Jeffrey M. Lacker had some interesting things to say about Education, Innovation and Economic Growth:
Recent data on economic inequality and economic mobility show that inequality has increased in recent years, while mobility has either decreased or remained flat. In other words, the rich are increasingly likely to remain rich and the poor are increasingly likely to remain poor.
…
A growing share of those who do complete high school now go on to college. But far too many of these students fail to earn a degree: Nationally, the college dropout rate is around 40 percent.7 The benefits of attending college for a few semesters without graduating are relatively small. The unemployment rate for workers with some college education but no degree is comparable to the rate for workers with only a high school degree. And while students who have attended some college do earn on average about 15 percent more than high school graduates, this pales in comparison with the average earnings of those who have completed bachelor’s degrees.
…
The large increase in the college premium has led many policymakers and educators to advocate college for all. But as the high college dropout rate indicates, there is a big difference between enrolling in college and graduating. During focus group meetings held recently in Virginia by the Richmond Fed, representatives from four-year colleges and community colleges shared that many students are surprised to discover they lack the basic math skills necessary for college-level work. If students overestimate their readiness for college, they may be more likely to enroll in college but then drop out after they get there. That can be a costly lesson to learn; the average debt burden among college dropouts who took out loans is more than $14,000.10 The high college dropout rate thus suggests that many students could benefit from more information about what is required for college success.
This is interesting in view of student loan delinquencies:
Student-loan delinquencies increased at the end of 2014, a troubling sign that Americans are failing to keep up with payments as education debt climbs, according to the Federal Reserve Bank of New York.
Data from the New York Fed released Tuesday showed 11.3 percent of student loans were delinquent in the final three months of 2014, up from 11.1 percent in the prior quarter. The share of auto loans at least 90 days overdue also rose, climbing to 3.5 percent from 3.1 percent the prior period, even as fewer credit card and mortgage loan payments were late.
…
The nation’s student-loan balance climbed by $31 billion last quarter to $1.16 trillion. That makes it the largest source of debt after mortgages, which gained $39 billion to $8.2 trillion in the fourth quarter. Auto-loan debt increased by $21 billion to $955 billion.Education loan balances have skyrocketed over the past decade. In the first quarter of 2005, outstanding student debt stood at $363 billion — about a third of the current level, based on a 2013 New York Fed report.
Delinquency rates for student loans probably understate the actual situation, according to today’s report. About half of the student loans are in deferment, in grace periods or in forbearance, temporarily removing them from the repayment cycle.
There’s an excellent article Jon Ronson in the New York Times magazine about the people who get hurt by the current fashion for vitriolic moral crusades. Dalhousie dentistry, anyone?
We have more micromanagement from the central planners in Ottawa:
Freight traffic on Canadian Pacific Railway Ltd. is halted after contract talks failed with the Teamsters and more than 3,000 locomotive engineers and conductors went on strike just after midnight.
The government will introduce back-to-work legislation when Parliament resumes sitting on Monday, and federal Labour Minister Kellie Leitch has told both sides she will send the dispute to binding arbitration.
Well, I got PrefLetter out the door yesterday. Now it’s time to clean up my desk.
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It was a poor day for the Canadian preferred share market with PerpetualDiscounts down 10bp, FixedResets losing 26bp and DeemedRetractibles off 1bp. The performance highlights table is its usual heightened-volatility self. Volume was high.
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:
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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.67 to be $1.03 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is bid at 16.63 to be $0.92 cheap.
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Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still 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).
Most expensive is MFC.PR.N, resetting at +230 on 2020-3-9, bid at 24.85 to be $0.35 rich, while MFC.PR.K, resetting at +222 on 2018-9-19 is bid at 23.90 to be $0.36 cheap.
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The fit on this series is actually quite reasonable – it’s the scale that makes it look so weird.
The cheapest issue relative to its peers is BAM.PR.X, resetting at +180bp on 2017-6-30, bid at 18.01 to be $0.44 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.50 and appears to be $0.84 rich.
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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 16.75, looks $1.14 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.57 and is $0.98 rich.
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All the break-even rates are scattered around negative 10bp – the market has started believing the deflation story again!
