The loonie got out of the wrong side of bed this year:
The loonie plunged to a level not seen in more than five years Friday amid a strengthening U.S. greenback and weaker crude oil prices.
The Canadian dollar ended the day down 1.18 cents at 85.02 cents (U.S.), The last time it closed below this level was on May 15, 2009.
The currency finished 2014 down about 8 per cent or 7.8 cents against the American currency compared with where it began the year.
It’s in a race with oil:
Oil dropped to the lowest in more than five and a half years amid growing supply from Russia and Iraq and signs of manufacturing weakness in Europe and China.
Futures capped a sixth weekly loss in New York and London. Oil output in Russia and Iraq surged to the highest levels in decades in December, according to data from both countries’ governments. Euro-area factory output expanded less than initially estimated in December. A manufacturing gauge in China, the world’s second-largest oil consumer, fell to the weakest level in 18 months, government data showed yesterday.
Prices slumped 46 percent in New York in 2014, the steepest drop in six years and second-worst since trading began in 1983, as U.S. producers and the Organization of Petroleum Exporting Countries ceded no ground in their battle for market share. OPEC pumped above its quota for a seventh month in December even as U.S. output expanded to the highest in more than three decades, according to data compiled by Bloomberg.
What I need is a gimmick:
So-called “smart beta” funds, the fastest-growing segment of the exchange-traded fund market, are sold as index funds but are actively – sometimes frenetically – traded portfolios that can whipsaw investors and often fail to deliver the outsized returns their issuers promote.
Over the last one- and three-year periods, they have on average lagged their plain-vanilla counterparts in almost every highly competitive category, according to an analysis performed for Reuters by ETF.com, a research firm. Along the way, many have turned over their portfolios two and three times a year and undershot their own specialized benchmarks by significant margins.
Yet they have become a magnet for investor dollars, pulling in 60 cents of every dollar flowing to ETFs over the last two years, according to Morningstar.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 8bp, FixedResets down 10bp and DeemedRetractibles off 2bp. The modest numbers masked an impressive amount of volatility, but volume was virtually non-existent.
For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.
Remember that all rich /cheap assessments are:
- based on Implied Volatility Theory only
- are relative only to other FixedResets from the same issuer
- assume constant GOC-5 yield
- assume constant Implied Volatility
- assume constant spread
Here’s TRP:
Click for Big
So according to this, TRP.PR.A, bid at 21.20, is $1.17 cheap (despite today’s impressive performance), but it has already reset (at +192). TRP.PR.C, bid at 21.11 and resetting at +154bp on 2016-1-30 is $1.37 rich.
Click for Big
MFC.PR.F continues to be on the line defined by its peers. Implied Volatility continues to be a conundrum. It is far too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).
Click for Big
There continues to be cheapness in the lowest-spread issue, BAM.PR.X, resetting at +180bp on 2017-6-30, which is bid at 21.21 and appears to be $0.87 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 25.10 and appears to be $0.98 rich.
It seems clear that the higher-spread issues define a curve with significantly more Implied Volatility than is calculated when the low-spread outlier is included.
Click for Big
This is just weird because the middle is expensive and the ends are cheap but anyway … FTS.PR.H, with a spread of +145bp, and bid at 19.30, looks $0.93 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 25.29, looks $0.89 expensive and resets 2019-3-1
Click for Big
Pairs equivalence is all over the map, but is better than yesterday and will probably converge as volumes increase in the new year.
