I hear there’s a bit of backlash against the lawyers, accountants and stockbrokers crossing the Alberta-Saskatchewan border in search of a better life:
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The Swiss central bank accumulated a lot of foreign currency as it attempted to defend the indefensible CHF / EUR peg. Guess what they’ve done with all that cash!
The Swiss National Bank had a rough quarter in Q1 as the decision to abandon the increasingly unsustainable EURCHF floor (an event which marked an implicit admission that central banks are not all-powerful after all) blew a $32 billion hole in the central bank’s euro reserves. That, however, wasn’t the most remarkable takeaway from the SNB’s quarterly report.
More interesting than the massive loss was the line item in the SNB’s balance sheet which shows that 18% of the bank’s assets are held in foreign stocks.
By “blew a hole”, he must be referring to the P&L – the balance sheet bloated, of course.
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Liquidity problems continue to attract attention:
As bonds tumbled across Europe, the bid-ask spread, a gauge of the market’s depth derived from the difference in prices or yields between buyers and sellers, widened. It reached 0.27 basis point for German 10-year bunds on Thursday, up from as low as 0.1 in March and an average of 0.2 this year, data compiled by Bloomberg show.
That means sellers may be getting squeezed by a shortage of buyers. Adding to the risk of holding bonds, implied option volatility on German 10-year bund futures contracts surged in the past week to the highest since August 2012.
…
Bonds have sold off in a global rout that wiped more than $430 billion from the market in the past week. A capitulation on long positions, or bets that prices will rise, was triggered by a shift in sentiment as improving economic data and rising oil prices prompted investors to revolt against record-low yields.Yet the magnitude of the decline wasn’t justified by those economic numbers, none of which points to a big jump in inflation or interest rates, according to Rabobank’s McGuire.
The yield on Germany’s 10-year bund, the benchmark euro-zone security, has surged 43 basis points since the start of last week to a high for 2015. A basis point is 0.01 percentage point.
The jump suggests that increased regulation may be hampering dealers’ ability to make markets and that bond-purchase programs such as the European Central Bank’s quantitative-easing plan have cut the amount of securities in circulation.
The Canadian preferred share market was on fire today, albeit very unevenly. Can I call this “on mixed fire”? PerpetualDiscounts gained 43bp, FixedResets were up 62bp, while DeemedRetractibles were off 6bp. The volume highlights table is, predictably, both lengthy and dominated by FixedResets. Volume was very 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:
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TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.24 to be $0.95 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.86 cheap at its bid price of 25.11.
Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. 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.N, resetting at +230 on 2020-3-19, bid at 23.97 to be $0.51 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.52 to be $0.47 cheap.
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The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 20.34 to be $0.56 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 23.16 and appears to be $0.72 rich.
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FTS.PR.H, with a spread of +145bp, and bid at 16.70, looks $0.73 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 22.10 and is $0.50 rich.
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Investment-grade pairs now predict an average over the next five years of about 0.40%, but TRP.PR.A / TRP.PR.F is an outlier at -0.77% and BNS.PR.Y / BNS.PR.D is at +0.70%. On the junk side, the BRF.PR.A / BRF.PR.B pair is at -0.72% while FFH.PR.C / FFH.PR.D is at +1.20%.
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 | 0.0000 % | 2,338.2 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 4,088.2 |
| Floater | 3.11 % | 3.21 % | 55,369 | 19.19 | 4 | 0.0000 % | 2,485.7 |
| OpRet | 4.41 % | -2.41 % | 38,332 | 0.15 | 2 | 0.1571 % | 2,771.3 |
| SplitShare | 4.57 % | 4.76 % | 64,240 | 3.36 | 3 | -0.0933 % | 3,227.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1571 % | 2,534.1 |
| Perpetual-Premium | 5.45 % | 1.73 % | 68,137 | 0.08 | 18 | -0.0501 % | 2,520.3 |
| Perpetual-Discount | 5.02 % | 5.00 % | 121,959 | 15.42 | 15 | 0.4341 % | 2,800.4 |
| FixedReset | 4.40 % | 3.81 % | 277,275 | 16.21 | 86 | 0.6169 % | 2,413.3 |
| Deemed-Retractible | 4.92 % | 3.42 % | 114,117 | 0.30 | 36 | -0.0564 % | 2,649.6 |
| FloatingReset | 2.59 % | 2.96 % | 64,301 | 6.20 | 7 | 0.5561 % | 2,335.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| SLF.PR.G | FixedReset | -1.12 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.60 Bid-YTW : 6.75 % |
| NA.PR.S | FixedReset | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 23.19 Evaluated at bid price : 24.85 Bid-YTW : 3.50 % |
| ENB.PR.B | FixedReset | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 19.76 Evaluated at bid price : 19.76 Bid-YTW : 4.56 % |
| BAM.PR.T | FixedReset | 1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 20.75 Evaluated at bid price : 20.75 Bid-YTW : 4.27 % |
