Years of back-door largesse are having an effect on Chicago’s municipal pension plan:
A plan to ease Chicago’s $20 billion public-worker pension deficit is illegal, an Illinois judge ruled, leaving the city vulnerable to another credit downgrade.
Immediately after the ruling, Standard & Poor’s said it would probably lower the city’s rating again if a solution isn’t found. S&P already cut Chicago’s rating earlier this month to BBB+, or three levels above junk.
The Illinois Constitution bars the diminishing of public pensions, state court judge Rita Novak ruled Friday. The Illinois Supreme Court in May killed similar changes to the state’s pension funds.
…
The pension system in Chicago is $20 billion short and is only 36 percent funded, compared with 61 percent in 2005.
It’s not just equities that are getting nailed:
A plunge in commodities is pushing investors to the sidelines as they look to sell their most vulnerable holdings, while treading cautiously around new offerings. With oil prices slumping below $48, energy bonds have lost 5.3 percent this month, and debt linked to metals and mining companies have handed lenders declines of more than 8 percent.
…
Leveraged loans, which are repaid before junk bonds, haven’t been immune to the turmoil. Prices of the debt have fallen to 94.5 cents on the dollar, the lowest since December, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index.
This provides some company for the loonie:
Bank of Canada Governor Stephen Poloz has sparked a fire sale on the Canadian dollar.
The currency plunged as much as 0.5 percent to C$1.3103 against its U.S. counterpart, the lowest on an intraday basis since September 2004. It fell after a private gauge of Chinese manufacturing dropped to the lowest in 15 months, signaling decreased commodities demand.
…
The Canadian currency fell 0.2 percent to C$1.3066 versus the U.S. dollar as of 11:57 a.m. in Toronto. That’s weaker than C$1.29, the median year-end estimate of analysts and strategists surveyed by Bloomberg. The loonie is poised for a 4.6 percent decline this month.Traders are still pricing in the chance of another interest-rate cut, though these expectations have moderated in the last week. Trading in overnight index swaps show an implied policy rate of 0.39 percent in six months, compared to the Bank of Canada’s current 0.5 percent, Bloomberg calculations show. Last week they were pricing a rate of 0.36 percent.
There will be a major new investment management firm in the States … led by Hillary Clinton! The firm’s gimmick will be an emphasis on long-term investment; I think the marketing slogan will be ‘Buy, Hold and Prosper’:
Hillary Clinton sharpened her criticism against what she sees as Wall Street excess by targeting investors who demand short-term corporate measures like share buybacks and dividends to pump up a company’s stock price.
“We need a new generation of committed, long-term investors to provide a counter-weight to the hit-and-run activists,” the Democratic presidential candidate said Friday in a speech at New York University’s Stern School of Business. She contrasted her favored approach with investors who agitate for immediate change “no matter how much it discourages and distracts management from pursuing strategies that would add the most long-term value.”
…
“Real value comes from long-term growth, not short-term profits,” said Clinton, 67. “It comes from building companies, not stripping them; from creating good jobs, not eliminating them; from seeing workers as assets to cultivate, not costs to be cut.”
…
Clinton is proposing that the top 43.4 percent tax rate on short-term capital gains be extended to apply to assets held for less than two years, compared with the current one-year threshold. Beyond that, she would implement a sliding scale of long-term capital gains rates, and taxpayers in the top bracket would have to keep holdings for at least six years to get today’s rate of 23.8 percent, which would remain the lowest available.
With a top investment manager like Clinton in charge, performance at this new firm is virtually certain to be better than that at all the firms run by dummies. Where do I send my money?
Geez, I haven’t mentioned drones since May 5; it’s a good thing there’s a Bloomberg piece on drone traffic control:
Google Inc., the company that brought order to the Internet, has set its sights on doing the same for the flocks of commercial drones expected to someday clog the skies.
The search-engine pioneer is joining some of the biggest companies in technology, communications and aviation — including Amazon.com Inc., Verizon Communications Inc. and Harris Corp. — in trying to create an air-traffic control system to prevent mid-air collisions.
But don’t expect a big federally operated network of control towers. The government hasn’t said who will run the system or how it will operate, and is asking for ideas.
…
At least 14 companies, including Google, Amazon, Verizon and Harris, have signed agreements with NASA to help devise the first air-traffic system to coordinate small, low-altitude drones, which the agency calls the Unmanned Aerial System Traffic Management. More than 100 other companies and universities have also expressed interest in the project, which will be needed before commercial drones can fly long distances to deliver goods, inspect power lines and survey crops.
