bank asset purchases in response to the Covid-19 crisis:

Large-scale asset purchases by central banks in response to the Covid-19 pandemic were broadly successful in addressing disruptions in monetary policy transmission and providing additional stimulus. In this report, the CGFS examines the experience of central banks in many small open and emerging market economies that conducted asset purchases for the first time during the Covid-19 crisis as well as in large advanced economies that expanded or reintroduced purchases.

The impact of asset purchases and relative importance of various transmission channels differed across time and economies. The liquidity channel, whereby purchases improved financial market liquidity, was particularly important during the early weeks of the Covid-19 crisis, when markets were stressed.

The signalling channel, whereby purchases foreshadowed the future stance of monetary policy, was less important than the portfolio rebalancing channel, through which purchases altered the duration and credit risk in private investors’ portfolios. The signalling channel contributed more to the easing of financial conditions in countries where policy rates were near the effective lower bound.

In many countries a strong economic rebound and surge in inflation prompted central banks to stop asset purchases within a year or two and to start raising policy rates. The report notes that the relatively short time span of the purchases thereby reduced the risk of unintended side effects.

As functioning in markets continued to rapidly deteriorate throughout March 2020, for the first time in its history, the BoC unveiled a wide range of large-scale AP programmes across various government and non-government securities markets. Each programme had its own size and scope in order to address dysfunction in a specific market. Similar to other programmes, the government bond purchase programme (GBPP) was introduced with a focus on addressing severe market dysfunctions, but it was the only asset purchase programme to subsequently shift its primary objectives. As market functioning in the government of Canada bond market returned closer to normal levels, the primary objective of the GBPP shifted from supporting market functioning to monetary policy objectives. Specifically, with the BoC’s policy rate at its effective lower bound, the GBPP became a tool for implementing quantitative easing with dual objectives of supporting the economy and achieving the inflation target.

The elevated uncertainty surrounding the impact of the pandemic on economic activity created an enormous demand for liquidity from practically all sectors of the economy that could not readily be accommodated by the financial system. As a result, there was a significant deterioration in market functioning across many markets and a relatively large and rapid rise in risk premia. The AP programmes were rolled out to first address this broad deterioration in market functioning. Reflecting the broad market dysfunction in fixed income markets that are critical to the Canadian financial system and economy, AP programmes spanned government (federal and provincial), mortgage and corporate fixed income markets. Each AP programme had its own individual size and scope of assets purchased. Programmes with multiple eligible issuers were set with outright issuer limits, a target relative to some measure (such as each province’s share of Canada’s GDP), or both. AP programmes in the credit markets specified a relatively high minimum credit rating for eligible assets.

By their end, the BoC’s APs totalled 23.6% of Canada’s 2019 nominal GDP (CAD 1.814 trillion). These purchase programmes were novel for the BoC and the largest in its history – a reflection of the unprecedented nature of the Covid pandemic and crisis. The largest share of purchases consisted of high quality public sector debt and the majority of assets purchased had a relatively short term to maturity. Government of Canada bonds purchased through the GBPP accounted for the largest share of purchased assets (Graph A2).

When sequencing the exit from quantitative easing, the BoC began to tighten only after net purchases were halted, and balance sheet reduction then took place. The pace of purchases gradually reduced during 2021 until October, when the BoC announced an end to quantitative easing and a move into the reinvestment phase. Well into the reinvestment phase, in March 2022 the BoC lifted its policy rate from the ELB. In April 2022, the BoC announced the beginning of quantitative tightening, whereby maturing government of Canada bonds on the BoC’s balance sheet would no longer be replaced.

The decision to conduct QT passively was influenced by the duration of purchased assets. In the case of Canada, the assets purchased by the BoC had a relatively short average term to maturity and thus the expected relatively fast material decline in asset holdings was not viewed as requiring additional outright sales to achieve the desired balance sheet decline. As information on the holdings of the BoC was publicly available, the passive approach taken towards QT benefited from a predictable transparent tightening for all market participants, limiting unnecessary volatility in markets and complementing increases in the policy interest rate – the primary monetary policy instrument.

