The effect of shareholder-friendly actions on creditworthiness was discussed in the post Rating Agencies Unhappy With Enbridge (particularly in the comments!). Nowadays, shareholders are really feeling the love:
Stock buybacks, which along with dividends eat up sums of money equal to almost all the Standard & Poor’s 500 Index’s earnings, vaulted to a record in February, with chief executive officers announcing $104.3 billion in planned repurchases. That’s the most since TrimTabs Investment Research began tracking the data in 1995 and almost twice the $55 billion bought a year earlier.
Even with 10-year Treasury yields holding below 2.1 percent, economic growth trailing forecasts and earnings estimates deteriorating, the stock market snapped back last month as companies announced an average of more than $5 billion in buybacks each day. That’s enough to cover about 2 percent of the value of shares traded on U.S. exchanges, data compiled by Bloomberg show.
…
Companies in the S&P 500 have spent more than $2 trillion on their own stock since 2009, underpinning an equity rally in which the index has more than tripled. They were on pace to spend a sum equal to 95 percent of their earnings on repurchases and dividends in 2014, data compiled in October showed.
The BoC took no action on yields today:
The Bank of Canada today announced that it is maintaining its target for the overnight rate at 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.
Total CPI inflation in Canada has fallen as expected, reflecting the significant drop in oil prices. Core inflation remains close to 2 per cent and continues to be temporarily boosted by the pass-through effects of the lower Canadian dollar, as well as sector-specific factors.
…
Financial conditions in Canada have eased materially since January, in response to the Bank’s recent monetary policy action and to global financial developments. This easing is reflected across the yield curve and in a wide range of asset prices, including the Canadian dollar. These conditions will mitigate the negative effects of the oil price shock, further boosting growth through stronger non-energy exports and investment.In light of these developments, the risks around the inflation profile are now more balanced and financial stability risks are evolving as expected in January. At present, we judge that the current degree of monetary policy stimulus is still appropriate and the target for the overnight rate remains at 3/4 per cent.
To some extent, this was foreshadowed by the GDP numbers released yesterday:
The Canadian dollar rose the most in two weeks after a report showed the economy grew at a faster rate than estimated with policy makers meeting Wednesday to consider further monetary stimulus.
…
The GDP report showed consumers boosted spending and businesses built up stockpiles of unsold goods. Gross domestic product expanded at a 2.4 percent annual pace, higher than the Bloomberg News forecast for a 2 percent gain.The government also raised third-quarter growth to 3.2 percent, from an initially reported 2.8 percent.
But clearly this foreshadowing was incomplete:
As expected, the Bank of Canada maintained the overnight rate at 0.75 per cent, sending the Canadian dollar and short-term yields higher.
The Canadian dollar was trading below 79.8 cents (U.S.) against the greenback prior to the announcement, and proceeded to spike by more than half a cent.
Meanwhile, the yield on the two-year Government of Canada bond rose by 10 basis points to 0.6 per cent. On Feb. 23, the yield bottomed out at 0.386 per cent.
…
To adapt a tagline from Lay’s potato chips, the market was, prior to this announcement, back to betting that the Bank of Canada can’t just cut rates once. Nearly one full cut was fully priced in by the September announcement, with 10 per cent odds of the central bank being at the zero lower bound by its final meeting of the year.
…
Traders pared their bets on the likelihood of more stimulus following this statement; as of 10:15 a.m. ET, just over 25 basis points of easing are expected by the end of 2015.
Longevity risk and the impact of new actuarial tables on companies with pension plans was discussed on February 9. Now Sun Life and BCE have done a pension risk-transfer deal:
Sun Life Financial Inc., Canada’s third-largest life insurer, agreed to take on a C$5 billion ($4 billion) pension liability from telecommunications company BCE Inc.
BCE, known by its brand name Bell, will pay monthly premiums to the Toronto-based insurer, the companies said today in a statement that didn’t disclose terms.
BCE is joining large employers such as New York-based Verizon Communications Inc. in turning to insurers to cap liabilities that can increase if retirees live longer than expected or bond yields remain near record-low levels. Verizon in 2012 struck a deal to transfer about $7.5 billion in pension obligations to Prudential Financial Inc.
