Hurray! The S&P 500 is even on the year!
The Standard & Poor’s 500 Index rallied a second day, wiping out its losses for the year, on speculation central banks will support growth even as the American economy shows signs of strength.
The S&P 500 added 1.8 percent to 2,062.14 at 4 p.m. in New York, after rallying 1.2 percent yesterday to halt a five-day selloff. The Dow Jones Industrial Average jumped 323.35 points, or 1.8 percent, to 17,907.87, also erasing its loss for 2015. The Nasdaq 100 Index soared 1.9 percent and the Dow Jones Transportation Average climbed the most since October. More than 7.3 billion shares changed hands on U.S. exchanges, 4.8 percent above the three-month average.
…
Stocks extended gains after European Central Bank President Mario Draghi said in a letter published today that central bank stimulus measures may include sovereign-bond buying. Producer prices slid more than analysts anticipated in the euro area and German factory orders fell more than forecast in November, underlining the fragile state of Europe’s economy and strengthened the case for more stimulus.The next interest-rate decision by the ECB is scheduled for Jan. 22 when officials will consider a quantitative-easing package that will probably include buying government bonds. Policy makers disagree about whether action is required, with some arguing deflation risks have increased and others pointing to the stimulating effects of lower prices on the economy.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 11bp, FixedResets off 4bp and DeemedRetractibles gaining 6bp. The Performance Highlights table is surprisingly short and dominated by TRP issues. Volume was low.
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 21.60, is $0.92 cheap, but it has already reset (at +192). TRP.PR.C, bid at 21.02 and resetting at +154bp on 2016-1-30 is $1.13 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 21.41 and appears to be $0.90 cheap, while BAM.PR.R, resetting at +230bp 2016-6-30 is bid at 25.17 and appears to be $0.95 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 18.77, looks $1.04 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp, and bid at 25.16, looks $1.11 expensive and resets 2019-3-1
Click for Big
Pairs equivalence is all over the map.
| 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 | 0.6958 % | 2,557.6 |
| FixedFloater | 4.39 % | 3.62 % | 23,860 | 18.09 | 1 | -0.8700 % | 3,983.7 |
| Floater | 2.96 % | 3.09 % | 58,422 | 19.52 | 4 | 0.6958 % | 2,718.9 |
| OpRet | 4.05 % | 1.65 % | 96,479 | 0.44 | 1 | 0.0000 % | 2,752.0 |
| SplitShare | 4.26 % | 4.15 % | 38,190 | 3.65 | 5 | -0.0587 % | 3,206.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 2,516.4 |
| Perpetual-Premium | 5.45 % | -3.53 % | 60,963 | 0.08 | 19 | 0.0103 % | 2,494.5 |
| Perpetual-Discount | 5.15 % | 5.02 % | 107,376 | 15.37 | 16 | -0.1107 % | 2,691.7 |
| FixedReset | 4.19 % | 3.48 % | 208,988 | 16.75 | 77 | -0.0399 % | 2,554.3 |
| Deemed-Retractible | 4.95 % | -0.43 % | 94,331 | 0.13 | 39 | 0.0564 % | 2,621.0 |
| FloatingReset | 2.67 % | 1.92 % | 59,978 | 3.41 | 7 | 0.0976 % | 2,493.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRP.PR.B | FixedReset | -1.78 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-08 Maturity Price : 17.63 Evaluated at bid price : 17.63 Bid-YTW : 3.67 % |
| TRP.PR.A | FixedReset | 1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-08 Maturity Price : 21.32 Evaluated at bid price : 21.60 Bid-YTW : 3.71 % |
| TRP.PR.F | FloatingReset | 1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-08 Maturity Price : 21.54 Evaluated at bid price : 21.86 Bid-YTW : 3.19 % |
| PWF.PR.A | Floater | 2.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-08 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 2.64 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TD.PF.C | FixedReset | 102,836 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-08 Maturity Price : 23.17 Evaluated at bid price : 25.03 Bid-YTW : 3.46 % |
| TD.PF.B | FixedReset | 78,930 | Scotia crossed 27,700 at 25.26. RBC crossed 50,000 at 25.25. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-08 Maturity Price : 23.24 Evaluated at bid price : 25.15 Bid-YTW : 3.43 % |
| CM.PR.P | FixedReset | 71,230 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-08 Maturity Price : 23.16 Evaluated at bid price : 25.01 Bid-YTW : 3.46 % |
| BNS.PR.N | Deemed-Retractible | 63,661 | Nesbitt crossed 34,900 at 25.75. Scotia crossed 25,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-02-27 Maturity Price : 25.50 Evaluated at bid price : 25.75 Bid-YTW : -4.41 % |
| BMO.PR.S | FixedReset | 55,992 | Scotia crossed blocks of 27,700 and 25,000 at 25.65. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-01-08 Maturity Price : 23.38 Evaluated at bid price : 25.55 Bid-YTW : 3.48 % |
| SLF.PR.H | FixedReset | 52,210 | RBC crossed 52,000 at 25.65. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.57 Bid-YTW : 2.60 % |
| There were 18 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| FTS.PR.F | Perpetual-Discount | Quote: 24.52 – 24.99 Spot Rate : 0.4700 Average : 0.2982 YTW SCENARIO |
| ENB.PR.F | FixedReset | Quote: 23.63 – 24.07 Spot Rate : 0.4400 Average : 0.3011 YTW SCENARIO |
| POW.PR.G | Perpetual-Premium | Quote: 26.11 – 26.50 Spot Rate : 0.3900 Average : 0.2819 YTW SCENARIO |
| BAM.PF.G | FixedReset | Quote: 25.62 – 25.99 Spot Rate : 0.3700 Average : 0.2654 YTW SCENARIO |
| BAM.PR.M | Perpetual-Discount | Quote: 22.04 – 22.36 Spot Rate : 0.3200 Average : 0.2261 YTW SCENARIO |
| BNS.PR.O | Deemed-Retractible | Quote: 26.01 – 26.30 Spot Rate : 0.2900 Average : 0.1999 YTW SCENARIO |