There are some interesting trends in bond markets:
The influence of high-frequency traders in the Treasury market is growing. About 60 percent of Treasury securities trades are expected to be transacted on electronic platforms by the end of next year, an increase from 40 percent in 2013, according to Tabb Group LLC, a New York-based research firm. Of those trades, 10 percent were executed by robots in 2010, a share that will probably grow to 20 percent next year, according to Tabb.
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New rules adopted after the 2008 credit crunch are also part of the new normal. Global guidelines called Basel III, instituted by the Bank for International Settlements in Basel, Switzerland, require banks to hold more cash in reserve for assets such as bonds they keep on their balance sheets.Partly in compliance with the regulations, the 22 primary dealers authorized to trade directly with the Fed reduced their U.S. government debt holdings to $46.3 billion at the end of October from a record high $146 billion in October 2013, Fed data show. While they still hold inventory, they’re allocating less to opportunistically buying big clumps of bonds and then slowly selling them, a process known as market-making.
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Hedge funds have filled the vacuum created by the retreat of the big banks. On the morning of Oct. 15, the turmoil in Treasuries echoed in the trading of junk bonds. As $8 billion was being wiped out in that global market, Toronto hedge-fund manager Philip Mesman fielded e-mails from U.S. bankers clamoring for him to buy their customers’ holdings.Investors were unloading the debt of the riskiest companies, forcing exchange-traded funds and mutual funds to sell. Before Basel III and the Volcker Rule, which limits the ability of U.S. banks to trade on their own accounts, dealers would’ve bought the bonds themselves and held them until finding someone to take them. Instead they were forwarding the “sell” messages to firms they knew had quick access to cash.
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The size of German bund futures that can go through the market at one time without moving the price has fallen 46 percent to 784 contracts as of Oct. 17, from this year’s peak of 1,450 contracts in April, according to JPMorgan. The average over the past four years was 920 contracts.
Yay! More regulation! The 2014 Ontario Economic Outlook and Fiscal Review states:
The government is also undertaking a review of the regulation of financial planning. An expert committee will be appointed to look at more tailored regulation of financial advisers and financial planners.
Only through increased regulation will Granny be able to get financial advice from a reliable and knowledgeable source: her friendly neighborhood bank teller, who will be pleased to sell her an index linked GIC.
There will be no fast-track for Keystone:
The U.S. Senate refused to approve TransCanada Corp. (TRP)’s $8 billion Keystone XL pipeline after years of a political fight over jobs, climate change and energy security.
The vote was 59-41 with 60 required for passage in the Democratic-led Senate. Republicans have said they will try again next year after their party takes control of the chamber. House Speaker John Boehner and Senate Republican leader Mitch McConnell say passage of a Keystone measure is a top priority.
President Barack Obama has opposed legislation approving the Keystone project, saying it would bypass a review being conducted by the State Department. He didn’t say whether he would sign or veto the bill if it reached his desk.
It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 27bp, FixedResets up 14bp and DeemedRetractibles gaining 8bp. Volatility was minimal. 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 | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1131 % | 2,540.8 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1131 % | 4,022.5 |
| Floater | 2.97 % | 3.07 % | 61,909 | 19.50 | 4 | 0.1131 % | 2,701.0 |
| OpRet | 4.02 % | 0.12 % | 95,901 | 0.08 | 1 | 0.0000 % | 2,748.7 |
| SplitShare | 4.25 % | 4.02 % | 52,423 | 3.74 | 5 | 0.0157 % | 3,186.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 2,513.4 |
| Perpetual-Premium | 5.44 % | -8.50 % | 64,131 | 0.09 | 19 | 0.0123 % | 2,485.9 |
| Perpetual-Discount | 5.12 % | 5.03 % | 100,661 | 15.39 | 16 | 0.2701 % | 2,672.4 |
| FixedReset | 4.17 % | 3.53 % | 173,008 | 4.54 | 74 | 0.1438 % | 2,588.7 |
| Deemed-Retractible | 4.96 % | -0.91 % | 96,292 | 0.12 | 40 | 0.0820 % | 2,606.3 |
| FloatingReset | 2.56 % | -0.95 % | 59,559 | 0.08 | 6 | -0.0326 % | 2,553.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.F | FixedReset | 1.56 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.75 Bid-YTW : 4.35 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.A | FixedReset | 88,480 | Scotia crossed blocks of 15,000 at 21.75 and 41,000 at 21.71. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-11-18 Maturity Price : 21.45 Evaluated at bid price : 21.75 Bid-YTW : 4.01 % |
| NA.PR.S | FixedReset | 70,450 | Nesbitt crossed 60,000 at 25.71. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-05-15 Maturity Price : 25.00 Evaluated at bid price : 25.70 Bid-YTW : 3.45 % |
| MFC.PR.C | Deemed-Retractible | 68,516 | Scotia crossed blocks of 50,000 and 12,900, both at 23.45. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.41 Bid-YTW : 5.45 % |
| GWO.PR.H | Deemed-Retractible | 61,907 | Nesbitt crossed 59,800 at 24.75. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.75 Bid-YTW : 5.09 % |
| NA.PR.W | FixedReset | 58,140 | Scotia bought 20,000 from National at 25.20. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-11-18 Maturity Price : 23.22 Evaluated at bid price : 25.23 Bid-YTW : 3.67 % |
| BNS.PR.N | Deemed-Retractible | 41,802 | TD crossed 35,000 at 26.05. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-01-28 Maturity Price : 25.50 Evaluated at bid price : 25.88 Bid-YTW : -1.19 % |
| There were 24 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| ELF.PR.G | Perpetual-Discount | Quote: 22.65 – 23.07 Spot Rate : 0.4200 Average : 0.2969 YTW SCENARIO |
| FTS.PR.F | Perpetual-Discount | Quote: 24.55 – 24.85 Spot Rate : 0.3000 Average : 0.2120 YTW SCENARIO |
| BAM.PR.M | Perpetual-Discount | Quote: 22.00 – 22.21 Spot Rate : 0.2100 Average : 0.1384 YTW SCENARIO |
| PWF.PR.P | FixedReset | Quote: 22.65 – 22.93 Spot Rate : 0.2800 Average : 0.2129 YTW SCENARIO |
| BAM.PR.N | Perpetual-Discount | Quote: 22.00 – 22.19 Spot Rate : 0.1900 Average : 0.1307 YTW SCENARIO |
| SLF.PR.B | Deemed-Retractible | Quote: 24.55 – 24.73 Spot Rate : 0.1800 Average : 0.1249 YTW SCENARIO |