Daniel M. Gallagher has just become my favourite SEC commissioner:
During a fireside chat at today’s Institute of International Bankers’ 26th Annual Washington Conference, I expressed my concern about the number and aggregate impact of regulations that have been imposed on U.S. financial services firms since the enactment of the Dodd-Frank Act in 2010. These regulations come from an alphabet soup of domestic regulators, including the SEC, and many are related to the edicts of non-accountable international bodies such as the Financial Stability Board. Unfortunately, in promulgating many of these myriad regulations, a robust cost-benefit analysis was not required—and therefore none was performed. Even where a cost-benefit analysis was performed (an exercise for the most part limited to rules adopted by the SEC or CFTC, either independently or jointly with other regulators, given their statutory mandate for cost-benefit analysis), such analysis encompassed only the incremental effects of the rule being considered for adoption. No regulator, as far as I know, has considered the overall regulatory burden on financial services firms when determining whether to impose additional costly regulations. We as regulators are, when it comes to the possibility that our rules are causing death by a thousand cuts, the proverbial ostrich—head firmly entrenched in the sand.
There is yet another rate cut:
India’s central bank lowered interest rates in an unscheduled move for the second time this year, a sign of approval for Prime Minister Narendra Modi’s first full-year budget.
Governor Raghuram Rajan cut the benchmark repurchase rate to 7.5 percent from 7.75 percent, the Reserve Bank of India said in a statement on Wednesday. The central bank acted due to weakness in the economy and after it agreed upon a formal inflation target with the government, Rajan said.
“This makes explicit what was implicit before –- that the government and the Reserve Bank have common objectives and that fiscal and monetary policy will work in a complementary way,” Rajan said in the statement, referring to the monetary policy framework agreement. “In sum, then, the government intends to compensate for the delay in fiscal consolidation with a commitment to an improvement in the quality of adjustment.”
The decision came four days after Modi pushed back deficit targets to spur economic growth through corporate tax cuts and increased spending on infrastructure. More than a dozen central banks from Turkey to China have eased policy in 2015 as a slide in oil prices damps inflation.
It was a fine day for the Canadian preferred share market, with both PerpetualDiscounts and FixedResets up 39bp, while DeemedRetractibles gained 17bp. The Performance Highlights table is dominated by FixedReset winners. Volume was average.
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
TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.65 to be $1.67 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.21 cheap at its bid price of 24.83.
Click for Big
Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. 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.L, resetting at +216 on 2019-6-19, bid at 23.84 to be $0.39 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.89 to be $0.57 cheap.
Click for Big
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 18.15 to be $0.39 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.38 and appears to be $0.75 rich.
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 16.63, looks $1.36 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.80 and is $1.09 rich.
Click for Big
This is rather odd – the investment grade break-even rates are clustered around negative 20bp, with one outlier: the TRP.PR.A / TRP.PR.F pair, clocking in at more reasonable 1.24%.
The market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:
Click for Big
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 | 1.4136 % | 2,380.0 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 1.4136 % | 4,161.4 |
| Floater | 3.16 % | 3.17 % | 77,523 | 19.25 | 3 | 1.4136 % | 2,530.2 |
| OpRet | 4.08 % | 1.59 % | 110,955 | 0.29 | 1 | 0.1195 % | 2,759.3 |
| SplitShare | 4.46 % | 4.36 % | 54,631 | 4.46 | 5 | 0.2589 % | 3,219.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1195 % | 2,523.1 |
| Perpetual-Premium | 5.29 % | -2.23 % | 56,555 | 0.08 | 25 | 0.2210 % | 2,522.1 |
| Perpetual-Discount | 4.95 % | 5.06 % | 157,544 | 15.10 | 9 | 0.3907 % | 2,812.3 |
| FixedReset | 4.42 % | 3.43 % | 229,811 | 16.80 | 80 | 0.3893 % | 2,422.6 |
| Deemed-Retractible | 4.90 % | 0.79 % | 106,008 | 0.16 | 37 | 0.1715 % | 2,656.4 |
| FloatingReset | 2.50 % | 2.92 % | 88,523 | 6.35 | 8 | 0.1230 % | 2,337.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRP.PR.A | FixedReset | -1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 19.51 Evaluated at bid price : 19.51 Bid-YTW : 3.62 % |
