PrefBlog

More good news for fixed-income investors …:

The Bank of Canada says deep discounting by retailers is spreading disinflation – a byproduct of more consumers crossing the border to shop and the arrival here of U.S. chains such as Target Corp.

The central bank left its key overnight interest unchanged at 1 per cent Wednesday, citing a heightened risk of even lower inflation. The bank blamed excess supply in the economy and heightened competition in the retail sector, which it said are proving to be “more persistent than anticipated.”

Canada isn’t yet facing deflation – outright falling prices. But inflation is now running disquietingly below the Bank of Canada’s 2-per-cent target, and outside its acceptable range of 1 to 3 per cent. Consumer prices rose at a meagre annual rate of just 0.7 per cent in October, and economists expect inflation to remain similarly dormant in the months ahead.

The good news didn’t impress the Canadian preferred share market, with PerpetualDiscounts down 25bp, FixedResets off 17bp and DeemedRetractibles losing 34bp. The performance highlights table is comprised entirely of losers. Volume was very high.

PerpetualDiscounts now yield 5.62%, equivalent to 7.31% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 4.8%, so the pre-tax, interest-equivalent spread (in this context, the “Seniority Spread”) is now about 250bp, a minor (and perhaps spurious) widening from the 245bp reported November 27.

This entry was posted on Thursday, December 5th, 2013 at 4:20 am and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.