The U.S. Treasury Department can thank the Federal Reserve for the surge in demand at Thursday’s auction of inflation-protected bonds.
The $13 billion in 10-year Treasury Inflation-Protected Securities, or TIPS, were sold at a yield of 0.2 percent, the lowest at an auction of the debt since May 2013. The Fed indicated Wednesday it isn’t in a rush to raise interest rates, leaving the door open for economic growth to stoke inflation.
…
Ten-year break-evens, the difference between yields on 10-year Treasury inflation protected securities and nominal equivalents, show investors expect U.S. consumer prices to rise 1.79 percent a year for the coming decade, up from a 2015 low of 1.49 percent on Jan. 14.The gauge rose as much as 0.09 percentage point Thursday as rising prices for TIPS pulled their yields down and further away from yields on benchmark 10-year notes.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts up 11bp, FixedResets gaining 10bp and DeemedRetractibles off 2bp. There was no real pattern in the Performance Highlights table, other than that it was dominated by winners; Floaters did well. Volume was well above 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 24.68 to be $1.23 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $1.40 cheap at its bid price of 24.85.
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 24.20 to be $0.47 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.85 to be $0.82 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.R, resetting at +230bp on 2016-6-30, bid at 21.29 to be $0.71 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 24.45 and appears to be $0.90 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 $1.23 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.71 and is $0.91 rich.
Click for Big
Investment-grade pairs predict an average over the next five years of about 0.00% – except for one outlier, TRP.PR.A / TRP.PR.F, which has a break-even of -0.40%. The DC.PR.B / DC.PR.D pair has gone from the extreme to the ludicrous and now predicts an average bill rate over the next 4 3/4 years of -2.78%
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 | 1.8624 % | 2,356.4 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 1.8624 % | 4,120.0 |
| Floater | 3.22 % | 3.21 % | 63,980 | 19.22 | 3 | 1.8624 % | 2,505.0 |
| OpRet | 4.07 % | 0.76 % | 106,654 | 0.25 | 1 | 0.1589 % | 2,766.9 |
| SplitShare | 4.46 % | 4.44 % | 57,559 | 4.42 | 5 | 0.0159 % | 3,221.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1589 % | 2,530.1 |
| Perpetual-Premium | 5.29 % | 0.08 % | 56,492 | 0.09 | 25 | 0.1567 % | 2,521.0 |
| Perpetual-Discount | 4.99 % | 4.99 % | 164,926 | 15.17 | 9 | 0.1124 % | 2,801.9 |
| FixedReset | 4.38 % | 3.52 % | 241,768 | 16.69 | 85 | 0.1007 % | 2,430.0 |
| Deemed-Retractible | 4.90 % | -1.42 % | 110,252 | 0.12 | 37 | -0.0224 % | 2,659.1 |
| FloatingReset | 2.49 % | 2.93 % | 87,529 | 6.31 | 8 | 0.2894 % | 2,335.5 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| HSE.PR.A | FixedReset | -1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 16.78 Evaluated at bid price : 16.78 Bid-YTW : 3.97 % |
| TRP.PR.C | FixedReset | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 16.69 Evaluated at bid price : 16.69 Bid-YTW : 3.74 % |
| MFC.PR.C | Deemed-Retractible | 1.22 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.04 Bid-YTW : 5.02 % |
| BAM.PR.B | Floater | 1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 15.56 Evaluated at bid price : 15.56 Bid-YTW : 3.20 % |
| TRP.PR.D | FixedReset | 1.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 22.99 Evaluated at bid price : 24.34 Bid-YTW : 3.40 % |
| BAM.PR.C | Floater | 1.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 15.42 Evaluated at bid price : 15.42 Bid-YTW : 3.23 % |
| FTS.PR.H | FixedReset | 1.71 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 16.70 Evaluated at bid price : 16.70 Bid-YTW : 3.45 % |
| ENB.PR.Y | FixedReset | 1.74 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 20.42 Evaluated at bid price : 20.42 Bid-YTW : 4.19 % |
| TRP.PR.F | FloatingReset | 1.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 19.05 Evaluated at bid price : 19.05 Bid-YTW : 3.21 % |
| BAM.PR.K | Floater | 2.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 15.51 Evaluated at bid price : 15.51 Bid-YTW : 3.21 % |
| ELF.PR.H | Perpetual-Premium | 2.87 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-17 Maturity Price : 25.00 Evaluated at bid price : 25.78 Bid-YTW : 5.11 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.M | FixedReset | 483,371 | Inventory blow-out sale. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 22.96 Evaluated at bid price : 24.53 Bid-YTW : 3.46 % |
| TD.PF.B | FixedReset | 222,494 | TD crossed blocks of 50,000 shares, 49,700 and 100,000, all at 24.88. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 23.16 Evaluated at bid price : 24.86 Bid-YTW : 3.17 % |
| RY.PR.H | FixedReset | 184,144 | RBC crossed 168,700 at 24.94 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 23.16 Evaluated at bid price : 24.86 Bid-YTW : 3.17 % |
| SLF.PR.I | FixedReset | 135,882 | Nesbitt crossed 118,700 at 25.30. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.24 Bid-YTW : 3.58 % |
| BAM.PF.A | FixedReset | 73,320 | Nesbitt crossed 64,600 at 25.25. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-03-19 Maturity Price : 23.37 Evaluated at bid price : 25.20 Bid-YTW : 3.72 % |
| GWO.PR.L | Deemed-Retractible | 71,300 | Scotia crossed 20,000 at 26.18; Nesbitt crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-04-18 Maturity Price : 26.00 Evaluated at bid price : 26.18 Bid-YTW : -5.25 % |
| There were 43 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| ENB.PF.E | FixedReset | Quote: 22.20 – 22.48 Spot Rate : 0.2800 Average : 0.1834 YTW SCENARIO |
| GWO.PR.P | Deemed-Retractible | Quote: 26.30 – 26.56 Spot Rate : 0.2600 Average : 0.1722 YTW SCENARIO |
| MFC.PR.H | FixedReset | Quote: 25.85 – 26.15 Spot Rate : 0.3000 Average : 0.2163 YTW SCENARIO |
| SLF.PR.I | FixedReset | Quote: 25.24 – 25.49 Spot Rate : 0.2500 Average : 0.1698 YTW SCENARIO |
| PWF.PR.P | FixedReset | Quote: 18.60 – 18.93 Spot Rate : 0.3300 Average : 0.2503 YTW SCENARIO |
| PWF.PR.L | Perpetual-Premium | Quote: 25.35 – 25.65 Spot Rate : 0.3000 Average : 0.2225 YTW SCENARIO |