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I just noticed we’ve passed a milestone of sorts … both today and 2017-10-4, the “Median Duration-to-Worst” of the FixedReset subindex is less than 5, indicating that the average (see note, below) investment-grade FixedReset will now be called in the worst-case scenario … for a long time it has been insurance sector “Deemed Retractions” that have been medians. October 4 was the first time since November 28, 2014 that this has happened … it will be remembered that although December 1, 2014 was only a moderately negative day, but it was shortly followed by the reset of TRP.PR.A TO 3.266%. This reset was a wake-up call for the (surprisingly many) who hadn’t been paying attention to projected reset rates and I consider this to be the start of the bear market that reached its nadir in February 2016.

So in honour of this momentous event, let’s republish the chart showing the “Rolling 114 Month Cumulative Return”, with its commentary:

When I wrote eMail To A Client towards the end of July, one had to go back to January, 2011, to find a starting point that would give you a positive return through the holding period. As of the end of September, the required starting point moved back again, to July month-end, 2010. The debacle of the last two months, in which the BMO-CM index lost another 12.66% has extended this period to ludicrous lengths: the total cumulative return since August 31, 2006, a period of nine-and-a-half years, is now a mere 0.73%. And note the word cumulative. I don’t mean annualized. Cumulative.

The current 114-month total cumulative return of basically zero was not exceeded during the Credit Crunch. Neither was the current 12-month total return of -22.09%, since the worst 12-month cumulative return prior to this was for the year ending November 28, 2008, for which the total return was a relatively healthy -20.93%. The discussion in eMail To A Client still applies … but more so, now!

Click for Big

… and update it with the nineteen months of returns since then …

Click for Big

Looks a little better now, eh?

*Note that medians are calculated by weight, not by count, so that if you have an index that is comprised of one issue with a weight of 60% and 40 issues with a weight of 1% each, any median measured will take its value from the big issue. The median issue for the duration calculation is NA.PR.C, which is presumed by the YTW calculation to be called on economic grounds; it is ranked #47 in order of ascending Modified Duration – YTW. Of the 46 issues with a lower calculated Modified Duration – YTW:

This entry was posted on Friday, October 6th, 2017 at 10:44 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.