Assiduous Readers will remember that I have a long-standing concern about means-tested benefits and their cumulative effective marginal tax rate, which can be so high as to destroy any incentive for the recipient to earn any extra money at all. Bloomberg points out that there are also asset tests:
Susanne Brasset has $5 in her bank account. She’s scared to save more.
Brasset, a 39-year-old freelance photographer in Denver, has cerebral palsy, which limits her ability to work. To pay her bills, she relies on Social Security, which she gets because of her disability.
But the program monitors her bank accounts to make sure she’s not putting away too much money. With more than a few thousand in the bank, she’d be disqualified for the program, as well as for Medicaid and other crucial benefits. Unable to plan for the future, Brasset said her finances put her in a “constant state of anxiety and fear.”
“There’s more money I could be making,” she said. “But I’m discouraged by all the rules I need to adhere to.”
Brasset is caught in a bind familiar to many people with disabilities. Their well-being relies on government benefit programs, but these programs impose strict limits on how much recipients can earn and save. Rules intended to bar freeloaders end up keeping disabled people in a permanent state of poverty, unable to put money away for emergencies, retirement, and other life goals.
One of the basic precepts of foreign exchange markets is the concept of hedging. If you buy a ten-year forward contract on another currency, the rate will be determined by the spot rate as modified by the difference in the ten-year yields of government bonds in the two currencies. That’s the theory, anyway; in practice, the difference between the theoretical rate and the actual rate is the basis:
That quirk means the longstanding notion of the U.S. as a respite from negative yields in Japan and Europe is little more than an illusion. And with everyone from Jeffrey Gundlach to Bill Gross warning of a bubble in bonds, it could ultimately upend the record foreign demand for Treasuries, which has underpinned their seemingly unstoppable gains in recent years.
“People like a simple narrative,” said Jeffrey Rosenberg, the chief investment strategist for fixed income at BlackRock Inc., which oversees $4.6 trillion globally. “But there isn’t a free lunch. You can’t simply talk about yield differentials without talking about currency differentials.”
…
In a strange twist, the fact that yields on 10-year Treasuries are still way higher than those in Japan or Germany is part of the reason foreigners are having such a hard time actually profiting from the difference. Negative interest rates outside the U.S. have caused a surge in demand for dollars and dollar assets, pushing up the cost to get into and out of the greenback at the same exchange rate to levels rarely seen in the past.Ten-year yields in the U.S. are currently 0.23 percentage point below a basket of bonds from Australia, France, Germany, Italy, Japan, Spain and Switzerland on a hedged basis, versus 1.4 percentage points above on an unhedged basis, according to data compiled by BlackRock. At the start of the year, hedged Treasuries yielded over a half-percentage point more.
Click for Big
Click for Big
Georgi Kantchev, Christopher Whittall and Miho Inada write a good piece in the WSJ titled Are Negative Rates Backfiring? Here’s Some Early Evidence:
Recent economic data show consumers are saving more in Germany and Japan, and in Denmark, Switzerland and Sweden, three non-eurozone countries with negative rates, savings are at their highest since 1995, the year the Organization for Economic Cooperation and Development started collecting data on those countries. Companies in Europe, the Middle East, Africa and Japan also are holding on to more cash.
Economists point to a variety of other possible factors confounding central-bank policy: Low inflation has left consumers with more money to sock away; aging populations are naturally more inclined to save; central banks themselves may have failed to properly explain their actions.
But there is a growing suspicion that part of problem may be negative rates themselves. Some economists and bankers contend that negative rates communicate fear over the growth outlook and the central bank’s ability to manage it.
“People only borrow and spend more when they are confident about the future,” says Andrew Sheets, chief cross-asset strategist at Morgan Stanley. “But by going negative, into uncharted territory, the policy actually undermines confidence.”
When BC imposed its 15% tax on foreign real estate buyers, I think they did it with the deliberate intention of creating uncertainty – otherwise, they would have allowed deals struck in good faith prior to the deadline to close under the old rules. Now the chickens are looking for a place to roost:
At least 427 deals are likely to collapse due to the new measure, according to Dan Morrison, president of the Real Estate Board of Greater Vancouver, citing responses from 27 brokers to an e-mail inquiry. The group didn’t calculate the value of those sales, though they would be worth about C$404-million ($307-million) based on the average purchase by a foreign buyer of C$946,945.
That may just be the tip of the iceberg.
“It’s a domino effect,” said Elton Ash, Western Canada regional executive vice president for Re/Max Holdings Inc. Not only will foreign buyers be hit but also Canadians who had contracts to sell and had already put offers on their next house, he said. Morrison said the effects could take years to play out given some deals involve the sales of condos still being built.