| CU.PR.G | Perpetual-Discount | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 23.04 Evaluated at bid price : 23.35 Bid-YTW : 4.81 % |
| ENB.PF.E | FixedReset | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 21.91 Evaluated at bid price : 22.40 Bid-YTW : 4.41 % |
| ENB.PF.C | FixedReset | 1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 21.82 Evaluated at bid price : 22.25 Bid-YTW : 4.42 % |
| TRP.PR.D | FixedReset | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 22.78 Evaluated at bid price : 23.83 Bid-YTW : 3.68 % |
| BAM.PF.G | FixedReset | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 23.01 Evaluated at bid price : 24.60 Bid-YTW : 4.07 % |
| BMO.PR.W | FixedReset | 1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 22.78 Evaluated at bid price : 23.94 Bid-YTW : 3.47 % |
| BAM.PR.X | FixedReset | 1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 18.15 Evaluated at bid price : 18.15 Bid-YTW : 4.29 % |
| BAM.PF.D | Perpetual-Discount | 1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 23.07 Evaluated at bid price : 23.39 Bid-YTW : 5.29 % |
| BAM.PF.A | FixedReset | 1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 23.03 Evaluated at bid price : 24.25 Bid-YTW : 4.16 % |
| TRP.PR.F | FloatingReset | 1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 19.02 Evaluated at bid price : 19.02 Bid-YTW : 3.40 % |
| ENB.PR.T | FixedReset | 1.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 20.59 Evaluated at bid price : 20.59 Bid-YTW : 4.54 % |
| BAM.PF.C | Perpetual-Discount | 1.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 22.76 Evaluated at bid price : 23.06 Bid-YTW : 5.31 % |
| NA.PR.W | FixedReset | 1.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 22.94 Evaluated at bid price : 24.35 Bid-YTW : 3.45 % |
| ENB.PR.J | FixedReset | 1.48 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 21.65 Evaluated at bid price : 21.94 Bid-YTW : 4.39 % |
| TRP.PR.A | FixedReset | 1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 21.11 Evaluated at bid price : 21.11 Bid-YTW : 3.66 % |
| ENB.PR.F | FixedReset | 1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 20.40 Evaluated at bid price : 20.40 Bid-YTW : 4.56 % |
| IAG.PR.G | FixedReset | 1.51 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.51 Bid-YTW : 3.53 % |
| ENB.PR.Y | FixedReset | 1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 20.03 Evaluated at bid price : 20.03 Bid-YTW : 4.55 % |
| BNS.PR.Y | FixedReset | 1.59 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.05 Bid-YTW : 3.19 % |
| ENB.PR.P | FixedReset | 1.80 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 20.91 Evaluated at bid price : 20.91 Bid-YTW : 4.46 % |
| TD.PF.B | FixedReset | 1.84 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 22.96 Evaluated at bid price : 24.30 Bid-YTW : 3.46 % |
| PWF.PR.P | FixedReset | 1.91 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 19.21 Evaluated at bid price : 19.21 Bid-YTW : 3.60 % |
| BAM.PF.E | FixedReset | 1.94 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 22.37 Evaluated at bid price : 23.16 Bid-YTW : 4.11 % |
| RY.PR.Z | FixedReset | 2.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 23.14 Evaluated at bid price : 24.70 Bid-YTW : 3.35 % |
| MFC.PR.N | FixedReset | 2.22 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.97 Bid-YTW : 4.21 % |
| MFC.PR.M | FixedReset | 2.43 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.00 Bid-YTW : 4.26 % |
| TRP.PR.B | FixedReset | 2.69 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 15.68 Evaluated at bid price : 15.68 Bid-YTW : 3.81 % |
| TRP.PR.C | FixedReset | 2.69 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 17.58 Evaluated at bid price : 17.58 Bid-YTW : 3.82 % |
| IFC.PR.A | FixedReset | 3.70 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.00 Bid-YTW : 5.44 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.M | Deemed-Retractible | 80,747 | Scotia crossed 75,000 at 25.36. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-27 Maturity Price : 25.25 Evaluated at bid price : 25.33 Bid-YTW : 3.42 % |
| TRP.PR.E | FixedReset | 43,201 | Desjardins crossed 15,800 at 24.23. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 22.92 Evaluated at bid price : 24.24 Bid-YTW : 3.64 % |
| TD.PF.C | FixedReset | 42,757 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 22.73 Evaluated at bid price : 23.85 Bid-YTW : 3.52 % |
| ENB.PR.B | FixedReset | 37,690 | Desjardins crossed 10,000 at 19.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 19.76 Evaluated at bid price : 19.76 Bid-YTW : 4.56 % |
| CM.PR.O | FixedReset | 37,659 | TD crossed 17,300 at 24.51. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 23.05 Evaluated at bid price : 24.51 Bid-YTW : 3.48 % |
| RY.PR.H | FixedReset | 34,819 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-07 Maturity Price : 22.93 Evaluated at bid price : 24.23 Bid-YTW : 3.47 % |
| There were 53 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| MFC.PR.L | FixedReset | Quote: 22.87 – 23.64 Spot Rate : 0.7700 Average : 0.5104 YTW SCENARIO |
| TD.PF.B | FixedReset | Quote: 24.30 – 25.00 Spot Rate : 0.7000 Average : 0.4812 YTW SCENARIO |
| CIU.PR.C | FixedReset | Quote: 15.81 – 17.50 Spot Rate : 1.6900 Average : 1.4748 YTW SCENARIO |
| BNS.PR.Z | FixedReset | Quote: 23.25 – 23.73 Spot Rate : 0.4800 Average : 0.3096 YTW SCENARIO |
| BNS.PR.O | Deemed-Retractible | Quote: 25.68 – 26.08 Spot Rate : 0.4000 Average : 0.2443 YTW SCENARIO |
| FTS.PR.M | FixedReset | Quote: 24.77 – 25.25 Spot Rate : 0.4800 Average : 0.3304 YTW SCENARIO |