December 18, 2013

Today’s big news is … tapering:

Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting against the action was Eric S. Rosengren, who believes that, with the unemployment rate still elevated and the inflation rate well below the target, changes in the purchase program are premature until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate.

In other words, the economy is still in the garbage but some of the maggots have died. Some were astonished:

U.S. stocks rose, sending benchmark indexes to all-time highs, after the Federal Reserve said it will reduce the pace of its monthly bond purchases and expressed confidence in the labor market recovery.

Homebuilders rallied after the Fed said it may hold interest rates near zero even if unemployment falls below the 6.5 percent rate the central bank previously cited as a likely catalyst for an increase. CVS Caremark Corp. jumped 4.3 percent after boosting its dividend. Jabil Circuit Inc. slumped 21 percent as earnings missed analysts’ estimates.

The Standard & Poor’s 500 Index (SPX) advanced 1.7 percent to 1,810.65 at 4 p.m. in New York, surpassing its previous record close reached on Dec. 9. The Dow Jones Industrial Average surged 292.71 points, or 1.8 percent, to an all-time high of 16,167.97. Both gauges posted their biggest gains in two months. About 8.1 billion shares changed hands on U.S. exchanges, the busiest trading since September.

Here in Canada, we continue to be enthralled by idiotic civil servants:

Mr. Chopra also dismissed other possible options for fixing the post office. Three-day-a-week delivery was unacceptable to businesses, particularly smaller ones, he said.

Three days a week is unacceptable, but zero days a week is super! Next!

Many welcome the idea of walking to a centralized neighbourhood mailbox – already the reality for roughly a quarter of households – he said at an emergency session of the House of Commons transport committee Wednesday, requested by the opposition.

“The seniors are telling me, ‘I want to be healthy. I want to be active in my life,’” Mr. Chopra told MPs. “They want to be living fuller lives.”

It was another negative day for the Canadian preferred share market, with PerpetualDiscounts losing 29bp, FixedResets off 1bp and DeemedRetractibles down 11bp. PerpetualDiscounts comprise the entire bad side of the Performance Highlights table. Volume was enormous.

PerpetualDiscounts now yield 5.72%, equivalent to 7.44% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 4.8% so the pre-tax, interest-equivalent spread is now about 265bp, a slight (and perhaps spurious) widening from the 260bp reported December 11.

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 -0.5074 % 2,512.6
FixedFloater 4.49 % 3.78 % 38,356 17.77 1 -0.7508 % 3,736.9
Floater 2.98 % 2.96 % 61,821 19.83 3 -0.5074 % 2,712.9
OpRet 4.64 % 2.00 % 86,438 0.45 3 -0.0516 % 2,659.1
SplitShare 4.89 % 4.64 % 79,963 4.49 5 -0.2017 % 2,991.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0516 % 2,431.5
Perpetual-Premium 5.62 % 5.56 % 143,327 13.91 13 0.0183 % 2,300.3
Perpetual-Discount 5.74 % 5.72 % 177,561 14.22 25 -0.2941 % 2,296.2
FixedReset 5.02 % 3.62 % 242,320 3.61 84 -0.0092 % 2,458.7
Deemed-Retractible 5.17 % 4.42 % 209,328 3.58 42 -0.1112 % 2,382.2
FloatingReset 2.64 % 2.36 % 298,918 4.39 5 -0.0791 % 2,461.0
Performance Highlights
Issue Index Change Notes
ELF.PR.F Perpetual-Discount -1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 21.91
Evaluated at bid price : 22.15
Bid-YTW : 6.09 %
BAM.PF.C Perpetual-Discount -1.50 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 6.41 %
BAM.PF.D Perpetual-Discount -1.49 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 19.11
Evaluated at bid price : 19.11
Bid-YTW : 6.45 %
BAM.PR.M Perpetual-Discount -1.48 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 18.61
Evaluated at bid price : 18.61
Bid-YTW : 6.42 %
PWF.PR.K Perpetual-Discount -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 21.52
Evaluated at bid price : 21.82
Bid-YTW : 5.75 %
FTS.PR.J Perpetual-Discount -1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 21.26
Evaluated at bid price : 21.26
Bid-YTW : 5.64 %
ENB.PR.N FixedReset 1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 22.90
Evaluated at bid price : 24.28
Bid-YTW : 4.42 %
TRP.PR.C FixedReset 1.83 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 21.34
Evaluated at bid price : 21.65
Bid-YTW : 4.04 %
Volume Highlights
Issue Index Shares
Traded
Notes
GWO.PR.M Deemed-Retractible 105,585 Desjardins crossed 50,000 at 25.30 and 49,500 at 25.28.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 5.72 %
ENB.PR.J FixedReset 104,688 Recent new issue.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 23.15
Evaluated at bid price : 25.00
Bid-YTW : 4.30 %
FTS.PR.E OpRet 104,240 RBC crossed 102,600 at 25.90.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-01
Maturity Price : 25.50
Evaluated at bid price : 25.79
Bid-YTW : 2.81 %
IFC.PR.A FixedReset 68,182 TD crossed 43,100 at 24.05.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.96
Bid-YTW : 4.28 %
CU.PR.G Perpetual-Discount 62,254 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 20.51
Evaluated at bid price : 20.51
Bid-YTW : 5.54 %
BAM.PF.C Perpetual-Discount 61,571 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 19.01
Evaluated at bid price : 19.01
Bid-YTW : 6.41 %
There were 76 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
FTS.PR.G FixedReset Quote: 23.81 – 24.10
Spot Rate : 0.2900
Average : 0.1784

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 22.71
Evaluated at bid price : 23.81
Bid-YTW : 4.08 %

BAM.PR.C Floater Quote: 17.50 – 17.90
Spot Rate : 0.4000
Average : 0.2885

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 2.99 %

PWF.PR.P FixedReset Quote: 22.57 – 22.99
Spot Rate : 0.4200
Average : 0.3129

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 22.26
Evaluated at bid price : 22.57
Bid-YTW : 3.93 %

BNA.PR.C SplitShare Quote: 23.91 – 24.22
Spot Rate : 0.3100
Average : 0.2044

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 23.91
Bid-YTW : 5.41 %

FTS.PR.H FixedReset Quote: 21.04 – 21.34
Spot Rate : 0.3000
Average : 0.1973

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2043-12-18
Maturity Price : 21.04
Evaluated at bid price : 21.04
Bid-YTW : 4.00 %

BNA.PR.E SplitShare Quote: 25.25 – 25.75
Spot Rate : 0.5000
Average : 0.4038

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2017-12-10
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : 4.64 %

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