Not much today, folks! In the spirit of the day, I had to spend some time slaying dragons and was unable to assemble my List of Interesting Things.
A return of good volume, the market was up and the index was down. What a great day!
| Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30 | |||||||
| Index | Mean Current Yield (at bid) | Mean YTW | Mean Average Trading Value | Mean Mod Dur (YTW) | Issues | Day’s Perf. | Index Value |
| Ratchet | 5.03% | 5.08% | 31,538 | 15.4 | 2 | +0.1823% | 1,094.8 |
| Fixed-Floater | 4.76% | 5.11% | 62,932 | 15.36 | 8 | +0.0027% | 1,050.7 |
| Floater | 4.51% | 4.54% | 65,445 | 16.31 | 2 | +0.3267% | 836.8 |
| Op. Retract | 4.85% | 3.33% | 87,816 | 3.29 | 15 | -0.0387% | 1,049.6 |
| Split-Share | 5.34% | 5.88% | 86,654 | 4.08 | 14 | +0.1686% | 1,037.8 |
| Interest Bearing | 6.17% | 6.23% | 63,201 | 3.87 | 3 | -0.4339% | 1,097.6 |
| Perpetual-Premium | 5.91% | 5.63% | 179,633 | 7.34 | 7 | +0.0394% | 1,017.9 |
| Perpetual-Discount | 5.70% | 5.73% | 309,763 | 13.91 | 64 | +0.0374% | 916.5 |
| Major Price Changes | |||
| Issue | Index | Change | Notes |
| W.PR.J | PerpetualDiscount | -1.6387% | Now with a pre-tax bid-YTW of 6.02% based on a bid of 23.41 and a limitMaturity. |
| BSD.PR.A | InterestBearing | -1.3458% | Asset coverage of just under 1.7:1 as of April 18, according to the company. Now with a pre-tax bid-YTW of 7.04% (mostly as interest) based on a bid of 9.53 and a hardMaturity 2015-3-31 at 10.00. |
| BMO.PR.J | PerpetualDiscount | +1.0606% | Now with a pre-tax bid-YTW of 5.73% based on a bid of 20.01 and a limitMaturity. |
| SLF.PR.B | PerpetualDiscount | +1.1468% | Now with a pre-tax bid-YTW of 5.50% based on a bid of 22.05 and a limitMaturity. |
| BAM.PR.G | FixFloat (for now! [Volume]) | +1.1905% | |
| SLF.PR.E | PerpetualDiscount | +1.2407% | Now with a pre-tax bid-YTW of 5.58% based on a bid of 20.40 and a limitMaturity. |
| POW.PR.B | PerpetualDiscount | +1.4017% | Now with a pre-tax bid-YTW of 5.81% based on a bid of 23.15 and a limitMaturity. |
| BNA.PR.C | SplitShare | +3.2322% | Asset coverage of just under 2.7:1 as of March 31, according to the company. Now with a pre-tax bid-YTW of 6.70% based on a bid of 20.76 and a hardMaturity 2019-1-10 at 25.00. Compare with BNA.PR.A (6.60% to 2010-9-30) and BNA.PR.B (8.32% to 2016-3-25). |
| Volume Highlights | |||
| Issue | Index | Volume | Notes |
| SLF.PR.A | PerpetualDiscount | 420,050 | Now with a pre-tax bid-YTW of 5.45% based on a bid of 22.00 and a limitMaturity. |
| FAL.PR.B | FixFloat | 55,551 | CIBC crossed 50,000 at 24.75. |
| GWO.PR.I | PerpetualDiscount | 54,514 | Now with a pre-tax bid-YTW of 5.58% based on a bid of 20.39 and a limitMaturity. |
| SLF.PR.D | PerpetualDiscount | 45,060 | Now with a pre-tax bid-YTW of 5.64% based on a bid of 19.94 and a limitMaturity. |
| PWF.PR.F | PerpetualDiscount | 33,600 | TD crossed 20,000 at 23.00. Now with a pre-tax bid-YTW of 5.73% based on a bid of 23.00 and a limitMaturity. |
There were thirty-four other index-included $25-pv-equivalent issues trading over 10,000 shares today.
RBC misplay of the day
I haven’t put many market observation comments up lately; primarily because they are usually misunderstood, and probably of little general interest.
Pref investors should take note, however, that ever since last Friday, RBC has been overwhelmingly selling prefs . . . not to mention their own probably ill-fated IPO of earlier this week [more on that in a moment].
The classic of the day would be a block of 5000 HSB.PR.D that RBC savagely sacrificied down to $21.52 (.71 below the previous trade of $22.23) . . . within minutes the market brought the bid back up to $21.75, with virtually nothing offerred up to the previous $22.23 level. Bad trade (except for the buyers!).
Another all-day sacrificial lamb for RBC is NA.PR.L which is currently down .36 to $20.24, with as much as anyone would ever want to buy being offerred by RBC just above that level.
Now, the RBC IPO. I was originally excited by the 5.65% coupon on this one. 5.65 is considerably less than the NA 6.0, and BMO and TD’s 5.8 efforts, all of which opened, and continue to reside, underwater. 5.65 sends a signal to the market that “cheap” money may be limited, and buyers should step up before this era becomes . . . well, an era. Combine that with a nice 50bp rate drop, and you have all the ingredients for a little buying to come in.