My new favourite SEC Commissioner Daniel M. Gallagher has some interesting things to say about boosting micro-cap liquidity:
Second, the Committee will examine secondary market trading of small company shares, particularly through Venture Exchanges. I believe Venture Exchanges are a vital bookend to our JOBS Act rulemaking on Regulation A+.[2] In thinking about these entities, I’ve been envisioning them as national securities exchanges, with full state law preemption, but with tailored periodic reporting and listing requirements that are more appropriate for small businesses.[3] They would be exempt from the National Market System rules and Unlisted Trading Privileges requirements, so as to concentrate liquidity in the listing venue, and would be free to structure trading however they see fit (e.g., periodic auctions instead of continuous trading). I believe these principles would create liquidity in Regulation A+ shares. Moreover, these same principles could be extended to the shares of the smallest public companies, currently traded over-the-counter, to facilitate liquidity for them as well. We must embrace change. We must depart from the failed policies and feeble ideas of the past, in order to pursue critically-needed innovation like Venture Exchanges. I believe this Commission has the courage and leadership to do so.
It’s nice to see some acknowledgement that the National Market System rules, which incorporate the National Best Bid and Offer rules have some effect beyond being fairsy-wairsy to Granny.
A Pew Research study recently awarded India a better-than-awful grade on religious freedom, while noting a very high level of social hostilities. They may want to review the ‘freedom’ part:
A prime filet mignon at New York’s Old Homestead Steakhouse will set you back $56. Wolfgang Puck’s Cut in London charges as much as $210 for a ribeye. In Tokyo, a sirloin can top $250.
But nowhere is a juicy piece of beef as dear as in Mumbai, where it can now cost you five years in prison.
The government of the state of Maharashtra this week banned possession of beef and its byproducts and the slaughtering of cows, bulls and bullocks. The prohibition marks a victory for hardline Hindu groups that have sought to protect an animal their religion considers holy.
It was a positive day for the Canadian preferred share market, with PerpetualDiscounts gaining 3bp, FixedResets up 8bp and DeemedRetractibles winning 12bp. Beneath the placid surface, however, there continued to be a lot of churn in the market, with the Performance Highlights table relatively lengthy and dominated by winning FixedResets (although HSE.PR.C was a loser, hurt by today’s new issue announcement). Volume was above average.
PerpetualDiscounts now yield 5.03%, equivalent to 6.54% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.75%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 280bp, a slight (and perhaps spurious) widening from the 275bp reported February 25.
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 24.75 to be $1.72 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.18 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 23.71 to be $0.28 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.85 to be $0.52 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 18.11 to be $0.66 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.34 and appears to be $0.63 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 16.69, looks $1.46 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 just below zero, with one outlier: the TRP.PR.A / TRP.PR.F pair, clocking in at more aggressive 1.45%.
