In its Budget 2013, the government says it’s ready to pounce on “continued low historic rates” and is now assessing the potential of issuing bonds for 40 years – or even longer.
“As long-term interest rates remain near historic lows, it remains advantageous and product for the government to continue to lock in additional longer-term funding,” the government says in the document.
Up until now the longest term for a government debt issue has been 30 years but the provinces have been pushing the envelope with longer terms and now Ottawa is considering follow their lead.
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But Ottawa itself seems to like what it sees in the long-term debt market. Just this month New Brunswick issued $225-million in debt at a 3.5% rate that doesn’t mature until June 3, 2065. Quebec issued debt last year that doesn’t mature until 2075.
Looks like I was right yesterday in my musing regarding the end of synthetic tax conversion funds:
This week’s federal budget set the stage to eliminate the tax advantages enjoyed by mutual funds and exchange-traded funds that use derivatives to convert interest income into capital gains.
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Prominent examples of mutual funds that employ these types of strategies include the $3.2-billion Renaissance Corporate Bond Capital Yield , the $1.1-billion Fidelity Canadian Bond Capital Yield and the $843-million TD Corporate Bond Capital Yield .Also affected by the proposed changes are funds in the small Canadian Synthetic Money Market category. One of the largest of these funds is Mackenzie Sentinel Canadian Short Term Yield Class .
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The budget provision will have a minimal impact on the Canadian ETF industry, said Howard Atkinson, chair of the Canadian ETF Association and CEO of Horizons Exchange Traded Funds Inc. The largest Horizons ETF affected is Horizons Active Advantage Yield HAF , with assets of about $9 million.Atkinson noted that the budget does not affect total-return swaps, such as those employed by the $1.2-billion Horizons S&P/TSX 60 Index HXT , a derivatives-based fund whose current management fee of 0.05% makes it the cheapest fund in the country. Though Finance Minister Jim Flaherty has taken away one type of derivatives strategy from the managers’ toolkits, derivatives remain very much a part of the investment-funds scene in Canada.
The Spanish bank Bankia has recapitalized:
Spain cut the nominal value of Bankia SA (BKIA) shares to 1 euro-cent from 2 euros in a debt swap that will practically wipe out existing stockholders in the nationalized lender.
The holding company BFA will own about 70 percent of Bankia following a 15.5 billion-euro ($20.1 billion) recapitalization approved by the Frob rescue fund today, an official from the fund said at a briefing in Madrid. Investors who bought subordinated debt or preferred shares will end up with about 30 percent of the bank’s stock.
Spain’s bank rescue fund fixed the price as the basis for converting 4.8 billion euros of hybrid securities including preferred shares and 10.7 billion euros of so-called contingent convertible bonds into stock as part of a 15.5 billion-euro recapitalization of the lender, the fund, known as Frob, said in an e-mailed statement today. Bankia has about 2 billion outstanding shares, which closed today at 25 euro cents.
Cyprus has turned to capital controls – the last refuge of failed states:
Cypriot lawmakers approved capital controls and legislation to wind down banks as they scrambled to secure a European bailout and avert a financial collapse of the Mediterranean island.
The parliament passed nine bills late yesterday after a day locked in talks between Cypriot and international officials in Nicosia. Lawmakers may vote later today on what sort of levy to impose on bank deposits above 100,000 euros ($130,000), four days after rejecting an initial proposal to tax all accounts. Banks have been shut all week and are due to reopen on March 26.
Never let it be said that I never say anything nice on this blog! For instance, on March 25, 2009 and again on April 17, 2012, I said nice things about the Hospitals of Ontario Pension Plan (HOOPP). And now there are more nice things to say:
The Healthcare of Ontario Pension Plan (HOOPP) has posted returns for 2012 of 17.1 per cent, which boosted the pension plan for Ontario healthcare workers to a record $47.4 billion in assets, compared to $40.3 billion at the end of 2011. This strong double-digit return increased HOOPP’s 10-year average rate of return to more than 10 per cent, one of the best long-term records among pension plans worldwide.
At the end of 2012, HOOPP was 104 per cent funded – this fully funded status means the Plan has sufficient assets to pay for every promised member’s pension benefit, with no shortfall.
“HOOPP had a very strong year in 2012 – with our best investment results in more than a decade,” says HOOPP President & CEO Jim Keohane. “This was a year when all of our investment strategies worked. We were firing on all cylinders, with positive returns from every type of investment,” he said. HOOPP’s liability driven investment (LDI) strategy continues to contribute to HOOPP’s success, Keohane added.