…
PrecisionHawk, a Raleigh, North Carolina, drone company with about 100 employees, began developing its own drone traffic control system because the large agriculture and oil companies it flies for wanted something to keep tabs on unmanned flights. “Our clients need it,” Tyler Collins, the program’s director, said.In a recent demonstration over a North Carolina cattle farm, Collins and his team intentionally steered a quad-copter drone toward an imagined crop duster at work on an adjacent farm, the kind of hazardous scenario PrecisionHawk employees have seen in the real world.
Within seconds an alert popped up on the operator’s smartwatch: “WARNING, nearing no-fly zone.” When the operator ignored the warning, an autopilot took over and flew the whirring machine back to safety.
PrecisionHawk’s system can automatically block its drones from flying into danger, such as around airports and other aircraft. And it makes a drone’s real-time flight track available so others can stay away.
CU Inc., proud issuer of CIU.PR.A and CIU.PR.C, has announced:
it will issue $400,000,000 of 3.964% Debentures maturing on July 27, 2045, at a price of $100.00 to yield 3.964%. This issue was sold by BMO Nesbitt Burns Inc., RBC Dominion Securities Inc., TD Securities Inc., Scotia Capital Inc. and CIBC World Markets Inc. Proceeds from the issue will be used to finance capital expenditures, to repay existing indebtedness, and for other general corporate purposes of ATCO Electric Ltd. and ATCO Gas and Pipelines Ltd.
CIU.PR.A is a PerpetualDiscount yielding 5.11% at today’s bid price of 22.77; the interest-equivalent is 6.64%, a spread of 268bp over these new long bonds.
It was a poor day for the Canadian preferred share market, with PerpetualDiscounts flat, FixedResets down 40bp and DeemedRetractibles off 11bp. The Performance Highlights table is its usual exaggerated length. 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.B, which resets 2020-6-30 at +128, is bid at 14.98 to be $0.62 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.74 cheap at its bid price of 15.50.
Click for Big
Another good fit today!
Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 22.05 to be $0.18 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 22.00 to be $0.19 cheap.
Click for Big
The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 18.50 to be $0.88 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 22.10 and appears to be $1.12 rich.
Click for Big
FTS.PR.K, with a spread of +205bp, and bid at 21.10, looks $0.51 expensive and resets 2019-3-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 20.45 and is $0.66 cheap.
Click for Big
Investment-grade pairs predict an average three-month bill yield over the next five-odd years of 0.07%, with no outliers. There are two junk outliers, one above +1.00% and one below -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 | 0.0000 % | 2,113.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 3,696.0 |
| Floater | 3.47 % | 3.52 % | 60,052 | 18.47 | 3 | 0.0000 % | 2,247.2 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0535 % | 2,776.3 |
| SplitShare | 4.58 % | 4.93 % | 63,595 | 3.18 | 3 | 0.0535 % | 3,253.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0535 % | 2,538.6 |
| Perpetual-Premium | 5.53 % | 4.94 % | 70,321 | 2.27 | 13 | -0.0336 % | 2,506.9 |
| Perpetual-Discount | 5.31 % | 5.31 % | 92,888 | 14.90 | 23 | -0.0037 % | 2,677.6 |
| FixedReset | 4.63 % | 3.79 % | 213,536 | 16.11 | 88 | -0.3952 % | 2,274.3 |
| Deemed-Retractible | 5.05 % | 4.92 % | 106,941 | 3.30 | 34 | -0.1106 % | 2,611.6 |
| FloatingReset | 2.36 % | 3.06 % | 43,624 | 6.06 | 10 | -0.1553 % | 2,281.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| FTS.PR.G | FixedReset | -2.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 20.45 Evaluated at bid price : 20.45 Bid-YTW : 3.71 % |
| BAM.PR.Z | FixedReset | -2.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 22.53 Evaluated at bid price : 23.03 Bid-YTW : 4.14 % |
| ENB.PR.J | FixedReset | -2.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 18.55 Evaluated at bid price : 18.55 Bid-YTW : 4.79 % |
| HSE.PR.A | FixedReset | -2.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 15.81 Evaluated at bid price : 15.81 Bid-YTW : 4.02 % |
| BAM.PR.T | FixedReset | -2.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 18.89 Evaluated at bid price : 18.89 Bid-YTW : 4.22 % |
