There are musings about a possible drop in Canadian policy rates:
The Bank of Canada says it’s just going with the flow: If economic data in the months ahead get stronger than currently expected, it will ready for higher interest rates; if economic conditions unexpectedly worsen, the central bank says it is prepared to cut its benchmark interest rate from its already ultra-low setting of 1 per cent. For now, the central bank is totally neutral.
Craig Alexander, chief economist at Toronto-Dominion Bank, doesn’t really believe it. His latest commentary is inspired by a question about whether the central bank really could surprise and cut interest rates. Mr. Alexander politely considers the question, saying the possibility “is not ridiculous given some of the recent economic developments.” Then he goes about demolishing the idea almost entirely.
Mr. Alexander’s report sets the backdrop:
The Bank of Canada has been on hold for an unprecedented 45 months, and TD Economics expects the overnight rate to remain unchanged for at least another year. Futures markets are in agreement, as they anticipate the next move in rates will be a hike, but not until the fourth quarter of 2015. This consensus view is predicated on the belief that the economy will deliver only moderate growth, gradually eating up the available economic slack and closing the output gap in early 2016. The economic backdrop augurs that inflation will remain close to the Bank’s 2% target, implying no rush to reduce the degree of monetary stimulus, but also no need to lower rates.
There’s not much action in the US bond market:
Trading in U.S. government bonds has dropped 25 percent in the past few weeks from the comparable period last year, according to Federal Reserve data. Investment-grade (NTMBIV) and junk-bond trading have plunged 17 percent and 8 percent, respectively, since the end of the second quarter, according to Financial Industry Regulatory Authority data.
…
This means that, for one, it’s harder for investors to shuffle their portfolios even if they want to because there are fewer people out there looking to sell or buy. And, two, this eats into bond dealers’ already waning trading revenues.Adding to the summer doldrums is a declining volume of corporate-debt sales. Companies have sold an average $22.7 billion of dollar-denominated bonds each week this month, compared with an average $36.2 billion per week in June, according to data compiled by Bloomberg. Investors typically transact more frequently in bonds that have been sold within the prior few months.
How much of this is economics and how much is regulation? What are the implications for capital markets if liquidity remains low for an extended period? Does anybody know? Does anybody care?
Meanwhile, there is politics being played with the Jackson Hole guest list:
As the Federal Reserve Bank of Kansas City prepares to host next month’s annual gathering of central bankers in Wyoming, seasoned Fed watchers from the financial markets, including the chief U.S. economists of the biggest American banks, aren’t being invited, according to past participants.
…
The exclusion of Wall Street may reflect a dispute between some regional Fed bank presidents who are more worried by loose monetary policy than Fed governors in Washington including Yellen, said Pippa Malmgren, founder of DRPM Group in London and another frequent delegate who won’t be attending this year.“I fully support disinviting the chief economists of the largest beneficiaries of quantitative easing,” Malmgren said, referring to the Fed’s program of monthly bond purchases, which is on course to end this year.
“This weakens the support for the Yellen camp and gives her opponents more chance to make their case” during the meeting, said Malmgren, a former adviser to U.S. President George W. Bush.
It seems very odd to me that the Fed isn’t inviting its best salesmen to their trade show.
I moaned yesterday about an incomprehensible tax dodge being controversially used by Renaissance Capital. Matt Levine explains it.
DBRS has confirmed W.PR.H and W.PR.J at Pfd-2(low):
Westcoast is expected to continue its significant expansion projects in the medium term to take advantage of the strong exploration and unconventional drilling activity in Western Canada. The Company invested $946 million in capex in 2013, including $528 million of expansion capital, with an additional $950 million in capex planned for 2014. Increasing earnings and cash flow from expansions placed into service to date have resulted in relatively strong credit ratios. Although a major portion of capital spending is expected to be funded through the Company’s operating cash flow, incremental financing is likely from increased long-term debt issuance. While the capex program is substantial, spending is allocated to low-risk gathering and processing (G&P) and pipeline segments, and underpinned by long-term contractual commitments, which will continue to support Westcoast’s relatively strong business risk profile. DBRS expects the Company to fund its capital expenditure prudently and maintain credit metrics in line with the current rating category.