The IMF has published a piece by Markus Brunnermeier titled Rethinking Monetary Policy in a Changing World:

Following a lengthy period of low interest rates and low inflation, the global economy is entering a phase characterized by high inflation and high levels of both public and private debt. Fifteen years ago, central banks saw an urgent need to incorporate financial stability and deflation concerns into their traditional modeling of the economy and developed unconventional tools to deal with both.

Although financial stability remains an important concern, there are important differences between the current environment and the one that followed the global financial crisis:

  • Public debt is now high, so any interest rate increase to fend off inflation threats makes servicing the debt more expensive—with immediate and large adverse fiscal implications for the government. Since the beginning of the COVID-19 crisis in early 2020, it is also evident that fiscal policy can be a significant driver of inflation.
  • Instead of deflationary pressures, most countries are experiencing excessive inflation. That means there is now a clear trade-off between a monetary policy that tries to reduce aggregate demand by raising interest rates and one that aims to ensure financial stability.
  • The nature and frequency of shocks have changed. Historically shocks were mostly from increases or decreases in demand—with the prominent exception of the supply shocks during the so-called stagflation of the 1970s. Now there are many shocks: demand vs. supply, specific risks vs. systemic risks, transitory vs. permanent. It is difficult to identify the true nature of these shocks in time to respond. Central bankers need to be more humble.

Bond market volatility has some portfolios changing parameterizations (“Look, Mummy, I got a spreadsheet!”):

But the Treasury market volatility of March 2023 could have lasting consequences as investors may demand higher premiums across the bond yield curve and across the asset spectrum – preferring lighter positions than they would have otherwise.

Investors will now have to factor into their future models a past event that nobody predicted, even though the likelihood of it repeating is equally minimal.

Pim van Vliet, head of quantitative equities at Robeco, notes that investors with shorter-term horizons measured in days, weeks or months will almost certainly see an increase in their risk metrics, such as “Value-at-Risk”, or VaR.

VaR measures the potential maximum loss on a portfolio of investments over a given period of time, and is calculated using historical returns, current market conditions, and measures of past and expected volatility.

Using data going back to the mid-1980s, markets research and advisory firm Exante Data calculates that the two-year yield’s slide on March 13 was a 6.1 standard deviation move, and the one-week fall on March 15 was a 7.3 standard deviation move.

The statistical probability of a 6 standard deviation, or 6-sigma event, is around one in a billion, and the chance of a 7-sigma event occurring in any given day is 0.000000000129%.

This level of risk would barely be acceptable for investors trading a penny stock, crypto token, or distressed emerging market currency, never mind the asset widely considered to be one of the least volatile in the world.

Canadians expect higher than policy inflation:

Business sentiment in Canada continues to worsen with companies expecting sales growth to slow over the coming year and inflation to remain elevated until at least 2025, according to the Bank of Canada’s quarterly business survey.

The average respondent to the business survey expects inflation to be 3.9 per cent in two years’ time. That’s nearly twice the Bank of Canada’s 2-per-cent target.

Consumers, meanwhile, think that inflation will still be running at 4.27 per cent in two years. Most respondents blamed supply chain disruptions for high inflation, the Bank of Canada said, although many also pointed to high government spending.

“Firms indicated that it has become easier to find the workers they need. They attribute this to less competition for labour and an improved labour supply,” the Bank of Canada said, pointing to increased immigration.

“For the first time in several quarters, businesses no longer expect labour costs to put upward pressure on their output price growth,” the bank added.

Even with less competition for workers, businesses still expect to raise wages quickly this year, by an average of 4.7 per cent. That’s down from a peak of 5.8 per cent in the second-quarter 2022 survey, but well above the prepandemic average of around 3 per cent.

The jobs market in the States is cooling, but still hot:

Demand for workers in the United States eased in February, a sign that the red-hot labor market continues to cool off somewhat.

There were 9.9 million job openings, compared with 10.8 million on the last day of January, the Labor Department reported Tuesday in the Job Openings and Labor Turnover Survey, known as JOLTS.

A drop in open positions is a signal that the labor market is slowing down, but the report also showed that it remains healthy: Four million workers quit their jobs during the month, a slight increase relative to January, and the number of layoffs decreased slightly to 1.5 million.