So I thought.
Instead, my old nemesis, RBC came in instead, and with the power of mass on their side began the trashing. Monday, and then Tuesday, when the RY’s went ex, RBC brutally flogged their own stock to an unsuspecting market. Even BMO, who seems to be the only institution that ever shows up to prop up this sagging nightmare, was no match for RBC’s string of 5000 share sell icebergs that kept popping up on these issues. Wednesday and today, they’re still there, like that smell every time you walk into granny’s house. You don’t know where it comes from, or why, but it’s there, and little can be done to make it go away.
This wil backfire on RBC. Here’s why: they want to sell their IPO at 5.65, but by dragging an already skeptical market down in step with their offering, only a moron would risk buying this money now at $25. I originally predicted a $24.80 opening for this one. Forget it. They may have to re-price this for it to be sellable at this point. This is my first guess at where it’s going: They will either raise the coupon, or re-offer the existing one at $24.00.
If they’re lucky, and they’ll have to be lucky now, this thing will be sold at 5.65 for $25, and will open no higher than $24.50. That’s as good as this thing can be, barring any major pref-friendly macro items.
RBC’s trading behaviour [and yes, I know that I’m presuming it is RBC themselves that are doing this selling] has finally caught up to them.
madequota
According to HIMIPref™ the curve price of the new RBC 5.65% Perp is 24.59 … allowance for convexity will take it down from there.
HSB.PR.D still looks cheap to me at the current bid of 21.81 … last night’s closing bid of 21.82 implied a pre-tax bid-YTW of 5.79%, not bad for a solid Pfd-1 issue.
HIMIPref analyticals seem to be close to 100% in sync with madequota “gut”! . . . I hope we’re both wrong about it though; I was really hoping to see a +ve reaction to this issue.
here’s an update on HSB.PR.D . . . BMO has stepped in with a 2000 sh/release “iceberg” buy order at $21.99 . . . I agree with you, and the BMO [mutual fund?] buyer as well . . . HSB.PR.D is good value at these prices . . . what was RBC thinking to unleash that block at “market”? bizarre.
what do you think about the odds of a re-price on the RBC 5.65’s?
madequota
I’d say the odds on a repricing of the 5.65’s are slim … it’s not an egregiously expensive issue, it’s just expensive.
Well, it’s also in the hands of “secondary” sellers now (i.e. Disnat, Etrade, etc.). In most previous IPO’s where I’ve seen this happen, the “greenshoe” was not exercised, and the issue opened badly. I suppose RBC has a certain “king of the hill” attitude that might prevent making any changes, but they still have to sell the issue. One thing for sure; a re-pricing would be just another ugly pill for the market to swallow. I hope you’re right about the odds being slim.
Here’s a US-based one with a nice yield!
——————
REUTERS Bank of America sells $4 bln hybrid securities [HSVDFQN]
NEW YORK, April 24 (Reuters) – Bank of America Corp
on Thursday sold $4 billion in perpetual hybrid securities,
said International Financing Review, a Thomson Reuters
publication.
The securities were priced at par to yield 8.125 percent.
The yield is fixed until May 15, 2018 and if the securities are
not called the yield then floats at 364 basis points over the
three-month London interbank offered rate.
Banc of America Securities was the sole lead manager on the
sale.
(Reporting by Caryn Trokie)
(c) Reuters 2008. All rights reserved.
Remember that there is some question in the States regarding the tax rate on dividends … but yes, it’s always nice to see an 8 handle!
As someone who buys more than his fair share of US prefs, let me IMPLORE you to be very careful with US prefs. Withholding taxes are the least of your worries. I can name a dozen prefs with better covenants than the BAC issue and that yield even more than 8.125. The credit mess in the US has thrown spreads all over the place, particularly with financials. Far worse than in Canada. By the way, this BAC is even more junior than 3 year old nephew.
One more thing.
We in canada tend to regard our 7 major banks as being, in effect, an extension of the government, and therefore too important to let fail. That may or may not be true.
There are over 9000 financial entities in the US. A fair number of these fail over a 5 to 10 year period. A good number of them issue prefs. The rating agencies….well, let’s put it this way: The prefs of Ambac are still rated AA2/AA, a higher investment grade, ostensibly, than BMO, and yet they trade over 12% yields. What does that tell you about the risk of these investment-grade instruments?So please, be careful.
A last point (I promise). Financial prefs in canada are non-cumulative, which sucks, but they are also fairly senior. In the states, most financial prefs are cumulative but they usually have provision for a suspension of preferred dividends for a number of quarters, usually 20 (5 years), and, because of the cumulative clause, which more or less let’s the board off the hook, it doesn’t take as much to trigger a dividend suspension as it would in canada.
Should I mention again about being careful?
Kaspu, thanks for the reminders – different markets, different customs, different risks! I, personally, am not at all familiar with the US market.
kaspu . . . many thanks for the [3!] heads ups . . . I have some US pref experience, but as you describe . . . results can be all over the place . . .
madequota