Nothing happened today, but there’s a rumour that preferred shares will soon come with warning labels:
Click for Big
It was another rough day for the Canadian preferred share market, with PerpetualDiscounts off 5bp, FixedResets losing 53bp and DeemedRetractibles down 16bp. The Performance Highlights table is comprised entirely of losers, notably Floaters and FixedResets from TRP, ENB and BAM. Volume was extremely 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 22.86 to be $0.66 rich, while TRP.PR.C, resetting 2016-01-30 at +154, is $1.00 cheap at its bid price of 15.55.
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 23.68 to be $0.69 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.11 to be $0.90 cheap.
Click for Big
The fit on this series has suddenly become atrocious. It will be most interesting to see how long it takes for things to readjust.
The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.06 to be $1.27 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 23.53 and appears to be $1.53 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 15.62, looks $1.68 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 23.00 and is $0.99 rich.
Click for Big
Investment-grade pairs now predict an average over the next five years of a little under 0.40%, continuing the increase of last week; the TRP.PR.A / TRP.PR.F pair is again an outlier, but this time on the high side. The DC.PR.B / DC.PR.D pair is still off the charts and now predicts an average bill rate over the next 4 3/4 years of -1.55%.
Alert Assiduous readers will note that during the past week of disaster, doom and destruction, the implied three month bill rate from FixedReset pairs has been increasing. This makes no sense, but since when has the preferred market made sense?
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 |
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| 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 | -2.5666 % | 2,219.4 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -2.5666 % | 3,880.6 |
| Floater | 3.26 % | 3.42 % | 58,993 | 18.73 | 4 | -2.5666 % | 2,359.4 |
| OpRet | 4.42 % | -4.89 % | 31,196 | 0.15 | 2 | -0.0392 % | 2,768.6 |
| SplitShare | 4.55 % | 4.67 % | 61,107 | 3.45 | 3 | 0.2800 % | 3,236.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0392 % | 2,531.6 |
| Perpetual-Premium | 5.31 % | 0.36 % | 59,372 | 0.08 | 25 | -0.1365 % | 2,525.6 |
| Perpetual-Discount | 5.06 % | 5.02 % | 144,147 | 15.18 | 9 | -0.0513 % | 2,818.9 |
| FixedReset | 4.50 % | 3.64 % | 265,693 | 16.45 | 85 | -0.5331 % | 2,370.5 |
| Deemed-Retractible | 4.91 % | 1.66 % | 112,402 | 0.14 | 37 | -0.1569 % | 2,656.9 |
| FloatingReset | 2.48 % | 2.90 % | 78,463 | 6.28 | 8 | -0.1965 % | 2,356.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.K | Floater | -4.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 14.25 Evaluated at bid price : 14.25 Bid-YTW : 3.52 % |
| TRP.PR.B | FixedReset | -3.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 14.35 Evaluated at bid price : 14.35 Bid-YTW : 3.56 % |
| BAM.PR.C | Floater | -3.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 14.52 Evaluated at bid price : 14.52 Bid-YTW : 3.45 % |
| BAM.PR.B | Floater | -3.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 14.64 Evaluated at bid price : 14.64 Bid-YTW : 3.42 % |
| FTS.PR.K | FixedReset | -2.95 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 22.35 Evaluated at bid price : 23.00 Bid-YTW : 3.26 % |
| TRP.PR.C | FixedReset | -2.81 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 15.55 Evaluated at bid price : 15.55 Bid-YTW : 3.79 % |
| TRP.PR.A | FixedReset | -2.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 19.86 Evaluated at bid price : 19.86 Bid-YTW : 3.55 % |
| FTS.PR.H | FixedReset | -2.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 15.62 Evaluated at bid price : 15.62 Bid-YTW : 3.56 % |
| BAM.PR.Z | FixedReset | -2.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 23.22 Evaluated at bid price : 24.45 Bid-YTW : 3.88 % |
| GWO.PR.N | FixedReset | -2.20 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.82 Bid-YTW : 6.12 % |
| ENB.PR.H | FixedReset | -1.92 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 17.41 Evaluated at bid price : 17.41 Bid-YTW : 4.47 % |
| ENB.PR.J | FixedReset | -1.74 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 20.32 Evaluated at bid price : 20.32 Bid-YTW : 4.41 % |
| TRP.PR.E | FixedReset | -1.68 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 22.22 Evaluated at bid price : 22.86 Bid-YTW : 3.62 % |
| IFC.PR.A | FixedReset | -1.61 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.12 Bid-YTW : 5.66 % |
| BAM.PF.E | FixedReset | -1.55 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 22.56 Evaluated at bid price : 23.53 Bid-YTW : 3.73 % |
| BAM.PR.X | FixedReset | -1.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 16.75 Evaluated at bid price : 16.75 Bid-YTW : 4.17 % |
| FTS.PR.J | Perpetual-Premium | -1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 24.32 Evaluated at bid price : 24.75 Bid-YTW : 4.83 % |
| MFC.PR.F | FixedReset | -1.33 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.60 Bid-YTW : 5.96 % |
| HSE.PR.A | FixedReset | -1.28 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 16.20 Evaluated at bid price : 16.20 Bid-YTW : 3.98 % |
| BAM.PF.B | FixedReset | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 22.21 Evaluated at bid price : 22.78 Bid-YTW : 3.86 % |
| ENB.PF.G | FixedReset | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 20.60 Evaluated at bid price : 20.60 Bid-YTW : 4.55 % |
| SLF.PR.G | FixedReset | -1.10 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.16 Bid-YTW : 6.58 % |
| BMO.PR.Q | FixedReset | -1.08 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.81 Bid-YTW : 3.88 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| HSE.PR.E | FixedReset | 255,048 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 23.21 Evaluated at bid price : 25.15 Bid-YTW : 4.25 % |
| RY.PR.M | FixedReset | 117,000 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 23.00 Evaluated at bid price : 24.64 Bid-YTW : 3.38 % |
| PWF.PR.O | Perpetual-Premium | 102,523 | Nesbitt crossed 100,000 at 26.04. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-05-07 Maturity Price : 26.00 Evaluated at bid price : 26.02 Bid-YTW : 0.36 % |
| FTS.PR.M | FixedReset | 78,905 | TD crossed 50,000 at 25.00. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 23.17 Evaluated at bid price : 24.96 Bid-YTW : 3.32 % |
| TD.PF.D | FixedReset | 78,145 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 23.14 Evaluated at bid price : 25.00 Bid-YTW : 3.44 % |
| CM.PR.Q | FixedReset | 64,400 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-07 Maturity Price : 23.13 Evaluated at bid price : 24.96 Bid-YTW : 3.45 % |
| There were 62 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| ELF.PR.H | Perpetual-Premium | Quote: 26.05 – 26.83 Spot Rate : 0.7800 Average : 0.4868 YTW SCENARIO |
| FTS.PR.K | FixedReset | Quote: 23.00 – 23.65 Spot Rate : 0.6500 Average : 0.3980 YTW SCENARIO |
| TRP.PR.E | FixedReset | Quote: 22.86 – 23.50 Spot Rate : 0.6400 Average : 0.4600 YTW SCENARIO |
| IFC.PR.A | FixedReset | Quote: 20.12 – 20.60 Spot Rate : 0.4800 Average : 0.3286 YTW SCENARIO |
| MFC.PR.M | FixedReset | Quote: 24.00 – 24.55 Spot Rate : 0.5500 Average : 0.3995 YTW SCENARIO |
| MFC.PR.K | FixedReset | Quote: 23.65 – 24.00 Spot Rate : 0.3500 Average : 0.2302 YTW SCENARIO |