| PWF.PR.P | FixedReset | -1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 18.20 Evaluated at bid price : 18.20 Bid-YTW : 3.40 % |
| CU.PR.C | FixedReset | -1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 23.17 Evaluated at bid price : 24.13 Bid-YTW : 3.31 % |
| HSE.PR.A | FixedReset | -1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 17.56 Evaluated at bid price : 17.56 Bid-YTW : 3.77 % |
| PWF.PR.T | FixedReset | 1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 23.34 Evaluated at bid price : 25.25 Bid-YTW : 3.18 % |
| NA.PR.S | FixedReset | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 23.24 Evaluated at bid price : 25.05 Bid-YTW : 3.22 % |
| MFC.PR.B | Deemed-Retractible | 1.02 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.75 Bid-YTW : 4.78 % |
| SLF.PR.H | FixedReset | 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 : 4.01 % |
| GWO.PR.N | FixedReset | 1.11 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.20 Bid-YTW : 5.83 % |
| BAM.PR.Z | FixedReset | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 23.58 Evaluated at bid price : 25.51 Bid-YTW : 3.72 % |
| POW.PR.G | Perpetual-Premium | 1.16 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-04-15 Maturity Price : 26.00 Evaluated at bid price : 26.95 Bid-YTW : 3.94 % |
| MFC.PR.C | Deemed-Retractible | 1.17 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.29 Bid-YTW : 4.86 % |
| VNR.PR.A | FixedReset | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 23.18 Evaluated at bid price : 24.31 Bid-YTW : 3.75 % |
| ENB.PR.N | FixedReset | 1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 20.99 Evaluated at bid price : 20.99 Bid-YTW : 4.23 % |
| MFC.PR.K | FixedReset | 1.42 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.61 Bid-YTW : 3.98 % |
| IFC.PR.C | FixedReset | 1.43 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.85 Bid-YTW : 3.73 % |
| HSE.PR.C | FixedReset | 1.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 23.25 Evaluated at bid price : 25.25 Bid-YTW : 3.94 % |
| MFC.PR.M | FixedReset | 1.62 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.46 Bid-YTW : 3.78 % |
| BAM.PR.B | Floater | 1.66 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 15.95 Evaluated at bid price : 15.95 Bid-YTW : 3.16 % |
| TRP.PR.F | FloatingReset | 2.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 19.40 Evaluated at bid price : 19.40 Bid-YTW : 3.16 % |
| TRP.PR.B | FixedReset | 2.55 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 14.47 Evaluated at bid price : 14.47 Bid-YTW : 3.55 % |
| BAM.PR.C | Floater | 2.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 15.90 Evaluated at bid price : 15.90 Bid-YTW : 3.17 % |
| CIU.PR.C | FixedReset | 3.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 16.45 Evaluated at bid price : 16.45 Bid-YTW : 3.38 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.G | FixedReset | 365,122 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 23.06 Evaluated at bid price : 24.83 Bid-YTW : 3.66 % |
| RY.PR.J | FixedReset | 175,280 | RBC crossed two blocks of 25,000 each, both at 25.00. Scotia crossed two blocks of 20,000 each and one of 10,000, all at 25.00. Scotia sold two blocks of 10,000 each to RBC at 25.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 23.15 Evaluated at bid price : 25.00 Bid-YTW : 3.42 % |
| CM.PR.G | Perpetual-Premium | 107,624 | Called for redemption April 30. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-02 Maturity Price : 25.00 Evaluated at bid price : 25.28 Bid-YTW : -2.44 % |
| BAM.PR.Z | FixedReset | 51,285 | Desjardins crossed 50,000 at 25.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 23.58 Evaluated at bid price : 25.51 Bid-YTW : 3.72 % |
| ENB.PR.D | FixedReset | 47,246 | TD crossed 25,000 at 19.23. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 19.19 Evaluated at bid price : 19.19 Bid-YTW : 4.29 % |
| TD.PF.B | FixedReset | 42,861 | Desjardins crossed 27,100 at 24.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-03 Maturity Price : 23.08 Evaluated at bid price : 24.63 Bid-YTW : 3.14 % |
| There were 34 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| RY.PR.F | Deemed-Retractible | Quote: 25.30 – 26.00 Spot Rate : 0.7000 Average : 0.4517 YTW SCENARIO |
| FTS.PR.G | FixedReset | Quote: 23.66 – 24.30 Spot Rate : 0.6400 Average : 0.4465 YTW SCENARIO |
| BAM.PF.B | FixedReset | Quote: 24.03 – 24.60 Spot Rate : 0.5700 Average : 0.4019 YTW SCENARIO |
| BAM.PR.T | FixedReset | Quote: 22.25 – 22.73 Spot Rate : 0.4800 Average : 0.3125 YTW SCENARIO |
| BAM.PR.K | Floater | Quote: 15.50 – 15.99 Spot Rate : 0.4900 Average : 0.3247 YTW SCENARIO |
| RY.PR.L | FixedReset | Quote: 26.34 – 26.77 Spot Rate : 0.4300 Average : 0.2707 YTW SCENARIO |