On the other hand, the market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:
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Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?
| 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 | 1.3405 % | 2,240.1 |
| FixedFloater | 4.39 % | 3.55 % | 19,627 | 18.33 | 1 | -0.6890 % | 4,022.4 |
| Floater | 3.22 % | 3.45 % | 67,791 | 18.60 | 4 | 1.3405 % | 2,381.4 |
| OpRet | 4.04 % | 1.60 % | 98,189 | 0.33 | 1 | 0.1183 % | 2,757.5 |
| SplitShare | 4.27 % | 4.05 % | 27,797 | 3.54 | 5 | -0.0649 % | 3,202.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1183 % | 2,521.4 |
| Perpetual-Premium | 5.32 % | -6.31 % | 57,774 | 0.08 | 24 | -0.0359 % | 2,517.1 |
| Perpetual-Discount | 4.96 % | 4.78 % | 122,602 | 15.11 | 10 | -0.1044 % | 2,792.3 |
| FixedReset | 4.38 % | 3.36 % | 199,388 | 17.10 | 79 | -0.2598 % | 2,441.6 |
| Deemed-Retractible | 4.91 % | 0.10 % | 107,207 | 0.12 | 39 | -0.0091 % | 2,649.1 |
| FloatingReset | 2.45 % | 2.94 % | 83,849 | 6.40 | 7 | 0.0000 % | 2,316.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.K | Floater | -3.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 13.84 Evaluated at bid price : 13.84 Bid-YTW : 3.64 % |
| BAM.PF.B | FixedReset | -2.48 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 22.85 Evaluated at bid price : 24.01 Bid-YTW : 3.63 % |
| MFC.PR.L | FixedReset | -2.24 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 3.95 % |
| GWO.PR.N | FixedReset | -2.23 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.40 Bid-YTW : 5.77 % |
| IFC.PR.A | FixedReset | -1.90 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.60 Bid-YTW : 5.42 % |
| VNR.PR.A | FixedReset | -1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 23.37 Evaluated at bid price : 24.80 Bid-YTW : 3.60 % |
| HSE.PR.A | FixedReset | -1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 17.01 Evaluated at bid price : 17.01 Bid-YTW : 3.83 % |
| CU.PR.D | Perpetual-Premium | -1.18 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-09-01 Maturity Price : 25.00 Evaluated at bid price : 25.05 Bid-YTW : 4.86 % |
| BNS.PR.B | FloatingReset | -1.13 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.61 Bid-YTW : 3.03 % |
| BAM.PF.E | FixedReset | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 22.97 Evaluated at bid price : 24.50 Bid-YTW : 3.56 % |
| BAM.PR.R | FixedReset | -1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 21.39 Evaluated at bid price : 21.70 Bid-YTW : 3.70 % |
| BAM.PR.C | Floater | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 14.55 Evaluated at bid price : 14.55 Bid-YTW : 3.46 % |
| MFC.PR.I | FixedReset | 1.39 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-09-19 Maturity Price : 25.00 Evaluated at bid price : 26.22 Bid-YTW : 2.74 % |
| TRP.PR.F | FloatingReset | 2.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 3.23 % |
| PWF.PR.A | Floater | 5.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 19.00 Evaluated at bid price : 19.00 Bid-YTW : 2.63 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TD.PF.C | FixedReset | 92,950 | National sold 10,000 to anonymous at 24.85. TD crossed blocks of 16,700 and 50,000, both at 24.85. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 23.12 Evaluated at bid price : 24.86 Bid-YTW : 3.08 % |
| GWO.PR.N | FixedReset | 60,151 | RBC crossed 49,800 at 18.98. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.40 Bid-YTW : 5.77 % |
| RY.PR.L | FixedReset | 47,730 | Nesbitt crossed blocks of 23,100 and 20,000, both at 26.15. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 26.11 Bid-YTW : 3.07 % |
| BMO.PR.S | FixedReset | 47,190 | Nesbitt crossed 10,000 at 25.06. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 23.24 Evaluated at bid price : 25.06 Bid-YTW : 3.10 % |
| ENB.PR.B | FixedReset | 43,658 | RBC crossed 20,000 at 19.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 19.74 Evaluated at bid price : 19.74 Bid-YTW : 4.10 % |
| ENB.PR.D | FixedReset | 37,922 | RBC crossed 21,600 at 19.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-02-17 Maturity Price : 19.75 Evaluated at bid price : 19.75 Bid-YTW : 4.11 % |
| There were 41 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PR.K | Floater | Quote: 13.84 – 14.91 Spot Rate : 1.0700 Average : 0.6062 YTW SCENARIO |
| BNS.PR.B | FloatingReset | Quote: 23.61 – 24.20 Spot Rate : 0.5900 Average : 0.3881 YTW SCENARIO |
| TRP.PR.F | FloatingReset | Quote: 18.50 – 19.15 Spot Rate : 0.6500 Average : 0.4617 YTW SCENARIO |
| MFC.PR.F | FixedReset | Quote: 20.19 – 20.78 Spot Rate : 0.5900 Average : 0.4079 YTW SCENARIO |
| MFC.PR.L | FixedReset | Quote: 24.00 – 24.60 Spot Rate : 0.6000 Average : 0.4351 YTW SCENARIO |
| ENB.PF.G | FixedReset | Quote: 23.25 – 23.70 Spot Rate : 0.4500 Average : 0.2891 YTW SCENARIO |