While the Fed moves closer to an anti-inflationary rate hike – or so it is assumed! – China continues to be worried about deflation:
China’s consumer inflation waned in October while factory-gate deflation extended a record streak of negative readings, signaling policy makers may need to hit the gas again to ease deflationary pressures.
The consumer-price index rose 1.3 percent in October from a year earlier, according to the National Bureau of Statistics, missing the 1.5 percent median estimate in a Bloomberg survey and down from 1.6 percent in September. The producer-price index fell 5.9 percent, its 44th straight monthly decline.
The lingering deflation risks, along with weakening trade, open the door for additional stimulus as inflation remains about half the government’s target pace. The People’s Bank of China — which has cut interest rates six times in the past year — is seeking to stabilize the economy without fueling a renewed surge in debt.
…
Food prices rose 1.9 percent from a year earlier, from 2.7 percent in September. Non-food prices climbed 0.9 percent. Prices of consumer goods increased 1 percent, while services increased 1.9 percent, the data showed.The inflation reading follows a tepid trade report that suggested the world’s second-biggest economy isn’t likely to get a near-term boost from global demand. Overseas shipments dropped 6.9 percent in October in dollar terms while weaker demand for coal, iron and other commodities from declining heavy industries helped pushimports down 18.8 percent, leaving a recordtrade surplus of $61.6 billion.
China isn’t the only major economy battling lowflation. American consumers’ expectations for inflation three years ahead fell last month to the lowest level in records going back to June 2013, according to a monthly Federal Reserve Bank of New York survey released Monday.
The Bank of Japan last month blamed the slide in oil prices for its decision to postpone its time frame for reaching a 2 percent inflation target for the second time this year, while the Bank of England last week forecast that consumer-price growth will remain below 1 percent — less than half its target — until the second half of 2016. In the euro zone, inflation has averaged 1.2 percent in the four years since Mario Draghi took the helm of the European Central Bank in November 2011, according to Bloomberg calculations.
It will be recalled that China’s devaluation was characterized as ‘exporting deflation’; I guess they’d better export more!
Meanwhile, Treasuries continued to ease:
Treasuries haven’t had such an extended losing run since June 2013, as investors step up bets that the first Federal Reserve interest-rate increase in almost a decade will come this year.
U.S. sovereign debt retreated for a sixth day Monday, after Boston Fed President Eric Rosengren added his voice to the chorus of Fed officials saying liftoff could come at their Dec. 15-16 meeting. The yield on 10-year Treasury notes touched a three-month high of 2.37 percent that day. Futures put the odds for a rate rise by year-end at 68 percent, compared with a 50 percent probability at the end of last month.
Meanwhile the war on markets continues:
U.S. officials investigating the $12.8 trillion market for U.S. Treasuries are zeroing in on a practice of trading the debt before it’s issued, said a person familiar with the matter — spotlighting trades that several recent lawsuits allege are part of big banks’ efforts to rig Treasury markets.
Goldman Sachs Group Inc. tipped the government’s avenue of inquiry in a recent regulatory filing. In a standard passage about areas under regulatory scrutiny, the bank’s Nov. 2 disclosure included a handful of words that hadn’t appeared the previous quarter: “offering,” “auction” and “when-issued trading.” It was a reference, the person said, to a fresh line of exploration in the government’s broader, months-old investigation into Treasuries trading.
That shows officials’ interest in one of the least transparent corners of the world’s largest debt market. When-issued securities act as placeholders for bills, notes or bonds before they’re auctioned. The instruments change hands over the counter, with lifespans of just days. There’s scant public information on trading volumes or the market’s biggest players.
…
When debt sells for less than when-issued prices indicate, traders say the auction “tailed.” Auctions tailed more than half the time in every type of security except for the 10-year note between 2010 and 2014, a Cleveland pension fund alleged in a lawsuit against the 22 primary dealers filed Aug. 26 in Manhattan federal court. The chances that a supposedly predictive market would be so consistently off, in a direction that favors the people selling the security, is lower than 1 percent, the fund alleged.The banks selling when-issued securities are often the same ones that receive billions of dollars worth of client bids for those same auctions. That raises the concern — taken as a given in several of the recent suits — that information is being shared within and between banks.
It was a mixed, modestly negative, day for the Canadian preferred share market as buyers took a rest after Friday‘s exertions. PerpetualDiscounts gained 7bp, FixedResets were off 15bp and DeemedRetractibles were down 17bp. Beneath the veneer of calm, however, was a lot of churn, as illustrated by the Performance Highlights table. Volume was slightly 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 19.86 to be $0.66 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.75 cheap at its bid price of 14.05.
