It was a nice day to own equities:
The S&P 500 climbed 2 percent to 1,941.28 at 4 p.m. in New York, its best gain since October 2013. The equity gauge is up 4.2 percent since Oct. 15 in the biggest four-day rally since January 2013. The Dow Jones Industrial Average climbed 215.14 points, or 1.3 percent, to 16,615 today. The Nasdaq 100 surged 2.6 percent, the most since January 2013, as about 7.2 billion shares traded hands in the U.S.
…
The ECB bought Italian covered bonds as it returned to the market for a second day under its asset purchase program, according to two people familiar with the matter. Debt issued by Intesa Sanpaolo SpA was included in the purchases, according to one of the people, who asked not to be identified because the information is private.The ECB entered the 2.6 trillion-euro ($3.3 trillion) covered bond market after President Mario Draghi unveiled plans last month to bolster companies’ and households’ access to financing. Draghi, who also included asset-backed securities in the program, intends to expand the bank’s balance sheet by as much as 1 trillion euros to stave off deflation in the euro area.
U.S. stocks have rallied after St. Louis Federal Reserve Bank President James Bullard said on Oct. 16 that policy makers should consider delaying the end of bond purchases. He was the first Fed official to publicly suggest the central bank should extend its asset-purchase program when policy makers meet later this month.
CWB.PR.B has been confirmed at Pfd-3 by DBRS:
CWB’s has strong asset quality as evidenced by its history of low write-off rates, a proven niche strategy using relationship-based lending, a favourable efficiency ratio that reflects its business mix and strong internal capital generation. Challenges remain, though, particularly concentration in the loan book, both geographically (Alberta and British Columbia) and by industry (commercial, construction and real estate lending). Like its Canadian peers, the Bank has exposure to Canadian real estate-supported lending. A slowdown in the real estate markets may slow earnings generation and could hurt asset quality indicators, which ultimately may have an impact on provisioning levels. Funding diversification at CWB has been slowly improving over the past several years, but continues to rely heavily on brokered deposit.
CWB recently reported earnings available to common shareholders of $160 million (a return on equity of 14.7%) for the nine months ended July 31, 2014, an 18% increase over the same period in 2013. The earnings increase was largely due to loan growth year-to-date and higher non-interest income, offset by a narrower net interest margin in the continued low interest environment. CWB’s 105th consecutive profitable quarter was accompanied by low loan loss provisions. Capital levels are viewed as strong with a Basel III Common Equity Tier 1 ratio of 8.0% based on risk-weighted assets calculated using the standardized approach.
I recently came across a very good review of the US TruPS market by Yalman Onaran and Jody Shenn of Bloomberg. An oldie but goodie!
Bloomberg also has a good review of CoCos, by John Glover:
Regulators noted that investors often did a better job of predicting which banks would buckle in the crisis than they had themselves. CoCo bonds are designed to harness this “wisdom of the crowd” by putting bondholders on the front line, giving them a vested interest in the health of wobbly banks. The problem is that they are untested: When the first one goes sour and halts coupon payments, it’s possible investors could suddenly wake up to the inherent risk and flee all CoCos, destabilizing the corporate bond market and possibly even the financial system. Critics charge that the securities are too complex to be properly understood, too varied and too much like equity to be considered bonds. The banks themselves are opaque, definitions of capital vary from bond to bond, and the distance between a bank’s current position and the moment disaster will strike is almost impossible to calculate. When the first one blows, regulators will get a better sense of whether CoCos helped save the banking system, or sink it.
