The Fed held the line on policy rates today:
Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined; most 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 strengthen. 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 past declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
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.
This news, while expected, had immediate effect:
The dollar weakened, touching a 20-month low versus the yen, after the Federal Reserve held off on raising interest rates and suggested the pace of future increases will be slower than previously predicted.
The U.S. currency fell against most of its major peers as policy makers pared back rate-hike expectations, dimming the outlook for policy divergence from increased monetary stimulus in Europe and Japan. The number of officials who see just one increase in 2016 rose to six from one in the previous forecasting round in March, according to projections released by the Federal Open Market Committee.
Yellen is pointing at structural factors:
Yellen in the past has ascribed the low level of rates mainly to lingering headwinds from the financial crisis — tight mortgage credit, for instance — and suggested that they would dissipate over time.
On Wednesday, though, she also pointed to more permanent forces that could depress rates for longer, namely, slow productivity growth and aging societies, in the U.S. and throughout much of the world.
In a press conference after the Fed held policy steady, Yellen spoke of a sense that rates may be depressed by ”factors that are not going to be rapidly disappearing, but will be part of the new normal.”
The potential for Brexit was also mentioned:
Britain’s June 23 referendum on membership of the European Union was also “one of the uncertainties that we discussed and that factored into today’s decision,” Chair Janet Yellen said after the Federal Open Market Committee voted unanimously to leave rates steady at the end of a two-day meeting on Wednesday in Washington.
“It is a decision that could have consequences for economic and financial conditions in global financial markets,” she told a press conference following the meeting. “If it does so, it could have consequences in turn for the U.S. economic outlook that would be a factor in deciding on the appropriate path of policy.”
Fears of Brexit are so strong that the UK government it trotting out its mouthpieces to parrot the party line:
At first, Mark Carney seemed willing to leave the Brexit debate to others.
What followed instead was a bout of verbal intervention that made the Bank of England governor a target of ire by exit proponents and a key figure in the intensifying campaign for Britain to remain in the European Union.
And all this comes on the heels of increasingly negative Euro rates:
The yield on Germany’s 10-year government bund, Europe’s benchmark security, fell below zero for the first time on record, as investors’ seemingly insatiable demand for haven assets created another bond-market milestone.
The nation joined Japan and Switzerland in having 10-year bond yields of less than zero. The plunge in yields, which has been driven by European Central Bank’s policy of negative interest rates and asset purchases, has accelerated amid a weakening global economic outlook and as polls indicate the “Leave” campaign in Britain’s European Union referendum is gaining momentum.
…
The German 10-year securities join the more than 40 percent of the $6.4 trillion of euro-region debt that already has yields below zero, according to the Bloomberg Eurozone Sovereign Bond Index, meaning investors who buy the bonds now and hold its to maturity will receive less than they paid.
PerpetualDiscounts now yield 5.42%, equivalent to 7.05% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.85%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 320bp, a widening from the 310bp reported June 8.