There were 1.7 jobs open for every unemployed worker in February, compared with 1.9 in January, a measure the Federal Reserve has been paying close attention to as it looks to cool hiring, part of its effort to contain inflation.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.0840 % 2,289.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.0840 % 4,390.7
Floater 9.84 % 9.72 % 61,316 9.80 2 0.0840 % 2,530.4
OpRet 0.00 % 0.00 % 0 0.00 0 0.3743 % 3,354.0
SplitShare 5.01 % 7.15 % 47,040 2.66 7 0.3743 % 4,005.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.3743 % 3,125.1
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.0875 % 2,786.1
Perpetual-Discount 6.12 % 6.22 % 55,747 13.56 35 0.0875 % 3,038.1
FixedReset Disc 5.77 % 7.53 % 92,923 12.15 61 -0.2154 % 2,137.1
Insurance Straight 6.06 % 6.10 % 70,045 13.78 20 0.2234 % 2,966.1
FloatingReset 10.32 % 10.71 % 29,496 9.03 2 -1.2974 % 2,408.2
FixedReset Prem 6.64 % 6.42 % 273,975 13.01 2 -0.1990 % 2,327.4
FixedReset Bank Non 0.00 % 0.00 % 0 0.00 0 -0.2154 % 2,184.5
FixedReset Ins Non 5.79 % 7.48 % 57,471 12.35 12 -0.0923 % 2,324.2
Performance Highlights
Issue Index Change Notes
CU.PR.C FixedReset Disc -5.76 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 7.54 %
SLF.PR.J FloatingReset -2.21 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 14.57
Evaluated at bid price : 14.57
Bid-YTW : 10.21 %
BIK.PR.A FixedReset Disc -2.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 21.65
Evaluated at bid price : 22.06
Bid-YTW : 7.86 %
BN.PF.I FixedReset Disc -1.54 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 19.85
Evaluated at bid price : 19.85
Bid-YTW : 8.18 %
PWF.PR.S Perpetual-Discount -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 19.75
Evaluated at bid price : 19.75
Bid-YTW : 6.20 %
CU.PR.D Perpetual-Discount -1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 19.80
Evaluated at bid price : 19.80
Bid-YTW : 6.28 %
MFC.PR.F FixedReset Ins Non -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 12.36
Evaluated at bid price : 12.36
Bid-YTW : 8.04 %
IAF.PR.B Insurance Straight -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 19.55
Evaluated at bid price : 19.55
Bid-YTW : 5.93 %
PWF.PR.K Perpetual-Discount -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 20.30
Evaluated at bid price : 20.30
Bid-YTW : 6.22 %
BMO.PR.E FixedReset Disc -1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 20.38
Evaluated at bid price : 20.38
Bid-YTW : 7.04 %
IFC.PR.F Insurance Straight 1.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 21.88
Evaluated at bid price : 22.22
Bid-YTW : 5.99 %
MFC.PR.L FixedReset Ins Non 1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 16.42
Evaluated at bid price : 16.42
Bid-YTW : 7.77 %
NA.PR.C FixedReset Prem 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 23.29
Evaluated at bid price : 25.30
Bid-YTW : 6.42 %
TRP.PR.G FixedReset Disc 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 16.30
Evaluated at bid price : 16.30
Bid-YTW : 8.40 %
CU.PR.I FixedReset Disc 1.31 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 22.63
Evaluated at bid price : 23.25
Bid-YTW : 6.84 %
GWO.PR.P Insurance Straight 1.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 21.33
Evaluated at bid price : 21.60
Bid-YTW : 6.29 %
BN.PF.B FixedReset Disc 1.42 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 16.43
Evaluated at bid price : 16.43
Bid-YTW : 8.53 %
PVS.PR.H SplitShare 1.54 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2027-02-28
Maturity Price : 25.00
Evaluated at bid price : 23.10
Bid-YTW : 7.11 %
BIP.PR.F FixedReset Disc 1.55 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 19.65
Evaluated at bid price : 19.65
Bid-YTW : 7.55 %
FTS.PR.K FixedReset Disc 1.61 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 16.36
Evaluated at bid price : 16.36
Bid-YTW : 7.73 %
GWO.PR.M Insurance Straight 1.64 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 23.30
Evaluated at bid price : 23.58
Bid-YTW : 6.19 %
TRP.PR.C FixedReset Disc 1.64 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 11.15
Evaluated at bid price : 11.15
Bid-YTW : 8.96 %
IFC.PR.K Perpetual-Discount 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 21.34
Evaluated at bid price : 21.65
Bid-YTW : 6.09 %
BIP.PR.B FixedReset Disc 2.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 21.52
Evaluated at bid price : 21.90
Bid-YTW : 8.20 %
CU.PR.F Perpetual-Discount 4.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 6.07 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PF.J FixedReset Disc 52,635 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 21.54
Evaluated at bid price : 21.54
Bid-YTW : 6.75 %
NA.PR.C FixedReset Prem 36,617 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 23.29
Evaluated at bid price : 25.30
Bid-YTW : 6.42 %
BN.PF.B FixedReset Disc 26,900 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 16.43
Evaluated at bid price : 16.43
Bid-YTW : 8.53 %
RY.PR.J FixedReset Disc 15,022 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 7.55 %
CU.PR.F Perpetual-Discount 14,265 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 6.07 %
MFC.PR.Q FixedReset Ins Non 13,406 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 18.76
Evaluated at bid price : 18.76
Bid-YTW : 7.48 %
There were 5 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CU.PR.E Perpetual-Discount Quote: 19.97 – 23.72
Spot Rate : 3.7500
Average : 3.1897

