On September 22 I highlighted the Blackrock publication CORPORATE BOND MARKET STRUCTURE: THE TIME FOR REFORM IS NOW, but it turns out they’ve been pushing the ‘scheduled issuance’ idea for a while. It’s also been proposed in their May, 2013, publication Setting New Standards: The Liquidity Challenge II, which comes with some great illustrative charts.
Click for Big
If the Shitty Price Hypothesis (described in the post TRACE and the Bond Market is correct, we expect to see a decrease in the concession from pre-TRACE days, perhaps even going negative.
Click for Big
This one is interesting in conjunction with the Trading Volume chart below. Note that dealer inventories have dropped by about half since 2005.
Click for Big
So a bigger proportion of the spread-to-Treasuries is being eaten up by the bid-ask spread.
Click for Big
Issuance is huge relative to outstanding, which may be why the world hasn’t ground to a halt despite the pernicious influence of TRACE.
Click for Big
But it could be that decreasing liquidity is reducing the tenor of new issues. Investors have to get their liquidity somehow!
Click for Big
An increasing liquidity premium is consistent with the Shitty Price Hypothesis
Click for Big
New issues will change hands a few times, then settle into their permanent homes.
Click for Big
This is particularly interesting in conjunction with the Dealer Inventory chart above. Note that although trading volume has decreased, it has decreased less, proportionally, than dealer inventories have, indicating that dealer inventory turnover is increasing. This is consistent with the Shitty Price Hypothesis
Victoria Stilwell of Bloomberg complains:
Federal Reserve policy makers are missing a key element as they assess the health of the labor market: data that includes whether those who are employed are overqualified for their job or would like to work more hours.
As a result, the “significant underutilization of labor resources” that Fed officials highlighted last month as they renewed a pledge to keep interest rates low for a “considerable period” is probably even more severe than currently estimated. And the information gap means policy makers may have more difficulty gauging the right moment to raise rates off zero.
…
Private surveys have attempted to fill in the gaps. Some 46 percent of workers who graduated from college in 2012 or 2013 said that they were in a job that did not require their degree, according to a study released in May by Accenture Plc. That’s a five percentage point increase from last year, the New York-based management-consulting company’s report showed.
So, the study, titled Great Expectations: Insights from the Accenture 2014 College Graduate Employment Survey states:
46 percent of 2012/2013 grads working today report that they are underemployed (meaning they are working in a job that does not require their college degree). This is a 5 percent increase from last year’s survey.
I’m not sure I agree with that, entirely. It has been a long time since somebody asked me to explain the Schrödinger Wave Equation for a hydrogen atom, or to whip them up a batch of cis-stilbenes with a 4-substituent. So my chemistry degree hasn’t been required for a while. But I don’t feel underemployed!
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 15bp, FixedResets off 2bp and DeemedRetractibles gaining 4bp. Volatility was average, but enlivened by some sloppy trading at the close in PWF.PR.A. Volume was very low.
| 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 | 3.13 % | 3.11 % | 22,123 | 19.40 | 1 | 0.0417 % | 2,669.3 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -2.6600 % | 3,881.2 |
| Floater | 3.07 % | 3.21 % | 64,680 | 19.22 | 4 | -2.6600 % | 2,606.1 |
| OpRet | 4.04 % | 1.02 % | 101,190 | 0.08 | 1 | 0.1577 % | 2,737.9 |
| SplitShare | 4.31 % | 4.03 % | 84,793 | 3.82 | 5 | -0.1994 % | 3,136.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1577 % | 2,503.5 |
| Perpetual-Premium | 5.49 % | 1.16 % | 73,386 | 0.08 | 18 | 0.1272 % | 2,455.8 |
| Perpetual-Discount | 5.32 % | 5.15 % | 96,596 | 15.16 | 18 | 0.1508 % | 2,590.9 |
| FixedReset | 4.22 % | 3.60 % | 170,794 | 16.73 | 75 | -0.0190 % | 2,549.8 |
| Deemed-Retractible | 5.03 % | 2.78 % | 102,712 | 0.44 | 42 | 0.0382 % | 2,558.9 |
| FloatingReset | 2.55 % | -6.10 % | 61,836 | 0.08 | 6 | -0.0848 % | 2,548.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| PWF.PR.A | Floater | -7.95 % | It appears that Desjardins put in a Market or low-limit order at 3:58, which took out the bid – Five hundred went at 20.00 and 20.01, time-stamped 3:58, then six hundred shares traded at 19.02 and 188 at 19.01, time-stamped 3:59. Whoosh!
YTW SCENARIO |
| CGI.PR.D | SplitShare | -1.54 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2023-06-14 Maturity Price : 25.00 Evaluated at bid price : 25.01 Bid-YTW : 3.81 % |
| MFC.PR.F | FixedReset | -1.12 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.10 Bid-YTW : 4.54 % |
| PWF.PR.F | Perpetual-Premium | 1.12 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-11-19 Maturity Price : 25.00 Evaluated at bid price : 25.21 Bid-YTW : -6.75 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.A | FixedReset | 207,140 | RBC crossed two blocks of 100,000 each, both at 21.97. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-20 Maturity Price : 21.63 Evaluated at bid price : 22.00 Bid-YTW : 3.79 % |
| NA.PR.W | FixedReset | 163,450 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-20 Maturity Price : 23.06 Evaluated at bid price : 24.77 Bid-YTW : 3.64 % |
| FTS.PR.M | FixedReset | 90,638 | Scotia crossed blocks of 22,000 and 16,100, both at 25.20. Nesbitt bought 17,500 from RBC at the same price. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-20 Maturity Price : 23.20 Evaluated at bid price : 25.15 Bid-YTW : 3.81 % |
| FTS.PR.H | FixedReset | 81,452 | RBC crossed two blocks of 40,000 each, both at 20.39. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-20 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 3.60 % |
| ENB.PF.G | FixedReset | 61,675 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-20 Maturity Price : 23.13 Evaluated at bid price : 25.06 Bid-YTW : 4.07 % |
| IFC.PR.C | FixedReset | 54,411 | RBC crossed 50,000 at 25.54. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 3.27 % |
| There were 18 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| PWF.PR.A | Floater | Quote: 19.11 – 20.75 Spot Rate : 1.6400 Average : 0.9689 YTW SCENARIO |
| CGI.PR.D | SplitShare | Quote: 25.01 – 25.60 Spot Rate : 0.5900 Average : 0.3772 YTW SCENARIO |
| HSB.PR.D | Deemed-Retractible | Quote: 25.20 – 25.78 Spot Rate : 0.5800 Average : 0.3743 YTW SCENARIO |
| TD.PR.Q | Deemed-Retractible | Quote: 25.92 – 26.24 Spot Rate : 0.3200 Average : 0.2030 YTW SCENARIO |
| MFC.PR.F | FixedReset | Quote: 22.10 – 22.50 Spot Rate : 0.4000 Average : 0.3095 YTW SCENARIO |
| BNS.PR.N | Deemed-Retractible | Quote: 25.78 – 26.00 Spot Rate : 0.2200 Average : 0.1367 YTW SCENARIO |