Bloomberg reminds us that forecasting is hard:
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First National Financial Corporation, proud issuer of FN.PR.A, has been confirmed at Pfd-3 by DBRS:
DBRS Limited (DBRS) has today confirmed the Issuer Rating of First National Financial LP (FNFLP) at BBB, and the ratings for the Senior Unsecured Debt and Class A Preference Shares of First National Financial Corporation (FNFC; DBRS refers to FNFLP and FNFC together as First National or the Company) at BBB (low) and Pfd-3, respectively. The trend on these ratings is Stable. The rating actions follow a detailed review of the Company’s operating results, financial fundamentals and future prospects.
…
DBRS considers First National’s low risk balance sheet as a key factor supporting the ratings. DBRS notes that the Company’s direct credit exposure is limited to a $246 million mortgage investment portfolio (0.9% of total assets as of YE15) it holds on its balance sheet, mostly in commercial bridge lending. Historically, mortgages originated by First National have outperformed the industry with very low delinquency rates. DBRS sees sustaining this performance as critical to the Company’s business model and franchise. While low energy prices continue to be a headwind for the Canadian economy, the impact on the Canadian housing market has largely been regional to date, with some weakening of credit metrics in the western provinces.DBRS considers First National’s liquidity and funding to be appropriately managed and aligned with its assets. First National funds most of its MUA either through sales to institutional investors (63%) or by securitization (26%), with the remaining MUA mostly warehoused temporarily, awaiting sale or securitization. However, FNF does have some concentration risk, with 13.7% of placement fees and mortgage income being originated from one Canadian financial institution in 2015.
…
DBRS considers First National’s capital levels to be acceptable given the relatively low level of credit risk. At December 31, 2015, the Company’s tangible partner equity-to-tangible assets (excluding securitized mortgages) was 8.8%. However, given the high dividend payout ratio, organic capital generation has been constrained. DBRS would view improved capital retention favourably.
It was a modestly positive day for the Canadian preferred share market, with PerpetualDiscounts gaining 1bp, FixedResets up 11bp and DeemedRetractibles winning 18bp. The Performance Highlights table shows a fair amount of underlying churn. While overall volume was average, there was a lot of volume in the top issues.
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 17.50 to be $1.47 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.84 cheap at its bid price of 18.00.
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Most expensive is MFC.PR.N, resetting at +230bp on 2020-3-19, bid at 17.28 to be 0.78 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 17.61 to be 1.38 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 14.08 to be $1.00 cheap. BAM.PF.E, resetting at +255 on 2020-3-31 is bid at 17.40 and appears to be $1.04 rich.
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FTS.PR.K, with a spread of +205bp, and bid at 15.30 looks $0.48 expensive and resets 2019-3-1. FTS.PR.H, with a spread of +145bp and resetting 2020-6-1, is bid at 11.15 and is $0.53 cheap.
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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.93%, with two outliers below -2.00% and one above 0.00%. There is one junk outlier above 0.00%.