Click for Big
Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 20.82 to be 0.61 rich, while MFC.PR.F resetting at +141bp on 2016-6-19, is bid at 15.12 to be 0.63 cheap.
Click for Big
The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 16.97 to be $1.77 cheap. BAM.PF.E, resetting at +255bp on 2020-3-31 is bid at 21.00 and appears to be $0.88 rich.
Click for Big
FTS.PR.K, with a spread of +205bp, and bid at 20.28, looks $0.88 expensive and resets 2019-3-1. FTS.PR.H, with a spread of +145bp and resetting 2020-6-1, is bid at 15.01 and is $0.65 cheap.
Click for Big
Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.52%, with no outliers. There are three junk outliers above 0.00% and one below -2.00%.
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 | 4.27 % | 5.12 % | 27,904 | 17.69 | 1 | 0.0000 % | 1,819.2 |
| FixedFloater | 5.94 % | 5.19 % | 31,310 | 17.31 | 1 | 0.9464 % | 3,286.8 |
| Floater | 3.98 % | 4.01 % | 62,634 | 17.37 | 3 | 1.1925 % | 1,985.4 |
| OpRet | 4.85 % | 4.78 % | 34,596 | 0.78 | 1 | -0.1975 % | 2,712.1 |
| SplitShare | 4.75 % | 5.66 % | 152,742 | 4.38 | 5 | 0.1313 % | 3,197.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1313 % | 2,494.8 |
| Perpetual-Premium | 5.82 % | 3.30 % | 89,302 | 0.08 | 6 | -0.0530 % | 2,496.0 |
| Perpetual-Discount | 5.50 % | 5.60 % | 83,626 | 14.50 | 33 | 0.0657 % | 2,598.6 |
| FixedReset | 4.75 % | 4.45 % | 217,132 | 15.62 | 76 | -0.1505 % | 2,152.8 |
| Deemed-Retractible | 5.17 % | 5.16 % | 109,812 | 5.42 | 34 | -0.1746 % | 2,584.9 |
| FloatingReset | 2.54 % | 3.65 % | 54,935 | 5.80 | 10 | -0.2266 % | 2,210.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| IFC.PR.A | FixedReset | -4.46 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.72 Bid-YTW : 8.58 % |
| TRP.PR.D | FixedReset | -3.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 4.59 % |
| TRP.PR.C | FixedReset | -3.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 14.05 Evaluated at bid price : 14.05 Bid-YTW : 4.62 % |
| CU.PR.C | FixedReset | -2.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.07 Evaluated at bid price : 21.07 Bid-YTW : 4.14 % |
| FTS.PR.J | Perpetual-Discount | -1.94 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.98 Evaluated at bid price : 22.26 Bid-YTW : 5.42 % |
| MFC.PR.N | FixedReset | -1.94 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.28 Bid-YTW : 5.78 % |
| FTS.PR.F | Perpetual-Discount | -1.93 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 22.60 Evaluated at bid price : 22.85 Bid-YTW : 5.45 % |
| TRP.PR.G | FixedReset | -1.76 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.42 Evaluated at bid price : 21.71 Bid-YTW : 4.60 % |
| TD.PF.E | FixedReset | -1.74 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 22.34 Evaluated at bid price : 23.11 Bid-YTW : 4.14 % |
| IFC.PR.C | FixedReset | -1.47 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.10 Bid-YTW : 6.73 % |
| BAM.PF.E | FixedReset | -1.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 4.57 % |
| GWO.PR.G | Deemed-Retractible | -1.38 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.53 Bid-YTW : 6.17 % |
| GWO.PR.Q | Deemed-Retractible | -1.35 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.42 Bid-YTW : 6.18 % |
| TRP.PR.F | FloatingReset | -1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 15.09 Evaluated at bid price : 15.09 Bid-YTW : 3.88 % |
| MFC.PR.F | FixedReset | -1.24 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.12 Bid-YTW : 9.11 % |
| CM.PR.O | FixedReset | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.41 Evaluated at bid price : 20.41 Bid-YTW : 4.28 % |
| CM.PR.P | FixedReset | -1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 19.79 Evaluated at bid price : 19.79 Bid-YTW : 4.31 % |
| RY.PR.J | FixedReset | -1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.76 Evaluated at bid price : 22.15 Bid-YTW : 4.20 % |
| TRP.PR.A | FixedReset | -1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 16.96 Evaluated at bid price : 16.96 Bid-YTW : 4.52 % |
| BAM.PR.X | FixedReset | -1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 16.12 Evaluated at bid price : 16.12 Bid-YTW : 4.71 % |
| CU.PR.G | Perpetual-Discount | -1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.97 Evaluated at bid price : 20.97 Bid-YTW : 5.38 % |