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 19.97
Evaluated at bid price : 19.97
Bid-YTW : 6.22 %

CU.PR.C FixedReset Disc Quote: 18.00 – 19.45
Spot Rate : 1.4500
Average : 1.0547

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 7.54 %

MFC.PR.C Insurance Straight Quote: 18.74 – 19.70
Spot Rate : 0.9600
Average : 0.5671

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 18.74
Evaluated at bid price : 18.74
Bid-YTW : 6.07 %

GWO.PR.Y Insurance Straight Quote: 18.60 – 19.50
Spot Rate : 0.9000
Average : 0.5867

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 18.60
Evaluated at bid price : 18.60
Bid-YTW : 6.10 %

PWF.PR.T FixedReset Disc Quote: 17.65 – 19.27
Spot Rate : 1.6200
Average : 1.3267

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 17.65
Evaluated at bid price : 17.65
Bid-YTW : 7.64 %

MFC.PR.M FixedReset Ins Non Quote: 16.68 – 17.49
Spot Rate : 0.8100
Average : 0.5808

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-04
Maturity Price : 16.68
Evaluated at bid price : 16.68
Bid-YTW : 7.84 %

April 3, 2023

April 3rd, 2023

BIS has released a working paper by Andrej Sokol, Michael Kumhof, Marco Pinchetti and Phurichai Rungcharoenkitkul titled CBDC policies in open economies:

Focus
Central banks are currently considering issuing digital money to the general public, known as central bank digital currency (CBDC). Much attention so far has focused on the microeconomic benefits of CBDC, while the implications for macroeconomic and financial stability remain less well understood. What are the macroeconomic gains and risks associated with CBDC, particularly if it could be transferred across borders? And how should the central bank set its CBDC policy in the light of these potential benefits and costs?

Contribution
We study the macroeconomic and monetary policy implications of CBDC issuance in a rich quantitative framework. We introduce CBDC into a carefully calibrated and estimated two-country DSGE environment, featuring a realistic financial system, monetary policy (via the conventional policy interest rate and a separate CBDC policy) and fiscal policy. We use the model to examine: (i) the consequences of transitioning to a CBDC economy; (ii) the design of optimal simple rules for CBDC policy, in terms of interest rate or quantity; and (iii) the open economy effects of introducing CBDC.

Findings
Transitioning to a CBDC economy brings about substantial welfare gains, worth over 2% of steady state consumption in the long run. By counteracting financial shocks, CBDC policy would also help stabilise aggregate demand and inflation. For example, the optimised CBDC interest rule that responds systematically to the credit gap improves welfare by over 1% of steady-state consumption. Finally, when countries adopt optimal CBDC policies, they reduce volatilities of cross-border banking exposures and exchange rates by about a third.

