As noted in DBRS Posts Mass Upgrade of Banks! there has been a major change in credit-quality inputs.
Readers may be interested to see what effect these changes have on the yield curve calculation:
| Taxable Curve | ||
| Parameter | Before Upgrade | After Upgrade |
| Base Rate | 3.77 % | 3.77% |
| Short Term Premium | -1.02 % | -0.98% |
| Short Term Decay Time | 3.3 Years | 3.4 Years |
| Long Term Premium | -0.98 % | -0.97% |
| Long Term Decay Time | 10.8 Years | 10.8 Years |
| Spread for Interest Income | 0.77 % | 0.76% |
| Spread for Cumulative payments | 0.00 % | 0.00% |
| Spread for Split Share Corps | 0.34 % | 0.32% |
| Spread for Retraction Privilege | -0.54 % | -0.54% |
| Spread for 2nd Tier Credits | 0.14 % | 0.12% |
| Liquidity Premium | -0.16 % | -0.16% |
| Spread for 3rd Tier Credits | 0.37 % | 0.35% |
| Floating Rate Premium | -0.74 % | -0.73% |
| Spread for HIGH Credits | 0.00 % | 0.00% |
| Spread for LOW Credits | 0.07 % | 0.10% |
| Fitting Data | ||
| Total Priced Instruments | 170 | 170 |
| Instruments Used in calculation | 153 | 153 |
| Fitting Error | 82.1729 | 81.2355 |
| Non-Taxable Curve | ||
| Parameter | Before Upgrade | After Upgrade |
| Base Rate | 4.79 % | 4.80% |
| Short Term Premium | -1.73 % | -1.72% |
| Short Term Decay Time | 9.7 Years | 9.5 Years |
| Long Term Premium | -0.03 % | -0.03% |
| Long Term Decay Time | 29.7 Years | 29.7 Years |
| Spread for Interest Income | 3.40 % | 3.39% |
| Spread for Cumulative payments | 0.00 % | -0.01% |
| Spread for Split Share Corps | 0.48 % | 0.46% |
| Spread for Retraction Privilege | -0.72 % | -0.72% |
| Spread for 2nd Tier Credits | 0.22 % | 0.20% |
| Liquidity Premium | -0.18 % | -0.17% |
| Spread for 3rd Tier Credits | 0.56 % | 0.54% |
| Floating Rate Premium | -0.94 % | -0.93% |
| Spread for HIGH Credits | 0.00 % | 0.00% |
| Spread for LOW Credits | 0.10 % | 0.13% |
| Fitting Data | ||
| Total Priced Instruments | 170 | 170 |
| Instruments Used in calculation | 153 | 153 |
| Fitting Error | 104.9932 | 104.8866 |
Update, 2006-10-7 : The credit changes have been processed, the curve recalculated, the results of the recalculation posted and there are a few items of interest. Split share corporations have tightened in to the "base curve" noticably, but there is nothing that leaps immediately to mind as an interesting comment to make. I’ll have to think about it … and see if Tuesday’s trading starts moving the curve around a little!
[…] PrefBlog Canadian Preferred Shares – Data and Discussion « October 5, 2006 Effect of Mass-Bank-Upgrade on Calculated Yield-Curve » […]
[…] provide a link to the methodology. The mass-upgrade of October 2006 and its effect on the yield curve were discussed on […]