The U.S. job-creation machine kept exceeding expectations in February. Wages continued to disappoint.
Employers added 295,000 workers to payrolls last month, more than forecast, and the unemployment rate dropped to 5.5 percent, the lowest in almost seven years, figures from the Labor Department showed Friday in Washington. Hourly earnings rose less than forecast.
A lingering appetite to boost headcounts comes as increased purchasing power from cheaper fuel helps drive consumer spending. The jobless rate has now reached the Federal Reserve’s range for what it considers full employment, keeping policy makers on course to raise interest rates this year as persistent job growth sets the stage for a pickup in wages.
…
The median forecast in a Bloomberg survey of economists called for a 235,000 advance in February payrolls. Estimates ranged from 150,000 to 370,000. Employment in January climbed 239,000. The drop in the unemployment rate was also bigger than projected, and down from 5.7 percent in January.Average hourly earnings rose 0.1 percent from the prior month after advancing 0.5 percent in January, which was the most since November 2008. The median forecast called for a 0.2 percent gain. Earnings were up 2 percent over the past year, also less than projected and matching the increase on average since the expansion began in mid-2009.
So the previously scheduled deflation has been cancelled:
U.S. stocks fell, with the Standard & Poor’s 500 Index tumbling the most in two months, as better-than-forecast jobs data fueled speculation the Federal Reserve is moving closer to raising interest rates.
…
The S&P 500 fell 1.4 percent, the most since Jan. 5, to 2,071.26 at 4 p.m. in New York. The equity gauge lost 1.6 percent for the week. The Dow retreated 278.94 points, or 1.5 percent, to 17,856.78 for its worst drop in five weeks. The Nasdaq Composite Index slipped 1.1 percent. More than 7.4 billion shares changed hands on U.S. exchanges, 7.2 percent above the 30-day average.
…
Utility companies in the S&P 500 tumbled 3.1 percent. Selling picked up in the industry as the rate on 10-year Treasury notes spiked 13 basis points to 2.25 percent, the highest this year. The group’s dividend yield of 3.7 percent is the second-highest in the index.
AllBanc Split Corp., proud issuer of ABK.PR.C, was confirmed at Pfd-2 by DBRS:
Since the last rating action in March 2014, the net asset value of the Company has been slightly volatile, mirroring the performance of Canadian banks over the past year. However, downside protection rose from 60.1% on February 20, 2014, to 62.6% as of February 26, 2015. As a result, the rating of the Class C Preferred Shares has been confirmed at Pfd-2.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 9bp, FixedResets gaining 26bp and DeemedRetractibles down 15bp. The Performance Highlights table is its usual lengthy 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:
Click for Big
TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.14 to be $1.18 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.10 cheap at its bid price of 24.71.
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 24.91 to be $0.30 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.88 to be $0.47 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.PF.X, resetting at +188bp on 2017-6-30, bid at 18.68 to be $0.17 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.45 and appears to be $0.68 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 16.70, looks $1.51 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 $1.13 rich.
Click for Big
The cancellation of the previously announced deflationary environment had an immediate effect on the implied three month bill rate, with investment-grade pairs predicting an average over the next five years of a whopping 0.10%.
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 | 0.9857 % | 2,420.3 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.9857 % | 4,231.7 |
| Floater | 3.11 % | 3.14 % | 75,974 | 19.31 | 3 | 0.9857 % | 2,572.9 |
| OpRet | 4.07 % | 0.80 % | 106,402 | 0.29 | 1 | 0.0794 % | 2,765.8 |
| SplitShare | 4.48 % | 4.54 % | 56,213 | 4.46 | 5 | 0.0080 % | 3,207.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0794 % | 2,529.1 |
| Perpetual-Premium | 5.29 % | -0.78 % | 54,523 | 0.08 | 25 | 0.0360 % | 2,522.1 |
| Perpetual-Discount | 4.95 % | 5.03 % | 155,274 | 15.09 | 9 | -0.0927 % | 2,808.6 |
| FixedReset | 4.41 % | 3.43 % | 236,285 | 16.83 | 80 | 0.2630 % | 2,429.0 |
| Deemed-Retractible | 4.90 % | -0.16 % | 105,040 | 0.15 | 37 | -0.1502 % | 2,655.8 |
| FloatingReset | 2.50 % | 2.88 % | 90,150 | 6.34 | 8 | -0.1440 % | 2,337.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRP.PR.F | FloatingReset | -3.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 18.81 Evaluated at bid price : 18.81 Bid-YTW : 3.26 % |
| SLF.PR.H | FixedReset | -1.41 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.38 Bid-YTW : 4.40 % |
| MFC.PR.B | Deemed-Retractible | -1.14 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.32 Bid-YTW : 5.01 % |
