There’s more handwringing about liquidity problems:
Matt King, Citigroup’s global head of credit strategy, believes Hotel Californias – credit investments where underlying liquidity will dry up quickly in the event of a sell-off – are everywhere in the current market. “… [A]lmost every institutional investor, in almost every market, seems worried about liquidity. Even if it’s here today, they fear it will be gone tomorrow. The growing frequency of ‘flash crashes’ and [similar but less severe] ‘air pockets’ – often without obvious cause – adds weight to their fears.”
Mr. King describes a number of reasons for these liquidity-driven bouts of volatility. These include the low trading volume for the underlying holdings of high-yield bond ETFs, regulations that limit market-making activities for major global banks and the huge global growth in open-ended mutual-fund investments. (Open-ended funds guarantee daily liquidity even if the fund holdings are illiquid and hard to sell.)
Above all, however, Mr. King singles out a familiar target.
“Central bank distortions have forced investors into positions they would not have held otherwise, and forced them to be the ‘same way round’ [similarly positioned in the market with overweights and underweights] to a much greater extent than previously …. Every so often, when they start to doubt their convictions, they find that the clearing price for risk as they try to reverse positions is nowhere near where they’d expected.”
There’s a scandal brewing:
Former Speaker of the U.S. House of Representatives Dennis Hastert was indicted by a federal grand jury on charges that he evaded currency-reporting requirements and lied to the FBI as part of a hush-money scheme.
Hastert, 73, withdrew $952,000 in small increments to avoid a requirement that banks report cash transactions exceeding $10,000, the U.S. Justice Department said Thursday. The withdrawals were part of a plan to give an individual who wasn’t named $3.5 million as a payoff to conceal “prior misconduct,” Chicago U.S. Attorney Zachary Fardon said in a statement.
Hastert, a Republican from Plano, Illinois, served in the House from 1987 to 2007. He became the chamber’s speaker — second in line of succession to the U.S. presidency — in 1999.
Starting in July 2012, Hastert began structuring withdrawals in increments of less than $10,000 to evade currency transaction reports, prosecutors said. Later, when questioned by agents of the Federal Bureau of Investigation, he told them he was keeping the cash, they said.
So it looks like ridiculously intrusive banking laws (and an FBI investigation of something that does not appear to be a crime!) seems to have caught another stupid person. Perhaps he can talk to Elliot Spitzer about his problems; but if he permitted himself to be blackmailed, there’s something really pathetic going on. But look at the indictment! Police snoopery run amok:
In approximately 2013, the Federal Bureau of Investigation and Internal Revenue Service, agencies within the executive branch of the Government of the United States, began investigating defendant JOHN DENNIS HASTERT’s cash withdrawals as possible structuring of currency transactions to evade the reporting requirements described above.
As of December 8, 2014, the following matters, among others, were material to the Federal Bureau of Investigation and Internal Revenue Service regarding possible structuring by defendant JOHN DENNIS HASTERT:
- i. Whether defendant JOHN DENNIS HASTERT was withdrawing less than $10,000 in cash at a time in order to evade currency transaction reporting requirements;
- ii. Whether defendant JOHN DENNIS HASTERT was using the cash he was withdrawing to cover up past misconduct;
- iii. Whether defendant JOHN DENNIS HASTERT was using the cash he was withdrawing for a criminal purpose;
- iv. Whether defendant JOHN DENNIS HASTERT was the victim of a criminal extortion related to, among other matters, his prior positions in government and was giving the cash to another individual as payment; and
- v. Whether defendant JOHN DENNIS HASTERT was using the cash for some other purpose, not related to a crime or past misconduct.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 6bp, FixedResets off 8bp and DeemedRetractibles up 29bp. Sun Life and Manulife DeemedRetractibles were notable winners in the Performance Highlights table. Volume was below 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 23.90 to be $1.07 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.66 cheap at its bid price of 24.95.
Click for Big
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.M, resetting at +236 on 2019-12-19, bid at 24.41 to be $0.52 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.05 to be $0.79 cheap.
Click for Big
The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 21.00 to be $0.51 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.71 and appears to be $0.43 rich.
Click for Big
FTS.PR.H, with a spread of +145bp, and bid at 16.31, looks $0.74 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.61 and is $0.30 rich.
Click for Big
Investment-grade pairs predict an average over the next five-odd years of about 0.50%, including the TRP.PR.A / TRP.PR.F at -0.09%. On the junk side, four pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -0.99%; AIM.PR.A / AIM.PR.B at -0.79%; BRF.PR.A / BRF.PR.B at -1.51%; and FFH.PR.C / FFH.PR.D at +1.00%.