…
The new tax violates several treaties and agreements that Canada holds with at least 28 other countries, including the U.S. under the North American Free Trade Agreement, according to Barry Appleton, managing partner of law firm Appleton & Associates, who specializes in international law and has launched claims in Canada under NAFTA.
| 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 | 0.5331 % | 1,701.7 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.5331 % | 3,108.7 |
| Floater | 4.83 % | 4.55 % | 82,986 | 16.15 | 4 | 0.5331 % | 1,791.6 |
| OpRet | 4.84 % | 1.76 % | 51,066 | 0.08 | 1 | 0.0396 % | 2,847.0 |
| SplitShare | 5.06 % | 4.84 % | 99,572 | 2.27 | 5 | 0.4075 % | 3,400.4 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4075 % | 2,653.1 |
| Perpetual-Premium | 5.41 % | -17.78 % | 76,070 | 0.09 | 12 | 0.2566 % | 2,722.8 |
| Perpetual-Discount | 5.09 % | 4.90 % | 106,436 | 14.91 | 26 | 0.5584 % | 2,918.4 |
| FixedReset | 4.86 % | 4.07 % | 149,471 | 7.15 | 89 | 0.8159 % | 2,093.7 |
| Deemed-Retractible | 4.94 % | 1.75 % | 118,160 | 0.09 | 32 | 0.3557 % | 2,820.2 |
| FloatingReset | 2.88 % | 4.08 % | 32,480 | 5.12 | 11 | 0.3993 % | 2,197.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BNS.PR.Q | FixedReset | 1.04 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.25 Bid-YTW : 3.49 % |
| ELF.PR.F | Perpetual-Discount | 1.04 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-07 Maturity Price : 25.00 Evaluated at bid price : 25.17 Bid-YTW : 0.90 % |
| FTS.PR.M | FixedReset | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 20.17 Evaluated at bid price : 20.17 Bid-YTW : 4.11 % |
| CU.PR.E | Perpetual-Discount | 1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 24.44 Evaluated at bid price : 24.92 Bid-YTW : 4.90 % |
| BNS.PR.Z | FixedReset | 1.08 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.57 Bid-YTW : 5.90 % |
| HSE.PR.G | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 20.83 Evaluated at bid price : 20.83 Bid-YTW : 5.14 % |
| BMO.PR.Y | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 21.31 Evaluated at bid price : 21.60 Bid-YTW : 3.93 % |
| BAM.PF.C | Perpetual-Discount | 1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 22.71 Evaluated at bid price : 23.05 Bid-YTW : 5.31 % |
| MFC.PR.J | FixedReset | 1.14 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.33 Bid-YTW : 6.37 % |
| TRP.PR.B | FixedReset | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 12.31 Evaluated at bid price : 12.31 Bid-YTW : 3.97 % |
| BIP.PR.A | FixedReset | 1.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 20.20 Evaluated at bid price : 20.20 Bid-YTW : 5.32 % |
| SLF.PR.H | FixedReset | 1.20 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.80 Bid-YTW : 8.32 % |
| BNS.PR.B | FloatingReset | 1.21 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.66 Bid-YTW : 4.06 % |
| CU.PR.D | Perpetual-Discount | 1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 24.41 Evaluated at bid price : 24.89 Bid-YTW : 4.90 % |
| BAM.PF.G | FixedReset | 1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 21.38 Evaluated at bid price : 21.70 Bid-YTW : 4.24 % |
| MFC.PR.F | FixedReset | 1.31 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.72 Bid-YTW : 9.18 % |
| TD.PF.E | FixedReset | 1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 21.88 Evaluated at bid price : 22.30 Bid-YTW : 3.93 % |
| BAM.PF.F | FixedReset | 1.38 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 21.28 Evaluated at bid price : 21.28 Bid-YTW : 4.32 % |
| MFC.PR.G | FixedReset | 1.44 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.45 Bid-YTW : 6.47 % |
| CU.PR.G | Perpetual-Discount | 1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 22.68 Evaluated at bid price : 23.00 Bid-YTW : 4.88 % |
| VNR.PR.A | FixedReset | 1.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 18.21 Evaluated at bid price : 18.21 Bid-YTW : 4.81 % |
| TRP.PR.G | FixedReset | 1.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 20.80 Evaluated at bid price : 20.80 Bid-YTW : 4.42 % |
| GWO.PR.M | Deemed-Retractible | 1.52 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2016-09-07 Maturity Price : 25.75 Evaluated at bid price : 27.40 Bid-YTW : -53.85 % |