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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 | 5.33 % | 6.50 % | 11,976 | 16.07 | 1 | -2.4615 % | 1,468.4 |
| FixedFloater | 7.09 % | 6.23 % | 24,953 | 16.05 | 1 | 0.0000 % | 2,804.3 |
| Floater | 4.69 % | 4.87 % | 67,495 | 15.76 | 4 | -1.7065 % | 1,651.4 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0453 % | 2,759.1 |
| SplitShare | 4.83 % | 5.80 % | 71,928 | 1.65 | 7 | -0.0453 % | 3,228.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0453 % | 2,519.2 |
| Perpetual-Premium | 5.81 % | -0.25 % | 89,056 | 0.08 | 6 | 0.1323 % | 2,542.3 |
| Perpetual-Discount | 5.71 % | 5.75 % | 99,684 | 14.24 | 33 | 0.0055 % | 2,538.9 |
| FixedReset | 5.52 % | 5.23 % | 195,099 | 14.20 | 87 | 0.1115 % | 1,846.9 |
| Deemed-Retractible | 5.30 % | 5.49 % | 116,808 | 5.11 | 34 | 0.1846 % | 2,567.5 |
| FloatingReset | 3.14 % | 5.14 % | 38,499 | 5.43 | 16 | -0.2368 % | 1,978.3 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRP.PR.H | FloatingReset | -4.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 8.77 Evaluated at bid price : 8.77 Bid-YTW : 4.99 % |
| BAM.PR.K | Floater | -3.42 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 9.59 Evaluated at bid price : 9.59 Bid-YTW : 4.93 % |
| TRP.PR.B | FixedReset | -2.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 10.11 Evaluated at bid price : 10.11 Bid-YTW : 5.20 % |
| BAM.PR.E | Ratchet | -2.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 25.00 Evaluated at bid price : 12.68 Bid-YTW : 6.50 % |
| BAM.PR.B | Floater | -1.92 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 9.70 Evaluated at bid price : 9.70 Bid-YTW : 4.87 % |
| W.PR.J | Perpetual-Discount | -1.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 22.68 Evaluated at bid price : 22.92 Bid-YTW : 6.22 % |
| PWF.PR.T | FixedReset | -1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 19.06 Evaluated at bid price : 19.06 Bid-YTW : 4.43 % |
| SLF.PR.H | FixedReset | -1.55 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.26 Bid-YTW : 9.66 % |
| MFC.PR.L | FixedReset | -1.49 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.50 Bid-YTW : 9.06 % |
| BAM.PR.C | Floater | -1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 9.60 Evaluated at bid price : 9.60 Bid-YTW : 4.92 % |
| BAM.PF.G | FixedReset | -1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 17.97 Evaluated at bid price : 17.97 Bid-YTW : 5.37 % |
| TRP.PR.G | FixedReset | -1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 18.00 Evaluated at bid price : 18.00 Bid-YTW : 5.29 % |
| BAM.PF.F | FixedReset | -1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 17.99 Evaluated at bid price : 17.99 Bid-YTW : 5.34 % |
| HSE.PR.G | FixedReset | -1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 17.32 Evaluated at bid price : 17.32 Bid-YTW : 6.37 % |
| BNS.PR.F | FloatingReset | -1.13 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.51 Bid-YTW : 8.45 % |
| W.PR.H | Perpetual-Discount | -1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 22.64 Evaluated at bid price : 22.89 Bid-YTW : 6.11 % |
| RY.PR.W | Perpetual-Discount | -1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 23.04 Evaluated at bid price : 23.31 Bid-YTW : 5.29 % |
| NA.PR.S | FixedReset | -1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 17.12 Evaluated at bid price : 17.12 Bid-YTW : 4.96 % |
| TRP.PR.D | FixedReset | -1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 16.55 Evaluated at bid price : 16.55 Bid-YTW : 5.10 % |
| BMO.PR.R | FloatingReset | -1.00 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.70 Bid-YTW : 4.69 % |
| MFC.PR.M | FixedReset | 1.04 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.52 Bid-YTW : 8.40 % |
| SLF.PR.C | Deemed-Retractible | 1.09 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.34 Bid-YTW : 7.35 % |
| RY.PR.P | Perpetual-Discount | 1.11 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 24.20 Evaluated at bid price : 24.57 Bid-YTW : 5.38 % |