| TD.PR.Y | FixedReset | -1.06 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.16 Bid-YTW : 3.78 % |
| MFC.PR.M | FixedReset | -1.03 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.16 Bid-YTW : 5.94 % |
| NA.PR.Q | FixedReset | -1.00 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.75 Bid-YTW : 3.77 % |
| MFC.PR.H | FixedReset | 1.04 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.30 Bid-YTW : 4.73 % |
| FTS.PR.K | FixedReset | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.28 Evaluated at bid price : 20.28 Bid-YTW : 4.07 % |
| BAM.PR.M | Perpetual-Discount | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.12 Evaluated at bid price : 21.12 Bid-YTW : 5.71 % |
| FTS.PR.G | FixedReset | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 19.65 Evaluated at bid price : 19.65 Bid-YTW : 4.24 % |
| BAM.PF.B | FixedReset | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.55 Evaluated at bid price : 20.55 Bid-YTW : 4.65 % |
| BMO.PR.S | FixedReset | 1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.56 Evaluated at bid price : 20.56 Bid-YTW : 4.25 % |
| BAM.PR.T | FixedReset | 1.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 18.21 Evaluated at bid price : 18.21 Bid-YTW : 4.81 % |
| BAM.PR.B | Floater | 1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 12.00 Evaluated at bid price : 12.00 Bid-YTW : 3.97 % |
| MFC.PR.I | FixedReset | 1.35 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.26 Bid-YTW : 5.07 % |
| CU.PR.H | Perpetual-Discount | 1.68 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 23.89 Evaluated at bid price : 24.25 Bid-YTW : 5.41 % |
| BIP.PR.A | FixedReset | 1.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 22.15 Evaluated at bid price : 22.75 Bid-YTW : 5.06 % |
| BAM.PF.C | Perpetual-Discount | 1.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.29 Evaluated at bid price : 21.29 Bid-YTW : 5.78 % |
| BNS.PR.A | FloatingReset | 1.92 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.35 Bid-YTW : 3.57 % |
| BAM.PR.K | Floater | 2.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 11.89 Evaluated at bid price : 11.89 Bid-YTW : 4.01 % |
| BAM.PF.D | Perpetual-Discount | 2.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.35 Evaluated at bid price : 21.66 Bid-YTW : 5.72 % |
| MFC.PR.J | FixedReset | 2.31 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.10 Bid-YTW : 5.47 % |
| HSE.PR.A | FixedReset | 3.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 15.13 Evaluated at bid price : 15.13 Bid-YTW : 4.73 % |
| BAM.PF.F | FixedReset | 4.23 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 21.98 Evaluated at bid price : 22.41 Bid-YTW : 4.52 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| HSE.PR.E | FixedReset | 93,750 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 22.17 Evaluated at bid price : 22.76 Bid-YTW : 5.06 % |
| SLF.PR.H | FixedReset | 72,486 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.01 Bid-YTW : 6.93 % |
| HSE.PR.A | FixedReset | 47,561 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 15.13 Evaluated at bid price : 15.13 Bid-YTW : 4.73 % |
| SLF.PR.J | FloatingReset | 37,851 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.10 Bid-YTW : 8.87 % |
| TRP.PR.D | FixedReset | 32,921 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 19.35 Evaluated at bid price : 19.35 Bid-YTW : 4.59 % |
| BMO.PR.T | FixedReset | 32,020 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-11-09 Maturity Price : 20.02 Evaluated at bid price : 20.02 Bid-YTW : 4.26 % |
| There were 27 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| SLF.PR.H | FixedReset | Quote: 19.01 – 19.73 Spot Rate : 0.7200 Average : 0.4529 YTW SCENARIO |
| BAM.PR.X | FixedReset | Quote: 16.12 – 16.83 Spot Rate : 0.7100 Average : 0.4602 YTW SCENARIO |
| POW.PR.G | Perpetual-Discount | Quote: 24.82 – 25.48 Spot Rate : 0.6600 Average : 0.4178 YTW SCENARIO |
| CU.PR.G | Perpetual-Discount | Quote: 20.97 – 21.50 Spot Rate : 0.5300 Average : 0.3262 YTW SCENARIO |
| CU.PR.D | Perpetual-Discount | Quote: 22.51 – 23.02 Spot Rate : 0.5100 Average : 0.3110 YTW SCENARIO |
| RY.PR.J | FixedReset | Quote: 22.15 – 22.62 Spot Rate : 0.4700 Average : 0.2749 YTW SCENARIO |