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 | -0.9901 % | 2,256.3 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.9901 % | 3,945.1 |
| Floater | 3.22 % | 3.41 % | 52,188 | 18.66 | 4 | -0.9901 % | 2,398.6 |
| OpRet | 4.45 % | -11.04 % | 29,269 | 0.10 | 2 | -0.0198 % | 2,780.2 |
| SplitShare | 4.57 % | 4.48 % | 65,909 | 3.34 | 3 | 0.1605 % | 3,259.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0198 % | 2,542.2 |
| Perpetual-Premium | 5.46 % | 3.27 % | 61,233 | 0.42 | 18 | -0.0371 % | 2,518.3 |
| Perpetual-Discount | 5.08 % | 5.07 % | 118,162 | 15.38 | 15 | 0.0618 % | 2,768.4 |
| FixedReset | 4.44 % | 3.79 % | 269,590 | 16.43 | 86 | -0.0802 % | 2,397.7 |
| Deemed-Retractible | 4.96 % | 3.54 % | 107,199 | 0.73 | 34 | 0.2866 % | 2,638.3 |
| FloatingReset | 2.55 % | 2.88 % | 60,227 | 6.15 | 7 | -0.0767 % | 2,339.0 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.C | Floater | -2.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 14.55 Evaluated at bid price : 14.55 Bid-YTW : 3.46 % |
| BAM.PR.B | Floater | -2.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 14.75 Evaluated at bid price : 14.75 Bid-YTW : 3.41 % |
| ENB.PR.F | FixedReset | -2.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 19.10 Evaluated at bid price : 19.10 Bid-YTW : 4.78 % |
| FTS.PR.H | FixedReset | -2.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 16.31 Evaluated at bid price : 16.31 Bid-YTW : 3.86 % |
| BAM.PR.K | Floater | -1.88 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 14.65 Evaluated at bid price : 14.65 Bid-YTW : 3.44 % |
| ENB.PR.D | FixedReset | -1.68 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 18.68 Evaluated at bid price : 18.68 Bid-YTW : 4.72 % |
| MFC.PR.F | FixedReset | -1.53 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.00 Bid-YTW : 6.61 % |
| MFC.PR.L | FixedReset | -1.27 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.35 Bid-YTW : 4.35 % |
| TRP.PR.F | FloatingReset | -1.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 18.80 Evaluated at bid price : 18.80 Bid-YTW : 3.35 % |
| BAM.PR.R | FixedReset | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 4.19 % |
| BNS.PR.Z | FixedReset | -1.10 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.45 Bid-YTW : 3.65 % |
| SLF.PR.B | Deemed-Retractible | 1.05 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.10 Bid-YTW : 5.25 % |
| SLF.PR.A | Deemed-Retractible | 1.10 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.96 Bid-YTW : 5.28 % |
| SLF.PR.E | Deemed-Retractible | 1.11 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.80 Bid-YTW : 5.67 % |
| SLF.PR.C | Deemed-Retractible | 1.16 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.67 Bid-YTW : 5.69 % |
| MFC.PR.C | Deemed-Retractible | 1.27 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.07 Bid-YTW : 5.53 % |
| MFC.PR.B | Deemed-Retractible | 1.33 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.70 Bid-YTW : 5.34 % |
| ENB.PR.J | FixedReset | 1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 20.72 Evaluated at bid price : 20.72 Bid-YTW : 4.58 % |
| MFC.PR.N | FixedReset | 1.56 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.02 Bid-YTW : 4.07 % |
| PWF.PR.A | Floater | 1.98 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 18.05 Evaluated at bid price : 18.05 Bid-YTW : 2.78 % |
| SLF.PR.H | FixedReset | 2.72 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.25 Bid-YTW : 4.72 % |
| GWO.PR.N | FixedReset | 3.01 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.80 Bid-YTW : 6.65 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| RY.PR.M | FixedReset | 87,369 | Desjardins crossed 81,600 at 24.70. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 23.00 Evaluated at bid price : 24.62 Bid-YTW : 3.64 % |
| ENB.PR.Y | FixedReset | 83,504 | Scotia crossed 75,400 at 18.85. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 18.83 Evaluated at bid price : 18.83 Bid-YTW : 4.75 % |
| HSE.PR.A | FixedReset | 49,730 | TD crossed 40,000 at 17.15. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 17.12 Evaluated at bid price : 17.12 Bid-YTW : 4.23 % |
| HSE.PR.C | FixedReset | 47,415 | TD crossed 37,500 at 24.75. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-05-28 Maturity Price : 23.12 Evaluated at bid price : 24.80 Bid-YTW : 4.24 % |
| BNS.PR.R | FixedReset | 35,700 | Nesbitt crossed 20,000 at 25.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 3.21 % |
| BNS.PR.Z | FixedReset | 26,500 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.45 Bid-YTW : 3.65 % |
| There were 25 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TD.PF.B | FixedReset | Quote: 24.00 – 24.45 Spot Rate : 0.4500 Average : 0.3081 YTW SCENARIO |
| BNS.PR.Z | FixedReset | Quote: 23.45 – 23.83 Spot Rate : 0.3800 Average : 0.2391 YTW SCENARIO |
| TRP.PR.F | FloatingReset | Quote: 18.80 – 19.28 Spot Rate : 0.4800 Average : 0.3469 YTW SCENARIO |
| FTS.PR.H | FixedReset | Quote: 16.31 – 16.65 Spot Rate : 0.3400 Average : 0.2256 YTW SCENARIO |
| BAM.PF.A | FixedReset | Quote: 24.51 – 24.79 Spot Rate : 0.2800 Average : 0.1730 YTW SCENARIO |
| BNS.PR.Y | FixedReset | Quote: 23.21 – 23.50 Spot Rate : 0.2900 Average : 0.1875 YTW SCENARIO |