[PNC Financial Services Group chief economist Stuart] Hoffman’s forecast is in line with the median estimate in a Bloomberg survey of 34 economists after yesterday’s jobs report showing the Fed is likely to reduce asset purchases to $75 billion this month. The Federal Open Market Committee will slow Treasury purchases to $35 billion from $45 billion while maintaining mortgage-bond buying at $40 billion, according to the survey. That pace was unchanged from an Aug. 9-13 poll.
…
Kansas City Fed President Esther George, who has consistently dissented against additional stimulus, yesterday called for a tapering of $15 billion at this month’s meeting.“An appropriate next step toward normalizing monetary policy could be to reduce the pace of purchases from $85 billion to something around $70 billion per month,” George said in a speech in Omaha, Nebraska. She said doing so at the next meeting is “appropriate” and future purchases could be split evenly between Treasuries and mortgage-backed securities.
Chicago Fed President Charles Evans, who has consistently supported record stimulus, said in a speech yesterday in Greenville, South Carolina, that the central bank shouldn’t taper until inflation and economic growth pick up.
Evans, who votes on FOMC policy this year, later told reporters he has an “open mind” on whether to taper buying this month.
There’s a lot of corporate debt being issued in Canada:
Proceeds from new issuance of investment grade corporate debt are up 29 per cent year-to-date, compared to the same period last year, according to figures from Thomson Reuters.
…
High yield or investment grade, Canadian companies are expected to keep pumping out debt for the rest of the year. RBC raised its Canadian Corporate bond issuance target by $5-billion to $105-billion by the end of the year thanks to two main factors in this increase: strong issuance so far, prospective issuance in the pipeline. Retail, financial and utilities are all expected to contribute to supply.
Regulators come up with many ideas, but this one is special:
Canada’s popular mortgage investment funds are facing pressure to convert into public companies because securities regulators have proposed new rules that would bar them from investing in mortgages without government loan guarantees.
Timbercreek Asset Management, which manages two publicly traded mortgage investment corporations with over $3-billion of assets under management, will hold a shareholder vote Sept. 12 to seek approval to convert both from closed-end investment funds into publicly traded companies.
The firm says it is making the move to conform with proposed new rules from the Canadian Securities Administrators (CSA) – an umbrella group for Canada’s provincial securities commissions – that would prohibit closed-end funds from investing in mortgages that are not guaranteed by a government insurer such as Canada Mortgage and Housing Corp.
…
In a notice earlier this year, regulators said the emergence of MICs raises questions about whether their active business strategies are appropriate for the closed-end fund model, which was traditionally intended to hold more passive investments. Closed-end funds have historically been aimed at retail investors who may not understand the business model of a fund that has an actively managed operating business.
Let’s not have a day go by without some new tapering chatter:
The good news may be bad news for the Federal Reserve as it considers when to begin scaling back its stimulus.
While unemployment dropped last month to 7.3 percent, the lowest level since December 2008, the decline occurred because of contraction in the workforce, not because more people got jobs. Labor-force participation — the share of working-age people either holding a job or looking for one — stands at a 35-year low.
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The jobless rate is important because Chairman Ben S. Bernanke and his colleagues have established it as the lodestar for policy. Bernanke has said he expects the Fed to complete its asset-purchase program in the middle of next year when unemployment is around 7 percent.So long as inflation remains contained, the central bank has said it won’t even consider raising its benchmark interest rate until unemployment falls to 6.5 percent. The Fed cut its target for the overnight interbank rate effectively to zero in December 2008 and has held it at that record low.
A key question facing policy makers is how much of the decline in the participation rate is structural and long-lasting and how much is cyclical and temporary.
…
A July 2013 paper by Boston Fed economists Michelle Barnes, Fabia Gumbau-Brisa and Giovanni Olivei concluded that a significant portion of the drop since the start of the last recession results from demographic and other developments that probably will persist.“About two-thirds of the decline has been trend” due to secular forces, Olivei said. He reckons the participation rate now is about three-quarters of a percentage point below where it otherwise would be because of temporary forces stemming from the 2007-09 recession and the muted recovery since then.
His estimate contrasts with research by Julie Hotchkiss, a senior adviser at the Atlanta Fed. In a paper with Georgia State University’s Fernando Rios-Avila that was published in March, she argues that cyclical influences are all-important in explaining the shrinkage in the labor force.