The market’s distaste for product linked to Money Market rates does not extend to prime, as shown by the FixedFloater/RatchetRate pairs:
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 | 0.9081 % | 2,401.7 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.9081 % | 4,199.2 |
| Floater | 3.13 % | 3.15 % | 76,995 | 19.29 | 3 | 0.9081 % | 2,553.1 |
| OpRet | 4.07 % | 1.20 % | 111,004 | 0.29 | 1 | 0.1193 % | 2,762.6 |
| SplitShare | 4.48 % | 4.61 % | 54,247 | 4.46 | 5 | -0.5403 % | 3,201.9 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1193 % | 2,526.1 |
| Perpetual-Premium | 5.29 % | -1.76 % | 57,249 | 0.08 | 25 | -0.0172 % | 2,521.7 |
| Perpetual-Discount | 4.94 % | 5.03 % | 156,616 | 15.14 | 9 | 0.0324 % | 2,813.2 |
| FixedReset | 4.41 % | 3.54 % | 233,329 | 16.81 | 80 | 0.0820 % | 2,424.5 |
| Deemed-Retractible | 4.90 % | -0.63 % | 107,551 | 0.15 | 37 | 0.1173 % | 2,659.5 |
| FloatingReset | 2.49 % | 2.83 % | 87,528 | 6.35 | 8 | 0.5234 % | 2,349.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| SLF.PR.H | FixedReset | -2.16 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.60 Bid-YTW : 4.28 % |
| HSE.PR.C | FixedReset | -1.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-04 Maturity Price : 23.12 Evaluated at bid price : 24.84 Bid-YTW : 4.03 % |
| CGI.PR.D | SplitShare | -1.13 % | YTW SCENARIO Maturity Type : Soft Maturity Maturity Date : 2023-06-14 Maturity Price : 25.00 Evaluated at bid price : 25.31 Bid-YTW : 3.58 % |
| BAM.PR.T | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-04 Maturity Price : 22.22 Evaluated at bid price : 22.50 Bid-YTW : 3.62 % |
| BAM.PF.B | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-04 Maturity Price : 22.98 Evaluated at bid price : 24.30 Bid-YTW : 3.62 % |
| PWF.PR.P | FixedReset | 1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-04 Maturity Price : 18.42 Evaluated at bid price : 18.42 Bid-YTW : 3.36 % |
| MFC.PR.F | FixedReset | 1.32 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.25 Bid-YTW : 5.50 % |
| SLF.PR.G | FixedReset | 1.37 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.75 Bid-YTW : 6.13 % |
| IFC.PR.A | FixedReset | 1.54 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.41 Bid-YTW : 5.59 % |
| BAM.PR.K | Floater | 1.55 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-04 Maturity Price : 15.74 Evaluated at bid price : 15.74 Bid-YTW : 3.20 % |
| TRP.PR.F | FloatingReset | 2.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-04 Maturity Price : 19.80 Evaluated at bid price : 19.80 Bid-YTW : 3.09 % |
| TRP.PR.B | FixedReset | 2.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-04 Maturity Price : 14.85 Evaluated at bid price : 14.85 Bid-YTW : 3.46 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| PWF.PR.T | FixedReset | 260,300 | Nesbitt crossed one block of 156,400 shares and two of 50,000 each, all at 25.05. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-04 Maturity Price : 23.29 Evaluated at bid price : 25.10 Bid-YTW : 3.21 % |
| TRP.PR.G | FixedReset | 209,020 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-04 Maturity Price : 23.06 Evaluated at bid price : 24.83 Bid-YTW : 3.66 % |
| GWO.PR.H | Deemed-Retractible | 129,040 | Desjardins bought 112,900 from anonymous at 24.95. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.90 Bid-YTW : 4.88 % |
| GWO.PR.N | FixedReset | 120,730 | Desjardins crossed 50,000 at 18.35. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.25 Bid-YTW : 5.79 % |
| OSP.PR.A | SplitShare | 87,500 | Recent new issue. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2020-03-31 Maturity Price : 10.00 Evaluated at bid price : 10.20 Bid-YTW : 4.61 % |
| MFC.PR.M | FixedReset | 73,937 | Nesbitt crossed 50,000 at 24.50 and 19,800 at 24.45. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.44 Bid-YTW : 3.79 % |
| There were 36 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| CGI.PR.D | SplitShare | Quote: 25.31 – 26.00 Spot Rate : 0.6900 Average : 0.5335 YTW SCENARIO |
| PWF.PR.F | Perpetual-Premium | Quote: 25.49 – 25.88 Spot Rate : 0.3900 Average : 0.2577 YTW SCENARIO |
| IFC.PR.C | FixedReset | Quote: 24.84 – 25.25 Spot Rate : 0.4100 Average : 0.3056 YTW SCENARIO |
| MFC.PR.N | FixedReset | Quote: 24.12 – 24.59 Spot Rate : 0.4700 Average : 0.3671 YTW SCENARIO |
| IFC.PR.A | FixedReset | Quote: 20.41 – 21.14 Spot Rate : 0.7300 Average : 0.6273 YTW SCENARIO |
| TRP.PR.F | FloatingReset | Quote: 19.80 – 20.35 Spot Rate : 0.5500 Average : 0.4485 YTW SCENARIO |