| 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 | 0.1294 % | 2,513.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 1 | 0.1294 % | 3,980.1 |
| Floater | 3.02 % | 3.12 % | 61,889 | 19.46 | 4 | 0.1294 % | 2,672.5 |
| OpRet | 4.05 % | 1.68 % | 102,319 | 0.46 | 1 | 0.0000 % | 2,752.0 |
| SplitShare | 4.27 % | 4.12 % | 32,850 | 3.66 | 5 | -0.1421 % | 3,204.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 2,516.4 |
| Perpetual-Premium | 5.43 % | -5.54 % | 63,048 | 0.08 | 19 | -0.0226 % | 2,492.8 |
| Perpetual-Discount | 5.17 % | 5.03 % | 106,390 | 15.32 | 16 | 0.0795 % | 2,683.9 |
| FixedReset | 4.17 % | 3.57 % | 222,956 | 8.41 | 77 | -0.1027 % | 2,564.8 |
| Deemed-Retractible | 4.92 % | 0.53 % | 93,980 | 0.16 | 39 | -0.0157 % | 2,633.5 |
| FloatingReset | 2.64 % | 1.86 % | 58,814 | 3.40 | 7 | 0.2097 % | 2,506.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.F | FixedReset | -2.82 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.72 Bid-YTW : 4.71 % |
| TRP.PR.C | FixedReset | -1.81 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 21.11 Evaluated at bid price : 21.11 Bid-YTW : 3.56 % |
| MFC.PR.L | FixedReset | -1.76 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.05 Bid-YTW : 3.73 % |
| CU.PR.D | Perpetual-Discount | -1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 24.14 Evaluated at bid price : 24.56 Bid-YTW : 5.02 % |
| CU.PR.E | Perpetual-Discount | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 24.18 Evaluated at bid price : 24.60 Bid-YTW : 5.01 % |
| FTS.PR.J | Perpetual-Discount | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 24.10 Evaluated at bid price : 24.51 Bid-YTW : 4.88 % |
| BAM.PF.C | Perpetual-Discount | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 21.56 Evaluated at bid price : 21.86 Bid-YTW : 5.57 % |
| FTS.PR.H | FixedReset | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 19.30 Evaluated at bid price : 19.30 Bid-YTW : 3.76 % |
| HSE.PR.A | FixedReset | 1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 21.35 Evaluated at bid price : 21.65 Bid-YTW : 3.69 % |
| BAM.PR.M | Perpetual-Discount | 1.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 21.44 Evaluated at bid price : 21.76 Bid-YTW : 5.48 % |
| MFC.PR.C | Deemed-Retractible | 1.95 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.01 Bid-YTW : 5.06 % |
| BAM.PR.N | Perpetual-Discount | 1.96 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 21.85 Evaluated at bid price : 21.85 Bid-YTW : 5.47 % |
| TRP.PR.A | FixedReset | 2.66 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 21.20 Evaluated at bid price : 21.20 Bid-YTW : 3.92 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.F | FloatingReset | 29,650 | Recent exchange from TRP.PR.A. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 22.10 Evaluated at bid price : 22.36 Bid-YTW : 3.11 % |
| BAM.PF.D | Perpetual-Discount | 23,825 | ITG (who?) bought 14,300 from CIBC at 22.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 21.75 Evaluated at bid price : 22.03 Bid-YTW : 5.59 % |
| TD.PF.C | FixedReset | 22,840 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-02 Maturity Price : 23.14 Evaluated at bid price : 24.95 Bid-YTW : 3.57 % |
| BAM.PF.G | FixedReset | 15,415 | YTW SCENARIO Maturity Type : Call Maturity Date : 2020-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.56 Bid-YTW : 4.07 % |
| BNS.PR.M | Deemed-Retractible | 14,075 | YTW SCENARIO Maturity Type : Call Maturity Date : 2015-02-01 Maturity Price : 25.50 Evaluated at bid price : 25.87 Bid-YTW : -16.79 % |
| BNS.PR.L | Deemed-Retractible | 10,476 | YTW SCENARIO Maturity Type : Call Maturity Date : 2015-02-01 Maturity Price : 25.50 Evaluated at bid price : 25.86 Bid-YTW : -16.36 % |
| There were 0 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TD.PR.T | FloatingReset | Quote: 25.49 – 26.53 Spot Rate : 1.0400 Average : 0.5655 YTW SCENARIO |
| MFC.PR.F | FixedReset | Quote: 21.72 – 22.40 Spot Rate : 0.6800 Average : 0.4444 YTW SCENARIO |
| MFC.PR.L | FixedReset | Quote: 25.05 – 25.60 Spot Rate : 0.5500 Average : 0.3612 YTW SCENARIO |
| TRP.PR.C | FixedReset | Quote: 21.11 – 21.69 Spot Rate : 0.5800 Average : 0.4198 YTW SCENARIO |
| ELF.PR.G | Perpetual-Discount | Quote: 22.75 – 23.13 Spot Rate : 0.3800 Average : 0.2524 YTW SCENARIO |
| CGI.PR.D | SplitShare | Quote: 25.75 – 26.15 Spot Rate : 0.4000 Average : 0.2761 YTW SCENARIO |