It was another mixed day for the Canadian preferred share market, with PerpetualDiscounts up 23bp, FixedResets gaining 2bp and DeemedRetractibles off 7bp. The Performance Highlights table was lengthy, but there was no clear pattern other than a preponderance of winners. Volume was below 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 | 0.1591 % | 2,580.8 |
| FixedFloater | 4.21 % | 3.51 % | 33,773 | 18.29 | 1 | 3.0566 % | 3,948.6 |
| Floater | 2.61 % | 2.90 % | 68,177 | 19.90 | 5 | 0.1591 % | 2,786.5 |
| OpRet | 4.63 % | 2.91 % | 67,243 | 0.76 | 3 | 0.0773 % | 2,622.3 |
| SplitShare | 4.76 % | 4.78 % | 53,300 | 4.10 | 6 | -0.0635 % | 2,943.5 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0773 % | 2,397.8 |
| Perpetual-Premium | 5.94 % | 6.06 % | 114,223 | 13.75 | 2 | -0.1793 % | 2,234.2 |
| Perpetual-Discount | 5.66 % | 5.79 % | 129,811 | 14.13 | 36 | 0.2314 % | 2,292.1 |
| FixedReset | 4.93 % | 3.84 % | 239,743 | 3.85 | 85 | 0.0199 % | 2,450.4 |
| Deemed-Retractible | 5.19 % | 5.11 % | 193,666 | 6.94 | 43 | -0.0703 % | 2,345.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| GWO.PR.N | FixedReset | -1.43 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.06 Bid-YTW : 4.81 % |
| TRP.PR.D | FixedReset | -1.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-09 Maturity Price : 22.95 Evaluated at bid price : 24.50 Bid-YTW : 4.38 % |
| CU.PR.G | Perpetual-Discount | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-09 Maturity Price : 20.50 Evaluated at bid price : 20.50 Bid-YTW : 5.53 % |
| TRP.PR.A | FixedReset | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-09 Maturity Price : 24.42 Evaluated at bid price : 24.75 Bid-YTW : 4.09 % |
| ELF.PR.H | Perpetual-Discount | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-09 Maturity Price : 23.57 Evaluated at bid price : 23.93 Bid-YTW : 5.83 % |
| MFC.PR.K | FixedReset | 1.11 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-09-19 Maturity Price : 25.00 Evaluated at bid price : 24.52 Bid-YTW : 4.23 % |
| POW.PR.B | Perpetual-Discount | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-09 Maturity Price : 23.07 Evaluated at bid price : 23.33 Bid-YTW : 5.82 % |
| SLF.PR.G | FixedReset | 1.15 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.80 Bid-YTW : 4.18 % |
| BAM.PR.G | FixedFloater | 3.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-09 Maturity Price : 22.85 Evaluated at bid price : 22.59 Bid-YTW : 3.51 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| IFC.PR.C | FixedReset | 35,494 | TD bought 10,000 from RBC at 25.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.41 Bid-YTW : 3.93 % |
| TRP.PR.D | FixedReset | 32,282 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-09 Maturity Price : 22.95 Evaluated at bid price : 24.50 Bid-YTW : 4.38 % |
| BMO.PR.L | Deemed-Retractible | 26,803 | TD crossed 15,000 at 25.85. YTW SCENARIO Maturity Type : Call Maturity Date : 2017-05-25 Maturity Price : 25.00 Evaluated at bid price : 25.84 Bid-YTW : 4.90 % |
| TRP.PR.B | FixedReset | 21,580 | TD crossed 12,100 at 20.42. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-09 Maturity Price : 20.41 Evaluated at bid price : 20.41 Bid-YTW : 4.22 % |
| GWO.PR.H | Deemed-Retractible | 20,240 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.20 Bid-YTW : 6.24 % |
| TRP.PR.A | FixedReset | 20,018 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-09-09 Maturity Price : 24.42 Evaluated at bid price : 24.75 Bid-YTW : 4.09 % |
| There were 25 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TD.PR.R | Deemed-Retractible | Quote: 25.70 – 26.16 Spot Rate : 0.4600 Average : 0.2741 YTW SCENARIO |
| BNA.PR.E | SplitShare | Quote: 25.10 – 25.74 Spot Rate : 0.6400 Average : 0.4611 YTW SCENARIO |
| TRI.PR.B | Floater | Quote: 22.75 – 23.96 Spot Rate : 1.2100 Average : 1.0325 YTW SCENARIO |
| BNS.PR.O | Deemed-Retractible | Quote: 25.65 – 26.08 Spot Rate : 0.4300 Average : 0.2928 YTW SCENARIO |
| ELF.PR.G | Perpetual-Discount | Quote: 20.70 – 21.16 Spot Rate : 0.4600 Average : 0.3720 YTW SCENARIO |
| MFC.PR.B | Deemed-Retractible | Quote: 21.26 – 21.50 Spot Rate : 0.2400 Average : 0.1558 YTW SCENARIO |