Abstract
We study the consequences for business cycles and welfare of introducing an interest-bearing retail CBDC, competing with bank deposits as medium of exchange, into an estimated 2-country DSGE environment. According to our estimates, financial shocks account for around half of the variance of aggregate demand and inflation, and for the bulk of the variance of financial variables. CBDC issuance of 30% of GDP increases output and welfare by around 6% and 2%, respectively. An aggressive Taylor rule for the interest rate on reserves achieves welfare gains of 0.57% of steady state consumption, an optimized CBDC interest rate rule that responds to a credit gap achieves additional welfare gains of 0.44%, and further gains of 0.57% if accompanied by automatic fiscal stabilizers. A CBDC quantity rule, a response to an inflation gap, CBDC as generalized retail access to reserves, and especially a cash-like zero-interest CBDC, yield significantly smaller gains. CBDC policies can substantially reduce the volatilities of domestic and cross- border banking flows and of the exchange rate. Optimal policy requires a steady state quantity of CBDC of around 40% of annual GDP.

We adopt the calibrated and estimated parameters of the pre-CBDC model in a post-CBDC model that is mostly identical, except for the presence of CBDC. We show that the introduction of CBDC equal to 30% of GDP by a single economy is highly beneficial, yielding long run output gains in that economy of just under 6% and long run welfare gains of around 2%. This is because the introduction of CBDC into a large economy like the US can lower real interest rates due to a reduction in the stock of defaultable debt combined with the funding cost advantage of CBDC over defaultable debt, lower distortionary tax rates due to the budgetary space created by lower real interest rates, and lower monetary frictions due to a reduction in tax-like monetary wedges that represent a move of the economy towards the ideal of the Friedman (1969) rule. Bank balance sheets grow significantly in the long run, while banks’ average cost of funding remains approximately constant, countering the notion that introducing a CBDC inevitably leads to bank disintermediation.

2. In a contractionary episode the CBDC interest rate should, ceteris paribus, increase rather than decrease. The reason is that increasing the CBDC interest rate relative to the rate on reserves lowers the opportunity cost of holding CBDC. This increases the overall quantity of money and thereby stimulates the economy.