| BNS.PR.Z | FixedReset | 1.08 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.30 Bid-YTW : 3.51 % |
| IAG.PR.G | FixedReset | 1.21 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.92 Bid-YTW : 2.53 % |
| ENB.PR.H | FixedReset | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 18.63 Evaluated at bid price : 18.63 Bid-YTW : 4.17 % |
| BAM.PR.C | Floater | 1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 16.05 Evaluated at bid price : 16.05 Bid-YTW : 3.14 % |
| MFC.PR.K | FixedReset | 1.27 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 3.79 % |
| ENB.PR.B | FixedReset | 1.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 19.31 Evaluated at bid price : 19.31 Bid-YTW : 4.25 % |
| HSE.PR.A | FixedReset | 1.48 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 17.78 Evaluated at bid price : 17.78 Bid-YTW : 3.73 % |
| BMO.PR.Q | FixedReset | 1.53 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.25 Bid-YTW : 3.53 % |
| CM.PR.P | FixedReset | 1.55 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 23.02 Evaluated at bid price : 24.59 Bid-YTW : 3.09 % |
| PWF.PR.P | FixedReset | 1.84 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 18.84 Evaluated at bid price : 18.84 Bid-YTW : 3.28 % |
| MFC.PR.F | FixedReset | 2.58 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.90 Bid-YTW : 5.10 % |
| IFC.PR.A | FixedReset | 3.38 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.78 Bid-YTW : 5.37 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.J | FixedReset | 105,427 | TD bought blocks of 12,600 and 11,400 from anonymous, both at 25.05. Nesbitt bought 10,000 from anonymous at 25.03. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 23.15 Evaluated at bid price : 25.02 Bid-YTW : 3.42 % |
| ENB.PR.B | FixedReset | 74,341 | TD crossed 50,000 at 19.20. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 19.31 Evaluated at bid price : 19.31 Bid-YTW : 4.25 % |
| TRP.PR.G | FixedReset | 49,200 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 23.02 Evaluated at bid price : 24.71 Bid-YTW : 3.69 % |
| BNS.PR.Y | FixedReset | 48,813 | To be extended. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.40 Bid-YTW : 3.58 % |
| RY.PR.A | Deemed-Retractible | 31,651 | RBC crossed 11,500 at 25.59. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-05 Maturity Price : 25.25 Evaluated at bid price : 25.50 Bid-YTW : -6.04 % |
| BAM.PR.X | FixedReset | 29,945 | RBC bought 17,900 from TD at 18.79. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-06 Maturity Price : 18.68 Evaluated at bid price : 18.68 Bid-YTW : 3.83 % |
| There were 44 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| MFC.PR.F | FixedReset | Quote: 19.90 – 20.48 Spot Rate : 0.5800 Average : 0.3639 YTW SCENARIO |
| PWF.PR.S | Perpetual-Discount | Quote: 25.13 – 25.58 Spot Rate : 0.4500 Average : 0.2779 YTW SCENARIO |
| RY.PR.F | Deemed-Retractible | Quote: 25.53 – 26.08 Spot Rate : 0.5500 Average : 0.4084 YTW SCENARIO |
| FTS.PR.J | Perpetual-Premium | Quote: 25.05 – 25.37 Spot Rate : 0.3200 Average : 0.2125 YTW SCENARIO |
| BAM.PF.A | FixedReset | Quote: 25.60 – 25.91 Spot Rate : 0.3100 Average : 0.2094 YTW SCENARIO |
| ENB.PR.H | FixedReset | Quote: 18.63 – 18.92 Spot Rate : 0.2900 Average : 0.1991 YTW SCENARIO |
James, can one assume (all things being equal, as general as possible) that if the 5 yr Gov`t of Can yield rises to where it was a few months ago (1.5-1.75%) that should benefit the fixed reset preferred shares that have been hit hard.
Well, it will benefit them in terms of their projected income stream. Whether or not it will benefit them in terms of current price is something I don’t know.
I think you’re missing a few words above the break-even prime rates chart, which used to be:
thanks James. yes, always hard to predict if they will benefit in pricing. the higher income stream is good, especially if one is willing to take the plunge.
adrian2, it’s very naughty of you to poke fun at my laziness in recycling text!
Nestor, there may be a permanent effect on spreads and therefore on prices, now that the great unwashed have seen that prices on FixedResets can indeed go down. A lot of these brokers sold these things on the basis that the price would be stable and a lot of brokerages actually calculated and published “Yield to Reset” in their research commentary (YTR assumed the value on the next Exchange Date would be $25, regardless of the Issue Reset Spread and market conditions).
In the Straight Perpetual world, the Credit Crunch appears to have had a permanent effect on the Seniority Spread, which now seems to have a range of 250bp+, compared to 100-150bp pre-crisis. Whether or not the last three months have had such a traumatic and long-lasting effect on FixedReset spreads is something I don’t know.
Ask me again in ten years, and I’ll publish a chart and commentary explaining why whatever happens next was inevitable!
Ask me again in ten years, and I’ll publish a chart and commentary explaining why whatever happens next was inevitable!
hahaha.. i think i will.