| BMO.PR.S | FixedReset | 1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 3.85 % |
| IFC.PR.A | FixedReset | 1.62 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.64 Bid-YTW : 9.35 % |
| CU.PR.C | FixedReset | 1.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 18.35 Evaluated at bid price : 18.35 Bid-YTW : 4.14 % |
| TRP.PR.D | FixedReset | 1.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 17.96 Evaluated at bid price : 17.96 Bid-YTW : 4.38 % |
| BNS.PR.R | FixedReset | 1.69 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.68 Bid-YTW : 3.40 % |
| MFC.PR.I | FixedReset | 1.70 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.53 Bid-YTW : 5.80 % |
| NA.PR.W | FixedReset | 1.71 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 19.06 Evaluated at bid price : 19.06 Bid-YTW : 4.00 % |
| MFC.PR.L | FixedReset | 1.92 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.11 Bid-YTW : 7.05 % |
| PWF.PR.P | FixedReset | 1.99 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 13.85 Evaluated at bid price : 13.85 Bid-YTW : 4.04 % |
| NA.PR.S | FixedReset | 2.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 19.70 Evaluated at bid price : 19.70 Bid-YTW : 4.02 % |
| BAM.PR.X | FixedReset | 2.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 14.43 Evaluated at bid price : 14.43 Bid-YTW : 4.38 % |
| CU.PR.F | Perpetual-Discount | 2.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 22.67 Evaluated at bid price : 23.00 Bid-YTW : 4.88 % |
| BAM.PR.Z | FixedReset | 2.48 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 20.21 Evaluated at bid price : 20.21 Bid-YTW : 4.60 % |
| MFC.PR.H | FixedReset | 2.58 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.67 Bid-YTW : 5.28 % |
| TRP.PR.C | FixedReset | 2.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 13.34 Evaluated at bid price : 13.34 Bid-YTW : 4.09 % |
| TRP.PR.E | FixedReset | 2.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 19.09 Evaluated at bid price : 19.09 Bid-YTW : 4.17 % |
| MFC.PR.K | FixedReset | 2.71 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.55 Bid-YTW : 7.35 % |
| HSE.PR.C | FixedReset | 2.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 19.20 Evaluated at bid price : 19.20 Bid-YTW : 5.13 % |
| SLF.PR.I | FixedReset | 2.93 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.00 Bid-YTW : 6.61 % |
| SLF.PR.G | FixedReset | 3.69 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.90 Bid-YTW : 9.17 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BIP.PR.C | FixedReset | 245,823 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-09-30 Maturity Price : 25.00 Evaluated at bid price : 25.38 Bid-YTW : 5.07 % |
| RY.PR.R | FixedReset | 87,196 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-08-24 Maturity Price : 25.00 Evaluated at bid price : 27.00 Bid-YTW : 3.72 % |
| SLF.PR.J | FloatingReset | 82,390 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 13.21 Bid-YTW : 10.50 % |
| RY.PR.Z | FixedReset | 61,604 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 19.67 Evaluated at bid price : 19.67 Bid-YTW : 3.79 % |
| TRP.PR.E | FixedReset | 61,236 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2046-08-08 Maturity Price : 19.09 Evaluated at bid price : 19.09 Bid-YTW : 4.17 % |
| TRP.PR.J | FixedReset | 43,554 | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-05-31 Maturity Price : 25.00 Evaluated at bid price : 26.63 Bid-YTW : 4.26 % |
| There were 33 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| FTS.PR.G | FixedReset | Quote: 18.21 – 18.73 Spot Rate : 0.5200 Average : 0.3320 YTW SCENARIO |
| TD.PR.Z | FloatingReset | Quote: 22.40 – 22.69 Spot Rate : 0.2900 Average : 0.2117 YTW SCENARIO |
| GWO.PR.S | Deemed-Retractible | Quote: 26.01 – 26.30 Spot Rate : 0.2900 Average : 0.2262 YTW SCENARIO |
| RY.PR.O | Perpetual-Discount | Quote: 25.18 – 25.39 Spot Rate : 0.2100 Average : 0.1487 YTW SCENARIO |
| GWO.PR.G | Deemed-Retractible | Quote: 25.29 – 25.45 Spot Rate : 0.1600 Average : 0.1005 YTW SCENARIO |
| IAG.PR.G | FixedReset | Quote: 20.65 – 21.00 Spot Rate : 0.3500 Average : 0.2929 YTW SCENARIO |