Today’s big new was the FOMC Release:
Information received since the Federal Open Market Committee met in January suggests that economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household spending has been increasing at a moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation picked up in recent months; however, it continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, global economic and financial developments continue to pose risks. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to monitor inflation developments closely.
Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.
…
Voting against the action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.
The press conference added a little colour:
“You have seen a shift this time, in most participants assessments of the appropriate path for policy,” Fed Chair Janet Yellen said at a press conference in Washington. “That largely reflects a somewhat slower projected path for global growth, for growth in the global economy outside the United States, and for some tightening in credit conditions in the form of an increase in spreads.”
Yields on Treasury securities fell following the Fed’s actions, with the rate on the 10-year note dropping to 1.91 percent at 4:25 p.m. in New York from 1.99 percent just before the announcement.
…
“The tone of the FOMC statement and accompanying economic projections was dovish,” Neil Dutta, head of U.S. economist at Renaissance Macro Research LLC in New York, said in a research note. The reference to global risks “pushes the Fed in the role of the world’s central bank. In this role, the Fed needs to let inflation in the U.S. surge to offset disinflation in the rest of the world.”
…
The median of Fed officials’ projections, known as the “dot plot,” saw the federal funds rate at 1.875 percent at the end of 2017, compared with 2.375 percent forecast in December. The end-2018 level fell to 3 percent, from 3.25 percent, with the longer-run projection at 3.25 percent, down from 3.5 percent.
And Brian Milner writes in the Globe:
The Fed expects the job market to continue strengthening, with unemployment sliding to 4.7 per cent by the end of this year and falling further in subsequent years. Yet, it has slightly lowered its outlook for both economic growth and inflation – expecting the latter to remain below the 2 per cent target through next year – and reduced its long-term rate forecast to 3.3 per cent from 3.5 per cent, which implies that we won’t be seeing an economic boom any time soon south of the border.
The Fed’s policy doves, led by Ms. Yellen, seem likely to hold sway, particularly now that inflation is expected to reach only 1.2 per cent this year, down from the Fed’s earlier forecast of 1.6. Gauged by Fed funds futures trading, the market is expecting the next modest hike in June and one more before the end of the year. But that is by no means a sure bet.
“Reduced uncertainty about global economic and financial developments or further meaningful gains in the labour market and core inflation, or some combination of all of these, would appear to be the necessary condition for the next normalization step,” Michael Gregory, deputy chief economist with BMO, said in a note.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 7bp, FixedResets up 10bp and DeemedRetractibles off 9bp. The Performance Highlights table shows churn. Volume was 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 17.23 to be $1.09 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.71 cheap at its bid price of 18.18.
Click for Big
Most expensive is MFC.PR.O, resetting at +497bp on 2021-6-19, bid at 25.39 to be 0.84 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 17.56 to be 1.44 cheap.
Click for Big
The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 14.25 to be $0.85 cheap. BAM.PF.E, resetting at +255 on 2020-3-31 is bid at 17.40 and appears to be $1.05 rich.
Click for Big
FTS.PR.K, with a spread of +205bp, and bid at 15.42 looks $0.61 expensive and resets 2019-3-1. FTS.PR.H, with a spread of +145bp and resetting 2020-6-1, is bid at 11.12 and is $0.52 cheap.
Click for Big
Investment-grade pairs predict an average three-month bill yield over the next five-odd years of -0.98%, with two outliers below -2.00% and one above 0.00%. There are four junk outliers above 0.00%.
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 | 5.01 % | 6.10 % | 11,506 | 16.54 | 1 | 6.4669 % | 1,563.4 |
| FixedFloater | 7.04 % | 6.18 % | 24,589 | 16.11 | 1 | 0.7463 % | 2,825.2 |
| Floater | 4.66 % | 4.82 % | 66,871 | 15.85 | 4 | 0.6200 % | 1,661.6 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2638 % | 2,766.4 |
| SplitShare | 4.81 % | 5.51 % | 71,958 | 1.65 | 7 | 0.2638 % | 3,237.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2638 % | 2,525.8 |
| Perpetual-Premium | 5.81 % | -0.06 % | 88,540 | 0.08 | 6 | -0.0462 % | 2,541.1 |
| Perpetual-Discount | 5.70 % | 5.76 % | 99,768 | 14.18 | 33 | 0.0685 % | 2,540.7 |
| FixedReset | 5.52 % | 5.23 % | 192,152 | 14.20 | 87 | 0.1002 % | 1,848.8 |
| Deemed-Retractible | 5.31 % | 5.64 % | 121,603 | 5.11 | 34 | -0.0877 % | 2,565.3 |
| FloatingReset | 3.14 % | 5.14 % | 40,494 | 5.42 | 16 | -0.0191 % | 1,977.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| VNR.PR.A | FixedReset | -2.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 16.90 Evaluated at bid price : 16.90 Bid-YTW : 5.55 % |
| TD.PF.D | FixedReset | -2.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 18.58 Evaluated at bid price : 18.58 Bid-YTW : 4.90 % |
| TD.PR.Z | FloatingReset | -2.19 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.57 Bid-YTW : 5.73 % |
| BAM.PF.C | Perpetual-Discount | -2.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 6.25 % |