It was a negative day for the Canadian preferred share market, with PerpetualDiscounts flat, FixedResets down 22bp and DeemedRetractibles off 6bp. Volatility was average. Volume was quite high, probably due to portfolio shuffling after the new issue announcements from BMO, FixedReset, 3.80%+222 and TD, FixedReset, 3.80%+227.
| 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 | 3.07 % | 3.06 % | 20,715 | 19.53 | 1 | 0.4115 % | 2,584.9 |
| FixedFloater | 4.25 % | 3.47 % | 29,444 | 18.50 | 1 | -1.8860 % | 4,085.3 |
| Floater | 2.85 % | 2.94 % | 46,229 | 19.89 | 4 | -0.2709 % | 2,776.0 |
| OpRet | 4.00 % | -9.46 % | 81,590 | 0.08 | 1 | 0.4704 % | 2,733.9 |
| SplitShare | 4.26 % | 3.99 % | 44,640 | 4.02 | 6 | 0.0000 % | 3,116.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4704 % | 2,499.9 |
| Perpetual-Premium | 5.52 % | -3.41 % | 84,586 | 0.08 | 17 | -0.0193 % | 2,430.2 |
| Perpetual-Discount | 5.23 % | 5.15 % | 110,342 | 15.21 | 20 | 0.0043 % | 2,582.5 |
| FixedReset | 4.40 % | 3.59 % | 201,271 | 8.57 | 77 | -0.2235 % | 2,557.8 |
| Deemed-Retractible | 4.98 % | -1.15 % | 124,714 | 0.09 | 43 | -0.0572 % | 2,552.4 |
| FloatingReset | 2.65 % | 0.72 % | 98,833 | 0.16 | 6 | -0.1308 % | 2,525.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.F | FixedReset | -2.33 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.02 Bid-YTW : 4.13 % |
| BAM.PR.G | FixedFloater | -1.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-22 Maturity Price : 22.54 Evaluated at bid price : 22.37 Bid-YTW : 3.47 % |
| ENB.PR.Y | FixedReset | -1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-22 Maturity Price : 22.78 Evaluated at bid price : 24.02 Bid-YTW : 4.01 % |
| CIU.PR.C | FixedReset | 1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-22 Maturity Price : 21.64 Evaluated at bid price : 22.06 Bid-YTW : 3.31 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BMO.PR.S | FixedReset | 427,622 | RBC bought 13,300 from anonymous at 25.73. Desjardins crossed 85,000 at 25.75. Nesbitt crossed 50,000 at 25.75; Scotia crossed 200,000 at 25.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-22 Maturity Price : 23.36 Evaluated at bid price : 25.62 Bid-YTW : 3.66 % |
| CM.PR.K | FixedReset | 327,845 | Called for redemption July 31. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 3.67 % |
| CM.PR.O | FixedReset | 161,825 | Scotia crossed 20,000 at 25.48. Desjardins crossed 30,000 at 25.50. RBC crossed 50,000 at 25.50 and 13,400 at 25.46. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-22 Maturity Price : 23.29 Evaluated at bid price : 25.40 Bid-YTW : 3.65 % |
| TD.PR.Y | FixedReset | 143,000 | TD crossed 69,700 at 25.40. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 3.15 % |
| TD.PR.I | FixedReset | 126,172 | Called for redemption July 31. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 5.62 % |
| ENB.PF.E | FixedReset | 103,688 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-07-22 Maturity Price : 23.10 Evaluated at bid price : 24.96 Bid-YTW : 4.11 % |
| CM.PR.M | FixedReset | 101,649 | Called for redemption July 31. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 5.83 % |
| There were 44 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| PWF.PR.I | Perpetual-Premium | Quote: 25.37 – 25.60 Spot Rate : 0.2300 Average : 0.1518 YTW SCENARIO |
| GWO.PR.P | Deemed-Retractible | Quote: 25.65 – 25.89 Spot Rate : 0.2400 Average : 0.1619 YTW SCENARIO |
| RY.PR.T | FixedReset | Quote: 24.97 – 25.19 Spot Rate : 0.2200 Average : 0.1430 YTW SCENARIO |
| CM.PR.G | Perpetual-Premium | Quote: 25.46 – 25.72 Spot Rate : 0.2600 Average : 0.1837 YTW SCENARIO |
| MFC.PR.F | FixedReset | Quote: 23.02 – 23.41 Spot Rate : 0.3900 Average : 0.3188 YTW SCENARIO |
| GWO.PR.Q | Deemed-Retractible | Quote: 24.85 – 25.05 Spot Rate : 0.2000 Average : 0.1289 YTW SCENARIO |