There has been an interesting paper published by John (Xuefeng) Jiang, Mary Harris Stanford and Yuan Xie titled Does it Matter Who Pays for Bond Ratings? Historical Evidence:
We test whether Standard and Poor’s (S&P) assigns higher bond ratings after it switches from investor-pay to issuer-pay fees in 1974. Using Moody’s rating for the same bond as a benchmark, we find that when S&P charges investors and Moody’s charges issuers, S&P’s ratings are lower than Moody’s. Once S&P adopts issuer-pay, its ratings increase and no longer differ from Moody’s. More importantly, S&P only assigns higher ratings for bonds that are subject to greater conflicts of interest, measured by higher expected rating fees or lower credit quality. These findings suggest that the issuer-pay model leads to higher ratings.
It was a mildly good day for the Canadian preferred share market, with PerpetualDiscounts up 2bp, FixedResets gaining 4bp and DeemedRetractibles winning 10bp. There were only four entries on the Performance Highlights table, but they were all winners. Volume was extremely low.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0643 % | 2,131.1 |
| FixedFloater | 4.81 % | 4.52 % | 28,695 | 17.25 | 1 | 0.0000 % | 3,203.7 |
| Floater | 3.38 % | 3.39 % | 156,508 | 18.72 | 2 | -0.0643 % | 2,301.0 |
| OpRet | 4.94 % | 1.98 % | 51,820 | 1.49 | 7 | 0.0493 % | 2,489.5 |
| SplitShare | 5.78 % | 6.33 % | 55,707 | 5.18 | 3 | 0.6955 % | 2,537.1 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0493 % | 2,276.4 |
| Perpetual-Premium | 5.57 % | -0.61 % | 102,124 | 0.13 | 13 | 0.0225 % | 2,157.6 |
| Perpetual-Discount | 5.30 % | 5.31 % | 101,968 | 14.77 | 17 | 0.0169 % | 2,299.1 |
| FixedReset | 5.10 % | 2.96 % | 225,466 | 2.49 | 63 | 0.0375 % | 2,351.1 |
| Deemed-Retractible | 5.03 % | 4.40 % | 206,159 | 3.65 | 46 | 0.1035 % | 2,223.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| ELF.PR.F | Perpetual-Discount | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-11-18 Maturity Price : 22.80 Evaluated at bid price : 23.09 Bid-YTW : 5.80 % |
| HSB.PR.C | Deemed-Retractible | 1.11 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-06-30 Maturity Price : 25.25 Evaluated at bid price : 25.55 Bid-YTW : 4.75 % |
| BNA.PR.C | SplitShare | 1.17 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2019-01-10 Maturity Price : 25.00 Evaluated at bid price : 21.59 Bid-YTW : 6.79 % |
| SLF.PR.E | Deemed-Retractible | 1.42 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.46 Bid-YTW : 6.54 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| SLF.PR.I | FixedReset | 54,750 | Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-12-31 Maturity Price : 25.00 Evaluated at bid price : 24.63 Bid-YTW : 4.39 % |
| RY.PR.R | FixedReset | 53,400 | Scotia crossed 50,000 at 27.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-24 Maturity Price : 25.00 Evaluated at bid price : 27.00 Bid-YTW : 2.57 % |
| ENB.PR.B | FixedReset | 40,059 | RBC crossed 12,000 at 25.40. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-11-18 Maturity Price : 23.26 Evaluated at bid price : 25.40 Bid-YTW : 3.68 % |
| CM.PR.E | Perpetual-Discount | 32,876 | TD crossed 10,000 at 25.05. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-11-18 Maturity Price : 24.73 Evaluated at bid price : 25.04 Bid-YTW : 5.63 % |
| CM.PR.G | Perpetual-Discount | 32,725 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-11-18 Maturity Price : 24.52 Evaluated at bid price : 24.85 Bid-YTW : 5.47 % |
| RY.PR.Y | FixedReset | 31,621 | Scotia crossed 25,000 at 27.40. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-11-24 Maturity Price : 25.00 Evaluated at bid price : 27.45 Bid-YTW : 2.68 % |
| There were 15 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BMO.PR.P | FixedReset | Quote: 26.87 – 27.18 Spot Rate : 0.3100 Average : 0.1843 YTW SCENARIO |
| BAM.PR.K | Floater | Quote: 15.50 – 15.94 Spot Rate : 0.4400 Average : 0.3345 YTW SCENARIO |
| ELF.PR.F | Perpetual-Discount | Quote: 23.09 – 23.43 Spot Rate : 0.3400 Average : 0.2540 YTW SCENARIO |
| POW.PR.D | Perpetual-Discount | Quote: 24.70 – 24.97 Spot Rate : 0.2700 Average : 0.1849 YTW SCENARIO |
| IAG.PR.F | Deemed-Retractible | Quote: 26.05 – 26.35 Spot Rate : 0.3000 Average : 0.2164 YTW SCENARIO |
| FTS.PR.G | FixedReset | Quote: 25.70 – 25.97 Spot Rate : 0.2700 Average : 0.2111 YTW SCENARIO |