| PWF.PR.L | Perpetual-Discount | 1.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 22.29 Evaluated at bid price : 22.56 Bid-YTW : 5.72 % |
| SLF.PR.D | Deemed-Retractible | 1.20 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.27 Bid-YTW : 7.40 % |
| PWF.PR.K | Perpetual-Discount | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 21.66 Evaluated at bid price : 21.91 Bid-YTW : 5.72 % |
| BAM.PR.T | FixedReset | 1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 14.69 Evaluated at bid price : 14.69 Bid-YTW : 5.44 % |
| FTS.PR.G | FixedReset | 1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 15.35 Evaluated at bid price : 15.35 Bid-YTW : 5.03 % |
| SLF.PR.G | FixedReset | 1.52 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 13.40 Bid-YTW : 10.38 % |
| CM.PR.O | FixedReset | 1.66 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 17.79 Evaluated at bid price : 17.79 Bid-YTW : 4.67 % |
| BNS.PR.A | FloatingReset | 1.71 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.76 Bid-YTW : 3.43 % |
| TD.PF.D | FixedReset | 1.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 19.05 Evaluated at bid price : 19.05 Bid-YTW : 4.78 % |
| VNR.PR.A | FixedReset | 2.96 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 17.40 Evaluated at bid price : 17.40 Bid-YTW : 5.39 % |
| BAM.PF.B | FixedReset | 11.74 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 16.65 Evaluated at bid price : 16.65 Bid-YTW : 5.37 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.G | FixedReset | 216,325 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-07-25 Maturity Price : 25.00 Evaluated at bid price : 25.26 Bid-YTW : 5.31 % |
| FTS.PR.H | FixedReset | 138,200 | TD crossed 133,200 at 11.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 11.15 Evaluated at bid price : 11.15 Bid-YTW : 5.22 % |
| RY.PR.A | Deemed-Retractible | 135,534 | RBC crossed 129,500 at 24.00. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.04 Bid-YTW : 5.30 % |
| TRP.PR.E | FixedReset | 121,488 | Scotia crossed blocks of 100,000 and 17,800, both at 17.65. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 17.50 Evaluated at bid price : 17.50 Bid-YTW : 4.89 % |
| POW.PR.G | Perpetual-Discount | 117,124 | Nesbitt crossed 106,100 at 24.40. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 23.95 Evaluated at bid price : 24.42 Bid-YTW : 5.82 % |
| GWO.PR.P | Deemed-Retractible | 113,121 | Nesbitt crossed 107,700 at 23.68. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.67 Bid-YTW : 6.19 % |
| RY.PR.R | FixedReset | 112,597 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-08-24 Maturity Price : 25.00 Evaluated at bid price : 25.38 Bid-YTW : 5.24 % |
| BMO.PR.S | FixedReset | 112,126 | RBC crossed blocks of 55,700 and 53,800, both at 17.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 17.50 Evaluated at bid price : 17.50 Bid-YTW : 4.73 % |
| PWF.PR.P | FixedReset | 110,715 | Nesbitt crossed 104,700 at 12.04. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 12.00 Evaluated at bid price : 12.00 Bid-YTW : 5.01 % |
| RY.PR.L | FixedReset | 110,546 | RBC crossed 107,100 at 24.67. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.62 Bid-YTW : 4.24 % |
| RY.PR.H | FixedReset | 105,658 | RBC crossed 37,100 at 17.47 and 45,000 at 17.40. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-15 Maturity Price : 17.47 Evaluated at bid price : 17.47 Bid-YTW : 4.65 % |
| There were 32 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TD.PR.Z | FloatingReset | Quote: 21.03 – 22.01 Spot Rate : 0.9800 Average : 0.7594 YTW SCENARIO |
| BAM.PF.F | FixedReset | Quote: 17.99 – 18.60 Spot Rate : 0.6100 Average : 0.4247 YTW SCENARIO |
| TRP.PR.I | FloatingReset | Quote: 10.00 – 11.65 Spot Rate : 1.6500 Average : 1.4798 YTW SCENARIO |
| TRP.PR.H | FloatingReset | Quote: 8.77 – 9.29 Spot Rate : 0.5200 Average : 0.3800 YTW SCENARIO |
| RY.PR.W | Perpetual-Discount | Quote: 23.31 – 23.77 Spot Rate : 0.4600 Average : 0.3477 YTW SCENARIO |
| BAM.PR.E | Ratchet | Quote: 12.68 – 13.90 Spot Rate : 1.2200 Average : 1.1266 YTW SCENARIO |