3. A countercyclical CBDC interest rate rule can partly share the burden of a countercyclical Taylor rule for the interest rate on reserves in stabilizing inflation and output, while also stabilizing financial variables. The reason is that the CBDC interest rate works through a money supply channel that complements the intertemporal substitution channel of the interest rate on reserves.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -3.2913 % 2,287.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 -3.2913 % 4,387.0
Floater 9.85 % 9.73 % 63,789 9.79 2 -3.2913 % 2,528.2
OpRet 0.00 % 0.00 % 0 0.00 0 0.1783 % 3,341.5
SplitShare 5.03 % 7.25 % 48,785 2.66 7 0.1783 % 3,990.4
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1783 % 3,113.5
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 0.0849 % 2,783.7
Perpetual-Discount 6.13 % 6.20 % 56,216 13.57 35 0.0849 % 3,035.5
FixedReset Disc 5.76 % 7.50 % 92,564 12.20 61 0.1159 % 2,141.7
Insurance Straight 6.07 % 6.11 % 69,760 13.78 20 -0.1935 % 2,959.5
FloatingReset 10.19 % 10.67 % 29,231 9.07 2 1.5884 % 2,439.8
FixedReset Prem 6.63 % 6.51 % 260,498 12.71 2 0.0797 % 2,332.1
FixedReset Bank Non 0.00 % 0.00 % 0 0.00 0 0.1159 % 2,189.2
FixedReset Ins Non 5.78 % 7.45 % 57,312 12.31 12 -0.0130 % 2,326.4
Performance Highlights
Issue Index Change Notes
BN.PR.K Floater -6.53 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 11.60
Evaluated at bid price : 11.60
Bid-YTW : 10.24 %
TRP.PR.C FixedReset Disc -2.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 10.97
Evaluated at bid price : 10.97
Bid-YTW : 9.09 %
GWO.PR.R Insurance Straight -1.65 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 19.67
Evaluated at bid price : 19.67
Bid-YTW : 6.15 %
BN.PR.Z FixedReset Disc -1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 19.75
Evaluated at bid price : 19.75
Bid-YTW : 7.66 %
CU.PR.H Perpetual-Discount -1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 21.65
Evaluated at bid price : 21.65
Bid-YTW : 6.15 %
GWO.PR.Y Insurance Straight -1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 18.60
Evaluated at bid price : 18.60
Bid-YTW : 6.10 %
MFC.PR.L FixedReset Ins Non -1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 16.25
Evaluated at bid price : 16.25
Bid-YTW : 7.85 %
BIK.PR.A FixedReset Disc -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 21.95
Evaluated at bid price : 22.51
Bid-YTW : 7.70 %
GWO.PR.I Insurance Straight -1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 18.57
Evaluated at bid price : 18.57
Bid-YTW : 6.11 %
TRP.PR.B FixedReset Disc -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 10.53
Evaluated at bid price : 10.53
Bid-YTW : 9.17 %
MFC.PR.K FixedReset Ins Non -1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 18.15
Evaluated at bid price : 18.15
Bid-YTW : 7.24 %
BN.PF.A FixedReset Disc -1.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 18.90
Evaluated at bid price : 18.90
Bid-YTW : 7.85 %
FTS.PR.M FixedReset Disc -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 16.72
Evaluated at bid price : 16.72
Bid-YTW : 8.03 %
RY.PR.S FixedReset Disc 1.15 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 20.25
Evaluated at bid price : 20.25
Bid-YTW : 6.70 %
PVS.PR.K SplitShare 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2029-05-31
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 6.98 %
GWO.PR.T Insurance Straight 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 21.20
Evaluated at bid price : 21.20
Bid-YTW : 6.12 %
TD.PF.L FixedReset Disc 1.24 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 23.22
Evaluated at bid price : 23.75
Bid-YTW : 6.62 %
BMO.PR.F FixedReset Disc 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 23.34
Evaluated at bid price : 23.85
Bid-YTW : 6.79 %
IAF.PR.B Insurance Straight 1.33 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 19.77
Evaluated at bid price : 19.77
Bid-YTW : 5.86 %
TRP.PR.A FixedReset Disc 1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 13.65
Evaluated at bid price : 13.65
Bid-YTW : 8.75 %
BN.PF.J FixedReset Disc 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 21.82
Evaluated at bid price : 22.25
Bid-YTW : 6.93 %
CU.PR.D Perpetual-Discount 1.73 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 20.04
Evaluated at bid price : 20.04
Bid-YTW : 6.20 %
BIP.PR.A FixedReset Disc 1.75 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 16.90
Evaluated at bid price : 16.90
Bid-YTW : 9.13 %
GWO.PR.N FixedReset Ins Non 1.84 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 12.16
Evaluated at bid price : 12.16
Bid-YTW : 7.88 %
CU.PR.I FixedReset Disc 2.00 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 22.45
Evaluated at bid price : 22.95
Bid-YTW : 6.93 %
MIC.PR.A Perpetual-Discount 3.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 6.48 %
SLF.PR.J FloatingReset 3.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 14.90
Evaluated at bid price : 14.90
Bid-YTW : 9.98 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.S FixedReset Disc 145,145 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 17.90
Evaluated at bid price : 17.90
Bid-YTW : 7.40 %
CM.PR.O FixedReset Disc 103,628 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 17.10
Evaluated at bid price : 17.10
Bid-YTW : 7.55 %
CM.PR.Q FixedReset Disc 67,900 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 18.03
Evaluated at bid price : 18.03
Bid-YTW : 7.41 %
RY.PR.J FixedReset Disc 61,796 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 18.05
Evaluated at bid price : 18.05
Bid-YTW : 7.53 %
TRP.PR.D FixedReset Disc 52,008 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 15.40
Evaluated at bid price : 15.40
Bid-YTW : 8.59 %
BMO.PR.T FixedReset Disc 49,400 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 16.91
Evaluated at bid price : 16.91
Bid-YTW : 7.63 %
There were 10 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CU.PR.E Perpetual-Discount Quote: 20.11 – 23.72
Spot Rate : 3.6100
Average : 2.5753

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 20.11
Evaluated at bid price : 20.11
Bid-YTW : 6.18 %

PWF.PR.T FixedReset Disc Quote: 17.60 – 19.27
Spot Rate : 1.6700
Average : 1.0050

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 17.60
Evaluated at bid price : 17.60
Bid-YTW : 7.66 %

BN.PF.H FixedReset Disc Quote: 21.95 – 23.50
Spot Rate : 1.5500
Average : 0.9411

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 21.56
Evaluated at bid price : 21.95
Bid-YTW : 7.74 %