“Liability Driven Investment” is the cool way of saying “paying attention to your client’s needs”. HOOPP is in a good position to do this, because they have exactly one client and aren’t looking for new ones, despite idiotic initiatives from Premier Dad’s office that would encourage large plans to stock up on salesmen and get rid of those dreary nerds. That’s the real secret – a focus on return made possible by a complete absence of pressure for sales. Then you can fire the moron whose sole useful attribute is being buddies with a large client; then you can do all kinds of things. In an interview with the Star, though, president and CEO Jim Keohane emphasized scale, which is probably more diplomatic.
It was an unevenly positive day for the Canadian preferred share market, with PerpetualPremiums flat, FixedResets winning 14bp and DeemedRetractibles gaining 8bp. Volatility was minor. Volume was average.
| 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 | 1.6384 % | 2,636.6 |
| FixedFloater | 4.13 % | 3.48 % | 28,384 | 18.32 | 1 | -0.8621 % | 3,937.4 |
| Floater | 2.53 % | 2.82 % | 86,105 | 20.18 | 5 | 1.6384 % | 2,846.8 |
| OpRet | 4.82 % | 2.30 % | 56,740 | 0.27 | 5 | -0.2011 % | 2,602.0 |
| SplitShare | 4.28 % | 4.09 % | 643,634 | 4.19 | 4 | -0.0660 % | 2,938.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2011 % | 2,379.3 |
| Perpetual-Premium | 5.20 % | -3.42 % | 93,690 | 0.11 | 31 | 0.0037 % | 2,366.2 |
| Perpetual-Discount | 4.76 % | 4.84 % | 164,274 | 15.55 | 5 | 0.1943 % | 2,669.7 |
| FixedReset | 4.89 % | 2.57 % | 288,233 | 3.28 | 80 | 0.1365 % | 2,512.9 |
| Deemed-Retractible | 4.86 % | 3.35 % | 138,147 | 0.59 | 44 | 0.0801 % | 2,450.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRI.PR.B | Floater | -1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-03-22 Maturity Price : 23.69 Evaluated at bid price : 24.00 Bid-YTW : 2.15 % |
| MFC.PR.J | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-03-19 Maturity Price : 25.00 Evaluated at bid price : 26.18 Bid-YTW : 2.99 % |
| BAM.PR.C | Floater | 11.21 % | Just a reversal of yesterday‘s nonsense. I guess the guy at W.D.Latimer didn’t need a nap today. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-03-22 Maturity Price : 18.35 Evaluated at bid price : 18.35 Bid-YTW : 2.85 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CU.PR.F | Perpetual-Discount | 238,477 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2022-06-01 Maturity Price : 25.00 Evaluated at bid price : 25.10 Bid-YTW : 4.48 % |
| TD.PR.S | FixedReset | 155,720 | RBC crossed 99,600 at 25.20; Nesbitt crossed 50,000 at 25.25. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.22 Bid-YTW : 2.93 % |
| PWF.PR.S | Perpetual-Discount | 137,345 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2022-04-30 Maturity Price : 25.00 Evaluated at bid price : 25.21 Bid-YTW : 4.75 % |
| CU.PR.C | FixedReset | 106,626 | TD crossed 99,700 at 26.37. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-01 Maturity Price : 25.00 Evaluated at bid price : 26.46 Bid-YTW : 2.59 % |
| TD.PR.O | Deemed-Retractible | 103,754 | RBC crossed blocks of 13,900 and 79,500, both at 25.80. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-04-21 Maturity Price : 25.50 Evaluated at bid price : 25.71 Bid-YTW : 2.49 % |
| BAM.PR.R | FixedReset | 88,250 | Nesbitt crossed 75,000 at 26.85. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.78 Bid-YTW : 3.07 % |
| There were 30 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| ELF.PR.H | Perpetual-Premium | Quote: 26.30 – 26.70 Spot Rate : 0.4000 Average : 0.2600 YTW SCENARIO |
| RY.PR.F | Deemed-Retractible | Quote: 25.87 – 26.14 Spot Rate : 0.2700 Average : 0.1795 YTW SCENARIO |
| VNR.PR.A | FixedReset | Quote: 27.17 – 27.50 Spot Rate : 0.3300 Average : 0.2426 YTW SCENARIO |
| GWO.PR.G | Deemed-Retractible | Quote: 25.52 – 25.71 Spot Rate : 0.1900 Average : 0.1268 YTW SCENARIO |
| PWF.PR.G | Perpetual-Premium | Quote: 25.71 – 25.90 Spot Rate : 0.1900 Average : 0.1366 YTW SCENARIO |
| FTS.PR.J | Perpetual-Premium | Quote: 25.69 – 25.90 Spot Rate : 0.2100 Average : 0.1652 YTW SCENARIO |