I feel that the current model for CoCos is inherently flawed since the triggers are based on regulatory capital, which didn’t work out all that well during the Credit Crunch; I continue to advocate high-trigger CoCos with a conversion trigger based on the common stock price.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 30bp, FixedResets off 7bp and DeemedRetractibles gaining 11bp. Volatility was high, notable for FixedReset losers and Floating Rate winners. Volume was 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 | 3.15 % | 3.15 % | 21,768 | 19.34 | 1 | -0.7506 % | 2,649.2 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 2.1920 % | 3,966.2 |
| Floater | 3.00 % | 3.15 % | 65,855 | 19.35 | 4 | 2.1920 % | 2,663.2 |
| OpRet | 4.04 % | 2.12 % | 100,680 | 0.08 | 1 | -0.0787 % | 2,735.7 |
| SplitShare | 4.29 % | 3.88 % | 85,593 | 3.82 | 5 | 0.5594 % | 3,154.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0787 % | 2,501.5 |
| Perpetual-Premium | 5.48 % | -0.10 % | 74,099 | 0.08 | 18 | 0.1095 % | 2,458.5 |
| Perpetual-Discount | 5.31 % | 5.12 % | 96,031 | 15.14 | 18 | 0.3012 % | 2,598.7 |
| FixedReset | 4.23 % | 3.61 % | 169,544 | 16.73 | 75 | -0.0664 % | 2,548.2 |
| Deemed-Retractible | 5.02 % | 2.62 % | 103,192 | 0.34 | 42 | 0.1147 % | 2,561.8 |
| FloatingReset | 2.55 % | -6.10 % | 61,142 | 0.08 | 6 | -0.0522 % | 2,547.3 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRP.PR.B | FixedReset | -2.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 18.52 Evaluated at bid price : 18.52 Bid-YTW : 3.70 % |
| TRP.PR.A | FixedReset | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 21.47 Evaluated at bid price : 21.77 Bid-YTW : 3.84 % |
| FTS.PR.K | FixedReset | -1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 23.09 Evaluated at bid price : 24.65 Bid-YTW : 3.54 % |
| IAG.PR.A | Deemed-Retractible | 1.05 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.10 Bid-YTW : 5.65 % |
| CIU.PR.C | FixedReset | 1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 20.65 Evaluated at bid price : 20.65 Bid-YTW : 3.48 % |
| CGI.PR.D | SplitShare | 1.56 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2023-06-14 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 3.60 % |
| BAM.PR.B | Floater | 1.70 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 16.75 Evaluated at bid price : 16.75 Bid-YTW : 3.15 % |
| BAM.PR.C | Floater | 1.71 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 16.68 Evaluated at bid price : 16.68 Bid-YTW : 3.17 % |
| BAM.PR.K | Floater | 1.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 16.75 Evaluated at bid price : 16.75 Bid-YTW : 3.15 % |
| PWF.PR.A | Floater | 3.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 19.75 Evaluated at bid price : 19.75 Bid-YTW : 2.68 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| ENB.PF.G | FixedReset | 115,860 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 23.13 Evaluated at bid price : 25.06 Bid-YTW : 4.07 % |
| NA.PR.W | FixedReset | 78,851 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 23.10 Evaluated at bid price : 24.87 Bid-YTW : 3.62 % |
| RY.PR.Y | FixedReset | 71,482 | There is still nothing on their website about the upcoming call date. C’mon, Royal, hurry up and call this thing so I don’t have to check any more! CIBC bought 20,000 from RBC at 25.40, and blocks of 10,000 and 25,000 from TD at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-11-24 Maturity Price : 25.00 Evaluated at bid price : 25.36 Bid-YTW : 1.02 % |
| BAM.PF.G | FixedReset | 56,256 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 23.17 Evaluated at bid price : 25.14 Bid-YTW : 4.19 % |
| TRP.PR.A | FixedReset | 26,123 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 21.47 Evaluated at bid price : 21.77 Bid-YTW : 3.84 % |
| ENB.PF.C | FixedReset | 23,592 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-10-21 Maturity Price : 23.16 Evaluated at bid price : 25.05 Bid-YTW : 4.05 % |
| There were 17 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| ELF.PR.H | Perpetual-Discount | Quote: 25.00 – 25.50 Spot Rate : 0.5000 Average : 0.2965 YTW SCENARIO |
| FTS.PR.F | Perpetual-Discount | Quote: 24.30 – 24.74 Spot Rate : 0.4400 Average : 0.2923 YTW SCENARIO |
| BAM.PR.E | Ratchet | Quote: 23.80 – 24.46 Spot Rate : 0.6600 Average : 0.5666 YTW SCENARIO |
| TRP.PR.B | FixedReset | Quote: 18.52 – 18.77 Spot Rate : 0.2500 Average : 0.1653 YTW SCENARIO |
| NEW.PR.D | SplitShare | Quote: 32.59 – 32.99 Spot Rate : 0.4000 Average : 0.3262 YTW SCENARIO |
| MFC.PR.B | Deemed-Retractible | Quote: 22.88 – 23.14 Spot Rate : 0.2600 Average : 0.1921 YTW SCENARIO |