November 29, 2016

Here’s a minor milestone for US house prices:

U.S. home prices have climbed back above the record reached more than a decade ago, bringing to a close the worst period for the housing market since the Great Depression and stoking optimism for a more sustainable expansion.

The average home price for September was 0.1% above the July 2006 peak, according to the S&P CoreLogic Case-Shiller U.S. National Home Price index released Tuesday. As of the previous month’s reading of the Case-Shiller index, a widely used benchmark for U.S. housing, prices remained 0.1% below the July 2006 record.

Adjusted for inflation, the index still is about 16% below the 2006 high. Home prices jumped 5.5% over the past year.

Europe has some new refinements to the regulation of banks, including:

The new provision would create a new asset class of “non-preferred” senior debt that can be bailed in in resolution, after other capital instruments, but before other senior liabilities

Well, I suppose I sympathize with them, up to a point, for not wanting to officially call it “bail-in debt”, but “non-preferred senior debt” is not really all that good a name!

DBRS comments:

One version of this instrument is already in the final stages of legislation in France (see “DBRS: Rating the New French Senior Non-preferred Debt Instruments,” published on November 22, 2016). By introducing this instrument across Europe, the EC’s intention is to try to introduce greater harmonisation in the creditor hierarchy in Europe at a time when the regimes of different countries are diverging (e.g. the German subordination of existing traded senior debt which will be in place from January 2017).

In its recent commentary DBRS has already clarified that it intends to rate the French non-preferred senior debt instrument one notch below the bank’s Intrinsic Assessment (IA), based on the DBRS Criteria: Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities. At the same time, DBRS currently rates existing subordinated debt at European banks generally at one notch below the IA for dated subordinated debt and cumulative junior subordinated debt, but two notches below the IA for non-cumulative junior subordinated debt. However, given the increasing likelihood that all subordinated debt will be used to absorb losses alongside equity as the implementation of BRRD (Bank Recovery and Resolution Directive) evolves, DBRS expects to see negative rating pressure on the subordinated debt that is currently rated only 1 notch below the IA, and which is at the same level as potential future issuance of nonpreferred senior debt. One possible outcome of DBRS’s deliberations is that these instruments would be downgraded to the same level as existing non-cumulative junior debt (i.e. 2 notches below the IA).

These developments are currently restricted to Europe. DBRS does not see similar rating pressure on rated subordinated in the US, Canada or Asia, given the different regulatory regimes in these countries.

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 -0.3617 % 1,748.4
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.3617 % 3,193.9
Floater 4.29 % 4.45 % 47,706 16.44 4 -0.3617 % 1,840.7
OpRet 0.00 % 0.00 % 0 0.00 0 0.1128 % 2,920.9
SplitShare 4.84 % 4.45 % 50,991 4.34 6 0.1128 % 3,488.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1128 % 2,721.6
Perpetual-Premium 5.44 % 5.09 % 81,987 14.46 23 0.1434 % 2,656.9
Perpetual-Discount 5.39 % 5.40 % 94,098 14.79 15 0.0953 % 2,777.6
FixedReset 4.89 % 4.63 % 208,165 6.84 96 0.1761 % 2,090.7
Deemed-Retractible 5.15 % 5.52 % 137,381 6.42 32 -0.0986 % 2,753.5
FloatingReset 2.89 % 3.89 % 43,225 4.85 12 -0.1616 % 2,301.6
Performance Highlights
Issue Index Change Notes
SLF.PR.J FloatingReset -1.67 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.57
Bid-YTW : 10.32 %
BAM.PF.E FixedReset 1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 19.78
Evaluated at bid price : 19.78
Bid-YTW : 4.75 %
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 : 18.70
Bid-YTW : 7.80 %
SLF.PR.G FixedReset 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 14.50
Bid-YTW : 9.95 %
TRP.PR.B FixedReset 1.07 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 12.31
Evaluated at bid price : 12.31
Bid-YTW : 4.53 %
FTS.PR.K FixedReset 1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 17.43
Evaluated at bid price : 17.43
Bid-YTW : 4.52 %
BAM.PF.B FixedReset 1.14 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 18.61
Evaluated at bid price : 18.61
Bid-YTW : 5.04 %
MFC.PR.F FixedReset 1.28 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.50
Bid-YTW : 10.91 %
BAM.PR.X FixedReset 1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 14.99
Evaluated at bid price : 14.99
Bid-YTW : 4.80 %
GWO.PR.N FixedReset 1.55 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 13.72
Bid-YTW : 10.74 %
FTS.PR.G FixedReset 1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 17.75
Evaluated at bid price : 17.75
Bid-YTW : 4.49 %
BAM.PR.T FixedReset 3.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 17.00
Evaluated at bid price : 17.00
Bid-YTW : 4.97 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.K FixedReset 512,356 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 23.10
Evaluated at bid price : 24.90
Bid-YTW : 4.85 %
MFC.PR.R FixedReset 199,165 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.96
Bid-YTW : 4.90 %
BAM.PR.B Floater 125,018 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 10.76
Evaluated at bid price : 10.76
Bid-YTW : 4.45 %
RY.PR.L FixedReset 97,700 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.16
Bid-YTW : 3.81 %
TD.PF.H FixedReset 96,341 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-31
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : 4.63 %
TRP.PR.J FixedReset 94,741 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 25.96
Bid-YTW : 4.57 %
There were 62 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
IAG.PR.G FixedReset Quote: 19.81 – 20.15
Spot Rate : 0.3400
Average : 0.2214

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 19.81
Bid-YTW : 7.23 %

BMO.PR.M FixedReset Quote: 23.81 – 24.09
Spot Rate : 0.2800
Average : 0.1749

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.81
Bid-YTW : 3.93 %

FTS.PR.M FixedReset Quote: 19.30 – 19.60
Spot Rate : 0.3000
Average : 0.2012

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 19.30
Evaluated at bid price : 19.30
Bid-YTW : 4.63 %

NA.PR.W FixedReset Quote: 18.14 – 18.45
Spot Rate : 0.3100
Average : 0.2116

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 18.14
Evaluated at bid price : 18.14
Bid-YTW : 4.64 %

BAM.PR.R FixedReset Quote: 16.70 – 17.00
Spot Rate : 0.3000
Average : 0.2067

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 16.70
Evaluated at bid price : 16.70
Bid-YTW : 4.88 %

VNR.PR.A FixedReset Quote: 18.92 – 19.20
Spot Rate : 0.2800
Average : 0.1967

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2046-11-29
Maturity Price : 18.92
Evaluated at bid price : 18.92
Bid-YTW : 5.10 %

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