Good news on pensions – but not for the sponsors:
The solvency of Canadian defined benefit pension plans improved in 2012, a new Mercer study says.
The consultant said Wednesday that its Pension Health Index stood at 82 per cent on Dec. 31, up two percentage points for the fourth quarter and up six percentage points for the year.
However, the global pension, health and investment consultancy said economic factors were largely a non-factor.
Most of the improvement was due to increased employer contributions to fund deficits.
It was a mixed day for the Canadian preferred share market, with PerpetualPremiums gaining 10bp, FixedResets up 23bp and DeemedRetractibles off 7bp – seemingly unaffected by excitement in the equity market. Volatility was higher than average, comprised of losing DeemedRetractibles and winning FixedResets. However, volume continued its recent stretch of extremely low number, so all this could just be a puff of smoke.
PerpetualDiscounts now yield 4.88%, equivalent to 6.34% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.25%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 210bp, unchanged from the figure reported December 27.
| 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 | 0.0134 % | 2,478.8 |
| FixedFloater | 4.34 % | 3.71 % | 30,015 | 17.85 | 1 | 0.0915 % | 3,704.3 |
| Floater | 2.81 % | 3.01 % | 53,128 | 19.74 | 4 | 0.0134 % | 2,676.5 |
| OpRet | 4.63 % | 1.99 % | 53,231 | 0.46 | 4 | -0.0763 % | 2,597.0 |
| SplitShare | 4.62 % | 4.64 % | 50,717 | 4.36 | 2 | 0.2014 % | 2,881.1 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0763 % | 2,374.7 |
| Perpetual-Premium | 5.26 % | 0.31 % | 70,018 | 0.16 | 30 | 0.1002 % | 2,334.1 |
| Perpetual-Discount | 4.86 % | 4.88 % | 130,914 | 15.70 | 4 | 0.0611 % | 2,641.5 |
| FixedReset | 4.91 % | 2.94 % | 205,918 | 4.09 | 78 | 0.2344 % | 2,470.8 |
| Deemed-Retractible | 4.88 % | 0.81 % | 109,506 | 0.36 | 46 | -0.0731 % | 2,427.8 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| GWO.PR.M | Deemed-Retractible | -1.13 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2015-03-31 Maturity Price : 26.00 Evaluated at bid price : 26.32 Bid-YTW : 5.04 % |
| GWO.PR.Q | Deemed-Retractible | -1.03 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.91 Bid-YTW : 4.69 % |
| IAG.PR.G | FixedReset | 1.11 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.30 Bid-YTW : 3.07 % |
| MFC.PR.G | FixedReset | 1.16 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-12-19 Maturity Price : 25.00 Evaluated at bid price : 26.27 Bid-YTW : 3.09 % |
| GWO.PR.N | FixedReset | 1.64 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.53 Bid-YTW : 3.78 % |
| MFC.PR.I | FixedReset | 1.70 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-09-19 Maturity Price : 25.00 Evaluated at bid price : 26.25 Bid-YTW : 3.30 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| ENB.PR.T | FixedReset | 28,650 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-01-02 Maturity Price : 23.16 Evaluated at bid price : 25.21 Bid-YTW : 3.74 % |
| FTS.PR.G | FixedReset | 21,325 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-01-02 Maturity Price : 23.71 Evaluated at bid price : 24.34 Bid-YTW : 3.60 % |
| NA.PR.O | FixedReset | 16,834 | National crossed 11,300 at 26.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-02-15 Maturity Price : 25.00 Evaluated at bid price : 26.52 Bid-YTW : 1.89 % |
| ELF.PR.H | Perpetual-Premium | 15,149 | National crossed 12,100 at 25.90. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-17 Maturity Price : 25.00 Evaluated at bid price : 25.95 Bid-YTW : 4.94 % |
| ENB.PR.P | FixedReset | 14,287 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-01-02 Maturity Price : 23.20 Evaluated at bid price : 25.29 Bid-YTW : 3.73 % |
| GWO.PR.N | FixedReset | 13,548 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.53 Bid-YTW : 3.78 % |
| There were 3 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PR.C | Floater | Quote: 17.44 – 19.00 Spot Rate : 1.5600 Average : 1.2036 YTW SCENARIO |
| GWO.PR.M | Deemed-Retractible | Quote: 26.32 – 26.84 Spot Rate : 0.5200 Average : 0.3643 YTW SCENARIO |
| BAM.PR.G | FixedFloater | Quote: 21.87 – 22.54 Spot Rate : 0.6700 Average : 0.5190 YTW SCENARIO |
| TCA.PR.Y | Perpetual-Premium | Quote: 52.20 – 52.60 Spot Rate : 0.4000 Average : 0.2647 YTW SCENARIO |
| GWO.PR.Q | Deemed-Retractible | Quote: 25.91 – 26.30 Spot Rate : 0.3900 Average : 0.2610 YTW SCENARIO |
| RY.PR.B | Deemed-Retractible | Quote: 26.02 – 26.34 Spot Rate : 0.3200 Average : 0.2159 YTW SCENARIO |
Hi James,
In the performance table, the YTW scenarios for:
GWO.PR.Q is HardMaturity in 2022
and
MFC.PR.I is Call on 2017-09-19
Could you explain why these would not be called earlier based on the redemption dates/prices shown on PrefInfo.com?
HIMIPref™ reports as of the Close of Business 2013-1-4:
and
One difference is that MFC.PR.I is a FixedReset paying GOC5+286 on reset. It pays 1.10 currently and (given GOC5 = 1.34%) is forecast to pay 0.80 after its Exchange Date of 2017-9-19. GWO.PR.Q is a Straight Perpetual, paying a constant 1.2875.
However, the major diffence is the redemption schedule:
MFC.PR.I will lose $1.15 capital in the 57-odd months if called (par call!)
GWO.PR.Q will lose $0.21 capital in 57-odd months if called ($26 call!)
That makes a huge difference.
Does that help?
I understand now.
Focusing on GWO.PR.Q when I calculate yield to each of the redemption dates, NVCC call in 2022 is indeed the worst scenario. I had incorrectly thought that the first call on 2017-09-30 would be worse.
Thanks.
I think of it in graphical terms.
Think of a plot of redemption price vs. time – for GWO.PR.Q, you have five possible redemptions in five possible years.
Now draw a line connecting the redemption prices, and extend that line backwards until you have reached the current date.
If the current price is above that line, the $26 early call will be worst. If it is below that line, the $25 par call will be worst (assuming it is called).
This model doesn’t work perfectly, but it helps!
[…] PerpetualDiscounts (all four of them! from both issuers!) now yield 4.82%, the equivalent of 6.27% interest at the standard conversion factor of 1.3x. Long corporates now yield about 4.3%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 195bp, a significant decline from the 210bp reported January 2. […]