| 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 | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4636 % | 1,645.6 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4636 % | 3,006.1 |
| Floater | 4.67 % | 4.65 % | 62,647 | 16.16 | 3 | 0.4636 % | 1,732.4 |
| OpRet | 4.87 % | -0.12 % | 41,351 | 0.08 | 1 | 0.0796 % | 2,831.3 |
| SplitShare | 4.88 % | 5.00 % | 87,455 | 4.67 | 7 | 0.2302 % | 3,340.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2302 % | 2,606.3 |
| Perpetual-Premium | 5.61 % | -0.06 % | 76,947 | 0.09 | 9 | -0.1259 % | 2,621.8 |
| Perpetual-Discount | 5.37 % | 5.42 % | 106,341 | 14.70 | 28 | -0.1376 % | 2,731.5 |
| FixedReset | 5.19 % | 4.59 % | 157,328 | 7.41 | 88 | -0.9482 % | 1,972.1 |
| Deemed-Retractible | 5.13 % | 5.42 % | 124,111 | 4.94 | 33 | -0.0379 % | 2,699.6 |
| FloatingReset | 3.16 % | 5.10 % | 26,815 | 5.21 | 17 | -0.8068 % | 2,097.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| CU.PR.C | FixedReset | -4.89 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 16.55 Evaluated at bid price : 16.55 Bid-YTW : 4.62 % |
| BNS.PR.F | FloatingReset | -3.69 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.01 Bid-YTW : 8.25 % |
| PWF.PR.P | FixedReset | -3.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 12.76 Evaluated at bid price : 12.76 Bid-YTW : 4.41 % |
| MFC.PR.K | FixedReset | -2.94 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.47 Bid-YTW : 8.05 % |
| RY.PR.M | FixedReset | -2.94 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.85 Evaluated at bid price : 18.85 Bid-YTW : 4.42 % |
| SLF.PR.I | FixedReset | -2.89 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.46 Bid-YTW : 7.60 % |
| RY.PR.J | FixedReset | -2.81 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 19.05 Evaluated at bid price : 19.05 Bid-YTW : 4.48 % |
| TRP.PR.D | FixedReset | -2.78 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 17.50 Evaluated at bid price : 17.50 Bid-YTW : 4.54 % |
| BAM.PR.X | FixedReset | -2.75 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 13.08 Evaluated at bid price : 13.08 Bid-YTW : 4.79 % |
| HSE.PR.E | FixedReset | -2.72 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 19.70 Evaluated at bid price : 19.70 Bid-YTW : 5.40 % |
| BAM.PF.A | FixedReset | -2.66 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.68 Evaluated at bid price : 18.68 Bid-YTW : 4.85 % |
| BAM.PF.B | FixedReset | -2.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 17.34 Evaluated at bid price : 17.34 Bid-YTW : 4.89 % |
| TRP.PR.E | FixedReset | -2.54 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.03 Evaluated at bid price : 18.03 Bid-YTW : 4.47 % |
| BAM.PF.G | FixedReset | -2.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 19.67 Evaluated at bid price : 19.67 Bid-YTW : 4.67 % |
| BAM.PF.E | FixedReset | -2.48 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.09 Evaluated at bid price : 18.09 Bid-YTW : 4.73 % |
| BAM.PR.T | FixedReset | -2.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 14.85 Evaluated at bid price : 14.85 Bid-YTW : 5.04 % |
| BAM.PF.F | FixedReset | -2.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 19.38 Evaluated at bid price : 19.38 Bid-YTW : 4.70 % |
| FTS.PR.M | FixedReset | -2.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 19.05 Evaluated at bid price : 19.05 Bid-YTW : 4.30 % |
| BAM.PR.Z | FixedReset | -2.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.39 Evaluated at bid price : 18.39 Bid-YTW : 5.01 % |
| MFC.PR.L | FixedReset | -2.15 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.20 Bid-YTW : 7.59 % |
| BAM.PR.R | FixedReset | -2.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 14.52 Evaluated at bid price : 14.52 Bid-YTW : 5.01 % |
| FTS.PR.K | FixedReset | -1.83 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 17.19 Evaluated at bid price : 17.19 Bid-YTW : 4.14 % |
| BMO.PR.R | FloatingReset | -1.83 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.50 Bid-YTW : 5.04 % |
| MFC.PR.J | FixedReset | -1.80 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.11 Bid-YTW : 7.11 % |
| BIP.PR.A | FixedReset | -1.66 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.94 Evaluated at bid price : 18.94 Bid-YTW : 5.61 % |
| FTS.PR.I | FloatingReset | -1.66 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 11.85 Evaluated at bid price : 11.85 Bid-YTW : 4.21 % |