| FTS.PR.K | FixedReset | -1.86 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 21.10 Evaluated at bid price : 21.10 Bid-YTW : 3.57 % |
| TRP.PR.F | FloatingReset | -1.68 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 17.01 Evaluated at bid price : 17.01 Bid-YTW : 3.40 % |
| HSE.PR.E | FixedReset | -1.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 22.64 Evaluated at bid price : 23.65 Bid-YTW : 4.55 % |
| HSE.PR.C | FixedReset | -1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 21.94 Evaluated at bid price : 22.40 Bid-YTW : 4.47 % |
| ENB.PF.G | FixedReset | -1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 19.01 Evaluated at bid price : 19.01 Bid-YTW : 4.90 % |
| MFC.PR.K | FixedReset | -1.12 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.00 Bid-YTW : 4.90 % |
| ELF.PR.G | Perpetual-Discount | -1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 22.07 Evaluated at bid price : 22.30 Bid-YTW : 5.35 % |
| SLF.PR.J | FloatingReset | -1.08 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.42 Bid-YTW : 6.77 % |
| BMO.PR.S | FixedReset | -1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 22.33 Evaluated at bid price : 22.95 Bid-YTW : 3.50 % |
| CM.PR.Q | FixedReset | -1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 22.82 Evaluated at bid price : 24.11 Bid-YTW : 3.56 % |
| POW.PR.D | Perpetual-Discount | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 23.36 Evaluated at bid price : 23.65 Bid-YTW : 5.31 % |
| BAM.PR.M | Perpetual-Discount | 1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 21.18 Evaluated at bid price : 21.18 Bid-YTW : 5.67 % |
| BAM.PF.C | Perpetual-Discount | 1.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 21.31 Evaluated at bid price : 21.60 Bid-YTW : 5.66 % |
| BAM.PR.N | Perpetual-Discount | 2.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 21.50 Evaluated at bid price : 21.50 Bid-YTW : 5.59 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.B | FixedReset | 110,982 | TD crossed 99,200 at 14.90. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 14.98 Evaluated at bid price : 14.98 Bid-YTW : 3.40 % |
| TRP.PR.C | FixedReset | 105,026 | TD crossed 100,000 at 15.28. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 15.51 Evaluated at bid price : 15.51 Bid-YTW : 3.69 % |
| BAM.PF.F | FixedReset | 94,553 | Desjardins crossed 94,000 at 23.25. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 22.40 Evaluated at bid price : 23.12 Bid-YTW : 4.05 % |
| IFC.PR.A | FixedReset | 77,200 | Nesbitt crossed 67,500 at 18.65. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.44 Bid-YTW : 6.86 % |
| RY.PR.O | Perpetual-Discount | 70,078 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-07-24 Maturity Price : 24.12 Evaluated at bid price : 24.48 Bid-YTW : 5.02 % |
| RY.PR.A | Deemed-Retractible | 61,566 | RBC crossed 50,000 at 24.97. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-08-23 Maturity Price : 25.00 Evaluated at bid price : 24.92 Bid-YTW : 3.79 % |
| There were 25 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TRP.PR.B | FixedReset | Quote: 14.98 – 15.74 Spot Rate : 0.7600 Average : 0.4321 YTW SCENARIO |
| MFC.PR.L | FixedReset | Quote: 22.05 – 22.99 Spot Rate : 0.9400 Average : 0.7237 YTW SCENARIO |
| BAM.PR.N | Perpetual-Discount | Quote: 21.50 – 22.05 Spot Rate : 0.5500 Average : 0.3722 YTW SCENARIO |
| FTS.PR.G | FixedReset | Quote: 20.45 – 21.20 Spot Rate : 0.7500 Average : 0.5741 YTW SCENARIO |
| BAM.PR.Z | FixedReset | Quote: 23.03 – 23.59 Spot Rate : 0.5600 Average : 0.4147 YTW SCENARIO |
| CM.PR.Q | FixedReset | Quote: 24.11 – 24.75 Spot Rate : 0.6400 Average : 0.5014 YTW SCENARIO |
James, do you take into consideration a scenario where your assumption about insurance “deemed” retractable issues is incorrect? ie. that OFSI does not make the same ruling for insurance companies as for banks?
I’m asking because i’m wondering what your monthly recommendations would look like if you didn’t have “deemed maturities” for those issues, and simply assumed they are perpetual.
Thanks.
do you take into consideration a scenario where your assumption about insurance “deemed” retractable issues is incorrect?
No.
i’m wondering what your monthly recommendations would look like if you didn’t have “deemed maturities” for those issues,
Much the same. The system started liking unregulated low-spread FixedResets at about the same time it started liking the insurance low-spread FixedResets. This gave me some cold comfort during the period of gross underperformance!