BN.PR.K Floater Quote: 11.60 – 12.60
Spot Rate : 1.0000
Average : 0.5956

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 11.60
Evaluated at bid price : 11.60
Bid-YTW : 10.24 %

TRP.PR.A FixedReset Disc Quote: 13.65 – 14.69
Spot Rate : 1.0400
Average : 0.7330

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 13.65
Evaluated at bid price : 13.65
Bid-YTW : 8.75 %

RY.PR.M FixedReset Disc Quote: 17.60 – 18.65
Spot Rate : 1.0500
Average : 0.9032

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2053-04-03
Maturity Price : 17.60
Evaluated at bid price : 17.60
Bid-YTW : 7.40 %

AX.PR.I To Reset At 6.993%

March 31st, 2023

Artis Real Estate Investment Trust has announced:

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Preferred Units, Series I (“Series I Units”) (AX.PR.I) on April 30, 2023.

As a result, and subject to certain conditions set forth in the certificate of preferred units terms relating to the Series I Units effective January 31, 2018 (the “Certificate of Series I Unit Terms”), the holders of Series I Units have the right to elect to reclassify all or any of their Series I Units into Preferred Units, Series J (“Series J Units”) of Artis on the basis of one Series J Unit for each Series I Unit on May 1, 2023 (being the first business day after April 30, 2023).

With respect to any Series I Units that remain outstanding after May 1, 2023, holders thereof will be entitled to receive distributions, if, as and when declared by the Board of Trustees of Artis, in an annual amount per Series I Unit determined by multiplying the annual fixed distribution rate for such subsequent fixed rate period by $25.00, and shall be payable quarterly on the last business day of each of January, April, July and October in each year during such subsequent fixed rate period. For the initial subsequent fixed rate period commencing on May 1, 2023, the annual fixed distribution rate is 6.993% per annum.

With respect to any Series J Units that may be issued on May 1, 2023, holders thereof will be entitled to receive distributions, if, as and when declared by the Board of Trustees of Artis, in an amount per Series J Unit determined by multiplying the floating quarterly distribution rate (calculated on the basis of the actual number of days elapsed in such quarterly floating rate period, divided by 365) by $25.00, which shall be payable quarterly on the last business day of such quarterly floating rate period. For the initial quarterly floating rate period commencing May 1, 2023, the floating quarterly distribution rate is 8.337% per annum.

Holders of Series I Units are not required to elect to reclassify all or any part of their Series I Units into Series J Units.

As provided in the Certificate of Series I Unit Terms: (i) if Artis determines that there would remain outstanding on May 1, 2023 less than 500,000 Series I Units, all remaining Series I Units shall be reclassified automatically into Series J Units on a one-for-one basis, effective May 1, 2023; or (ii) if Artis determines that less than 500,000 Series J Units would be issued based upon the elections of holders, then holders of Series I Units shall not be entitled to reclassify their Series I Units into Series J Units. As at the date hereof, there are an aggregate of 4,871,140 Series I Units issued and outstanding.

The Series I Units are issued in “book entry only” form and must be purchased or transferred through a participant in the CDS depository service (each, a “CDS Participant”). All rights of holders of Series I Units must be exercised through CDS or the CDS Participant through which the Series I Units are held. The deadline for the registered holder of Series I Units to provide notice of exercise of the right to reclassify Series I Units into Series J Units is 5:00 p.m. (Toronto time) on April 17, 2023. Any notices received after this deadline will not be valid. As such, holders of Series I Units who wish to exercise their right to reclassify their Series I Units into Series J Units should contact their broker or intermediary for more information and it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps.

If Artis does not receive an election notice in due form from a holder of Series I Units during the time fixed therefor, then the Series I Units shall be deemed not to have been reclassified (other than pursuant to an automatic reclassification). Holders of Series I Units and Series J Units will have the opportunity to reclassify their units again on May 1, 2028 (being the first business day after April 30, 2028), and every five years after April 30, 2028 as long as such units remain outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series J Units effective upon reclassification. Listing of the Series J Units is subject to Artis fulfilling all the listing requirements of the TSX.

AX.PR.I is a FixedReset, 6.00%+393M600, ROC issue that commenced trading 2018-1-31 after being announced 2018-01-22. It is tracked by HIMIPref™ but will be relegated to the Scraps subindex on credit qualit concerns.