| RY.PR.M | FixedReset | -2.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 17.86 Evaluated at bid price : 17.86 Bid-YTW : 4.90 % |
| BMO.PR.M | FixedReset | -1.74 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.19 Bid-YTW : 4.31 % |
| RY.PR.J | FixedReset | -1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 18.21 Evaluated at bid price : 18.21 Bid-YTW : 4.93 % |
| TRP.PR.E | FixedReset | -1.54 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 17.23 Evaluated at bid price : 17.23 Bid-YTW : 4.97 % |
| TRP.PR.A | FixedReset | -1.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 13.80 Evaluated at bid price : 13.80 Bid-YTW : 5.15 % |
| RY.PR.H | FixedReset | -1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 17.27 Evaluated at bid price : 17.27 Bid-YTW : 4.70 % |
| FTS.PR.M | FixedReset | -1.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 16.66 Evaluated at bid price : 16.66 Bid-YTW : 5.23 % |
| SLF.PR.J | FloatingReset | -1.06 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 12.10 Bid-YTW : 11.20 % |
| TRP.PR.G | FixedReset | 1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 18.18 Evaluated at bid price : 18.18 Bid-YTW : 5.23 % |
| BAM.PF.G | FixedReset | 1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 18.15 Evaluated at bid price : 18.15 Bid-YTW : 5.32 % |
| BAM.PR.B | Floater | 1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 9.80 Evaluated at bid price : 9.80 Bid-YTW : 4.82 % |
| BAM.PR.C | Floater | 1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 9.70 Evaluated at bid price : 9.70 Bid-YTW : 4.87 % |
| FTS.PR.F | Perpetual-Discount | 1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 22.00 Evaluated at bid price : 22.23 Bid-YTW : 5.55 % |
| TRP.PR.F | FloatingReset | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 11.91 Evaluated at bid price : 11.91 Bid-YTW : 5.02 % |
| BAM.PR.K | Floater | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 9.70 Evaluated at bid price : 9.70 Bid-YTW : 4.87 % |
| BAM.PR.R | FixedReset | 1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 14.25 Evaluated at bid price : 14.25 Bid-YTW : 5.47 % |
| W.PR.J | Perpetual-Discount | 1.22 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 22.93 Evaluated at bid price : 23.20 Bid-YTW : 6.14 % |
| TD.PR.S | FixedReset | 1.25 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.54 Bid-YTW : 4.03 % |
| TRP.PR.D | FixedReset | 1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 16.77 Evaluated at bid price : 16.77 Bid-YTW : 5.03 % |
| IAG.PR.A | Deemed-Retractible | 1.40 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.00 Bid-YTW : 7.07 % |
| NA.PR.S | FixedReset | 1.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 17.38 Evaluated at bid price : 17.38 Bid-YTW : 4.89 % |
| TRP.PR.I | FloatingReset | 1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 10.16 Evaluated at bid price : 10.16 Bid-YTW : 5.01 % |
| MFC.PR.F | FixedReset | 1.64 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 12.40 Bid-YTW : 11.44 % |
| NA.PR.W | FixedReset | 1.85 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 16.55 Evaluated at bid price : 16.55 Bid-YTW : 4.94 % |
| HSE.PR.G | FixedReset | 1.85 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 17.64 Evaluated at bid price : 17.64 Bid-YTW : 6.25 % |
| BAM.PR.X | FixedReset | 2.46 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 13.32 Evaluated at bid price : 13.32 Bid-YTW : 5.15 % |
| TRP.PR.B | FixedReset | 2.97 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 10.41 Evaluated at bid price : 10.41 Bid-YTW : 5.05 % |
| TRP.PR.C | FixedReset | 3.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 11.50 Evaluated at bid price : 11.50 Bid-YTW : 5.11 % |
| TRP.PR.H | FloatingReset | 5.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 9.21 Evaluated at bid price : 9.21 Bid-YTW : 4.75 % |
| BAM.PR.E | Ratchet | 6.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 25.00 Evaluated at bid price : 13.50 Bid-YTW : 6.10 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.G | FixedReset | 146,231 | Recent new issue. YTW SCENARIO Maturity Type : Call Maturity Date : 2021-07-25 Maturity Price : 25.00 Evaluated at bid price : 25.31 Bid-YTW : 5.27 % |
| TRP.PR.B | FixedReset | 112,564 | TD crossed 107,300 at 10.17. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 10.41 Evaluated at bid price : 10.41 Bid-YTW : 5.05 % |
| SLF.PR.A | Deemed-Retractible | 84,650 | Scotia crossed 64,100 at 21.80. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.64 Bid-YTW : 6.80 % |
| BNS.PR.A | FloatingReset | 76,029 | TD crossed 73,600 at 23.95. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.85 Bid-YTW : 3.36 % |
| GWO.PR.Q | Deemed-Retractible | 70,000 | Nesbitt crossed 65,000 at 22.76. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.60 Bid-YTW : 6.60 % |
| RY.PR.Z | FixedReset | 65,858 | RBC crossed 37,100 at 17.40, then another 20,000 at 17.50. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-03-16 Maturity Price : 17.50 Evaluated at bid price : 17.50 Bid-YTW : 4.59 % |
| There were 33 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| PWF.PR.O | Perpetual-Premium | Quote: 25.01 – 26.11 Spot Rate : 1.1000 Average : 0.6676 YTW SCENARIO |
| BAM.PF.C | Perpetual-Discount | Quote: 19.50 – 20.22 Spot Rate : 0.7200 Average : 0.4133 YTW SCENARIO |
| TD.PF.A | FixedReset | Quote: 17.30 – 18.10 Spot Rate : 0.8000 Average : 0.5117 YTW SCENARIO |
| TD.PR.Z | FloatingReset | Quote: 20.57 – 21.88 Spot Rate : 1.3100 Average : 1.0474 YTW SCENARIO |
| TRP.PR.E | FixedReset | Quote: 17.23 – 18.00 Spot Rate : 0.7700 Average : 0.5791 YTW SCENARIO |
| RY.PR.J | FixedReset | Quote: 18.21 – 18.60 Spot Rate : 0.3900 Average : 0.2626 YTW SCENARIO |