| TRP.PR.B | FixedReset | -1.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 11.43 Evaluated at bid price : 11.43 Bid-YTW : 4.23 % |
| MFC.PR.M | FixedReset | -1.55 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.00 Bid-YTW : 7.19 % |
| NA.PR.S | FixedReset | -1.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.12 Evaluated at bid price : 18.12 Bid-YTW : 4.41 % |
| MFC.PR.N | FixedReset | -1.51 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.86 Bid-YTW : 7.24 % |
| MFC.PR.G | FixedReset | -1.40 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.03 Bid-YTW : 7.34 % |
| CM.PR.P | FixedReset | -1.35 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.31 Evaluated at bid price : 18.31 Bid-YTW : 4.17 % |
| MFC.PR.I | FixedReset | -1.33 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.00 Bid-YTW : 6.71 % |
| IFC.PR.A | FixedReset | -1.30 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.41 Bid-YTW : 10.33 % |
| TD.PF.B | FixedReset | -1.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.43 Evaluated at bid price : 18.43 Bid-YTW : 4.16 % |
| BNS.PR.B | FloatingReset | -1.25 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.38 Bid-YTW : 5.31 % |
| NA.PR.W | FixedReset | -1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 17.59 Evaluated at bid price : 17.59 Bid-YTW : 4.37 % |
| RY.PR.H | FixedReset | -1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.43 Evaluated at bid price : 18.43 Bid-YTW : 4.14 % |
| TRP.PR.G | FixedReset | -1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 19.02 Evaluated at bid price : 19.02 Bid-YTW : 4.79 % |
| BMO.PR.S | FixedReset | -1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.70 Evaluated at bid price : 18.70 Bid-YTW : 4.16 % |
| RY.PR.K | FloatingReset | -1.05 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.77 Bid-YTW : 5.10 % |
| RY.PR.Z | FixedReset | -1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.31 Evaluated at bid price : 18.31 Bid-YTW : 4.11 % |
| IAG.PR.G | FixedReset | -1.01 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.63 Bid-YTW : 6.89 % |
| CM.PR.O | FixedReset | -1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 18.72 Evaluated at bid price : 18.72 Bid-YTW : 4.18 % |
| BAM.PR.K | Floater | 1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 10.16 Evaluated at bid price : 10.16 Bid-YTW : 4.65 % |
| PVS.PR.E | SplitShare | 1.22 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-10-31 Maturity Price : 25.00 Evaluated at bid price : 24.85 Bid-YTW : 5.67 % |
| CCS.PR.C | Deemed-Retractible | 1.35 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.31 Bid-YTW : 6.02 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.M | Deemed-Retractible | 109,692 | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-07-27 Maturity Price : 25.00 Evaluated at bid price : 25.15 Bid-YTW : 4.22 % |
| NA.PR.A | FixedReset | 79,035 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-08-15 Maturity Price : 25.00 Evaluated at bid price : 25.47 Bid-YTW : 5.02 % |
| TD.PR.Y | FixedReset | 73,200 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.40 Bid-YTW : 4.25 % |
| RY.PR.J | FixedReset | 49,050 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-06-15 Maturity Price : 19.05 Evaluated at bid price : 19.05 Bid-YTW : 4.48 % |
| BMO.PR.M | FixedReset | 42,700 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.05 Bid-YTW : 4.33 % |
| TD.PF.G | FixedReset | 37,687 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-04-30 Maturity Price : 25.00 Evaluated at bid price : 26.26 Bid-YTW : 4.52 % |
| There were 29 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BNS.PR.F | FloatingReset | Quote: 18.01 – 19.39 Spot Rate : 1.3800 Average : 1.0619 YTW SCENARIO |
| HSE.PR.E | FixedReset | Quote: 19.70 – 20.44 Spot Rate : 0.7400 Average : 0.4562 YTW SCENARIO |
| CU.PR.C | FixedReset | Quote: 16.55 – 17.25 Spot Rate : 0.7000 Average : 0.4236 YTW SCENARIO |
| GWO.PR.L | Deemed-Retractible | Quote: 25.20 – 25.87 Spot Rate : 0.6700 Average : 0.4473 YTW SCENARIO |
| RY.PR.K | FloatingReset | Quote: 21.77 – 22.40 Spot Rate : 0.6300 Average : 0.4235 YTW SCENARIO |
| RY.PR.M | FixedReset | Quote: 18.85 – 19.40 Spot Rate : 0.5500 Average : 0.3522 YTW SCENARIO |
here we go again in the pref market, no liquidity and big down moves on volume. 5y holding just above record lows.