BMO.PR.T Firm on Excellent Volume

Bank of Montreal has announced:

it has closed its domestic public offering of Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 29 (the “Preferred Shares Series 29”). The offering was underwritten on a bought deal basis by a syndicate led by BMO Capital Markets. Bank of Montreal issued 16 million Preferred Shares Series 29 at a price of $25 per share to raise gross proceeds of $400 million.

The Preferred Shares Series 29 were issued under a prospectus supplement dated May 30, 2014, to the Bank’s short form base shelf prospectus dated March 13, 2014. Such shares will commence trading on the Toronto Stock Exchange today under the ticker symbol BMO.PR.T.

BMO.PR.T is a FixedReset, 3.90%+224, NVCC-compliant issue announced May 28. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 1,434,969 (on all exchanges combined) shares today in a range of 24.90-99 before closing at 24.97-00, 44×150. Vital statistics are:

Maturity Type : Limit Maturity
Maturity Date : 2044-06-06
Maturity Price : 23.14
Evaluated at bid price : 24.97
Bid-YTW : 3.71 %

As shown in the follow chart displaying the result of the calculation, Implied Volatility for the BMO series of FixedResets remains very high, above its maximum reasonable value of 40%, implying that the market continues to ascribe a high degree of directionality (i.e., towards $25) for these issues. However, it also appears that the NVCC-compliant issues are trading at a premium yield to the non-compliant issues, so at least there’s some degree of reasonability to relative market prices!

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